<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1999
REGISTRATION NO. 333-89813
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
HOTJOBS.COM, LTD.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 7361 13-3931821
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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24 WEST 40TH STREET, 14(TH) FLOOR
NEW YORK, NEW YORK 10018
(212) 302-0060
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
MR. RICHARD S. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HOTJOBS.COM, LTD.
24 WEST 40TH STREET, 14(TH) FLOOR
NEW YORK, NEW YORK 10018
(212) 302-0060
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. ANDREW M. TUCKER, ESQ.
BROBECK, PHLEGER & HARRISON LLP SHAW PITTMAN
1633 BROADWAY, 47TH FLOOR 1676 INTERNATIONAL DRIVE
NEW YORK, NY 10019 MCLEAN, VA 22102
(212) 581-1600 (703) 790-7900
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
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 SECTION 8(A), MAY
DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK OFFERS TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1999
[LOGO]
3,000,000 SHARES
COMMON STOCK
We are offering 3,000,000 shares of common stock.
Our common stock is quoted on the Nasdaq National Market under the symbol
HOTJ. On October 26, 1999, the last reported sale price of our common stock
was $25.00 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS,
UNDERWRITING BEFORE
PRICE TO DISCOUNTS AND EXPENSES,
PUBLIC COMMISSIONS TO HOTJOBS
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
The underwriters may also purchase from HotJobs.com up to an additional
450,000 shares of common stock within 30 days from the date of this prospectus
to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
SG COWEN
THOMAS WEISEL PARTNERS LLC
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
INSIDE FRONT COVER - ARTWORK
Text: HotJobs.com is an Internet employment exchange. By preventing headhunters
from using our system, www.hotjobs.com provides an uncluttered direct connection
between employers and job seeking professionals. Privacy and control features
for the 'casual job seeker' and back-end functionality for the busy corporate
recruiter increase recruiting efficiency and lower cost.
Graphic: Home page screen shot of www.hotjobs.com.
Text: Softshoe is a web-based, enterprise-wide application designed to manage
and streamline a company's entire recruitment process from job creation to
completed hire.
Graphic: Home page screen shot of www.softshoe.com.
Text: WorkWorld career expos, our local, highly targeted, physical job fairs,
are fully integrated into the www.hotjobs.com system.
Graphic: Home page screen shot of www.workworld.com.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF PURCHASING
OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." REFERENCES IN THIS PROSPECTUS
TO "WE," "OUR" AND "US" REFER TO HOTJOBS.COM, LTD.
HOTJOBS.COM, LTD.
OUR BUSINESS
We are a leading Internet-based recruiting solutions company. Our suite of
services leverages the Internet to provide a direct exchange of information
between job seekers and employers. We developed these services based on our
experience in the recruiting industry and our in-depth understanding of the
needs of job seekers and employers. By solving many of the problems associated
with traditional recruiting methods, we allow employers to more effectively
manage their recruiting processes to save time and money. According to an August
1999 survey conducted by Opinion Research Corporation International, HotJobs.com
was the sixth most-recognized e-commerce brand among U.S. adults. Over 2,500
member employers with more than 3,000 recruiter Web stations subscribe to our
online employment exchange, WWW.HOTJOBS.COM. Our member employers include:
Amazon.com, Inc., America Online, Inc., CNBC, Drugstore.com, Inc.,
Hewlett-Packard Company, The Home Depot, Inc., Intel Corporation, Merck & Co.,
Inc., Microsoft Corporation, Nike, Inc. and The Walt Disney Company.
The majority of our revenues are recurring and are primarily derived from
employer memberships to our online employment exchange, WWW.HOTJOBS.COM. Our
employment exchange allows member employers to access our database of over
540,000 job seekers and provides member employers with the tools to post, track
and manage job openings in a real-time environment. We allow job seekers to
identify, research, apply to and evaluate job opportunities, while enabling them
to prevent unwanted access to their resumes. Headhunters are prohibited from
using our employment exchange, ensuring direct contact between job seekers and
member employers.
We also provide employers with additional recruiting solutions such as our
proprietary Softshoe recruiting software, our WorkWorld job fairs and online
advertising and consulting services. Softshoe is a private label job board and
applicant tracking system that enables companies to define, manage and analyze
their recruiting practices and share relevant recruiting information across
their organizations. Our Softshoe customers include: Coors Brewing Company,
DoubleClick, Inc., Ford Motor Company, Humana Inc., Lucent Technologies, Inc.,
Merrill Lynch, Pierce, Fenner & Smith, Inc. and Tricon Global Restaurants, Inc.
Our WorkWorld job fairs integrate with WWW.HOTJOBS.COM, enabling job seekers and
employers to interact online in addition to providing direct physical
interaction at the job fair.
Revenues from our services have grown rapidly, primarily driven by increased
employer memberships to our WWW.HOTJOBS.COM employment exchange. Our revenues
increased from approximately $397,000 for the period ended December 31, 1997, to
approximately $3.5 million for the fiscal year ended December 31, 1998. Our
revenues for the nine months ended September 30, 1999 were approximately
$12.1 million.
OUR MARKET OPPORTUNITY
According to industry sources, businesses in the U.S. spent in excess of
$13 billion in 1997 to hire new employees by advertising job openings in
newspapers and by hiring headhunters.
1
<PAGE>
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. Prior to the advent of the Internet,
companies relied on traditional recruiting methods including newspaper
advertisements and headhunters. The emergence of the Internet has created an
opportunity to connect job seekers and employers more efficiently and cost
effectively when compared to traditional recruiting methods. We believe that
most of the advantages offered by Internet technology have not been fully
applied to the recruiting market. We believe that an opportunity exists for
HotJobs.com to become the leader in online recruiting solutions.
OUR SOLUTION
We believe that traditional recruiting methods are expensive and relatively
slow, and that our solution is more comprehensive and efficient than other
online recruiting services. Our solution:
- offers job seekers, free of charge, detailed and current information on a
large and growing list of employers and job openings and value-added tools
to help job seekers plan, execute, monitor and control their job searches;
- ensures privacy by allowing job seekers to restrict employers from
reviewing their resumes;
- excludes headhunters to ensure a direct exchange of information between
job seekers and employers;
- combines our WWW.HOTJOBS.COM employment exchange, Softshoe recruiting
software and WorkWorld job fairs to enable employers to reach job seekers
through multiple channels; and
- offers employers workflow management tools to streamline the recruiting
process.
OUR STRATEGY
Our objective is to become the leading provider of online recruiting
services worldwide. Key elements of our strategy include:
- build global brand awareness;
- accelerate new subscriber growth;
- continue to enhance site functionality and features;
- expand our relationship with employers;
- provide additional career channels in specific fields;
- expand international operations; and
- pursue strategic acquisitions.
RECENT DEVELOPMENTS
On October 21, 1999, we announced our unaudited results for the three months
ended September 30, 1999. Revenues for that period increased to $5.6 million, a
393% increase over our revenues of $1.1 million for the three months ended
September 30, 1998, and a 49% increase over our revenues of $3.8 million for the
three months ended June 30, 1999. Revenues for the nine months ended
September 30, 1999 increased to $12.1 million, a 441% increase over our revenues
of $2.2 million for the corresponding period in 1998.
2
<PAGE>
For the three months ended September 30, 1999, our net loss was
$7.9 million as compared to a net loss of $281,000 for the corresponding period
in 1998. Our pro forma net loss for the three months ended September 30, 1999
was $0.28 per basic and diluted share, excluding the effects of a non-cash
compensation charge and a non-cash beneficial conversion feature related to the
issuance of our Series A Preferred Stock in May 1999, compared to a net loss of
$0.01 per share for the corresponding period in 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Our
pro forma net loss for the nine months ended September 30, 1999 was $0.54 per
basic and diluted share, excluding the effects of the non-cash compensation
charge and the beneficial conversion feature, compared to a net loss of $0.06
per share for the corresponding period in 1998.
Our net loss for the three months ended September 30, 1999 was $1.00 per
basic and diluted share, compared to a net loss per share of $0.01 for the
corresponding period in 1998. We reported a net loss for the nine months ended
September 30, 1999 of $1.37 per basic and diluted share, compared to a net loss
per share of $0.06 for the corresponding period in 1998. The reported net loss
per basic and diluted share in 1999 includes the effects of the non-cash
compensation charge and the non-cash beneficial conversion feature described
above.
CORPORATE INFORMATION
We were incorporated in Delaware on February 20, 1997 as Hot Jobs, Inc. We
changed our name to HotJobs.com, Ltd. on September 23, 1998. Our principal
executive offices are located at 24 West 40th Street, 14th Floor, New York, New
York 10018. Our telephone number at that location is (212) 302-0060 and our
Website address is WWW.HOTJOBS.COM. INFORMATION CONTAINED ON OUR WEBSITE DOES
NOT CONSTITUTE PART OF THIS PROSPECTUS.
3
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by us................... 3,000,000 shares
Common stock to be outstanding after the
offering................................... 30,248,419 shares
Use of proceeds.............................. For general corporate purposes, including increasing
our sales and marketing efforts; developing our
infrastructure, products and services; obtaining
additional office space; hiring additional personnel;
and possible acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol................ HOTJ
</TABLE>
The foregoing information is based on the shares outstanding as of
September 30, 1999. The total number of shares that we assume will be
outstanding after the offering:
- excludes 2,657,000 shares reserved for future grants under our 1999 Stock
Option/Stock Issuance Plan;
- excludes 250,000 shares reserved for future issuances under our Employee
Stock Purchase Plan; and
- excludes 5,785,200 shares of common stock issuable at a weighted average
exercise price of approximately $3.37 per share upon exercise of stock
options outstanding at September 30, 1999, 3,150,300 of which are
currently exercisable.
See "Capitalization" for information with respect to our capitalization as
of June 30, 1999, our pro forma financial information and our pro forma
financial information as adjusted to reflect our capitalization after this
offering.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE COMPLETION OF A 24-FOR-ONE STOCK SPLIT IN CONNECTION WITH OUR INITIAL
PUBLIC OFFERING; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
Softshoe-Registered Trademark- is a registered trademark of
HotJobs.com, Ltd. Each trademark, trade name or service mark of any other
company appearing in this prospectus belongs to its holder.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth certain summary financial data for
HotJobs.com. You should read this information together with the financial
statements and the notes to those statements appearing elsewhere in this
prospectus and the information under "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1997 (INCEPTION) SIX MONTHS ENDED
TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
---------------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service fees.............................. $ 361 $ 3,038 $ 974 $ 4,805
Software license fees..................... 23 225 96 161
Job fair fees............................. -- -- -- 530
Other..................................... 13 249 20 938
----------- ----------- ------------ -----------
Total revenues........................ 397 3,512 1,090 6,434
Cost of revenues........................... 12 505 167 1,232
----------- ----------- ------------ -----------
Gross profit.......................... 385 3,007 923 5,202
Operating expenses:
Product development....................... 174 474 202 344
Sales and marketing....................... 431 3,085 1,153 7,260
General and administrative................ 725 1,642 554 2,494
Non-cash compensation..................... -- -- -- 165
----------- ----------- ------------ -----------
Total operating expenses.............. 1,330 5,201 1,909 10,263
----------- ----------- ------------ -----------
Loss from operations................ (945) (2,194) (986) (5,061)
Net interest expense....................... -- (63) (12) (55)
----------- ----------- ------------ -----------
Net loss............................ $ (945) $ (2,257) $ (998) $ (5,116)
=========== =========== ============ ===========
Deemed dividend attributable to issuance of
convertible preferred stock............... -- -- -- 566
----------- ----------- ------------ -----------
Net loss attributable to common
stockholders.............................. $ (945) $ (2,257) $ (998) $ (5,682)
=========== =========== ============ ===========
Basic and diluted net loss per common
share..................................... $ (0.04) $ (0.11) $ (0.05) $ (0.28)
=========== =========== ============ ===========
Weighted average shares outstanding used in
basic and diluted net loss per common
share calculation......................... 21,300,000 21,044,184 21,224,840 20,223,315
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
-------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,181 $32,463 $102,826
Working capital........................................... 6,555 29,837 100,200
Total assets.............................................. 15,703 38,985 109,348
Obligations under capital leases, excluding current
installments............................................ 320 320 320
Total stockholders' equity................................ 7,706 31,554 101,917
</TABLE>
- --------------------------
(1) Pro forma information gives effect to the automatic conversion of all of the
outstanding Series A Preferred Stock into 3,934,019 shares of common stock
in connection with our initial public offering and our sale of
3,350,000 shares of common stock in our initial public offering.
(2) Pro forma as adjusted information gives effect to our sale of 3,000,000
shares in this offering at an assumed public offering price of $25.00 per
share, based on the last reported sales price of our common stock on the
Nasdaq National Market on October 26, 1999, less the underwriters' discounts
and commissions and estimated expenses of the offering.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO BUY OUR
COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THIS CASE,
THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART
OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
WE HAVE A LIMITED OPERATING HISTORY SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE
AN INVESTMENT IN OUR COMPANY.
We were incorporated and began generating revenues in February 1997.
Accordingly, we have only a limited operating history for you to evaluate an
investment in our company. As a new company, we face risks and uncertainties
relating to our ability to successfully implement our strategy. You must
consider the risks, expenses and uncertainties that an early stage company like
ours faces. If we cannot address these risks and uncertainties or are unable to
execute our strategy, our company may not be successful, which could reduce the
value of your investment.
WE HAVE NOT BEEN PROFITABLE, AND WE EXPECT OUR LOSSES TO CONTINUE.
We have never been profitable. If our revenues grow at a slower rate than we
anticipate, or if our spending levels exceed our expectations or cannot be
adjusted to reflect slower revenue growth, we may not generate sufficient
revenues to achieve or sustain profitability. In this case, the value of your
investment could be reduced. For the year ended December 31, 1998, we incurred
net losses from operations of approximately $2.2 million. For the six months
ended June 30, 1999, we incurred net losses from operations of approximately
$5.1 million. As of June 30, 1999, we had an accumulated deficit of
approximately $8.3 million. We expect to continue to lose money in the
foreseeable future because we anticipate incurring significant expenses in
connection with building awareness of HotJobs.com and improving our products and
services. We forecast our future expense levels based on our operating plans and
our estimates of future revenues. We may find it necessary to accelerate
expenditures relating to our sales and marketing, and products and technology
efforts or to otherwise increase our financial commitment to creating and
maintaining brand awareness or developing our products.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
FLUCTUATIONS IN OUR OPERATING RESULTS OR THE FAILURE OF OUR OPERATING RESULTS TO
MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS MAY NEGATIVELY
IMPACT OUR STOCK PRICE.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. Fluctuations in our quarterly operating results could
cause our stock price to decline.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Factors that may affect our
quarterly results include:
- mismatches between resource allocation and consumer demand due to
difficulties in predicting consumer demand in a new market;
- the demand for and acceptance of our Website, products, product
enhancements and services;
6
<PAGE>
- the timing, amount and mix of subscription, license and service payments;
- changes in general economic conditions, such as recessions, that could
affect recruiting efforts generally and online recruiting efforts in
particular;
- the magnitude and timing of marketing initiatives;
- the maintenance and development of our strategic relationships;
- the introduction, development, timing, competitive pricing and market
acceptance of our products and services and those of our competitors;
- the attraction and retention of key personnel;
- our ability to manage our anticipated growth and expansion;
- our ability to attract qualified job seekers; and
- technical difficulties or system downtime affecting the Internet generally
or the operation of our products and services specifically.
As a result of the factors listed above and because the online recruiting
market is new and it is difficult to predict customer demand, it is possible
that in some future periods our results of operations may be below the
expectations of public market analysts and investors. This could cause our stock
price to decline. In addition, we plan to significantly increase our operating
expenses to expand our sales and marketing, administration, consulting and
training, maintenance and technical support and research and development groups.
If revenues fall below our expectations in any quarter and we are unable to
quickly reduce our spending in response, our operating results would be lower
than expected and our stock price may fall.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE ADAPTABLE TO A CHANGING MARKET.
If we are not able to anticipate changes in the online recruiting market or
if our business model is not successful, we may not be able to expand our
business or to successfully compete with other companies, which could reduce the
value of your investment. Our current business model depends on recurring
revenue from employers using our Website and hosting fees associated with our
application software. Our revenue model and profit potential are unproven. If
current employers decide to discontinue our service and we are unable to replace
them with new employers, our revenues could decrease. It is possible that we
will be required to further adapt our business model in response to additional
changes in the online recruiting market or if our current business model is not
successful.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO GROW OUR BUSINESS AND ANY
ADDITIONAL FINANCING MAY BE ON TERMS ADVERSE TO YOUR INTERESTS.
We may need additional financing to continue to grow our business. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, develop or enhance our products and services, take advantage of
business opportunities or respond to competitive pressures, any of which could
reduce the value of your investment. If we are able to raise additional funds
and we do so by issuing equity securities, you may experience significant
dilution of your ownership interest and holders of these securities may have
rights senior to those of the holders of our common stock. If we obtain
additional financing by issuing debt securities, the terms of these securities
could restrict or prevent us from paying dividends and could limit our
flexibility in making business decisions. In this case, the value of your
investment could be reduced.
7
<PAGE>
We currently anticipate that the net proceeds from this offering, together
with available funds, will be sufficient to meet our anticipated needs for at
least the next 12 months. Because we expect to generate losses for the
foreseeable future, income from our operations may not be sufficient to meet our
needs after that period. We expect to raise additional funds in the future in
order to fund our anticipated growth, more aggressive marketing programs or the
acquisition of complementary businesses, technologies and services. Obtaining
additional financing will be subject to a number of factors including:
- market and economic conditions;
- our financial condition and operating performance; and
- investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us.
RISKS RELATED TO OUR MARKETS AND STRATEGY
THE INTERNET IS NOT A PROVEN RECRUITING MEDIUM.
If we are unable to compete with traditional recruiting and job seeking
methods, our revenues and the value of your investment could be reduced. The
future of our business is dependent on the acceptance by job seekers and
employers of the Internet as an effective job seeking and recruiting tool. Of
the 6 million businesses in the U.S., Forrester Research, Inc. estimates that
only 15,000 businesses currently recruit online. The online recruiting market is
new and rapidly evolving, and we do not yet know how effective online recruiting
is compared to traditional recruiting methods. The adoption of online recruiting
and job seeking, particularly among those that have historically relied upon
traditional recruiting methods, requires the acceptance of a new way of
conducting business, exchanging information, advertising and applying for jobs.
Many of our potential employer customers have little or no experience using the
Internet as a recruiting tool, and only select segments of the job seeking
population have experience using the Internet to look for jobs. As a result, we
cannot be sure that we will be able to effectively compete with traditional
recruiting and job seeking methods.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS MODEL IF USE OF THE INTERNET GROWS.
If Internet usage does not continue to grow, we may not be able to meet our
business objectives, which could decrease the value of your investment. Internet
usage may be inhibited by any of the following factors:
- the Internet infrastructure may not be able to support the demands placed
on it, or its performance and reliability may decline as usage grows;
- Websites may not be able to provide adequate security and authentication
of confidential information contained in transmissions over the Internet;
and
- the Internet industry may not be able to adequately respond to privacy
concerns of potential users.
WE MAY NOT BE ABLE TO DEVELOP AWARENESS OF OUR BRAND NAME.
If we fail to successfully promote and maintain our HotJobs.com brand name,
incur significant expenses in promoting our brand and fail to generate a
corresponding increase in revenue as a result of our branding efforts, or
encounter legal obstacles which prevent our continued use of our brand name, our
revenues and the value of your investment could be
8
<PAGE>
materially adversely affected. We believe that continuing to build awareness of
our brand name is critical to achieving widespread acceptance of our business.
Brand recognition is a key differentiating factor among providers of online
recruiting services, and we believe it could become more important as
competition in the online recruiting market increases. In order to maintain and
build brand awareness, we must succeed in our marketing efforts, provide high
quality services and increase the number of high quality job seekers using
WWW.HOTJOBS.COM. Failure to successfully maintain and build awareness of our
brand could reduce our revenues and the value of your investment.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTRODUCE NEW OR ENHANCED PRODUCTS AND
SERVICES.
The failure of any new or enhanced products and services to achieve market
acceptance and generate revenue could result in a material adverse effect on our
revenues and the value of your investment. We expect to introduce enhanced
products and services in order to generate additional revenues, attract and
retain more employers, attract more job seekers to our Website and respond to
competition. Any new or enhanced product or service we introduce that is not
favorably received could damage our reputation and the perception of our brand
name.
WE WILL NOT BE ABLE TO ATTRACT JOB SEEKERS OR EMPLOYERS IF WE DO NOT
CONTINUALLY ENHANCE AND DEVELOP THE CONTENT AND FEATURES OF OUR PRODUCTS AND
SERVICES. To remain competitive, we must continually improve the
responsiveness, functionality and features of our products and services and
develop other products and services that are attractive to job seekers and
employers. We may not succeed in developing or introducing features, functions,
products or services that job seekers and employers find attractive. This could
reduce the number of job seekers and employers using WWW.HOTJOBS.COM and
materially adversely affect our revenues and the value of your investment.
WE MAY LOSE BUSINESS IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING
TECHNOLOGIES AND CUSTOMER NEEDS. If we are unable to timely and successfully
develop and introduce new products and enhancements to existing products in
response to our industry's changing technological requirements, our revenues and
the value of your investment could be materially adversely affected. Our success
is dependent on our ability to develop new and enhanced software, services and
related products to meet rapidly evolving technological requirements for online
recruiting software and solutions. Our current technology may not meet the
future technical requirements of employers. Trends that could have a critical
impact on our success include:
- rapidly changing technology in online recruiting;
- evolving industry standards, including both formal and DE FACTO standards
relating to online recruiting;
- developments and changes relating to the Internet;
- competing products and services that offer increased functionality; and
- changes in employer and job seeker requirements.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN HIGHLY
SKILLED PERSONNEL.
If we are unable to hire and retain skilled personnel, our growth may be
restricted, the quality of our products and services reduced and our revenues
and the value of your investment reduced. Our future success depends on our
ability to attract, train, motivate and retain highly skilled employees.
Competition for highly skilled employees is intense, particularly in the
Internet
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industry. We may be unable to retain our skilled employees or attract,
assimilate and retain other highly skilled employees in the future. We have from
time to time in the past experienced, and we may experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
If we are not able to expand our operations in an efficient manner, our
expenses could grow disproportionately to revenues or our revenues could decline
or grow more slowly than expected, either of which could have a material adverse
effect on the value of your investment. We have recently experienced a period of
rapid growth. In order to execute our business plan, we must continue to grow
significantly. We had 50 employees as of December 31, 1998. As of September 30,
1999, the number had increased to 173. We expect that the number of our
employees will continue to increase for the foreseeable future. This growth has
placed, and our anticipated future growth combined with the requirements we face
as a public company will continue to place, a significant strain on our
management, systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures. We will also need to continue to expand and maintain close
coordination among our products and technology, finance and administration, and
sales and marketing organizations. If we do not succeed in these efforts, it
could reduce our revenues and the value of your investment.
INTENSE COMPETITION MAY RENDER OUR SERVICES AND PRODUCTS UNCOMPETITIVE OR
OBSOLETE.
Due to competition, we may experience reduced margins on our products and
services, loss of market share or less use of WWW.HOTJOBS.COM by job seekers and
employers. If we are not able to compete effectively with current or future
competitors as a result of these and other factors, our revenues could be
materially adversely affected.
The market for online recruiting solutions is intensely competitive and
highly fragmented. We compete with companies, including recruiting search firms,
that offer a single database job board solution, such as Monster.com, as well as
newspapers, magazines and other traditional media companies that provide online
job search services, such as CareerPath.com. We also compete with large Internet
information hubs, or portals, such as Excite@Home. We may experience competition
from potential customers to the extent that they develop their own online
recruiting offerings internally. In addition, we compete with traditional
recruiting services, such as headhunters, for a share of employers' total
recruiting budgets. We expect to face additional competition as other
established and emerging companies, including print media companies and
headhunters with established brands, enter the online recruiting market.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources and larger customer bases than we do. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships to expand their businesses or to offer more comprehensive
solutions.
We believe that there will be rapid business consolidation in the online
recruiting industry. Accordingly, new competitors may emerge and rapidly acquire
significant market share. In addition, new technologies will likely increase the
competitive pressures that we face. The development of competing technologies by
market participants or the emergence of new industry standards may adversely
affect our revenues and ultimately our competitive position.
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LOSS OF ANY OF OUR KEY MANAGEMENT PERSONNEL COULD NEGATIVELY IMPACT OUR
BUSINESS.
The loss or departure of any of our officers or key employees could
materially adversely affect our ability to implement our business plan and could
lower our revenues. Our future success depends to a significant extent on the
continued service and coordination of our management team, particularly Richard
S. Johnson, our President and Chief Executive Officer. We do not maintain key
person insurance for any member of our management team. In addition, certain
members of our management team have joined us within the last year. These
individuals have not previously worked together and are becoming integrated into
our management team. If our key management personnel are not able to work
together effectively or successfully, our business could be materially adversely
affected.
WE MAY NOT BE SUCCESSFUL IN OUR PLAN FOR INTERNATIONAL EXPANSION.
We may not be able to successfully execute our business plan in foreign
markets. If revenue from international ventures is not adequate to cover our
investment in those ventures, our total revenues and the value of your
investment could be materially adversely affected.
We believe that our employers are increasingly attempting to fill positions
in international markets and that job seekers are increasingly seeking positions
in international markets. We believe that expansion into international markets
through a combination of internal business expansion, strategic alliances and
potential acquisitions will increase the number of job seekers who post their
resumes on WWW.HOTJOBS.COM and will increase the number and variety of jobs
available to our job seekers. Our future international operations might not
succeed for a number of reasons including:
- difficulties in staffing and managing foreign operations;
- competition from local recruiting services;
- operational issues such as longer customer payment cycles and greater
difficulties in collecting accounts receivable;
- seasonal reductions in business activity;
- language and cultural differences;
- legal uncertainties inherent in transnational operations such as export
and import regulations, tariffs and other trade barriers;
- taxation issues;
- unexpected changes in trading policies, regulatory requirements and
exchange rates;
- issues relating to uncertainties of laws and enforcement relating to the
protection of intellectual property; and
- general political and economic trends.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES.
If we make an acquisition of a company, we could have difficulty
assimilating the acquired company's operations and personnel, which could
increase our expenses and reduce the value of your investment. If we make other
types of acquisitions, we could have difficulty in assimilating any acquired
products, services, personnel and technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and charges and materially adversely affect our
revenues and the value of your investment. Though we have no present
understanding or agreement relating to any
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acquisition of or investment in another company or its business, our business
strategy includes the pursuit of acquisitions. In executing this strategy, we
may incur expenses without being able to identify suitable acquisition
candidates, which could reduce our profitability and the value of your
investment.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE
WE MAY EXPERIENCE REDUCED VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR
REPUTATION IN THE EVENT OF UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM
FAILURES.
Any system failure, including network, software or hardware failure, that
causes an interruption in the delivery of our products and services or a
decrease in responsiveness of our services could result in reduced visitor
traffic, reduced revenue and could materially adversely affect our reputation
and brand. Our servers and software must be able to accommodate a high volume of
traffic. We have experienced system interruptions in the past, and we believe
that these interruptions will continue to occur from time to time in the future.
We believe that visitor traffic is also dependent on the timing and magnitude of
our advertising. We have experienced monthly fluctuations in visitor traffic,
including short term reductions. Any substantial increase in demands on our
servers will require us to expand and adapt our network infrastructure. If we
are unable to add additional software and hardware to accommodate increased
demand, we could experience unanticipated system disruptions and slower response
times. Any catastrophic failure at one of our co-location facilities could
prevent us from serving our Web traffic for up to several days, and any failure
of one or more of our Internet service providers may adversely affect our
network's performance. Our clients may become dissatisfied by any system failure
that interrupts our ability to provide our products and services to them or
results in slower response times. We do not maintain business interruption
insurance and our other insurance may not adequately compensate us for any
losses that may occur due to any failures in our system or interruptions in our
service.
BREACHES OF OUR NETWORK SECURITY COULD BE COSTLY.
Because we host HotJobs.com-related data for our customers, we may be liable
to any of those customers that experience losses due to our security failures.
As a result, we may be required to expend capital and resources to protect
against or to alleviate security breaches, which could reduce our profitability
and the value of your investment. A significant barrier to confidential
communications over the Internet has been the need for security. We may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by these breaches. If unauthorized persons penetrate
our network security, they could misappropriate proprietary information or cause
interruptions in our services. Misappropriation of our proprietary information
or interruptions of our services could result in reduced visitor traffic.
Reduced visitor traffic may result in fewer job seekers posting their resumes to
our WWW.HOTJOBS.COM employment exchange which, in turn, may discourage employers
from subscribing to the employment exchange. We generate a substantial portion
of our revenue from these subscription fees.
COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS WHICH
COULD REDUCE DEMAND FOR OUR SERVICE AND DAMAGE OUR REPUTATION.
Computer viruses may cause our systems to incur delays or other service
interruptions and could reduce our revenues and the value of your investment. In
June 1999, we detected a virus on a file server which supports our office
equipment. 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 highly publicized, our reputation could
be materially damaged and our visitor traffic may decrease. Any of these events
could have a material adverse effect on our revenues and the value of your
investment.
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WE MAY NOT BE ABLE TO ACCESS THIRD PARTY TECHNOLOGY UPON WHICH WE DEPEND.
If we lose the ability to access third party technology which we use, are
unable to gain access to additional products or are unable to integrate new
technology with our existing systems, we could experience delays in our
development and introduction of new services and related products or
enhancements until equivalent or replacement technology can be accessed, if
available, or developed internally, if feasible. If we experience these delays,
our revenues could be reduced and the value of your investment could be
materially adversely affected. We license technology that is incorporated into
our services and related products from third parties including Oracle
Corporation for database technology and Thunderstone Software-EPI, Inc. for
full-text indexing. In light of the rapidly evolving nature of Internet
technology, we may increasingly need to rely on technology from other vendors.
Technology from our current or other vendors may not continue to be available to
us on commercially reasonable terms, or at all.
WE COULD LOSE SUBSTANTIAL REVENUES OR INCUR SIGNIFICANT COSTS DUE TO YEAR 2000
ISSUES.
Any failure of our systems to be year 2000 compliant could reduce our
revenues and the value of your investment. Significant uncertainties exist in
the software industry concerning the potential effects associated with the
failure of computer systems and software to be year 2000 compliant. Computer
systems and software must accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, many software and computer systems
may need to be upgraded in order to be year 2000 compliant or risk system
failure or miscalculations causing disruptions of normal business activities.
OUR PRODUCTS AND SERVICES MAY NOT BE YEAR 2000 COMPLIANT. Year 2000
problems could materially adversely affect our current products and services and
the WWW.HOTJOBS.COM Website, resulting in lower revenues and reducing the value
of your investment. We have completed an assessment of the year 2000 readiness
of our products and services. We believe that all of the products and services
we currently offer were year 2000 compliant at the time of installation or
launch. We have conducted tests internally to validate the compliance of these
products. We cannot be certain, however, that these tests have detected all
potential year 2000 problems. To address potential disruptions, we maintain
off-site backup data for our databases, and we are developing a redundant,
outsourced data center to protect against the failure of the WWW.HOTJOBS.COM
Website and its associated hardware. However, these precautions may not be
sufficient to prevent a failure of our products and systems. Any business
disruption due to a failure of our products or systems to be year 2000 compliant
could have a material adverse effect on our revenues and the value of your
investment.
OUR INTERNAL COMPUTER SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT. Any business
disruption caused by the failure of our internal systems to be year 2000
compliant could have a material adverse effect on our revenues and the value of
your investment. We have reviewed year 2000 compliance statements made by the
vendors of our software systems, such as accounting and database management
systems, and we have completed an assessment of the year 2000 readiness of our
internal systems. Based on this review and assessment, we currently believe that
our internal software systems are year 2000 compliant. We cannot be certain,
however, that we are aware of all potential year 2000 problems. The failure of
our internal systems could disrupt our business. To address these potential
disruptions, we maintain off-site backup data for our internal systems and
databases. However, these precautions may not be sufficient to prevent a failure
of our internal systems.
OUR EMPLOYERS' AND JOB SEEKERS' SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT. If
either employers or job seekers experience sustained difficulty in accessing our
products and services
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due to year 2000 complications, our revenues could be materially adversely
affected. It is possible that our employers will experience problems with their
Internet sites or internal computer systems due to software that is not year
2000 compliant, which could lead to disruptions in their ability to use the
services of WWW.HOTJOBS.COM. If employers are not able to use our services for a
period of time, they may cease using our services. Also, if a substantial number
of employers are unable to use our services for a long period of time, the
quality and quantity of jobs available at WWW.HOTJOBS.COM may decrease, which
could discourage qualified job seekers from using our services. Similarly, if a
substantial percentage of job seekers are unable to access our services due to
failures in their computer systems, recruiters may find our services less
valuable and reduce or discontinue their use of our products.
YEAR 2000 CONCERNS MAY ADVERSELY AFFECT THE PURCHASING PATTERNS OF
EMPLOYERS. If purchasing patterns of employers are adversely affected due to
year 2000 concerns, our revenues and the value of your investment could be
reduced. Due to year 2000 concerns, many employers that are customers or
potential customers may choose to devote resources to year 2000 compliance
efforts that might otherwise be used to begin or expand online recruiting
efforts. In addition, employers may elect to spend a greater portion of their
recruiting budgets on traditional recruiting methods rather than risk disruption
in their recruiting in the event of technical difficulties related to year 2000
problems.
YEAR 2000 PROBLEMS COULD DECREASE USE OF THE INTERNET. Increasing usage of
the Internet is necessary for us to achieve our business objectives. Any
disruptions caused by year 2000 problems could decrease Internet usage
generally, which could cause a reduction in our revenues.
WE COULD BE SUBJECT TO YEAR 2000-RELATED LITIGATION. If we are the subject
of any claims related to or are liable for losses resulting from year
2000-related systems failures, the value of your investment could be materially
adversely affected. The failure of our currently supported products and services
to be fully year 2000 compliant could result in claims by or liability to
employers or, possibly, job seekers. We host HotJobs.com-related data for many
of our customers. As a result, any year 2000-related failure of our systems
could destroy a large amount of proprietary data that our customers rely on for
their recruiting efforts.
RISKS RELATED TO LEGAL UNCERTAINTY
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Legal uncertainties and new regulations could increase our costs of doing
business, prevent us from delivering our products and services over the Internet
or slow the growth of the Internet, any of which could increase our expenses or
reduce our revenues and materially adversely affect the value of your
investment. To date, governmental regulations have not materially restricted use
of the Internet in our markets. However, the legal and regulatory environment
that pertains to the Internet is uncertain and may change. In addition to new
laws and regulations being adopted, existing laws may be applied to the
Internet. New and existing laws may cover issues which include:
- user privacy;
- civil rights and employment claims;
- consumer protection;
- libel and defamation;
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- copyright, trademark and patent infringement;
- pricing controls;
- characteristics and quality of products and services;
- sales and other taxes; and
- other claims based on the nature and content of Internet materials.
In addition, any imposition of state sales and use taxes imposed on the
products and services sold over the Internet may decrease demand for products
and services that we sell over the Internet. The U.S. Congress has passed
legislation which limits for three years the ability of states to impose any new
taxes on Internet-based transactions. Failure by Congress to renew this
legislation and the subsequent imposition of state taxes on Internet-based
transactions could adversely affect our future operating results which could
result in a decline in our stock price.
WE MAY BE UNABLE TO OBTAIN A U.S. TRADEMARK REGISTRATION FOR OUR BRAND OR TO
PROTECT OUR OTHER PROPRIETARY INTELLECTUAL PROPERTY RIGHTS.
FAILURE TO OBTAIN FEDERAL TRADEMARK REGISTRATION FOR WWW.HOTJOBS.COM COULD
DISRUPT OUR PROMOTION OF THE HOTJOBS.COM BRAND. If we are unable to secure the
rights to use the www.hotjobs.com mark and related derivative marks, a key
element of our strategy of promoting "HotJobs.com" as a global brand could be
disrupted and, as a result, the value of your investment could be reduced. Our
success depends to a significant degree upon the protection of our proprietary
technology, including our Softshoe software and our "HotJobs.com" brand name. To
date, we have not been successful in our efforts to secure a federal
registration for "www.hotjobs.com." In addition, in May 1998, another pending
trademark applicant, who has since abandoned its application, made claims
regarding prior use and ownership of "hotjobs" as a trademark. Adverse outcomes
to these or similar claims or any related litigation, should it occur, could
result in us being limited or prohibited from further using the
"www.hotjobs.com" mark and related derivative marks in the future. See
"Business--Intellectual Property."
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD PERMIT OTHERS TO
APPROPRIATE OUR PROPRIETARY TECHNOLOGY. The unauthorized reproduction or other
misappropriation of our proprietary technology could enable third parties to
benefit from our technology and brand name without paying us for them. If this
were to occur, our revenues and the value of your investment could be materially
adversely affected. The steps we have taken to protect our proprietary rights
may not be adequate to deter misappropriation of proprietary information. We may
not be able to detect unauthorized use of our proprietary information or take
appropriate steps to enforce our intellectual property rights. In addition, the
validity, enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of other
countries in which we may market our services in the future are uncertain and
may afford little or no effective protection of our intellectual property. If we
resort to legal proceedings to enforce our intellectual property rights, the
proceedings could be burdensome and expensive. The proceedings also could
involve a high degree of risk.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME
CONSUMING AND EXPENSIVE, AND WE MAY BE LIABLE FOR INFRINGING ON THE INTELLECTUAL
PROPERTY RIGHTS OF OTHERS. IF WE ARE NOT SUCCESSFUL IN DEFENDING AGAINST THESE
CLAIMS, WE COULD BE SUBJECT TO SIGNIFICANT DAMAGES AND THE DISRUPTION OF OUR
BUSINESS.
Successful intellectual property infringement claims against us could result
in monetary liability or a material disruption in the conduct of our business.
We cannot be certain that our products, content and brand names do not or will
not infringe valid patents, copyrights or other
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intellectual property rights held by third parties. We expect that infringement
claims in our markets will increase in number as more participants enter the
markets. We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary course of our
business. We may incur substantial expenses in defending against these third
party infringement claims, regardless of their merit.
WE MAY BE LIABLE AS A RESULT OF INFORMATION RETRIEVED FROM OR TRANSMITTED OVER
THE INTERNET.
We may be sued for defamation, civil rights infringement, negligence,
copyright or trademark infringement, personal injury, product liability or other
legal claims relating to information that is published or made available on
WWW.HOTJOBS.COM and the other sites linked to it. These types of claims have
been brought, sometimes successfully, against online services in the past. We
could also be sued for the content that is accessible from WWW.HOTJOBS.COM and
through links to other Internet sites or through content and materials that may
be posted by members in chat rooms or on bulletin boards. We also offer email
services, which may subject us to potential risks, such as liabilities or claims
resulting from unsolicited email or spamming, lost or misdirected messages,
security breaches, illegal or fraudulent use of email or interruptions or delays
in email service. Our insurance does not specifically provide for coverage of
these types of claims and therefore may not adequately protect us against these
types of claims. In addition, we could incur significant costs in investigating
and defending such claims, even if we ultimately are not liable. If any of these
events occur, our revenues and the value of your investment could be materially
adversely affected.
RISKS RELATED TO THIS OFFERING, OUR STOCK PRICE AND CORPORATE CONTROL
WE MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT AGREE.
If management uses the proceeds of this offering for purposes which do not
result in increasing our revenues, the value of your investment could be
reduced. Our management will have broad discretion with respect to the
expenditure of the net proceeds of this offering, including discretion to use
the proceeds in ways with which stockholders may disagree. To date, management
is unable to provide an estimated range of the amounts of proceeds to be used
for any of the purposes described in "Use of Proceeds." Investors will be
relying on the judgment of our management regarding the application of the
proceeds of this offering.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS, AND
INVESTORS IN OUR STOCK MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE
OFFERING PRICE.
Due to fluctuations in the market price of our common stock, you may be
unable to resell your shares at or above the offering price. The market price of
our common stock has fluctuated in the past and is likely to continue to be
highly volatile and subject to wide fluctuations. In addition, the stock market
in general and the market prices of shares in technology companies, particularly
those such as ours that offer Internet-based products and services, have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of our common stock could continue to be highly volatile and
subject to wide fluctuations in response to many factors, some of which are
largely beyond our control. These factors include:
- quarterly variations in our results of operations;
- adverse business developments;
- changes in financial estimates by securities analysts;
- investor perception of us and online recruiting services in general;
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- announcements by our competitors of new products and services; and
- general economic conditions both in the U.S. and in foreign countries.
Our stock price may also experience fluctuations due to $7.2 million in
deferred compensation which we expect to amortize over the next four years and a
$16.2 million beneficial conversion feature, $15.6 million of which we expect to
amortize in the third quarter of 1999. For a more complete description of the
deferred compensation and beneficial conversion feature, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
the event that our stock price decreases due to a negative perception of the
deferred compensation charge, the value of your investment would be reduced.
SINCE OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES
LITIGATION WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.
Litigation brought against us could result in substantial costs to us in
defending against the lawsuit and a diversion of management's attention that
could reduce the value of your investment. Securities class action litigation
has often been brought against companies that experience volatility in the
market price of their securities. Since our stock price is volatile, we could be
subject to securities litigation and incur higher expenses than expected, which
could reduce the value of your investment.
FUTURE SALES OF OUR COMMON STOCK AFTER THIS OFFERING MAY NEGATIVELY AFFECT OUR
STOCK PRICE.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market following this
offering, or the perception that such sales could occur. Following this
offering, we will have a large number of shares of common stock outstanding and
available for resale beginning at various points in time in the future. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. The shares of our
common stock currently outstanding will become eligible for sale without
registration pursuant to Rule 144 under the Securities Act, subject to certain
conditions of Rule 144. Certain holders of our common stock also have certain
demand and piggyback registration rights enabling them to register their shares
under the Securities Act for sale.
In connection with this offering, our senior officers and directors and
certain of our stockholders and optionholders, who hold or will hold a total of
17,661,000 shares of common stock, will have agreed, subject to certain
exceptions, not to sell their shares for 90 days after the date of this
prospectus without the consent of Deutsche Bank Securities Inc.
In addition, we have registered for resale 4,314,200 shares of common stock
reserved for issuance under our Stock Award Plan, 4,500,000 shares of common
stock reserved for issuance under our 1999 Stock Option/Stock Issuance Plan and
250,000 shares of common stock reserved for issuance under our Employee Stock
Purchase Plan. As of September 30, 1999, options to purchase 5,785,200 shares of
common stock were outstanding and will be eligible for sale in the public market
from time to time subject to vesting and, in the case of certain options, the
expiration of lock-up agreements. These stock options generally have exercise
prices significantly below the current price of our common stock. The possible
sale of a significant number of these shares may cause the price of our common
stock to fall.
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IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY WHICH COULD DEPRESS
OUR STOCK PRICE.
Delaware corporate law, our amended and restated certificate of
incorporation and bylaws, and our Stock Award Plan and 1999 Stock Option/Stock
Issuance Plan contain provisions that could have the effect of delaying,
deferring or preventing a change in control of HotJobs.com or our management
that stockholders may consider favorable or beneficial, which could reduce the
value of your investment. These provisions could discourage proxy contests and
make it more difficult for you and other stockholders to elect directors and
take other corporate actions. These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:
- authorization to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to those of common stock;
- a staggered board of directors, so that it would take three successive
annual meetings to replace all directors;
- prohibition of stockholder action by written consent;
- advance notice requirements for the submission by stockholders of
nominations for election to the board of directors and for proposing
matters that can be acted upon by stockholders at a meeting;
- immediate vesting of options issued under the Stock Award Plan and the
1999 Stock Option/Stock Issuance Plan in connection with a change of
control; and
- the payment of a cash distribution for surrendered options with limited
stock appreciation rights upon the successful completion of a hostile
tender offer for more than 50% of our outstanding voting stock.
See "Description of Capital Stock--Anti-Takeover Effects of Delaware Law and
our Amended and Restated Certificate of Incorporation and Bylaws" for a more
complete description of these provisions.
OUR EXECUTIVE OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS, WHOSE INTERESTS MAY
DIFFER FROM OTHER STOCKHOLDERS, WILL HAVE THE ABILITY TO EXERCISE SIGNIFICANT
CONTROL OVER US.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 52.0% of our common stock
following this offering. These stockholders will be able to exercise significant
influence over all matters requiring approval by our stockholders, including the
election of directors and the approval of significant corporate transactions,
including a change of control of HotJobs.com. The interests of these
stockholders may differ from the interests of our other stockholders.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF THE VALUE OF YOUR
INVESTMENT.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in their investments. See "Dilution" for a calculation of
the extent to which your investment will be diluted. To the extent outstanding
options to purchase common stock are exercised, your investment will be further
diluted.
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FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
The forward-looking statements made in this prospectus are based on events
through the date on which the statements are made.
MARKET DATA
This prospectus contains market data related to our business and the
Internet. This market data includes projections that are based on a number of
assumptions. The assumptions include the following:
- no catastrophic failure of the Internet will occur;
- the number of people online and the total number of hours spent online
will increase significantly over the next five years; and
- Internet security and privacy concerns will be adequately addressed.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ from the projections based on these assumptions. The
Internet-related markets may not grow over the next three to four years at the
rates projected by these market data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our business
and the market price of our common stock.
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 3,000,000 shares of common stock being
offered by us, at an assumed public offering price of $25.00 per share based on
the last reported sales price of our common stock on the Nasdaq National Market
on October 26, 1999, less underwriting discounts and estimated offering
expenses, are estimated to be approximately $70.4 million, or $81.0 million if
the underwriters' overallotment option is exercised in full.
We intend to use the net proceeds of this offering, and we are currently
using the proceeds from our initial public offering, for general corporate
purposes, including:
- increasing our sales and marketing efforts;
- developing our infrastructure, products and services, all of which we have
yet to identify;
- obtaining additional office space; and
- hiring additional personnel.
In addition, we may use a portion of the net proceeds to acquire or invest
in complementary businesses, technologies, services or products; however, we
have no commitments or agreements, and we are not involved in any negotiations
with respect to any such transaction.
As of the date of this prospectus, we can neither specify the particular
uses for the net proceeds to be received upon completion of the offering, nor
provide an estimated range of the amounts of proceeds to be used for any of the
purposes described above. Accordingly, management will have significant
flexibility in applying the net proceeds of this offering.
Pending any use, we will invest the net proceeds of this offering in
short-term, investment grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol HOTJ since our initial public offering on August 10, 1999. The following
table sets forth, for the periods indicated, the high and low closing sales
prices per share of the common stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1999
Third Quarter (from August 10, 1999).................... $ 34.94 $ 7.63
Fourth Quarter (through October 26, 1999)............... $ 29.38 $ 24.75
</TABLE>
On October 26, 1999, the last reported sales price of the common stock on
the Nasdaq National Market was $25.00 per share. As of October 26, 1999, there
were 71 holders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock or
preferred stock since inception and do not expect to pay any cash dividends for
the foreseeable future. We currently intend to retain future earnings, if any,
to finance the expansion of our business. The payment of dividends will be at
the discretion of our board of directors and will depend upon factors such as
future earnings, capital requirements, our financial condition and general
business conditions.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
(1) on an actual basis;
(2) on a pro forma basis to reflect:
- our sale of 3,350,000 shares of common stock in our initial public
offering at a price of $8.00 per share, less the underwriters'
discounts and commissions;
- the conversion of all outstanding shares of Series A Preferred Stock
into common stock in connection with our initial public offering; and
- the recording of a beneficial conversion feature of $16.2 million as
additional paid-in capital in connection with the issuance of our
preferred stock; and
(3) on a pro forma as adjusted basis to reflect:
- our sale of 3,000,000 shares in this offering at an assumed public
offering price of $25.00 per share, less the underwriters' discounts
and commissions; and
- the estimated expenses of this offering.
The table excludes:
- 250,000 shares reserved for future issuance under our Employee Stock
Purchase Plan;
- 4,500,000 shares reserved for future grants under our 1999 Stock
Option/Stock Issuance Plan; and
- 4,314,200 shares subject to issuance upon the exercise of options
outstanding at June 30, 1999.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Obligations under capital leases, excluding current
installments.............................................. $ 320 $ 320 $ 320
Series A redeemable convertible preferred stock............. 566 -- --
Stockholders' equity:
Preferred stock, $0.01 par value per share; 2,000,000
shares authorized actual; 10,000,000 shares authorized
pro forma and pro forma as adjusted; 1,620,000
redeemable convertible preferred shares issued and
outstanding actual, no shares issued and outstanding pro
forma and pro forma as adjusted......................... -- -- --
Common stock, $0.01 par value; 48,000,000 shares
authorized actual; 100,000,000 shares authorized pro
forma and pro forma as adjusted; 19,620,000 shares
issued and outstanding actual; 26,904,019 shares issued
and outstanding pro forma and 29,904,019 shares issued
and outstanding pro forma as adjusted................... 196 268 298
Additional paid-in capital.................................. 22,884 46,660 116,993
Deferred compensation....................................... (7,055) (7,055) (7,055)
Accumulated deficit......................................... (8,319) (8,319) (8,319)
--------- --------- ---------
Total stockholders' equity................................ 7,706 31,554 101,917
--------- --------- ---------
Total capitalization.................................... $ 8,592 $ 31,874 $ 102,237
========= ========= =========
</TABLE>
21
<PAGE>
DILUTION
Our pro forma net tangible book value at June 30, 1999 was $7.4 million, or
approximately $0.38 per share. Pro forma 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 shares of common stock
outstanding. After giving effect to the sale by us of the 3,000,000 shares
offered hereby at an assumed public offering price of $25.00 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value at June 30, 1999 would have been
$77.7 million, or approximately $2.60 per share. This represents an immediate
increase in pro forma net tangible book value of approximately $2.22 per share
to existing stockholders and an immediate dilution in pro forma net tangible
book value of approximately $22.40 per share to investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $25.00
Pro forma net tangible book value per share at June 30,
1999.................................................... $0.38
Increase in net tangible book value attributable to new
investors............................................... $2.22
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. $ 2.60
------
Dilution per share to investors purchasing shares in this
offering.................................................. $22.40
======
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data should be read in conjunction with the
financial statements and the notes to those statements appearing elsewhere in
this prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The statement of operations data for the period from
February 20, 1997 (inception) through December 31, 1997 and for the year ended
December 31, 1998, are derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations data for each of the
six-month periods ended June 30, 1998 and 1999, and the balance sheet data at
June 30, 1999, are derived from unaudited interim financial statements of
HotJobs.com included elsewhere in this prospectus. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. Historical results
are not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1997 (INCEPTION) SIX MONTHS ENDED
TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------
1997 1998 1998 1999
----------------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service fees............................................. $ 361 $ 3,038 $ 974 $ 4,805
Software license fees.................................... 23 225 96 161
Job fair fees............................................ -- -- -- 530
Other.................................................... 13 249 20 938
---------- ---------- ---------- ----------
Total revenues......................................... 397 3,512 1,090 6,434
Cost of revenues.......................................... 12 505 167 1,232
---------- ---------- ---------- ----------
Gross profit........................................... 385 3,007 923 5,202
Operating expenses:
Product development...................................... 174 474 202 344
Sales and marketing...................................... 431 3,085 1,153 7,260
General and administrative............................... 725 1,642 554 2,494
Non-cash compensation.................................... -- -- -- 165
---------- ---------- ---------- ----------
Total operating expenses............................... 1,330 5,201 1,909 10,263
---------- ---------- ---------- ----------
Loss from operations................................. (945) (2,194) (986) (5,061)
Net interest expense...................................... -- (63) (12) (55)
---------- ---------- ---------- ----------
Net loss............................................. $ (945) $(2,257) $ (998) $(5,116)
========== ========== ========== ==========
Deemed dividend attributable to issuance of convertible
preferred stock.......................................... -- -- -- 566
---------- ---------- ---------- ----------
Net loss attributable to common stockholders.............. $ (945) $(2,257) $ (998) $(5,682)
========== ========== ========== ==========
Basic and diluted net loss per common share............... $(0.04) $ (0.11) $(0.05) $ (0.28)
========== ========== ========== ==========
Weighted average shares outstanding used in basic and
diluted net loss per common share calculation............ 21,300,000 21,044,184 21,224,840 20,223,315
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,181 $32,463 $102,826
Working capital........................................... 6,555 29,837 100,200
Total assets.............................................. 15,703 38,985 109,348
Obligations under capital leases, excluding current
installments............................................ 320 320 320
Total stockholders' equity................................ 7,706 31,554 101,917
</TABLE>
- ----------------------------------
(1) Pro forma information gives effect to the automatic conversion of all of the
outstanding Series A Preferred Stock into 3,934,019 shares of common stock
in connection with our initial public offering and our sale of 3,350,000
shares of common stock in our initial public offering.
(2) Pro forma as adjusted information gives effect to our sale of 3,000,000
shares in this offering at an assumed public offering price of $25.00 per
share, based on the last reported sales price of our common stock on the
Nasdaq National Market on October 26, 1999, less the underwriters' discounts
and commissions and estimated expenses of the offering.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO, THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS INCLUDING, BUT NOT LIMITED TO,
THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of comprehensive recruiting solutions that
leverage the Internet to exchange information more efficiently between job
seekers and employers. The majority of our revenues are recurring and are
derived primarily from employer memberships to our WWW.HOTJOBS.COM employment
exchange. We also provide additional recruiting solutions to employers such as
our proprietary Softshoe recruiting software, our WorkWorld job fairs, online
advertising and consulting services.
Founded in February 1997, we began operations with seven employees and we
had grown to 173 employees as of September 30, 1999. Our early operating
activities related primarily to the development of the necessary technological
infrastructure for the operation of WWW.HOTJOBS.COM. In February 1997, we
commercially launched our WWW.HOTJOBS.COM employment exchange. In
September 1997, we began selling our Softshoe software. During 1998, we
experienced significant increases in our revenue from sales of memberships to
our employment exchange and license and hosting fees for our Softshoe software.
In early 1999, we introduced our WorkWorld job fairs and expanded our marketing
programs to increase awareness of the HotJobs.com brand. In May 1999, we raised
$16.2 million in a private placement of our convertible preferred stock. In the
three months ended September 30, 1999, we raised net proceeds of $23.3 million
in our initial public offering.
We classify our revenues as follows:
- Service fee revenue, consisting of subscription fees paid by employers for
memberships to our WWW.HOTJOBS.COM employment exchange and software
hosting fees paid by customers of our software. We sell memberships to
each employer on a per recruiter basis and bill the employer monthly,
quarterly, semi-annually or annually. Membership entitles each recruiter
to post a specific number of jobs on WWW.HOTJOBS.COM simultaneously.
Software hosting fees consist of recurring monthly fees to maintain an
employer's Softshoe database as well as the hosting of a miscellaneous
proprietary software product.
- Software license revenue, consisting of license fees paid by our Softshoe
customers as well as license fees relating to a miscellaneous proprietary
software product.
- Job fair revenue, consisting of fees from employers that rent booths at
our WorkWorld job fairs.
- Other revenue, consisting of fees derived from single-ad job postings on
WWW.HOTJOBS.COM, banner advertising, which we sell on a monthly and
extended-term basis, and other Softshoe-related services, including system
customization and resume scanning services, which we bill on a monthly and
extended-term basis.
24
<PAGE>
We recognize revenue as follows:
- Service Fee Revenue. We provide subscriptions for membership to our
employment exchange for a minimum term of three months and a maximum term
of 24 months. We recognize subscription revenue over the subscription
term. We provide hosting services to Softshoe customers on a monthly
basis, and we recognize hosting revenue in the month we provide the
service. These hosting fees are contracted separately from the software
license.
- Software License Revenue. We recognize software license revenue ratably
over the four year estimated useful life of the software, in accordance
with Statements of Position 97-2 and 98-9 issued by the American Institute
of Certified Public Accountants.
- Job Fair Revenue. We recognize job fair revenue in the month in which the
job fair takes place.
- Other Revenue. We recognize revenue related to these services over the
period of delivery of service. Other revenue also includes barter revenue,
which consists of fees generated from exchanges of services with other
vendors. We recognize barter revenue over the period that we receive the
benefit.
We classify our cost of revenue and operating expenses as follows:
- Cost of Revenue. Cost of revenue consists of compensation associated with
network operations staff, technology support contract fees, Internet
access, job fair expenses, resume scanning services, barter expenses and
depreciation expense.
- Product Development Expense. Product development expense consists
primarily of costs associated with the compensation of product development
personnel. Our product development expenses constitute all of our research
and development expenditures.
- Sales and Marketing Expense. Sales and marketing expense consists
primarily of advertising and promotional expenses, public relations
expenses, conference expenses, printing fees, sales and marketing
compensation, including base salary and sales commissions, and
telemarketing communications expenses. Sales commissions have remained
relatively constant as a percentage of revenues, and we expect this to
continue. However, the timing and magnitude of marketing initiatives have
caused, and will continue to cause, fluctuations in sales and marketing
expense as a percentage of revenues.
- General and Administrative Expense. General and administrative expense
consists primarily of compensation for administrative and executive staff,
fees for professional services, bad debt expense and general office
expense.
25
<PAGE>
The following table sets forth, as a percentage of total revenues, the
results of our operations for the period ended December 31, 1997, the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
FEBRUARY 20, ENDED
1997 (INCEPTION) YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
---------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service fees................................ 91% 87% 89% 75%
Software license fees....................... 6 6 9 2
Job fair fees............................... -- -- -- 8
Other....................................... 3 7 2 15
---- --- ---- ---
Total revenues............................ 100 100 100 100
Cost of revenues.............................. 3 14 16 19
---- --- ---- ---
Gross profit.............................. 97 86 84 81
Operating expenses:
Product development......................... 44 13 18 5
Sales and marketing......................... 109 88 106 113
General and administrative.................. 183 47 51 39
Non-cash compensation....................... -- -- -- 3
---- --- ---- ---
Total operating expenses.................. 336 148 175 160
---- --- ---- ---
Loss from operations.................... (239) (62) (91) (79)
Net interest income (expense)................. -- (2) (1) (1)
---- --- ---- ---
Net loss................................ (239)% (64)% (92)% (80)%
==== === ==== ===
</TABLE>
We have incurred substantial losses in every fiscal period since our
inception. For the year ended December 31, 1998, we incurred net losses of
approximately $2.3 million. For the six months ended June 30, 1999, we incurred
net losses of approximately $5.1 million. As of December 31, 1998, and June 30,
1999, we had accumulated deficits of approximately $3.2 million and
$8.3 million, respectively. Our net losses and resulting accumulated deficit are
primarily due to the costs we incurred to develop our online employment exchange
and software products in advance of substantial revenue and to expand our sales
and marketing programs.
We intend to devote significant resources to advertising and brand marketing
programs designed to attract new employers to subscribe to WWW.HOTJOBS.COM. We
anticipate increasing advertising spending in specific periods in the future.
This will result in sales and marketing expenses increasing as a percentage of
total revenues in these periods. As of October 1, 1999, we had commitments of
approximately $5.8 million for various advertising campaigns through June 2000.
These commitments include broadcasting, print, online and outdoor advertising.
We expect growth in the number of member employers of WWW.HOTJOBS.COM to result
in substantial growth in subscription fees, both in terms of dollar amount and
as a percentage of total revenue. Our strategy contemplates that revenue from
employer memberships will likely be the single largest source of revenue for us
in the immediate future.
As a result of our expansion plans and our expectation that operating
expenses will increase significantly in the next several years, especially in
the areas of sales and marketing and brand promotion, we expect to incur
additional losses from operations for the foreseeable future. To the extent that
(1) increases in our operating expenses precede and are not subsequently
followed by commensurate increases in revenue, or (2) we are unable to adjust
operating
26
<PAGE>
expense levels accordingly, our operating losses may exceed our expectations for
those periods. We cannot be sure that we will ever achieve or sustain
profitability.
DEFERRED COMPENSATION
We recorded deferred compensation of $7.2 million in the first six months of
1999, representing the difference between the exercise price of stock options
granted and the fair value for accounting purposes of the underlying common
stock at the date of the grant. The deferred compensation cost will be amortized
over the vesting period of the options. We currently expect to amortize the
following amounts of deferred compensation as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING:
- --------------------
<S> <C>
December 31, 1999........................................... $1.9 million
December 31, 2000........................................... $1.7 million
December 31, 2001........................................... $1.7 million
December 31, 2002........................................... $1.4 million
December 31, 2003........................................... $506,000
</TABLE>
After June 30, 1999, we will record deferred compensation of approximately
$800,000 for options granted below the fair market value. This amount will be
amortized over the applicable vesting periods.
BENEFICIAL CONVERSION FEATURE
As of May 10, 1999, due to our sale of 1,620,000 shares of Series A
Preferred Stock with a conversion price that was below the expected initial
public offering price of our common stock, we recorded a beneficial conversion
feature of $16.2 million. Prior to the conversion of the Series A Preferred
Stock into common stock, we began to amortize the value of the beneficial
conversion feature over the four-year period from the date of issuance of the
preferred stock to the date on which the preferred stock was first convertible
into common stock, assuming no acceleration of the date of conversion. All of
the preferred stock automatically converted into common stock upon completion of
our initial public offering and all of the unamortized value of the beneficial
conversion feature was immediately recognized as a dividend to preferred
stockholders. We amortized an aggregate of approximately $566,000 of the
beneficial conversion feature in the three months ended June 30, 1999, which
increased our net loss per common share by $0.03 in the three months ended
June 30, 1999. In addition, we expect to amortize an aggregate of approximately
$15,634,000 of the beneficial conversion feature in the three months ended
September 30, 1999, which we expect will increase our net loss per common share
by $0.66 in the three months ended September 30, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Our total revenues increased to approximately $6.4 million for the six
months ended June 30, 1999, from approximately $1.1 for the six months ended
June 30, 1998. The increase in our total revenues was due to increased revenue
in all of our revenue categories.
SERVICE FEES. Service fee revenue increased to approximately $4.8 million
for the six months ended June 30, 1999, from approximately $974,000 for the
six months ended June 30, 1998. This increase resulted primarily from an
increase in the number of employers subscribing to WWW.HOTJOBS.COM and, to a
lesser extent, an increase in the hosting fees generated by a larger number
of licensees of our Softshoe software.
27
<PAGE>
SOFTWARE LICENSE FEES. Software license revenue increased to $161,000 for
the six months ended June 30, 1999, from $96,000 for the six months ended
June 30, 1998. This increase was due primarily to an increase in the number
of companies that license our proprietary Softshoe software.
JOB FAIR FEES. Job fair revenue increased to $530,000 for the six months
ended June 30, 1999, from $0 for the six months ended June 30, 1998. We held
our first job fair in February 1999.
OTHER FEES. Other revenue increased to $938,000 for the six months ended
June 30, 1999, from $20,000 for the six months ended June 30, 1998. This
increase primarily relates to the inception of single-ad job postings and
barter revenues.
COST OF REVENUES
Our cost of revenues increased to $1.2 million for the six months ended
June 30, 1999, from $167,000 for the six months ended June 30, 1998. As a
percentage of revenue, cost of revenues increased to 19% for the six months
ended June 30, 1999, from 16% for the six months ended June 30, 1998. This
increase resulted primarily from costs associated with both barter and the
launch of our WorkWorld job fairs.
OPERATING EXPENSES
PRODUCT DEVELOPMENT EXPENSE. Product development expense increased 70%, to
$344,000 for the six months ended June 30, 1999, from $202,000 for the six
months ended June 30, 1998. This increase resulted primarily from increased
salaries and related expenses associated with hiring additional technology
personnel required to enhance the content and features of our products and
services.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased to
$7.3 million for the six months ended June 30, 1999, from $1.2 million for
the six months ended June 30, 1998. As a percentage of revenue, sales and
marketing expense increased to 113% for the six months ended June 30, 1999,
from 106% for the six months ended June 30, 1998. The increase in sales and
marketing expense was primarily due to the expansion of the HotJobs.com
marketing campaign, including approximately $2.0 million for a television
advertisement during the Super Bowl in January 1999. In addition, sales and
marketing expense increased due to the hiring of additional sales and
marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased to $2.5 million for the six months ended June 30, 1999, from
$554,000 for the six months ended June 30, 1998. General and administrative
expense increased primarily due to increased salaries and related expenses
associated with hiring additional administrative personnel.
NON-CASH COMPENSATION EXPENSE. We recorded approximately $165,000 of
non-cash compensation expense for the six months ended June 30, 1999, which
represents the amortization of approximately $7.2 million of deferred
compensation recorded for the three months ended June 30, 1999 in connection
with stock options granted below the then expected initial public offering
price during the three months ended June 30, 1999. Deferred compensation of
approximately $7.2 million will be amortized over the periods during which
the related options vest. The remainder of such deferred compensation will
be amortized through May 2003 as the options vest.
28
<PAGE>
NET INTEREST EXPENSE
Net interest expense increased to $55,000 for the six months ended June 30,
1999, from $12,000 for the six months ended June 30, 1998. This increase
resulted from increased borrowings, as well as increased capital expenditures
under capital leases.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD ENDED DECEMBER 31, 1997
REVENUES
Our total revenues increased to $3.5 million for the year ended
December 31, 1998, from $397,000 for the period ended December 31, 1997. The
increase in our total revenues was primarily due to an increase in service fees
and other fees associated with the sale of miscellaneous proprietary software.
SERVICE FEES. Service fee revenue increased to $3.0 million for the year
ended December 31, 1998, from $361,000 for the period ended December 31,
1997. This increase resulted primarily from an increase in the number of
employers subscribing to WWW.HOTJOBS.COM and, to a lesser extent, an
increase in the hosting fees generated from a larger number of licensees of
our Softshoe software.
SOFTWARE LICENSE FEES. Software license revenue increased to $225,000 for
the year ended December 31, 1998, from $23,000 for the period ended
December 31, 1997. This increase was due to an increase in the number of
customers who purchased licenses for our Softshoe software.
JOB FAIR FEES. We held our first WorkWorld job fair in 1999. Therefore, we
did not generate any job fair revenue in either 1998 or 1997.
OTHER FEES. Other revenue increased to $249,000 for the year ended
December 31, 1998, from $13,000 for the period ended December 31, 1997. The
increase is primarily due to the sale of a miscellaneous proprietary
software product and an increase in fees related to customizing Softshoe
applications.
COST OF REVENUES
Our cost of revenues increased to $505,000 for the year ended December 31,
1998, from $12,000 for the period ended December 31, 1997. As a percentage of
revenue, cost of revenues increased to 14% for the year ended December 31, 1998,
from 3% for the period ended December 31, 1997. This increase resulted primarily
from an increase in our network operations staff as well as an increase in
depreciation expense.
OPERATING EXPENSES
PRODUCT DEVELOPMENT EXPENSE. Product development expense increased to
$474,000 for the year ended December 31, 1998, from $174,000 for the period
ended December 31, 1997. This increase resulted primarily from increased
salaries and related expenses associated with hiring additional technology
personnel required to enhance the content and features of our products and
services.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased to
$3.1 million for the year ended December 31, 1998, from $431,000 for the
period ended December 31, 1997, and decreased as a percentage of revenue to
88% for the year ended December 31, 1998 from 108% for the period ended
December 31, 1997. The increase in sales and marketing expense was primarily
due to costs associated with advertising and increases in sales
29
<PAGE>
compensation and commissions related to an increase in the number of our
sales and marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased to $1.6 million for the year ended December 31, 1998, from
$725,000 for the period ended December 31, 1997. General and administrative
expense increased primarily due to increased salaries and related expenses
associated with hiring additional personnel.
NET INTEREST EXPENSE
Net interest expense increased to $63,000 for the year ended December 31,
1998, from $0 for the period ended December 31, 1997. This increase resulted
from increased borrowings, as well as increased capital expenditures under
capital leases.
TAXES
At December 31, 1998, we had a net operating loss carryforward of
$3.1 million. This carryforward is available to offset future taxable income and
expires at various dates through 2018. We have recorded a valuation allowance of
an equal amount to fully offset the deferred tax benefit. The valuation
allowance increased approximately $551,000 for the year ended December 31, 1998.
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our quarterly results for each
of the six quarters ended June 30, 1999. This information was derived from
unaudited interim financial statements that, in the opinion of management, have
been prepared on a basis consistent with the financial statements contained
elsewhere in this prospectus and include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of such information
when read in conjunction with the financial statements and notes thereto. The
results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
Our revenue has increased in each consecutive quarter since inception as a
result of increased market acceptance of our employment exchange service and
Softshoe software product. Product development expense has steadily decreased as
a percentage of revenue due to a faster increase in revenue relative to product
development expense. Sales and marketing expense increased between the fourth
quarter of 1998 and the first quarter of 1999, primarily as a result of
increased advertising expenditures. Sales commissions have remained relatively
constant as a percentage of revenues, and we expect this to continue. However,
the timing and magnitude of marketing initiatives have caused, and will continue
to cause, fluctuations in sales and marketing expense as a percentage of
revenues. General and administrative expense has increased in every quarter
since inception due to an increase in personnel, facilities and increased
spending on internal operational and financial infrastructure.
In light of the evolving nature of our business and limited operating
history, we believe that period to period comparisons of our historical
operating results may not be meaningful and should not be relied upon as
indications of future performance. Although we have experienced
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sequential quarterly revenue growth since inception, our historical revenue
growth rates are not necessarily indicative of future revenue growth rates.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service fees....................... $ 347 $ 627 $ 914 $1,150 $ 1,960 $ 2,844
Software license fees.............. 45 51 59 70 78 83
Job fair fees...................... -- -- -- -- 216 314
Other.............................. 5 15 169 60 395 544
----- ----- ----- ------ ------- -------
Total revenues................. 397 693 1,142 1,280 2,649 3,785
Cost of revenues..................... 77 89 139 200 588 644
----- ----- ----- ------ ------- -------
Gross profit................... 320 604 1,003 1,080 2,061 3,141
Operating expenses:
Product development................ 90 112 140 133 157 187
Sales and marketing................ 524 629 754 1,177 3,229 4,031
General and administrative......... 274 280 375 713 823 1,671
Non-cash compensation.............. -- -- -- -- -- 165
----- ----- ----- ------ ------- -------
Total operating expenses....... 888 1,021 1,269 2,023 4,209 6,054
----- ----- ----- ------ ------- -------
Loss from operations......... (568) (417) (266) (943) (2,148) (2,913)
Net interest income (expense)........ (7) (6) (15) (35) (68) 12
----- ----- ----- ------ ------- -------
Net loss..................... $(575) $(423) $(281) $ (978) $(2,216) $(2,901)
===== ===== ===== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Service fees....................... 88% 91% 80% 90% 74% 75%
Software license fees.............. 11 7 5 5 3 2
Job fair fees...................... -- -- -- -- 8 8
Other.............................. 1 2 15 5 15 15
----- ----- ----- ------ ------- ------
Total revenues................. 100 100 100 100 100 100
Cost of revenues..................... 19 13 12 16 22 17
----- ----- ----- ------ ------- ------
Gross profit................... 81 87 88 84 78 83
Operating expenses:
Product development.............. 23 16 12 10 6 5
Sales and marketing.............. 132 91 66 92 122 107
General and administrative....... 69 40 33 56 31 44
Non-cash compensation............ -- -- -- -- -- 4
----- ----- ----- ------ ------- ------
Total operating expenses....... 224 147 111 158 159 160
----- ----- ----- ------ ------- ------
Loss from operations......... (143) (60) (23) (74) (81) (77)
Net interest income (expense)........ 2 1 1 3 3 0
----- ----- ----- ------ ------- ------
Net loss..................... (145)% (61)% (24)% (77)% (84)% (77)%
===== ===== ===== ====== ======= ======
</TABLE>
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our activities primarily through funding
from OTEC, Inc., as well as proceeds from lines of credit, cash from operations,
our May 1999 private placement and our initial public offering. As of June 30,
1999, OTEC owned approximately 14.8% of the voting stock of HotJobs.com. Richard
S. Johnson, our Chief Executive Officer and President, formerly served as
President of OTEC and currently is a director and one of its two stockholders.
See "Related Party Transactions--Transactions Involving OTEC." During 1998, OTEC
provided us with approximately $3.8 million to fund our operations. In addition,
effective May 10, 1999, we raised $16.2 million from the sale of our Series A
Preferred Stock in a private placement. In June 1999, we used a portion of these
proceeds to repay OTEC in full. In the three months ended September 30, 1999, we
received net proceeds of approximately $23.3 million from our initial public
offering of 3,350,000 shares of our common stock at a price of $8.00 per share.
Net cash used in operating activities was $2.1 million during 1998 and
$2.3 million for the six months ended June 30, 1999. Net cash used in operating
activities resulted primarily from our net operating losses, which resulted from
costs incurred to support our sales and marketing efforts and the increased
personnel required to manage our growing operations, and a higher level of
accounts receivable due to increased revenues and deferred revenue. Deferred
revenue accounts for a significant percentage of our accounts receivable due to
our deferring from revenues amounts that are invoiced, until the period in which
we provide the services. Our net operating losses were partially offset by
increases in accounts payable and accrued expenses.
Net cash used in investing activities was $497,000 during 1998 and $998,000
for the six months ended June 30, 1999. We used net cash in investing activities
primarily for equipment purchases and leasehold improvements. During 1998 and
the six months ended June 30, 1999, we acquired additional equipment under
capital leases with a value of $201,000 and $457,000, respectively.
Net cash provided by financing activities was $2.8 million during 1998 and
$12.3 million for the six months ended June 30, 1999. Net cash was provided by
financing activities primarily from the $16.2 million in cash proceeds we
received in May 1999 from a private placement of our convertible preferred
stock.
As of June 30, 1999, we had a cash balance of $9.2 million and our principal
obligations consisted of advertising expenditures. As of June 30, 1999, we had
$180,000 outstanding under our line of credit. On July 20, 1999, we repaid
$180,000 in principal along with interest due under this line of credit. On
September 16, 1999, we terminated this line of credit and entered into a Loan
and Security Agreement with Silicon Valley Bank for a $4.0 million revolving
line of credit and a $1.0 million equipment line of credit. This agreement has a
term of one year and bears interest at an annual rate of the bank's prime rate
plus 75 basis points. The equipment line of credit has a term of 42 months and
bears interest at an annual rate of the bank's prime rate plus 100 basis points.
We believe that the net proceeds of this offering, together with our
existing cash and cash equivalents, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for the next
12 months. Our capital requirements will depend on a number of factors,
including market acceptance of our products and services, the amount of our
resources we devote to WWW.HOTJOBS.COM and expansion of our operations and the
amount of our resources we devote to promoting awareness of the HotJobs.com
brand. Consistent with our growth, we have experienced a substantial increase in
our sales and marketing expenses, capital expenditures and operating lease
arrangements since inception, and we anticipate that these increases will
continue for the foreseeable future. In addition, we will continue to evaluate
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possible investments in businesses, products and technologies, the consummation
of any of which would increase our capital expenditures.
Although we currently believe that we have sufficient capital resources to
meet our anticipated working capital and capital expenditure requirements beyond
the next 12 months, unanticipated events and opportunities may require us to
sell additional equity or debt securities, increase our current line of credit
or establish new credit facilities to raise capital in order to meet our capital
requirements. If we sell additional equity or convertible debt securities, the
sale could dilute the ownership of our existing stockholders. If we issue debt
securities, increase our credit facility or establish a new credit facility, our
fixed obligations could increase and result in operating covenants that would
restrict our operations. We cannot be sure that any such financing will be
available in amounts or on terms acceptable to us.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
and software products will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and
software used by many companies and governmental agencies may need to be
upgraded to comply with such year 2000 requirements or risk system failure or
miscalculations which could cause disruptions of normal business activities.
STATE OF READINESS. We have made a preliminary assessment of the year 2000
readiness of our information technology ("IT") systems, including the hardware
and software that enable us to provide and deliver our products and services.
Our year 2000 readiness plan consists of:
- quality assurance testing of our internally developed proprietary
software;
- contacting third-party vendors and licensors of material software and
services that are both directly and indirectly related to the delivery of
our products and services;
- assessing our repair and replacement requirements; and
- creating contingency plans in the event of year 2000 failures.
We performed a year 2000 simulation on our software during the second
quarter of 1999 to test system readiness, and found no anomalous behavior in our
systems. We have been informed by our material software component vendors and
our Internet service providers that the products we use are, or will be, year
2000 compliant. We purchased or developed our systems within the past two years,
and we therefore believe that we do not have legacy systems that have been
historically identified to have year 2000 issues. We have applied vendor patches
for relevant software to bring them into compliance with vendor-defined year
2000 standards. We are in the process of engaging an outside firm to audit our
application code. We are in the process of engaging an outside firm to audit our
application code.
We are currently assessing our non-IT systems and will seek assurance of
year 2000 compliance from providers of material non-IT systems. Until testing is
complete and we contact these vendors and providers, we will not be able to
completely evaluate whether our IT systems or non-IT systems will need to be
revised or replaced.
PRODUCTS. Under most of our Softshoe license agreements, we warrant that
our Softshoe software is free from programming defects arising from year 2000
issues. Our obligation is to remedy the defect or replace the product. We
believe our Softshoe product is free of year 2000 defects.
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COSTS. To date we have not incurred any material costs in identifying or
evaluating year 2000 compliance issues. Based on our assessment to date, we do
not anticipate that costs associated with remediating our non-compliant IT
systems or non-IT systems will be material. We expect that our existing
employees or consultants will perform any significant work pertaining to year
2000 compliance.
RISKS. We are not currently aware of any year 2000 compliance problems
relating to our technology or our IT or non-IT systems that would have a
material adverse effect on our business, results of operations or financial
condition. However, we may discover year 2000 compliance problems in our
technology that will require substantial revisions. In addition, we may need to
revise or replace third party software, hardware or services incorporated into
our material IT and non-IT systems, all of which could be time consuming and
expensive. If we fail to fix our technology or to fix or replace third party
software, hardware or services on a timely basis, the result could be lost
revenues, increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address year 2000 compliance issues in our technology and our IT
and non-IT systems could result in claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and
time-consuming to defend. In addition, we cannot assure you that governmental
agencies, utility companies, Internet access companies, third party service
providers and others outside our control will be year 2000 compliant. The
failure by such entities to be year 2000 compliant could result in a systemic
failure beyond our control, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent us from delivering our products and
services to our customers, decrease the use of the Internet or prevent users
from accessing the Websites of companies with whom we have entered into business
alliances, which could have a material adverse effect on our business, results
of operations and financial condition.
CONTINGENCY PLAN. On September 15, 1999, we adopted a contingency plan for
the failure of one or more critical system components as a result of year 2000
bugs in one or more proprietary and third party systems. While no outage is
anticipated and all tests to date have indicated that our systems are Year 2000
compliant, the plan identifies first, second and third-level technical
alternatives that can be implemented to minimize or eliminate down time in the
event of component or system failures.
WORST CASE SCENARIO. Based on our assessment completed to date, we believe
that the reasonably likely worst case scenario with respect to year 2000 issues
could be:
- portions of WWW.HOTJOBS.COM may be down while programmers fix our systems
or the systems of ISPs or other third parties;
- temporary data loss could occur while back-up copies of data are retrieved
from tape;
- lengthy outages could occur while programmers work to repair or restore
corrupted or missing database files; and
- our internal corporate, billing and accounting system may be down while
programmers fix our system.
Although these events could have an adverse effect on our business in the
short term, we do not believe that year 2000 issues will materially and
adversely affect our business, results of operations or financial condition over
the long term. While we will have system engineers on-site over the year 2000
date change, we can give no assurance that all expectations will be realized.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, which supersedes SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise. This
statement changes the way that public business enterprises report segment
information, including financial and descriptive information about their
selected segment information. Under SFAS No. 131, operating segments are defined
as revenue-producing components of the enterprise which are generally used
internally for evaluating segment performance. SFAS No. 131 became effective for
HotJobs.com fiscal year ending December 31, 1997, and we have determined that
under the guidelines of SFAS No. 131 we did not have any separately reportable
business segments as of December 31, 1998.
In February 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 establishes the accounting for
costs of software products developed or purchased for internal use, including
when such costs should be capitalized. We do not expect SOP 98-1, which is
effective January 1, 1999, to have a material effect on our financial condition
or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning June 15, 2000. This statement is
not expected to affect us because we currently do not engage or plan to engage
in derivative instruments or hedging activities.
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BUSINESS
GENERAL
We are a leading Internet-based recruiting solutions company. Our suite of
services leverages the Internet to provide a direct exchange of information
between job seekers and employers. We developed these services based on our
experience in the recruiting industry and our in-depth understanding of the
needs of job seekers and employers. By solving many of the problems associated
with traditional recruiting methods, we allow employers to more effectively
manage their recruiting processes to save time and money.
The majority of our revenues are recurring and are primarily derived from
employer memberships to our online employment exchange, WWW.HOTJOBS.COM.
Headhunters are prohibited from using our employment exchange, ensuring direct
contact between job seekers and member employers. We also provide employers with
additional recruiting solutions such as our proprietary Softshoe recruiting
software, our WorkWorld job fairs and online advertising and consulting
services.
Revenues from our services have grown rapidly, primarily driven by increased
employer memberships to our WWW.HOTJOBS.COM employment exchange. Our revenues
increased from approximately $397,000 for the period ended December 31, 1997, to
approximately $3.5 million for the fiscal year ended December 31, 1998. Our
revenues for the nine months ended September 30, 1999 were approximately
$12.1 million.
INDUSTRY BACKGROUND
RECRUITING MARKET
We believe that companies cannot be competitive without implementing
successful recruiting practices. According to industry sources, businesses in
the U.S. spent in excess of $13 billion in 1997 to hire new employees by
advertising job openings in newspapers and by hiring headhunters.
We believe that several factors are causing an increase in spending on
recruiting efforts:
INCREASED LABOR SHORTAGE. We believe that demographic trends such as the
aging of the Baby Boomers and decreasing birth rates, together with the
continued growth in the U.S. economy, are combining to cause a tight labor
market. For example, according to a 1998 recruiting survey prepared by
Interbiznet.com, over 60% of the recruiters surveyed experienced labor
shortages. As a result, the recruiting process now focuses less on selecting
qualified employees from a ready pool of candidates and more on managing a
scarce resource.
INCREASED EMPLOYEE TURNOVER. We believe that employees currently change
jobs more often than they have in the past and that even satisfied employees are
increasingly investigating job opportunities. According to the U.S. Bureau of
Labor Statistics, the average person entering the workforce today will work for
between eight and ten different employers. This makes it more difficult for
employers to retain qualified, experienced individuals and increases the number
of hirings that must occur each year in order to maintain or grow an employer's
workforce.
INCREASED URGENCY TO REDUCE TIME TO HIRE. Forrester Research, Inc.
estimates that unemployment among "knowledge workers" is less than 1% relative
to overall unemployment of 4.2%. Because of the shortage in highly skilled job
seekers, qualified candidates must be hired quickly or they may be lost to
competitors. The ability to quickly hire qualified employees may have a
significant influence on the future success of a company.
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Prior to the advent of the Internet, companies traditionally relied on a
combination of five recruiting methods. These five methods include newspaper
classifieds and other print advertisements, traditional job fairs, on-campus
recruiting, internal referral programs and headhunters. The key limitations of
each of these methods include:
NEWSPAPER CLASSIFIEDS AND OTHER PRINT ADVERTISEMENTS
- multiple intermediaries including media buyers and media placement agents
are typically involved before an advertisement is placed;
- several weeks to several months may pass from the time a job is advertised
to the time the recruiter can respond to resumes in which he or she is
interested; and
- it is typically cost prohibitive to provide a full description of either
the employer or the job opportunity and to advertise jobs nationally.
TRADITIONAL JOB FAIRS
- employers have limited time to meet with job seekers whom they have not
pre-screened; and
- job seekers often must visit each company's booth prior to determining the
specific jobs that are available.
ON-CAMPUS RECRUITING
- the number of candidates requesting interviews typically exceeds the
employers' available time slots; and
- employers must visit multiple campuses and have limited time to meet with
all qualified candidates.
INTERNAL REFERRAL PROGRAMS
- incentive programs may divert an employee's attention away from performing
his or her job, thereby reducing productivity; and
- referring employees may be more concerned about the quantity than the
quality of referrals.
HEADHUNTERS
- placement fees are costly and employers only have access to limited
applicant pools; and
- job seekers generally receive limited information about the specific
companies and positions for which they apply and do not have direct
contact with the employer.
ONLINE RECRUITING MARKET
The emergence of the Internet has created an opportunity to connect job
seekers with employers more efficiently and cost effectively when compared to
traditional recruiting methods. Online recruiting can automate the recruiting
process, providing more informative and responsive real-time interaction between
job seekers and employers, and has the potential to lower the cost and time to
hire. Job seekers are empowered with access to an aggregation of information
about employment opportunities worldwide not previously available to them in one
place. We believe that a significant online recruiting marketplace will emerge
as more job seekers and employers embrace the advantages the Internet brings to
the recruiting process. In
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addition, Internet-based solutions may replace more expensive client/server
recruiting software and change the way companies manage and distribute
information about job seekers throughout their organizations.
International Data Corporation estimates that the total number of individual
Internet users worldwide will grow from approximately 69 million in 1997 to
320 million in 2002. As Internet usage becomes more widespread, companies from a
broad range of industries are expected to conduct an increasing percentage of
their recruiting over the Internet. Of the 6 million businesses in the U.S.,
Forrester estimates that only 15,000 businesses currently recruit online, but
this figure is estimated to increase to 124,000 by 2003. Forrester forecasts
that by 2003, most large companies, 60% of medium-sized companies and 20% of
small companies will use the Internet for recruiting purposes.
MARKET OPPORTUNITY
We believe that most of the advantages offered by Internet technology have
not been fully applied to the recruiting market. While online job boards have
improved the aggregation of job postings and job seekers, they have not
fundamentally improved workflow throughout the recruiting process. Additionally,
few Web-based commercial software applications are available to help employers
manage their internal recruiting processes. We also believe that most employers
are in the early stages of understanding how to use the Internet to increase
their competitiveness in recruiting.
We believe that many of the current online recruiting offerings suffer from
the following limitations:
- LACK OF PRIVACY. Most online recruiting solutions do not allow job seekers
to restrict access to their resumes. We believe that many experienced
professionals will not post their resumes on a job board if there is a
chance that they may be detected by their current employers.
- HEADHUNTER POSTINGS. Many of the current online recruiting offerings give
headhunters complete access to their sites, resulting in a high cost
intermediary between employers and job seekers. In addition, employers
have to compete with headhunters for the job seekers they are looking to
hire. Job seekers do not know whether the jobs to which they are applying
are from actual employers or are merely ads placed by headhunters looking
for applicants for whom they can charge a fee.
- LACK OF SCREENING PROCESS. Many of the current online job boards offer no
or only limited testing and screening capabilities. Many sites stress the
size of their resume database and the number of people who visit the site
each month. This focus on quantity rather than quality results in the
recruiter receiving an excessive amount of unwanted resumes.
- LACK OF FUNCTIONALITY. Many online job boards serve only to attract
candidates without providing employers with the tools they need to manage
the recruiting process within their organizations. Additionally, these job
boards generally lack the ability to help employers compile and analyze
job seeker data.
- UNFAVORABLE PRICING MODEL. Most recruiting Websites charge companies to
list openings for a fixed period of time on a price-per-ad basis. We
believe that this is inefficient for companies with ongoing recruiting
needs. Jobs that have been filled remain posted, attracting unwanted
applicants, while unfilled jobs need to be posted again and again until a
person is hired.
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Because our recruiting solution does not suffer from these limitations, we
believe that an opportunity exists for HotJobs.com to become the leader in
online recruiting solutions.
THE HOTJOBS.COM SOLUTION
We provide comprehensive online recruiting solutions for employers and job
seekers. Our solutions include our online employment exchange, WWW.HOTJOBS.COM,
our browser-based proprietary recruiting software, Softshoe, and our WorkWorld
job fairs. Additionally, we provide strategic consulting and development
services focused on improving the efficiency and effectiveness of the recruiting
process for employers. As companies increasingly utilize the Internet to improve
their recruiting processes, we believe that our solution enables our customers
to leverage the lower cost and real-time communication enabled by the Internet
while retaining many of the positive attributes of traditional recruiting
methods.
BENEFITS TO JOB SEEKERS
Our WWW.HOTJOBS.COM employment exchange empowers job seekers to find
employment opportunities posted directly by employers at no cost to the job
seeker. Key features of our solution for job seekers include:
- DIRECT ACCESS TO A LARGE AND GROWING LIST OF EMPLOYERS. Our
WWW.HOTJOBS.COM site offers job seekers direct access to job postings from
over 2,500 member employers. Unlike most online recruiting services, we
exclude headhunters from our site to ensure direct contact between our job
seekers and member employers. Job seekers can search for and apply to
specific job openings or submit their resumes to our resume database,
providing our member employers with access to their resumes unless blocked
by the job seeker.
- PRIVACY. Through the use of the HotBlock feature, job seekers can prevent
the viewing of their resumes. With this feature, job seekers can eliminate
unwanted solicitations and avoid detection by their current employers.
- PERSONALIZATION. We enable job seekers to set up their own career home
page, My HotJobs, free of charge and provide them with tools to manage
their job searches. We also provide job seekers with the ability to set up
personal job search agents, enabling them to create customized and
automated searches based on their specifications, such as job type or
geographic preference. This service also provides job seekers with email
notification during a specified period of time of any new jobs added to
the system which match the job seeker's specifications.
- DETAILED, CURRENT INFORMATION. We provide in-depth company and job
descriptions, enabling job seekers to apply for those jobs for which they
are most qualified and minimizing the need for additional research.
Additionally, each job posting includes a date stamp, giving the job
seeker information about the age of a particular job posting.
- JOB SEARCH TOOLS. We provide job seekers with the ability to store job
search information, including a "shopping cart" to store multiple job
search results as well as cover letter storage related to specific job
inquiries. Additionally, job seekers can keep track of currently active
jobs for which they have applied and can analyze the effectiveness of
their job searches by tracking the number of times their resumes appear in
an employer's search and are subsequently viewed.
- CAREER RESOURCES. We provide job seekers with career resources, including
a bookstore, original editorial content and job seeker message boards.
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BENEFITS TO EMPLOYERS
We provide employers with a comprehensive Internet-based recruiting solution
focused on reducing the cost and time to hire a new employee. This comprehensive
solution includes WWW.HOTJOBS.COM, our online employment exchange, our Softshoe
recruiting software, our WorkWorld job fairs and related advertising and
consulting services. We developed our solution to provide employers with access
to a high quality pool of job seekers and the tools necessary to manage the
workflow involved in the recruiting process. Key features of our solution for
employers include:
- FLEXIBLE PRICING MODEL. We offer employers a fully automated,
cost-efficient means to recruit job seekers online. Our pricing model
allows employers to choose between different levels of service to meet
their needs. Depending upon the employer's requirements, employers may
choose to pay periodic subscription fees to become a member of our online
employment exchange based on the number of the employer's recruiters that
have access to the exchange, to utilize our online software on a
subscription fee basis or to purchase customized consulting services.
- DIRECT ACCESS TO A LARGE NUMBER OF JOB SEEKERS. Through our employment
exchange, we offer member employers access to our growing job seeker
database which currently contains more than 540,000 resumes. We do not
allow headhunters to search our resume database or to place job
advertisements on our job board. By limiting access only to member
employers, we provide direct access to our pool of job seekers and
eliminate competition for candidates from headhunters.
- REAL-TIME JOB POSTING, TRACKING AND MANAGEMENT TOOLS. We provide member
employers the ability to post, track and manage job openings in a
real-time environment. Our solution enables a member employer to remove a
posting once a position has been filled and replace it with a new posting.
We believe that this reduces unnecessary expenditures of time and money
experienced in traditional recruiting methods.
- REDUCE UNWANTED RESUMES. Because we do not charge on a per-word basis, our
solution allows employers to provide in-depth job descriptions, allowing
candidates to self-select jobs for which they are qualified. Additionally,
employers can pre-screen applicants using online testing and remove a job
posting as soon as it is filled. We believe these functions minimize the
receipt by employers of unqualified or untimely resumes.
- VALUE ADDED RECRUITING MANAGEMENT SOFTWARE. In addition to our online
employment exchange, we provide our proprietary browser-based recruiting
software to help employers better manage the entire recruiting process.
Softshoe provides private label job board and applicant tracking
capabilities, enabling employers to coordinate online and traditional
recruiting methods and to share information throughout their entire
organization. This enables improved coordination and communication among
recruiters, hiring managers and executive management.
- DISTRIBUTION OF JOB POSTINGS. Through our relationships with third-party
Websites, we are able to offer our member employers the ability to place
their HotJobs.com job postings onto high-traffic third party Websites
including Yahoo!, Alta Vista, Usenet and America's Job Bank at no
additional cost. We have also entered into arrangements with
theglobe.com, Inc., E*Trade Group Inc., About.com, Inc. and TechRepublic,
Inc. providing direct access to WWW.HOTJOBS.COM from their sites.
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THE HOTJOBS.COM STRATEGY
Our objective is to become the leading global provider of online recruiting
services. Key elements of our strategy include:
- BUILD GLOBAL BRAND AWARENESS. We believe that it is essential to establish
a strong global brand. We utilize an aggressive marketing program
involving print, radio, outdoor, online and television marketing to
promote HotJobs.com. For example, in January 1999, we aired a television
commercial during the Super Bowl which resulted in a 117% increase in
traffic to our site in the following month. We intend to expand our use of
public relations, strategic alliances and other marketing programs
designed to promote our global brand and build loyalty among our member
employers and job seekers.
- ACCELERATE NEW SUBSCRIBER GROWTH. We intend to accelerate the growth of
our subscriber base by rapidly expanding the size of our sales force and
locating it in select markets throughout the U.S. Generally, we have found
that we are more successful in obtaining member employers in markets in
which we have a local presence, providing us with a better understanding
of a market's particular recruiting needs.
- CONTINUE TO ENHANCE SITE FUNCTIONALITY AND FEATURES. We intend to provide
the best available tools to empower job seekers and employers to more
effectively manage their job seeking and recruiting processes. We are
developing product and service enhancements aimed at both member employers
and job seekers to continue to improve our user interface, searching
capabilities, workflow and collaboration, data visualization,
navigability, reporting and forecasting. In addition, we intend to enhance
content for job seekers. We believe that these enhancements will increase
interest in and traffic to our Website.
- EXPAND OUR RELATIONSHIP WITH MEMBER EMPLOYERS. We focus significant sales
efforts on expanding our relationship with member employers by offering
additional products and services. These efforts include the sale of
additional subscriptions to WWW.HOTJOBS.COM, Softshoe recruiting software,
participation in our WorkWorld job fairs and online advertising and
consulting services.
- PROVIDE ADDITIONAL CAREER CHANNELS IN SPECIFIC FIELDS. We intend to
increase the appeal and ease of use of WWW.HOTJOBS.COM for job seekers by
offering career channels in specific fields such as healthcare, legal
services and biotechnology.
- EXPAND INTERNATIONAL OPERATIONS. We intend to expand our international
operations to attract new job seekers and member employers in new markets
and to allow us to better serve our global member employers. We plan to
accomplish this by opening facilities, making acquisitions and effecting
strategic alliances, investments or licensing arrangements that enhance
our appeal to unique communities of job seekers. By opening international
offices, we believe we will be better positioned to acquire new job
seekers and member employers in those countries. We launched our
Australian operations at the Internet World Show in Sydney, Australia in
August 1999.
- PURSUE STRATEGIC ACQUISITIONS. From time to time, we evaluate acquisition
and investment opportunities in complementary businesses, products and
technologies. We explore opportunities that may accelerate our growth; add
new content, advertisers, member employers and job seekers; develop new
technologies; and penetrate new markets. Presently, we do not have any
commitments or understandings for acquisitions or investments and we are
not presently engaged in negotiations.
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PRODUCTS AND SERVICES
WWW.HOTJOBS.COM
Our WWW.HOTJOBS.COM employment exchange creates a direct link between member
employers and job seekers. We empower both job seekers and member employers by
providing them with the tools and functionality they need to plan, execute,
monitor and control their employment searches.
Key features for job seekers and member employers are outlined below:
<TABLE>
<CAPTION>
JOB SEEKER FEATURES MEMBER EMPLOYER FEATURES
------------------------------------- -------------------------------------
<S> <C> <C>
PRICING - Free of charge - Recurring subscription fee
REACH - Searchable database with access to - Ability to search over 540,000
more than 2,500 member employers resumes
- Recorded over 2.2 million visits in
September 1999
- Ability to post job listings to
third party sites, including Yahoo!,
AltaVista, Usenet and America's Job
Bank, at no additional cost
DIRECT - Direct access to member employers; - No headhunters may post jobs or
EXCHANGE no headhunter listings permitted search our resume database
CUSTOMIZATION - Personal Job Search Agent - Allows for a detailed job
- Personal career home page description and a full company
profile
- Test module feature allows pre-
screening of candidates
REAL-TIME - Up-to-date job postings - Ability to remove job postings at
- Date stamping of all job postings any time
- Date stamping of resumes
- Immediate receipt of resume
submissions
PRIVACY - Ability to restrict access to their - Search and review job seeker
resume resumes anonymously
TRACKING AND - Automatic email notification - Ability to respond directly to job
MONITORING confirming application receipt seekers
- Online "shopping cart" to store - Storage and management of job
jobs listings and resumes
- Ability to store resumes and cover - Ability to coordinate job postings
letters for member employers with multiple
- Archive job applications accounts
- Multiple recruiters within an
enterprise can share notes on an
applicant
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
JOB SEEKER FEATURES MEMBER EMPLOYER FEATURES
------------------------------------- -------------------------------------
<S> <C> <C>
STATISTICS - Number of times resume has come up - Number of times a job posting comes
in a search and subsequently been up in a search, is viewed and
viewed and how many jobs to which applied to by job seekers
the job seeker has applied
COMMUNITY - Career resources, bookstore,
original editorial content and job
seeker message boards
</TABLE>
SOFTSHOE
Introduced in September 1997, our Softshoe recruiting software permits
employers to manage their enterprise-wide recruiting process by leveraging the
cost-efficiencies associated with the Internet. Softshoe provides employers with
the ability to create a private label, publicly-viewed job board and an internal
employee-only job board, to schedule and track the results of interviews and
other recruiting events and to prepare detailed analyses of the company's
recruiting efforts. Softshoe provides a browser-based interface that allows
multiple participants within an employer's organization to coordinate their
efforts in the recruiting process. These participants include recruiters,
administrators, executives and hiring managers, each of whom is able to access
different levels of information relevant to their involvement in the recruiting
process.
Softshoe provides extensive online reports that allow users to analyze
processes and statistical data to establish and refine strategic recruiting
initiatives. Examples of these reports include time to hire, number of hires,
source of applicants and equal opportunity employment data.
WORKWORLD AND OTHER SERVICES
We conduct a series of job fairs known as WorkWorld. Like WWW.HOTJOBS.COM,
these job fairs do not allow headhunters to participate. Unlike the traditional
job fair model which leaves recruiters with thousands of paper resumes to sort
through, our fairs are fully integrated into the WWW.HOTJOBS.COM system, placing
all job seekers' information online. Job seekers can log onto WorkWorld.com to
view a schedule of upcoming events and a list of participating employers and to
apply directly to available jobs. Recruiters can then schedule appointments with
candidates prior to the actual event. WorkWorld job fairs also serve to provide
a physical forum for our account executives to meet directly with employers.
We also offer consulting services to assist employers with automating the
recruiting and job advertising processes in areas including recruiting process
re-engineering and Web page design, online advertising and customization.
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CUSTOMERS
As of September 30, 1999, our customer base included over 2,500 employers in
industries such as technology, financial services, health care, professional
services, retail and telecommunications. Some of our member employers include:
Amazon.com, Inc.
America Online, Inc.
Central Intelligence Agency
City of Palo Alto
CNBC
CNN
Drugstore.com, Inc.
E*Trade Group Inc.
Hewlett-Packard Company
The Home Depot, Inc.
Intel Corporation
Merck & Co. Inc.
Microsoft Corporation
Nike, Inc.
Procter & Gamble
Union Carbide Corporation
The Walt Disney Company
Yankee Group
Young & Rubicam
As of September 30, 1999, clients that have purchased Softshoe to manage
their recruiting systems include:
Coors Brewing Company
DoubleClick, Inc.
Ford Motor Company
Humana Inc.
Lucent Technologies
Tricon Global
Restaurants, Inc.
Wang Government Services
Division
Warburg Dillon Read
For the period from February 20, 1997 to December 31, 1997 and the year
ended December 31, 1998, there was no customer that accounted for more than 10%
of our revenues.
SALES AND MARKETING
As of September 30, 1999, our direct sales force consisted of 68 account
executives located in New York, San Francisco, Boston, Chicago and Sydney,
Australia. We obtain new corporate members primarily through telemarketing
directly to employers as well as leads generated from online inquiries and
referrals. In addition, we solicit employers through participation in human
resource industry trade shows and similar events. To encourage our account
executives to maintain and build our relationship with our member employers, we
pay them a monthly commission that is a fixed percentage of all periodic fees
paid by the accounts with whom they have established a relationship. This also
creates an opportunity for account executives to sell other components of our
online recruiting solution such as our Softshoe recruiting software,
participation in our WorkWorld job fairs and related advertising and promotional
opportunities.
We utilize an aggressive marketing program involving print, radio, outdoor,
online and television advertising to promote WWW.HOTJOBS.COM as a leading
employment exchange. We also support a consistent direct marketing and
educational campaign to our member companies regarding online recruiting
developments and practices. We plan to continue to use key marketing events,
coupled with public relations efforts, to promote awareness of the HotJobs.com
brand.
In addition, we have developed co-promotional events and marketing campaigns
for both WWW.HOTJOBS.COM and WorkWorld. Some examples of these include: Jane
Magazine Fall College Tour and Experienceonline.com college career center tour.
Our October '99 WorkWorld job fair was produced in conjunction with the Fall
Internet World '99 Exhibit and Conference.
BUSINESS ALLIANCES
We have entered into the following alliances to expand our distribution
network, providing added value to our member employers, and increasing
recognition of the HotJobs.com brand:
THEGLOBE.COM, INC. We have entered into a co-branding agreement with
theglobe.com, Inc., an online network that fuses together lifestyle and
entertainment content and commerce with
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personal interaction. This alliance will fully integrate HotJobs.com's
employment opportunities within Careers, theglobe.com's new sub-theme area.
Users of theglobe.com will be able to create resumes through theglobe.com's home
page builder and post them at HotJobs.com's co-branded service.
E*TRADE GROUP INC. We have entered into a co-branding agreement with
E*Trade Group Inc., a leading provider of online investing services. Under this
agreement, visitors to the "Community" page on www.etrade.com will have access
to "Hot Jobs of the Week," a feature of HotJobs.com that highlights certain job
opportunities. The agreement also calls for online and offline marketing
components, including banners and direct mail.
ABOUT.COM, INC. We have entered into a co-branding agreement and an
advertising agreement with About.com. Under the co-branding agreement, we will
build, maintain and host targeted, co-branded job listings sites which users of
About.com will be able to access from certain channels such as Business/Careers.
Under the advertising agreement, About.com has agreed to deliver advertising
impressions to us through such avenues as home page-links and banner ads.
TECHREPUBLIC, INC. We have entered into a co-branded job board and content
licensing agreement with TechRepublic. Under this agreement, we will design a
co-branded job board for TechRepublic which will include the basic functionality
of WWW.HOTJOBS.COM. The agreement provides that we will be the exclusive online
recruiting solutions provider for TechRepublic, and we will provide links to
TechRepublic content on our Website.
HotJobs.com enters into relationships that allow us to acquire editorial
content and/or Web services that are relevant to our job seeker audience. These
include salary calculators, relocation services, company biographies and other
pertinent information.
Parties with whom we have entered into alliances may not perform their
obligations as agreed. Our business alliances generally do not establish minimum
performance requirements but instead rely on voluntary efforts. In addition,
most of our alliance agreements may be terminated by either party with little
notice.
TECHNOLOGY
We developed our technology to serve a large volume of Web traffic in an
efficient, scalable and fault-tolerant manner. The system updates its data
files, providing useful search and statistical results to the user. We designed
the system to scale easily to support geometric growth without the need to
re-architect, or acquire hardware/software systems at a geometric rate.
We currently support our production servers in-house, but have signed
contracts to co-locate at Level(3) and Frontier Global Center, Web co-location
facilities and Internet service providers. These facilities include features
such as:
- protection against a power loss;
- multiple pathways for data to be passed to the Internet;
- arrangements with other ISPs to exchange data in order to allow a packet
of data to travel the shortest and least congested pathway;
- fire suppression; and
- physical space that allows us to grow without being limited by
"environmental" factors while simultaneously providing sufficient
bandwidth capacities.
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As we expand our leased application hosting, we intend to increase our use
of the services provided by Level(3), Frontier Global Center and other
co-location providers. Our contract with Level(3) began on April 15, 1999 and
has a one-year term with month-to-month renewals thereafter. We pay monthly fees
of $9,000 under the agreement. Level(3) can discontinue service under certain
circumstances, including failure by us to pay our bills. Our contract with
Frontier Global Center began on September 15, 1999 and has a two-year term. Fees
payable under our agreement with Frontier Global Center will vary depending upon
our usage.
Our software is written using open standards, such as ANSI C, C++, ECMA-262
Script, and HTML, and interfaces with products from Oracle, Netscape
Communications, Inc. and Thunderstone. Our template-based page generation using
our proprietary tagging language allows for rapid deployment of user interface
changes without the necessity to recompile code. This also allows us to develop
co-branded sites rapidly without re-engineering.
We have standardized our hardware platform on Sun Microsystems servers,
Cisco routers, Foundry Networks switches and Boxhill disk arrays. Our network
topology is designed to sustain multiple failures by various components without
down-time.
COMPETITION
The market for online recruiting solutions is intensely competitive and
highly fragmented. We compete with companies, including recruiting search firms,
that offer a single database "job board" solution, such as Monster.com, as well
as newspapers, magazines and other traditional media companies that provide
online job search services, such as CareerPath.com. We also compete with large
Internet information hubs, or portals, such as Excite@Home. We may experience
competition from potential customers to the extent that they develop their own
online recruiting offerings internally. In addition, we compete with traditional
recruiting services, such as headhunters, for a share of employers' total
recruiting budgets. We expect to face additional competition as other
established and emerging companies, including print media companies and
headhunters with established brands, enter the online recruiting market.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources and larger client bases than we do. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships to expand their businesses or to offer more comprehensive
solutions.
We believe that there will be rapid business consolidation in the online
recruiting industry. Accordingly, new competitors may emerge and rapidly acquire
significant market share. In addition, new technologies will likely increase the
competitive pressures that we face. The development of competing technologies by
market participants or the emergence of new industry standards may adversely
affect our competitive position. Competition could result in reduced margins on
our products and services, loss of market share or less use of WWW.HOTJOBS.COM
by job seekers and employers. If we are not able to compete effectively with
current or future competitors as a result of these and other factors, our
business could be materially adversely affected.
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.
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<PAGE>
PRIVACY CONCERNS. Government agencies are considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing Websites. While we have implemented and intend
to implement additional programs designed to enhance the protection of the
privacy of our users, these programs may not conform to any regulations adopted
by these agencies. In addition, these regulatory and enforcement efforts may
adversely affect the 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 (the "EU") 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 entities such as HotJobs.com that plan to
engage in data collection from users in EU 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 "HotJobs.com" as a trademark, third parties have and may
continue to bring claims for infringement against us for the use of this
trademark. In the event those claims are successful, we would lose the ability
to use the HotJobs.com domain name. 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 New
York City, 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 depends to a significant degree upon the protection of our
proprietary technology, including Softshoe recruiting software, and the
HotJobs.com brand name. The unauthorized reproduction or other misappropriation
of our proprietary technology could enable third parties to benefit from our
technology without paying us for it. If this were to occur, our business could
be materially adversely affected. We rely upon a combination of patents,
copyright, trade secret and trademark laws and non-disclosure and other
contractual arrangements to protect our intellectual property rights. The steps
we have taken to protect our proprietary rights, however, may not be adequate to
deter misappropriation of proprietary information.
We may not be able to detect unauthorized use of our proprietary information
or take appropriate steps to enforce our intellectual property rights. In
addition, the validity, enforceability and scope of protection of intellectual
property in Internet-related industries is uncertain and still evolving. The
laws of other countries in which we may market our services in the future are
uncertain and may afford little or no effective protection of our intellectual
property.
We filed with the U.S. Patent and Trademark Office to register the trademark
"www.hotjobs.com" for "providing a Web site in the field of employment
opportunities and career placement which offers the exchange of information."
The PTO initially refused registration, citing a prior existing U.S. trademark
registration. The PTO also initially informed us that, if we overcame its
objection relating to the existing trademark and our application proceeds, it
could refuse to register our mark because of a likelihood of confusion with two
other prior pending trademark applications. We have entered into a written
consent agreement
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with the prior registrant in which the registrant consents to our use and
registration of our mark on grounds that there is no likelihood of confusion
between the two marks. Despite the consent agreement, we cannot guarantee that
we will be successful in overcoming the PTO's refusal to register our mark
because of the prior registration. One of the two pending trademark applications
cited against us has since been abandoned, removing that as a potential block to
our registration. However, the other prior pending application has since matured
to registration, and the PTO has refused our registration on grounds that it
conflicts with this new registration. We cannot assure you that that we can
overcome the PTO's refusal to register our mark because of this new
registration, and thus we may be prevented from securing a federal registration
for "www.hotjobs.com." In addition, in May 1998, the trademark applicant who has
since abandoned its application made claims regarding prior use and ownership of
"hotjobs" as a trademark. We investigated these claims and have not found any
verifiable basis for these claims. We responded to that effect on June 1, 1998
and have not received any further correspondence. Adverse outcomes to these
claims or any related litigation, should it occur, could result in us being
limited or prohibited from further using the "www.hotjobs.com" mark and related
derivative marks in the future. We are not able at this time to evaluate the
likelihood of any subsequent actions related to those claims or an unfavorable
outcome in the event such claims are reasserted, or to estimate the amount or
range of any related potential loss.
We currently hold a trademark registration in the United States for
Softshoe. Effective trademark protection may not be available in all countries
in which we intend to conduct business. Policing unauthorized use of our marks
is also difficult and expensive. In addition, it is possible that our
competitors will adopt product or service names similar to ours, impeding our
ability to build brand identity and possibly leading to customer confusion.
EMPLOYEES
As of September 30, 1999, we had 173 employees, of whom 112 worked in sales,
marketing, client services, and business development, 34 in product development
and 27 in finance, administration, and corporate operations. From time to time,
we employ independent contractors and consultants to support research and
development, marketing and sales, and business development. None of our
employees are represented under collective bargaining agreements. We consider
our relations with our employees to be good.
FACILITIES
Our principal executive offices are currently located in approximately 9,900
square feet of office space in New York, New York under a lease that expires in
March 2004, but which can be terminated by either party with 90 days notice. In
March 1999, we leased approximately 1,280 square feet of office space in San
Francisco, California under a five-year lease expiring in 2004. In July 1999, we
leased approximately 2,100 square feet of office space in Sydney, Australia
under a three-year lease expiring in 2002. In September 1999, we leased
approximately 5,300 square feet of office space in Chicago, Illinois under a
five-year lease expiring in 2004. We intend to expand our sales, marketing and
technology operations and therefore may require additional facilities in the
future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
The following table sets forth, as of September 30, 1999, the name, age and
position within HotJobs.com of each of our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -----------------------------------------------------
<S> <C> <C>
Richard S. Johnson..................... 38 President, Chief Executive Officer and Chairman of
the Board of Directors
Stephen W. Ellis....................... 49 Chief Financial Officer and Director
Dimitri J. Boylan...................... 38 Chief Operating Officer, Secretary and Director
George J. Nassef, Jr................... 35 Chief Information Officer
Philip Guarascio....................... 58 Director
John A. Hawkins........................ 39 Director
John G. Murray......................... 37 Director
Kevin P. Ryan.......................... 36 Director
</TABLE>
RICHARD S. JOHNSON founded HotJobs.com in February 1997 and has served as
our President, Chief Executive Officer and Chairman of the board of directors
since inception. From 1988 to 1997, Mr. Johnson served as President of
OTEC, Inc., a New York-based recruiting firm focusing on IT professionals.
Mr. Johnson co-founded OTEC in 1988 and remains one of its directors and
principal stockholders. Mr. Johnson received his bachelor's degree from Bucknell
University. Mr. Johnson is a member of the Society of Human Resource Management
and of New York's New Media Association.
STEPHEN W. ELLIS has served as our Chief Financial Officer since
April 1999, and as a director since May 1999. From March 1998 through
December 1998, Mr. Ellis served as the Chief Financial Officer for
Biztravel.com, an Internet-based travel services company. Prior to that, from
March 1997 through February 1998, Mr. Ellis was the Chief Financial Officer for
Metromedia Fiber Network (NASDAQ: MFNX), a facilities-based fiber optic/telecom
services company. Mr. Ellis also served as an executive officer of Data
Broadcasting Corporation (NASDAQ: DBCC), a financial market-data company, first
as Chief Financial Officer from 1992 to 1995 and then as Executive Vice
President, Finance through March 1997. Mr. Ellis holds a bachelor's degree from
the Massachusetts Institute of Technology and a Master of Business
Administration from the Stanford University Graduate School of Business.
Mr. Ellis is a Certified Public Accountant. He also is on the board of directors
of the following private companies: FSA Capital, Inc., TreeSource, Inc. and US
Medical Network, LLC.
DIMITRI J. BOYLAN has served as our Chief Operating Officer since
March 1998, and as our Vice President of Sales and Marketing from February 1997
until March 1998. Mr. Boylan has also served as a director since May 1999. From
October 1990 until October 1997, Mr. Boylan served as the managing director of
recruiting for OTEC. Mr. Boylan earned a master's degree from the University of
Illinois and a bachelor's degree from the University of Pennsylvania.
GEORGE J. NASSEF, JR. has served as our Chief Information Officer since June
1999. From December 1998 to June 1999, Mr. Nassef was president of his own
consulting business related to Internet technologies. From February 1997 until
December 1998, Mr. Nassef served as Chief Information Officer of Biztravel.com,
an Internet-based travel services company. From January 1996 until February
1997, Mr. Nassef held positions with The SABRE Group, most recently as Managing
Director of Platform Technologies. From August 1987 until January 1996,
Mr. Nassef held systems engineering positions with American Airlines' Data
Processing Division. Mr. Nassef holds a bachelor's degree from Texas A&M
University.
PHILIP GUARASCIO has served as a director since August 1999. Mr. Guarascio
has been a Vice President of General Motors Corporation since July 1994, where
he is primarily responsible for
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worldwide advertising resource management, managing consolidated media placement
efforts and working with General Motors' North American Operations vehicle
divisions to increase marketing effectiveness and efficiency. Mr. Guarascio also
manages corporate image advertising activities and oversees GM Credit Card
operations and GM's Enterprise Customer System. Prior to this current position,
from July 1992 to July 1994, Mr. Guarascio served as General Manager of
Marketing and Advertising for General Motors' North American Operations.
Mr. Guarascio joined General Motors in 1985 after 21 years with the New York
advertising agency, D'Arcy, Masius, Benton & Bowles (formerly Benton & Bowles,
Inc.). Mr. Guarascio currently serves on the board of directors of Snyder
Communications, Inc. (NYSE: SNC), and is a member of its audit and compensation
committees. Mr. Guarascio is Chairman Emeritus of the Advertising Council and
serves on the Executive Committee of that organization. He also serves on the
boards of the Association of National Advertisers, the Women's Sports
Foundation, the Ellis Island Restoration Commission and the American Film
Institute.
JOHN A. HAWKINS has served as a director since May 1999. In 1995,
Mr. Hawkins co-founded Generation Partners L.P., a private equity fund. From
1987 until 1995, Mr. Hawkins was a General Partner of Burr, Egan, Deleage & Co.,
a $700 million venture capital firm. Mr. Hawkins specializes in information
technology investments including data communications and telecommunications,
software and the Internet. Mr. Hawkins graduated with a bachelor's degree from
Harvard College and received his Master of Business Administration from the
Harvard Graduate School of Business. Mr. Hawkins currently serves on the boards
of P-COM, Inc. (NASDAQ: PCMS), PixTech (NASDAQ: PIXT), Enso Audio Imaging
Corporation, Dover Pacific Computing, Inc., High End Systems, Inc. and
Linguateq, Inc.
JOHN G. MURRAY has served as a director since May 1999. Since June 1998,
Mr. Murray has been a Managing Director of Deutsche Bank Securities Inc.,
formerly BT Alex. Brown Incorporated, specializing in the venture capital
service sector. From January 1994 to June 1998, Mr. Murray served as a principal
of BancBoston Robertson Stephens, specializing in the venture capital service
sector. Mr. Murray received his bachelor's degree from St. Lawrence University
and his Master of Business Administration from The Wharton School of Finance.
KEVIN P. RYAN has served as a director since June 1999. Mr. Ryan has served
as Chief Operating Officer of DoubleClick, Inc. (NASDAQ: DCLK) since April 1998
and as President since July 1997. From June 1996 to April 1998, Mr. Ryan served
as DoubleClick's Chief Financial Officer. From January 1994 to June 1996,
Mr. Ryan served as Senior Vice President, Business and Finance for United Media,
a licensing and syndication company representing comics, columnists and wire
services to over 2,000 newspapers around the world. From April 1991 to December
1993, Mr. Ryan served as Senior Manager, Finance for Euro Disney, and from
August 1985 to September 1989, Mr. Ryan was an investment banker for Prudential
Investment Corporation in both the United States and the United Kingdom.
Mr. Ryan received his bachelor's degree from Yale University and his Master of
Business Administration from INSEAD.
CLASSES OF DIRECTORS
In accordance with the terms of our amended and restated certificate of
incorporation, our board of directors has been divided into three classes,
denominated as Class I, Class II and Class III. Members of each class hold
office for staggered three-year terms. At each annual meeting of our
stockholders commencing in 2000, the successors to the directors whose terms
expire at that meeting will be elected to serve until the third annual meeting
after their election or until their successors have been elected and qualified.
Messrs. Ryan and Murray are Class I directors whose terms expire at the 2000
annual meeting of stockholders. Messrs. Ellis and Hawkins are Class II directors
whose terms expire at the 2001 annual meeting of stockholders. Messrs. Johnson,
Boylan and Guarascio are Class III directors whose terms expire at the 2002
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annual meeting of stockholders. With respect to each class, a director's term
will be subject to the election and qualification of their successors, or their
earlier death, resignation or removal. These provisions, when taken in
conjunction with other provisions of our amended and restated certificate of
incorporation authorizing the board of directors to fill vacant directorships,
may delay a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies with its own
nominees.
BOARD COMMITTEES
Our Compensation Committee is responsible for reviewing and recommending to
the Board the compensation arrangements provided to the management of
HotJobs.com and administers our stock option plans. The members of the
Compensation Committee are Messrs. Ellis, Murray and Hawkins.
Our Audit Committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices. The
members of the Audit Committee are Messrs. Ellis, Hawkins and Ryan.
DIRECTOR COMPENSATION
We do not currently compensate our directors for attending board of director
or committee meetings, but we reimburse directors for their reasonable travel
expenses incurred in connection with attending these meetings. At the time of
his election to the board, we granted Mr. Ryan options to purchase 20,000 shares
of our common stock at an exercise price of approximately $3.38. In August 1999,
we granted Messrs. Guarascio, Hawkins and Murray options to purchase 20,000
shares of our common stock at $8.00 per share under our 1999 Stock Option/Stock
Issuance Plan. Beginning with our annual meeting of stockholders in 2000, each
of our non-employee directors will receive an annual grant of options to
purchase 5,000 shares of common stock so long as he or she has served on the
board for at least 6 months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, the Compensation Committee
of the board of directors consisted of Richard S. Johnson. No interlocking
relationship exists or has existed between Mr. Johnson or any other member of
our board of directors and any members of the board of directors or compensation
committee of any other company.
EMPLOYMENT AGREEMENTS
Richard S. Johnson, Stephen W. Ellis, Dimitri J. Boylan and George
J. Nassef, Jr. each has an employment agreement with us.
TERM. The agreement of each of Messrs. Johnson, Ellis and Boylan became
effective on May 6, 1999 and expires on May 5, 2002 and will automatically renew
for additional one-year terms after that date unless HotJobs.com gives the
executive written notice of its desire not to renew the agreement at least six
months prior to the expiration of the initial or any additional term.
Mr. Nassef's employment agreement became effective on June 18, 1999 and shall
continue until terminated by him or by us.
SALARY. The annual salary for each of these executives is as follows:
Mr. Johnson, $200,000; Mr. Ellis, $175,000; Mr. Boylan, $175,000; and
Mr. Nassef, $175,000. Also, each of these executives is entitled to an annual
bonus determined by the Compensation Committee of the board of directors. The
annual salary of each of Messrs. Johnson, Ellis and Boylan will increase by a
minimum of 10% each year.
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STOCK OPTION GRANTS. Mr. Ellis received stock options to purchase 360,000
shares of our common stock. On August 10, 1999, 180,000 of these options vested
automatically in connection with our initial public offering, and 90,000 options
will vest on each of May 6, 2001 and 2002. Mr. Nassef received stock options to
purchase 180,000 shares of our common stock. On August 10, 1999, 90,000 of these
options vested automatically in connection with our initial public offering;
30,000 options will vest on June 18, 2001; and 60,000 options will vest on
June 18, 2002.
TERMINATION OF AGREEMENTS. We can terminate these employment agreements
with or without cause by delivering written notice to the executive. Each
executive may terminate his employment agreement with or without good reason by
delivering written notice to us. Upon termination of the agreements of each of
Messrs. Johnson, Ellis and Boylan by us without cause or by the executive for
good reason, the executive is entitled to the greater of his annual salary for
the remainder of the term of the agreement or one year of salary and all options
become immediately exercisable. Upon termination of Mr. Nassef's employment
agreement by us without cause or by Mr. Nassef for good reason, Mr. Nassef is
entitled to six months of salary.
NONCOMPETITION AND CONFIDENTIALITY. Each of the executives with an
employment agreement has agreed not to compete with us, solicit our suppliers or
employees or reveal our confidential information during the term of his
employment agreement and for two years thereafter. In addition, each executive
is bound by a proprietary inventions agreement which prohibits the executive
from, among other things, disseminating or using confidential information about
our business or clients in any way that would be adverse to us.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning all
compensation we paid our Chief Executive Officer during the year ended
December 31, 1998. We did not pay any other executive officer over $100,000 in
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
--------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- --------------------------- --------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Richard S. Johnson
President and Chief Executive
Officer............................... $182,000 -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR/OPTION EXERCISES AND HOLDINGS
Mr. Johnson did not own any options or stock appreciation rights in 1997 or
1998. In 1999, we granted Mr. Johnson options to purchase 240,000 shares of our
common stock at an exercise price of approximately $0.05, options to purchase
120,000 shares of our common stock at an exercise price of approximately $3.38
and options to purchase 150,000 shares of our common stock at an exercise price
of $8.00.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
The 1999 Stock Option/Stock Issuance Plan became effective upon its adoption
by our board of directors and approval by our stockholders on June 30, 1999. We
have authorized 4,500,000 shares of common stock for issuance under the 1999
Stock Option/Stock Issuance Plan. We have granted Messrs. Guarascio, Hawkins and
Murray options to purchase 20,000 shares of our common stock under the plan. In
no event may any one participant in the 1999 Stock Option/
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Stock Issuance Plan receive option grants or direct stock issuances for more
than 1,000,000 shares in the aggregate per calendar year.
The 1999 Stock Option/Stock Issuance Plan has three separate programs:
- the discretionary option grant program under which eligible individuals in
our employ or service (including officers, non-employee board members and
consultants) may be granted options to purchase shares of our common
stock;
- the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or as
a bonus tied to the performance of services; and
- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members.
The discretionary option grant and stock issuance programs will be
administered by our Compensation Committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the exercise or purchase price
for each such grant or issuance, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding. Neither the Compensation Committee nor the board will exercise any
administrative discretion with respect to option grants made under the automatic
option grant program for the non-employee board members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Compensation Committee may allow a participant to pay
the option exercise price or direct issue price (and any associated withholding
taxes incurred in connection with the acquisition of shares) with a
full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent the repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
Compensation Committee may grant options under the discretionary option grant
program which will accelerate in the acquisition even if the options are assumed
or which will accelerate if the optionee's service is subsequently terminated.
The Compensation Committee may also grant options and issue shares which
accelerate in connection with a hostile change in control effected through a
successful tender offer for more than 50% of our outstanding voting stock or by
proxy contest for the election of board members or the options and shares may
accelerate upon a subsequent termination of the individual's service.
Stock appreciation rights may be issued under the discretionary option grant
program which will provide the holders with the election to surrender their
outstanding options for an appreciation distribution from us equal to the fair
market value of the vested shares subject to the surrendered option less the
aggregate exercise price payable for such shares. Such appreciation distribution
may be made in cash, in shares of our common stock or in a combination of cash
and shares of our common stock.
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The Compensation Committee has the authority to cancel outstanding options
under the discretionary option grant in return for the grant of new options for
the same or different number of option shares with an exercise price per share
based upon the fair market value of the common stock on the new grant date.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option grant program and may be granted to
one or more officers as part of their option grants under the discretionary
option grant program. Options with such a limited stock appreciation right may
be surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our outstanding voting stock. In return for the surrendered
option, the optionee will be entitled to a cash distribution from us in an
amount per surrendered option share equal to the highest price per share of
common stock paid in connection with the tender offer less the exercise price
payable for such share.
Under the automatic option grant program, each individual who first joins
the board after August 10, 1999 as a non-employee board member who is not
affiliated with a significant stockholder of HotJobs.com will automatically be
granted an option for 20,000 shares of our common stock at the time of his or
her commencement of board service. In addition, on the date of each annual
stockholders meeting, beginning with the 2000 meeting, each nonemployee director
who is to continue to serve as a non-employee board member will receive an
option grant to purchase 5,000 shares of our common stock, provided he or she
has served on the board for at least 6 months. Each outstanding option will
immediately vest upon an acquisition or change in control or the death or
disability of the optionee while serving as a board member.
The board may amend or modify the 1999 Stock Option/Stock Issuance Plan at
any time, subject to any required stockholder approval. The 1999 Stock
Option/Stock Issuance Plan will terminate no later than June 30, 2009.
STOCK AWARD PLAN
Prior to our initial public offering, our Stock Award Plan served as our
equity incentive program. The Stock Award Plan became effective upon its
adoption by our board of directors and approval by our stockholders on April 1,
1998.
Options to purchase 3,939,800 shares at a weighted average exercise price of
approximately $0.65 are currently outstanding under the Stock Award Plan, of
which 3,148,800 are exercisable and the remainder vest over a period of three or
four years. The options that are not currently exercisable accelerate upon a
change of control. A change of control shall be deemed to occur upon any person
or entity purchasing more than 50% of our common stock, a merger or
consolidation in which our common stock is exchanged for less than 50% of the
voting stock of the surviving corporation, or the sale of greater than 50% of
our total assets. The remaining terms of the Stock Award Plan are consistent
with and substantially similar to the terms of the 1999 Stock Option/Stock
Issuance Plan set forth above.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan became effective on August 10, 1999. The
plan is designed to allow our eligible employees to purchase shares of our
common stock, at semi-annual intervals, through periodic payroll deductions. A
total of 250,000 shares of common stock are available for issuance under the
plan.
The plan has a series of successive offering periods, each with a maximum
duration of 24 months. The initial offering period began on August 10, 1999 and
will end on the last business day in July 2001. The next offering period will
begin on the first business day in August 2001, and subsequent offering periods
will be set by our Compensation Committee.
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Individuals who are eligible employees on the start date of any offering
period may enter the plan on that start date or on any subsequent semi-annual
entry date (generally February 1 or August 1 each year). Individuals who become
eligible employees after the start date of the offering period may join the plan
on any subsequent semi-annual entry date within that period.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions and the accumulated payroll deductions will be applied to the
purchase of shares on the participant's behalf on each semi-annual purchase date
(the last business day in January and July each year). The purchase price per
share will be 85% of the lower of the fair market value of our common stock on
the participant's entry date into the offering period or the fair market value
on the semi-annual purchase date. The first purchase date will occur on the last
business day in January 2000. In no event, however, may any participant purchase
more than 1,400 shares, nor may all participants in the aggregate purchase more
than 62,500 shares on any one semi-annual purchase date. Should the fair market
value of the common stock on any semi-annual purchase date be less than the fair
market value on the first day of the offering period, then the current offering
period will automatically end and a new offering period will begin, based on the
lower fair market value.
The board may at any time amend or modify the plan. The plan will terminate
no later than the last business day in July 2009.
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<PAGE>
RELATED PARTY TRANSACTIONS
SERIES A PRIVATE PLACEMENT
Effective May 10, 1999, we sold 1,620,000 shares of our Series A Preferred
Stock at a price of $10.00 per share. Upon consummation of our initial public
offering, all of the Series A Preferred Stock automatically converted into an
aggregate of 3,934,019 shares of common stock. The purchasers of Series A
Preferred Stock included the following directors, executive officers and holders
of 5% or more of our common stock on a fully-converted basis:
- FSA Capital, Inc. purchased 42,148 shares of Series A Preferred Stock for
$421,480. Stephen W. Ellis, our Chief Financial Officer and a director, is
a director of FSA Capital, Inc.
- Generation Capital Partners L.P. and affiliated investment entities
("Generation Partners") purchased in the aggregate 1,053,704 shares of
Series A Preferred Stock for $10,537,040. Generation Partners owns more
than 5% of our stock. John A. Hawkins, one of our directors, is a Managing
Partner of an affiliate of Generation Partners.
- John G. Murray, one of our directors, purchased 18,750 shares of Series A
Preferred Stock for $187,500. In connection with the Series A Preferred
Stock financing, GreenAcre Ventures LLC, of which Mr. Murray is a managing
member, purchased 170,592 shares of our common stock from two of our
employees.
- Kevin P. Ryan, one of our directors, purchased 21,074 shares of Series A
Preferred Stock for $210,740.
In connection with our private placement, we entered into a stockholders'
agreement with the investors in our Series A Preferred Stock and our current
stockholders. In accordance with this agreement, John A. Hawkins, a designee of
Generation Partners, and John G. Murray, a designee of the holders of our
Series A Preferred Stock, have been elected to our board. In addition, the
investors in our Series A Preferred Stock have registration rights applicable to
the common stock issuable upon conversion of the Series A Preferred Stock. See
"Description of Capital Stock--Registration Rights." Other than the registration
rights, all other rights under this agreement terminated upon the closing of our
initial public offering.
REDEMPTION OF SECURITIES
On April 2, 1999, we redeemed shares of our common stock for an aggregate
price of $61,000, equal to approximately $0.05 per share, from the following
executive officer and employees in the following amounts:
<TABLE>
<CAPTION>
NAME POSITION AMOUNT
- ---- -------- --------
<S> <C> <C>
Richard S. Johnson..................... Chairman, Chief Executive Officer and President $12,200
Allen Murabayashi...................... Director of Technology $24,400
Thomas Chin............................ Senior Programmer $24,400
</TABLE>
AGREEMENTS WITH DOUBLECLICK
In April 1999, we entered into a Softshoe Standard License Agreement with
DoubleClick, Inc. Pursuant to that agreement, DoubleClick paid us a one-time
purchase price of $26,000 for the Softshoe Select License and currently makes
monthly payments of $3,500 for our comprehensive hosting and maintenance
program. The agreement may be terminated by either party at any time and is of
an indefinite term.
We also have an agreement with DoubleClick pursuant to which we use
DoubleClick's DART Service to target and measure our advertisements on Web
pages, as well as an agreement
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pursuant to which DoubleClick places our advertising banners on Web pages. In
connection with these agreements, we paid an initial start-up fee of $4,500, and
pay monthly service fees based on the number of ad impressions delivered
pursuant to each agreement. In 1998 we paid to DoubleClick approximately
$108,000 pursuant to these agreements, and we anticipate that we will pay a
total of $401,000 in fees under these agreements in 1999. We recently entered
into a new DART Service Agreement, pursuant to which we paid an initial fee of
$5,000, and anticipate paying monthly fees of approximately $8,250.
Kevin P. Ryan, one of our directors, is the President and Chief Operating
Officer of DoubleClick, Inc.
TRANSACTIONS INVOLVING OTEC
Richard S. Johnson is the former President and is currently a director and
one of two shareholders of OTEC. As of December 31, 1998, OTEC owned
approximately 23% of our outstanding voting stock.
Until May 1999, OTEC served as our principal source of financing. During
1997 and 1998, OTEC paid various expenses on our behalf. These expenses
primarily consisted of rents, salaries, computer expenses and other
administrative expenses. These expenses totaled approximately $741,600 and
approximately $1.2 million for 1997 and 1998, respectively. These amounts were
repaid with the proceeds of the Series A Preferred Stock financing.
OTEC paid compensation expenses for Richard S. Johnson of $137,500 and
$182,000 for the period ended December 31, 1997 and for the year ended
December 31, 1998, respectively. These amounts do not need to be repaid.
OTEC also provided cash advances of approximately $2.6 million to us in 1998
of which approximately $2.2 million bore interest at rates ranging from 8.75% to
9.5% per annum. We repaid these cash advances in May and June 1999.
OTEC and two of its affiliates maintain a line of credit with The Dime
Savings Bank of New York ("Dime") in the principal amount of $3.5 million which
bears interest at a fluctuating rate of 1% above Dime's established commercial
lending rate. OTEC used this line of credit to provide the cash advanced to us
in 1998. Until September 16, 1999, we maintained a line of credit with Dime in
the principal amount of $500,000 which bore interest at a fluctuating rate of 1%
above Dime's established commercial lending rate. OTEC and two of its affiliates
pledged all of their assets to secure this loan. As of May 31, 1999, $180,000
remained outstanding under our facility with Dime. We pledged all of our assets
to Dime to secure OTEC's line of credit, and OTEC pledged all of its assets to
Dime to secure our line of credit. In addition, Mr. Johnson and Bennett
Carroccio, one of our principal stockholders and the other stockholder of OTEC,
personally guaranteed repayment of all outstanding amounts under both lines of
credit. In June 1999, Dime released Messrs. Johnson and Carroccio from their
guarantees and released its security interest in our and OTEC's assets. On
September 16, 1999 we terminated our line of credit with Dime.
OTEC paid us $300,000 in 1997 for the license of miscellaneous proprietary
software. OTEC paid us $444,000 in 1998 and we expect to be paid $144,000 in
1999 for hosting that software and for purchasing additional software. We
believe that these transactions were entered into on an arms-length basis.
Until recently, we had several joint insurance policies with OTEC and its
affiliates. HotJobs.com and OTEC maintained joint policies because it was more
economical and convenient to do so. Our commercial property insurance issued by
Federal Insurance Company for a one-year term beginning October 15, 1998,
covered both our California and New York
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offices as well as OTEC's California office. Our commercial umbrella policy,
also issued by Federal Insurance Company for a one-year term beginning
October 15, 1998, also covered OTEC and its affiliates, as did our workers
compensation insurance, issued by Lumbermans Mutual Casualty Company on
December 1, 1998 for a term ending October 15, 1999. Effective June 1, 1999, we
have stand alone insurance policies in place. We had a joint fiduciary liability
policy, issued by Travelers Insurance for a one-year term beginning October 20,
1998, with OTEC and its affiliates. Insurance expenses of $85,096 in 1998 have
been allocated by OTEC to HotJobs.com based on the respective number of
personnel of these two companies. On July 20, 1999, HotJobs.com obtained its own
directors and officers' liability insurance policy.
Until July 1, 1999, our employees participated in the 401(k) Profit Sharing
Plan established in January 1996 by RBL Agency, Ltd., one of OTEC's affiliates.
The Plan Trustees are Richard Johnson and Bennett Carroccio. The Plan allowed
our employees to defer between 1% and 15% of their compensation. Under the Plan,
we made matching contributions of $.50 for every $1.00 contributed by an
employee on the first 6% of the employee's salary deferrals, which contribution
was subject to vesting. Effective July 1, 1999, our employees began to
participate in our own 401(k) Plan and all amounts attributed to our employees
in the RBL Plan were transferred to our 401(k) Plan.
OTEC and RBL, jointly and severally, guarantee certain of our obligations,
including our obligation to pay rent under our leases, dated as of April 16,
1999, pursuant to which we rent the 10th, 14th and 16th floors of a building
located at 24 West 40th Street in New York City.
On March 2, 1999, Mr. Johnson granted Mr. Carroccio an option, which expires
on March 2, 2002, to purchase 34 shares of OTEC common stock at a purchase price
of $4,880 per share and an additional option to purchase 50 shares of each of
OTEC's affiliated companies at a purchase price of $1 per share. In addition,
Mr. Johnson granted to Mr. Carroccio an irrevocable proxy expiring March 2, 2002
to vote all of Mr. Johnson's shares subject to the option. Similarly, on
March 2, 1999, Mr. Carroccio granted Mr. Johnson an option, which expires on
March 2, 2002, to purchase 3,264,000 shares of our common stock at a purchase
price of approximately $.05 per share. Mr. Carroccio granted Mr. Johnson an
irrevocable proxy expiring March 2, 2002 to vote all of his shares of our stock.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of the shares of common stock offered by us in this
offering for:
- each person, or group of affiliated persons, who HotJobs.com knows
beneficially owns 5% or more of our common stock;
- each of our directors;
- each executive officer named in the Summary Compensation Table; and
- all directors and executive officers of HotJobs.com as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o HotJobs.com, Ltd., 24 West 40th Street, 14th Floor, New York, NY 10018.
The table includes all shares of common stock beneficially owned by the
indicated stockholder as of September 30, 1999. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting or investment power with respect to securities.
In computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable within
60 days of September 30, 1999 are deemed outstanding. These shares, however, are
not deemed outstanding for the purposes of computing the percentage of ownership
of any other person. To our knowledge, except as otherwise noted, the persons
named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable.
The percent of beneficial ownership for each stockholder is based on
27,248,419 shares of common stock outstanding as of September 30, 1999 and
30,248,419 shares of common stock outstanding after this offering. An "*"
indicates ownership of less than 1%.
<TABLE>
<CAPTION>
PERCENT OF TOTAL SHARES OF
SHARES COMMON STOCK
BENEFICIALLY --------------------------------
NAME OWNED BEFORE OFFERING AFTER OFFERING
- ---- ------------ --------------- --------------
<S> <C> <C> <C>
Richard S. Johnson(1)............................... 11,424,000 41.6% 37.5%
Bennett Carroccio(2)................................ 6,560,352 24.0 21.6
OTEC, Inc.(3)....................................... 2,900,352 10.6 9.6
Generation Partners(4).............................. 2,558,828 9.4 8.5
John A. Hawkins(5).................................. 2,559,476 9.4 8.5
Thomas Chin......................................... 1,800,000 6.6 6.0
Allen Murabayashi................................... 1,800,000 6.6 6.0
Dimitri J. Boylan(6)................................ 1,320,000 4.8 4.3
Stephen W. Ellis(7)................................. 284,440 1.0 *
John G. Murray(8)................................... 216,123 * *
George J. Nassef, Jr.(9)............................ 90,010 * *
Kevin P. Ryan....................................... 54,418 * *
Philip Guarascio.................................... 1,945 * *
All directors and executive officers as a group
(8 persons)(10)................................... 15,950,412 57.6% 52.0%
</TABLE>
- ------------------------
(1) Includes 240,000 shares issuable upon the exercise of outstanding options;
336,000 shares held by the Richard and Carole Johnson 1999 Trust of which
Mr. Johnson disclaims
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<PAGE>
beneficial ownership; 3,264,000 shares owned by Mr. Carroccio which Mr.
Johnson has a right to purchase pursuant to an option granted to him by
Mr. Carroccio and a right to vote pursuant to an irrevocable proxy granted
by Mr. Carroccio; and 2,900,352 shares owned by OTEC of which Mr. Johnson
disclaims beneficial ownership.
(2) Includes 60,000 shares issuable upon the exercise of outstanding options;
336,000 shares held by the Bennett and Brenda Carroccio 1999 Trust of which
Mr. Carroccio disclaims beneficial ownership; 3,264,000 shares subject to
purchase by Mr. Johnson pursuant to an option of which Mr. Carroccio
disclaims beneficial ownership; and 2,900,352 shares owned by OTEC, of which
Mr. Carroccio is the President, Chief Executive Officer and controlling
stockholder.
(3) OTEC's address is 24 West 40(th) Street, 12(th) Floor, New York, NY 10018.
(4) Includes 2,470,189 shares held by Generation Capital Company LLC as general
partner of Generation Parallel Management Partners L.P. and as general
partner of the general partner of Generation Capital Partners L.P. In
addition, includes 88,639 shares held in a separate account of State Board
of Administration of Florida with respect to which an affiliate of
Generation Capital Company LLC has management authority.
(5) Includes 2,558,828 shares beneficially owned by Generation Capital Company
LLC. Mr. Hawkins is a Managing Partner of Generation Capital Company LLC
and, as such, may be deemed to have voting and investment power over the
shares beneficially owned by Generation Capital Company LLC. Mr. Hawkins
disclaims any beneficial ownership of these shares.
(6) Includes 120,000 shares issuable upon the exercise of outstanding options.
(7) Includes 102,352 shares owned by FSA Capital, Inc., of which Mr. Ellis is a
director, and 2,088 shares purchased by his wife of which Mr. Ellis
disclaims beneficial ownership.
(8) Includes 13,659 shares held by Mr. Murray's IRA; and 170,592 shares owned by
GreenAcre Ventures LLC, of which Mr. Murray is a Managing Member. Of the
shares owned by GreenAcre Ventures LLC, 9,104 shares are attributable to
Mr. Murray's interest in GreenAcre, and Mr. Murray disclaims beneficial
ownership of the remaining 161,488 shares.
(9) Includes 90,000 shares issuable upon the exercise of outstanding options.
(10) Includes 450,000 shares issuable upon the exercise of outstanding options.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended and restated certificate of incorporation authorizes the
issuance of up to 100,000,000 shares of common stock, par value $0.01 per share,
and 10,000,000 shares of preferred stock, par value $0.01 per share, the rights
and preferences of which may be established from time to time by our board of
directors. As of September 30, 1999, 27,248,419 shares of common stock were
outstanding and no shares of preferred stock were outstanding.
COMMON STOCK
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders, including the election of directors. They
do not have cumulative voting rights. Accordingly, holders of a majority of the
shares of common stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of common stock are entitled
to receive ratably dividends, if any, as may be declared by the board of
directors out of legally available funds, subject to any preferential dividend
rights of any outstanding preferred stock. In case of a liquidation, dissolution
or winding up of HotJobs.com, the holders of common stock are entitled to
receive ratably our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock. Holders of the common stock have no preemptive, subscription or
conversion rights. There are no redemption or sinking fund provisions applicable
to the common stock. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, when issued in consideration for payment
thereof, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate and issue in the future.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, our board of
directors is authorized, without further stockholder approval, to issue from
time to time up to an aggregate of 10,000,000 shares of preferred stock in one
or more series. Our board of directors may fix or alter the number of shares,
designations, preferences, powers and other special rights of the preferred
stock. The preferences, powers, rights and restrictions of different series of
preferred stock may differ. The issuance of preferred stock could decrease the
amount of earnings and assets available for distribution to holders of common
stock or affect adversely the rights and powers, including voting rights, of the
holders of common stock. The issuance may also have the effect of delaying,
deferring or preventing a change in control of HotJobs.com. We have no present
plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Under the terms of our amended and restated stockholders' agreement, at any
time on or after May 11, 1999, the holders of a majority of the outstanding
shares of common stock issued upon the conversion of our Series A Preferred
Stock may on three occasions require us to register for sale all or any portion
of the shares of common stock issued upon conversion of the preferred shares
held by them. This type of registration right is known as a "demand"
registration right.
In addition, under the terms of our amended and restated stockholders'
agreement, if required by the stockholder, we are also obligated to register any
shares of common stock outstanding prior to our initial public offering and any
of the shares of common stock issued
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upon conversion of the preferred shares when we register stock for our own
account or the account of other stockholders. This type of registration right is
known as a "piggyback" registration right.
The foregoing registration rights are subject to certain conditions and
limitations, including:
- the right of the underwriters in any underwritten offering to limit the
number of shares of common stock held by stockholders with registration
rights to be included in any registration;
- our right to delay for up to 120 days after the effectiveness of a
registration statement in connection with a firm commitment underwritten
public offering; and
- our right to delay for up to 120 days the filing of a registration
statement pursuant to a demand registration if our board of directors
determines that the registration would not be in our best interest at that
time.
We are generally required to bear all of the expenses of all registrations,
except underwriting discounts and commissions. Registration of any of the shares
of common stock held by stockholders with registration rights would result in
those shares becoming freely tradable without restriction under the Securities
Act immediately after consummation of the registration. We have agreed to
indemnify the holders of registration rights in connection with the demand and
piggyback registration rights under the terms of our amended and restated
stockholders' agreement.
The holders of 24,754,019 shares of common stock have piggyback registration
rights in connection with this offering. These holders have agreed to waive
their piggyback registration rights with respect to this offering. In addition,
certain holders of 17,661,000 shares of common stock will have entered into
lock-up agreements for 90 days with the underwriters. After expiration of the
lock-up periods, these stockholders will have the ability to exercise the
registration rights set forth above.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (as amended from time to time, the "DGCL"). Subject to certain
exceptions, Section 203 of the DGCL prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the board of directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to HotJobs.com and, accordingly, may discourage attempts to acquire
HotJobs.com.
In addition, provisions of our amended and restated certificate of
incorporation and bylaws may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
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CLASSES OF DIRECTORS. In accordance with the terms of our amended and
restated certificate of incorporation, our board of directors has been divided
into three classes, denominated as Class I, Class II and Class III. Members of
each class hold office for staggered three-year terms. At each annual meeting of
our stockholders commencing in 2000, the successors to the directors whose terms
expire at that meeting will be elected to serve until the third annual meeting
after their election or until their successors have been elected and qualified.
With respect to each class, a director's term will be subject to the election
and qualification of their successors, or their earlier death, resignation or
removal. These provisions, when taken in conjunction with other provisions of
our amended and restated certificate of incorporation authorizing the board of
directors to fill vacant directorships, may delay a stockholder from removing
incumbent directors and simultaneously gaining control of the board of directors
by filling the vacancies with its own nominees.
BOARD OF DIRECTORS VACANCIES. Our amended and restated certificate of
incorporation authorizes the board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by the removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and
restated certificate of incorporation eliminates the ability of stockholders to
act by written consent. Our amended and restated bylaws provide that special
meetings of stockholders of HotJobs.com may be called only by the board of
directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be received at our principal executive offices not less than 120 days nor
more than 150 days prior to the anniversary date of the proxy statement
delivered to stockholders in connection with the immediately preceding year's
annual meeting. In the event that the annual meeting is called for a date that
is not within 30 days before or 70 days after the anniversary date, in order to
be timely, notice from the stockholder must be received:
- not earlier than 120 days prior to the annual meeting of stockholders; and
- not later than 90 days prior to the annual meeting of stockholders or the
tenth day following the date on which notice of the annual meeting was
made public.
In the case of a special meeting of stockholders called for the purpose of
electing directors, notice by the stockholder, in order to be timely, must be
received:
- not earlier than 120 days prior to the special meeting; and
- not later than 90 days prior to the special meeting or the close of
business on the tenth day following the day on which public disclosure of
the date of the special meeting was made.
Our amended and restated bylaws also specify certain requirements as to the
form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to
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certain limitations imposed by the Nasdaq National Market. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of HotJobs.com by means of a proxy contest, tender
offer, merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. Our
amended and restated certificate of incorporation imposes supermajority vote
requirements in connection with the amendment of various provisions of our
amended and restated certificate of incorporation and bylaws, including those
provisions relating to the classified board of directors and the ability of
stockholders to call special meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The amended and restated certificate of incorporation provides that, except
to the extent prohibited by the Delaware General Corporation Law, our directors
shall not be personally liable to HotJobs.com or its stockholders for monetary
damages for any breach of fiduciary duty as directors of HotJobs.com. Under the
Delaware General Corporation Law, the directors have a fiduciary duty to
HotJobs.com which is not eliminated by this provision of the amended and
restated certificate of incorporation and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available. In addition, each director will continue to be subject to
liability under the Delaware General Corporation Law for breach of the
director's duty of loyalty to HotJobs.com for acts or omissions which are found
by a court of competent jurisdiction to be not in good faith or which involves
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by the Delaware
General Corporation Law. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
amended and restated certificate of incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law and provides that we may fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that
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such person is or was a director or officer of HotJobs.com or is or was serving
at the request of HotJobs.com as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
Our amended and restated bylaws permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions, regardless of whether the Delaware General Corporation Law
would permit indemnification. On July 20, 1999, we obtained liability insurance
for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our amended and restated certificate of
incorporation. We are not aware of any threatened litigation or proceeding that
may result in a claim for such indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, we will have a total of 30,248,419 shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. As of
September 30, 1999, options to purchase 5,785,200 shares of common stock were
outstanding, of which 3,150,300 are currently exercisable. Of the outstanding
shares, the 3,000,000 shares sold in this offering and the 3,350,000 shares sold
in our initial public offering will be freely tradable, except that any shares
held by our "affiliates" may only be sold in compliance with the limitations
under Rule 144 described below. Of the remaining outstanding shares of our
common stock:
- 299,400 shares will be available for immediate sale in the public market
on the date of this prospectus under Rule 144 and 144(k) or otherwise;
- 960,000 shares will be eligible for sale in the public market on
February 6, 2000 under Rule 144;
- 17,841,000 shares will be eligible for sale 90 days after the date of this
prospectus, subject in some cases to the restrictions of Rule 144; and
- 4,798,019 shares will not be eligible for public sale under Rule 144 until
May 10, 2000 or later, subject to the exercise of the registration rights
described below and the restrictions of Rule 144.
Rule 144 defines an affiliate as a person that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, an issuer. In general, under Rule 144, as currently in
effect, a person, or persons whose shares are required to be aggregated,
including an affiliate, who has beneficially owned shares for at least one year
is entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of common stock, which will equal
approximately shares immediately after this offering; or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions.
In addition, a person who is not deemed to have been an affiliate of
HotJobs.com 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 would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of HotJobs.com, such person's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Rule 701 promulgated under the Securities Act provides that shares of common
stock acquired pursuant to written plans such as our 1999 Stock Option/Stock
Issuance Plan may be resold by persons other than affiliates, beginning November
8, 1999 subject only to the manner of sale provisions of Rule 144, and by
affiliates, beginning November 8, 1999 subject to all provisions of Rule 144
except its one-year minimum holding period.
Our senior officers, directors, certain stockholders and all holders of
vested options issued under our Stock Award Plan have executed 90-day lock-up
agreements. Under these agreements, such stockholders have agreed that they will
not, without the prior written consent of the representatives of the
underwriters, offer, sell, sell short, transfer, hypothecate, pledge or
otherwise dispose of any shares of our common stock or the securities
convertible into or exchangeable or exercisable for shares of our common stock,
or to enter into any agreement or
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transaction which is designed to effect, or could be expected to result in, any
such transaction for a period of 90 days following the date of this prospectus
without the consent of Deutsche Bank Securities Inc. Transfers or dispositions
can be made during the lock-up period in case of gifts for estate planning
purposes where the donee signs a lock-up agreement. In the event a request for
consent to a transfer within the lock-up period is made, Deutsche Bank
Securities Inc. may consider the following factors in determining whether to
consent to the proposed transfer:
- the number of shares proposed to be sold;
- the reason for the sale;
- the proximity in time to this offering; and
- the trading volume of our stock at the time of the requested transfer.
The decision to consent to a proposed transfer during the lock-up period is
within the sole discretion of Deutsche Bank Securities Inc.
In addition, eight individuals affiliated with Deutsche Bank Securities Inc.
hold an aggregate of 134,165 shares of our common stock and five individuals
affiliated with Deutsche Bank Securities Inc. and BancBoston Robertson Stephens
Inc. are the beneficial owners of 29,302 shares of our common stock as a result
of their investments in GreenAcre Ventures, LLC, a private investment fund. Each
of these individuals has executed a lock-up agreement with the underwriters of
our initial public offering. Under these agreements these individuals cannot
sell, transfer, assign, pledge or hypothecate their shares for a period of one
to two years after August 10, 1999 (the effective date of our initial public
offering), except to officers or partners of the underwriters and members of the
selling group and their officers or partners, and Deutsche Bank Securities Inc.
cannot waive the lock-up restriction.
On September 2, 1999, we filed a registration statement on Form S-8 to
register 9,064,200 shares of common stock issued or issuable under our plans.
Such registration statement became immediately effective upon filing. As of
September 30, 1999, there were outstanding options to purchase 5,785,200 shares
of common stock which will be eligible for sale in the public market from time
to time subject to vesting and, in the case of 3,148,800 options, the expiration
of lock-up agreements 90 days from the date of this prospectus. These stock
options generally have exercise prices significantly below the current market
price of the common stock. The possible sale of a significant number of these
shares by the holders thereof may have an adverse affect on the price of our
common stock.
In connection with this offering, we will agree not to sell or otherwise
dispose of any shares of common stock until 90 days after the date of this
prospectus, except that we may issue, and grant options to purchase, shares of
common stock under the 1999 Stock Option/Stock Issuance Plan. In addition, we
may issue shares of common stock in connection with any acquisition of another
company if the terms of such issuance provide that such common stock shall not
be resold prior to the expiration of the 90-day period referenced in the
preceding sentence.
Under certain circumstances and subject to certain conditions, holders of
3,934,019 shares of our outstanding common stock have certain demand
registration rights with respect to their shares of common stock to require us
to register their shares of common stock under the Securities Act, and have
certain rights to participate in any future registration of securities by us. We
are not required to effect more than three demand registrations on behalf of
such holders. The holders of these registration rights are subject to lock-up
agreements expiring on February 6, 2000 or later.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., BancBoston Robertson Stephens Inc., SG Cowen Securities
Corporation and Thomas Weisel Partners LLC, have severally agreed to purchase
from us the following respective numbers of shares of common stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Deutsche Bank Securities Inc. ..............................
BancBoston Robertson Stephens Inc...........................
SG Cowen Securities Corporation.............................
Thomas Weisel Partners LLC..................................
---------
Total................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to specified conditions and that the underwriters will purchase all
of the shares of common stock offered in the offering if any of the shares are
purchased.
We have been advised by the underwriters' representatives that the
underwriters propose to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a concession not in excess
of $ per share to other dealers. After the public offering, the offering
price and other selling terms may be changed by the underwriters'
representatives. The following table sets forth the public offering price and
all discounts and commissions to be allowed to the underwriters:
<TABLE>
<CAPTION>
UNDERWRITING
PUBLIC OFFERING DISCOUNTS PROCEEDS TO
PRICE AND COMMISSIONS HOTJOBS
--------------- ------------------ ------------
<S> <C> <C> <C>
Per share.................................... $ $ $
Total........................................ $ $ $
</TABLE>
HotJobs estimates that the expenses of this offering, other than the
underwriting discounts and commissions referred to above, will be approximately
$700,000.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. If the
underwriters exercise the option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of the option shares
that the number of shares of common stock to be purchased by it in the above
table bears to 3,000,000, and we will be obligated to sell these shares to the
underwriters. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the common stock offered in
the offering. If purchased, the underwriters will offer the additional shares on
the same terms as those on which the 3,000,000 shares are being offered.
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We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, as amended.
We have agreed not to offer, sell, sell short, transfer, hypothecate, pledge
or otherwise dispose of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of our common stock or to enter into any agreement or transaction
which is designed to effect, or could be expected to result in, any such
transaction for a period of 90 days after the date of this prospectus, directly
or indirectly, by us or otherwise, except as consideration for business
acquisitions, on exercise of currently outstanding stock options or on the
issuance of options to key employees and directors under our stock option plans
and the exercise of such options, without the prior written consent of Deutsche
Bank Securities Inc.
Certain of our stockholders, including all of our senior officers and
directors and all holders of vested options issued under our Stock Award Plan
will execute lock-up agreements. Under these agreements, such stockholders, who
hold or will hold in the aggregate 17,661,000 shares of our common stock, have
agreed not to offer, sell, sell short, transfer, hypothecate, pledge or
otherwise dispose of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of our common stock or to enter into any agreement or transaction
which is designed to effect, or could be expected to result in, any such
transaction for a period of 90 days after the date of this prospectus, directly
or indirectly, without the consent of Deutsche Bank Securities Inc. Transfers or
dispositions can be made during the lock-up period in case of gifts for estate
planning purposes where the donee signs a lock-up agreement. In the event a
request for consent to a transfer within the lock-up period is made, Deutsche
Bank Securities Inc. may consider the following factors in determining whether
to consent to the proposed transfer:
- the number of shares proposed to be sold;
- the reason for the sale;
- the proximity in time to this offering; and
- the trading volume of our stock at the time of the requested transfer.
The decision to consent to a proposed transfer during the lock-up period is
within the sole discretion of Deutsche Bank Securities Inc.
The underwriters' representatives have advised us that the underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.
In addition, eight individuals affiliated with Deutsche Bank Securities Inc.
hold an aggregate of 134,165 shares of our common stock, and five individuals
affiliated with Deutsche Bank Securities Inc. and BancBoston Robertson Stephens
Inc. are the beneficial owners of 29,302 shares of our common stock as a result
of their investments in GreenAcre Ventures, LLC, a private investment fund.
Pursuant to the rules of the National Association of Securities Dealers, Inc.,
these shares are presumed to be underwriting compensation. Accordingly, each of
these individuals has executed a lock-up agreement with the underwriters of our
initial public offering. Under these agreements these individuals cannot sell,
transfer, assign, pledge or hypothecate their shares for a period of one to two
years after August 10, 1999 (the effective date of our initial public offering),
except to officers or partners of the underwriters and members of the selling
group and their officers or partners, and Deutsche Bank Securities Inc. cannot
waive the lock-up restriction.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel
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Partners has been named as a lead or co-manager on 79 filed public offerings of
equity securities, of which 53 have been completed, and has acted as a syndicate
member in an additional 39 public offerings of equity securities. Thomas Weisel
Partners does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.
In connection with this offering, certain underwriters may engage in passive
market making transactions in the common stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and making purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the common stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
common stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
We have been advised by the representatives of the underwriters that during
and after this offering, subject to applicable limitations, the underwriters may
purchase and sell common stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with this offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the common stock; and syndicate
short positions involve the sale by the underwriters of a greater number of
shares of common stock than they are required to purchase from us in this
offering. The underwriters also may impose penalty bids, whereby selling
concessions allowed to the syndicate members or other broker-dealers in respect
of the common stock sold in this offering for their account may be reclaimed by
the syndicate if such securities are repurchased by the syndicate in stabilizing
or short-covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the common stock, which may be higher than
the price that might otherwise prevail in the open market. These transactions
may be effected on the Nasdaq National Market or otherwise and these activities,
if commenced, may be discontinued at any time.
The underwriters and their respective affiliates may be lenders to, engage
in transactions with, and perform services for us in the ordinary course of
business.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for HotJobs.com by Brobeck, Phleger & Harrison LLP, New York, New York. The
validity of the shares of common stock offered hereby will be passed upon for
the underwriters by Shaw Pittman, a law partnership including professional
corporations, McLean, Virginia.
EXPERTS
The financial statements for HotJobs.com, Ltd. as of December 31, 1997 and
December 31, 1998 and for the period from February 20, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including the exhibits, schedules and amendments thereto,
under the Securities Act with respect to the shares of common stock to be sold
in this offering. This prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to
HotJobs.com and the shares of common stock to be sold in this offering,
reference is made to the Registration Statement. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract, agreement or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
You may read and copy all or any portion of the Registration Statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the Registration Statement, are also available to you on the
Commission's web site (http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim consolidated financial information.
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HOTJOBS.COM, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998, and June 30, 1999 (unaudited)....................... F-3
Consolidated Statements of Operations for the period from
February 20, 1997 (inception) to December 31, 1997, the
year ended December 31, 1998, and for the six months ended
June 30, 1998 (unaudited) and 1999 (unaudited)............ F-4
Consolidated Statements of Stockholders' (Deficit) Equity
for the period from February 20, 1997 (inception) to
December 31, 1997, the year ended December 31, 1998, and
for the six months ended June 30, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the period from
February 20, 1997 (inception) to December 31, 1997, the
year ended December 31, 1998, and for the six months ended
June 30, 1998 (unaudited) and 1999 (unaudited)............ F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
HotJobs.com, Ltd.:
We have audited the accompanying balance sheets of HotJobs.com, Ltd. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit, and cash flows for the period from February 20, 1997
(inception) to December 31, 1997 and for 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 HotJobs.com, Ltd. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from February 20, 1997 (inception) to December 31, 1997 and for
the year ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
March 15, 1999, except as to notes 2(a), 6 and 11
which are as of June 18, 1999
F-2
<PAGE>
HOTJOBS.COM, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- ------------
1997 1998 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ 167,004 $ 9,181,291
Accounts receivable, less allowance for doubtful accounts
of $0 in 1997, $85,000 in 1998 and $318,365 in 1999..... 319,137 1,553,297 3,280,047
Prepaid expenses.......................................... 20,848 1,042,675 1,205,261
----------- ----------- ------------
Total current assets.................................. 339,985 2,762,976 13,666,599
Property and equipment, net................................. -- 589,693 1,815,076
Other assets................................................ -- 301,285 221,510
----------- ----------- ------------
Total assets.......................................... $ 339,985 $ 3,653,954 $ 15,703,185
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ -- $ 180,000 $ 180,000
Accounts payable and accrued expenses..................... 77,264 617,879 3,815,605
Due to affiliate.......................................... 294,449 3,631,640 --
Deferred revenue.......................................... 776,054 1,954,582 2,906,931
Current installments of obligations under capital
leases.................................................. -- 72,950 209,321
----------- ----------- ------------
Total current liabilities............................. 1,147,767 6,457,051 7,111,857
Obligations under capital leases, excluding current
installments.............................................. -- 79,999 319,555
----------- ----------- ------------
Total liabilities..................................... 1,147,767 6,537,050 7,431,412
Redeemable convertible preferred stock...................... -- -- 566,129
Stockholders' (deficit) equity:
Preferred stock, $0.01 par value; 2,000,000 shares
authorized, no shares issued and outstanding at
December 31, 1997 and 1998; 1,620,000 redeemable
convertible preferred shares issued and outstanding at
June 30, 1999........................................... -- -- --
Common stock, $0.01 par value; 48,000,000 shares
authorized; 21,300,000, 20,820,000, and 19,620,000
shares issued and outstanding at December 31, 1997,
December 31, 1998 and June 30, 1999..................... 213,000 208,200 196,200
Deferred compensation..................................... -- -- (7,055,727)
Additional paid-in capital................................ (75,496) 111,304 22,884,081
Accumulated deficit....................................... (945,286) (3,202,600) (8,318,910)
----------- ----------- ------------
Total stockholders' (deficit) equity.................. (807,782) (2,883,096) 7,705,644
----------- ----------- ------------
Commitments and contingencies...............................
Total liabilities and stockholders (deficit) equity... $ 339,985 $ 3,653,954 $ 15,703,185
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HOTJOBS.COM, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
----------------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service fees...................... $ 360,942 $ 3,038,317 $ 974,264 $ 4,804,737
Software license fees............. 23,437 224,892 96,094 161,150
Job fair fees..................... -- -- -- 529,552
Other............................. 13,117 249,269 20,000 938,375
---------- ----------- ----------- -----------
Total revenues.................. 397,496 3,512,478 1,090,358 6,433,814
Cost of revenues.................... 12,000 505,527 166,820 1,232,211
---------- ----------- ----------- -----------
Gross profit.................. 385,496 3,006,951 923,538 5,201,603
Operating expenses:
Product development............... 173,846 474,406 201,594 343,751
Sales and marketing............... 431,165 3,084,712 1,153,406 7,259,607
General and administrative........ 725,771 1,642,089 554,148 2,494,334
Non-cash compensation............. -- -- -- 164,948
---------- ----------- ----------- -----------
Total operating expenses........ 1,330,782 5,201,207 1,909,148 10,262,640
---------- ----------- ----------- -----------
Loss from operations.......... (945,286) (2,194,256) (985,610) (5,061,037)
Net interest expense................ -- (63,058) (12,221) (55,273)
---------- ----------- ----------- -----------
Net loss...................... $ (945,286) $(2,257,314) $ (997,831) $(5,116,310)
========== =========== =========== ===========
Deemed dividend attributable to
issuance of convertible preferred
stock............................. -- -- -- 566,129
---------- ----------- ----------- -----------
Net loss attributable to common
stockholders...................... $ (945,286) $(2,257,314) $ (997,831) $(5,682,439)
========== =========== =========== ===========
Basic and diluted net loss per
common share...................... $ (0.04) $ (0.11) $ (0.05) $ (0.28)
========== =========== =========== ===========
Weighted average shares outstanding
used in basic and diluted net loss
per common share calculation...... 21,300,000 21,044,184 21,244,840 20,223,315
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HOTJOBS.COM, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- DEFERRED PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION CAPITAL DEFICIT (DEFICIT) EQUITY
---------- --------- ------------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock..... 21,300,000 $213,000 -- $ (212,996) $ -- $ 4
Allocation of compensation
from affiliate............. -- -- -- 137,500 -- 137,500
Net loss for the period from
February 20, 1997
(inception) to
December 31, 1997.......... -- -- -- -- (945,286) (945,286)
---------- -------- ----------- ----------- ----------- -----------
Balance as of December 31,
1997....................... 21,300,000 213,000 -- (75,496) (945,286) (807,782)
Allocation of compensation
from affiliate............. -- -- -- 182,000 -- 182,000
Repurchase of common stock... (480,000) (4,800) -- 4,800 -- --
Net loss for the year ended
December 31, 1998.......... -- -- -- -- (2,257,314) (2,257,314)
---------- -------- ----------- ----------- ----------- -----------
Balance as of December 31,
1998....................... 20,820,000 208,200 -- 111,304 (3,202,600) (2,883,096)
Repurchase of common stock... (1,200,000) (12,000) -- (49,000) -- (61,000)
Offering costs related to
preferred stock............ -- -- -- (32,769) -- (32,769)
Beneficial conversion feature
related to redeemable
convertible preferred
stock...................... -- -- -- 16,200,000 -- 16,200,000
Amortization of beneficial
conversion feature......... -- -- -- (566,129) -- (566,129)
Non-cash compensation........ -- -- (7,220,675) 7,220,675 -- --
Amortization of non-cash
compensation............... -- -- 164,948 -- -- 164,948
Net loss for the six months
ended June 30, 1999........ -- -- -- -- (5,116,310) (5,116,310)
---------- -------- ----------- ----------- ----------- -----------
Balance as of June 30, 1999.. 19,620,000 $196,200 $(7,055,727) $22,884,081 $(8,318,910) $ 7,705,644
========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HOTJOBS.COM, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
----------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $ (945,286) $(2,257,314) $(997,831) $(5,116,310)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization... -- 107,904 21,203 229,445
Provision for doubtful
accounts...................... -- 85,000 31,950 235,000
Allocation of compensation cost
from affiliate................ 137,500 182,000 91,000 --
Non-cash compensation........... -- -- -- 164,948
(Increase)/decrease In:
Accounts receivable........... (319,137) (1,319,160) (355,405) (1,961,750)
Due to affiliate.............. 294,449 697,396 268,500 135,508
Prepaid expenses.............. (20,848) (1,021,827) -- 162,877
Other assets.................. -- (301,285) (5,000) 79,775
Increase in:
Accounts payable and accrued
expenses.................... 77,264 540,615 821,736 2,857,246
Deferred revenue.............. 776,054 1,178,528 421,597 952,349
---------- ----------- --------- -----------
Net cash provided by (used
in) operating
activities................ (4) (2,108,143) 297,750 (2,260,912)
---------- ----------- --------- -----------
Cash flows from investing activities:
Capital expenditures................ -- (497,054) (214,580) (997,688)
---------- ----------- --------- -----------
Net cash used in investing
activities................ -- (497,054) (214,580) (997,688)
---------- ----------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock............................. 4 -- -- --
Advances from (repayment to)
affiliate......................... -- 2,639,795 -- (3,784,900)
Repurchase and retirement of common
stock............................. -- -- -- (61,000)
Proceeds from issuance of redeemable
convertible preferred stock....... -- -- -- 16,200,000
Proceeds from bank loan............. -- 180,000 -- --
Principal payments under capital
lease obligations................. -- (47,594) (16,182) (81,213)
---------- ----------- --------- -----------
Net cash provided by (used
in) financing
activities................ 4 2,772,201 (16,182) 12,272,887
---------- ----------- --------- -----------
Net increase in cash and
cash equivalents.......... -- 167,004 66,988 9,014,287
---------- ----------- --------- -----------
Cash and cash equivalents at beginning
of period............................ -- -- -- 167,004
Cash and cash equivalents at end of
period............................... $ -- $ 167,004 $ 66,988 $ 9,181,291
========== =========== ========= ===========
</TABLE>
F-6
<PAGE>
HOTJOBS.COM, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
----------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Interest paid....................... $ -- $ 13,128 $ 12,221 $ 123,209
========== =========== ========= ===========
Noncash transactions:
Equipment acquired under capital
leases............................ $ -- $ 200,543 $ 129,699 $ 457,126
Barter transaction.................. $ -- $ -- $ -- $ 252,500
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
HotJobs.com, Ltd. ("HotJobs") was incorporated in the State of Delaware on
February 20, 1997 (inception) as Hot Jobs, Inc. On September 23, 1998, Hot
Jobs, Inc. changed its name to HotJobs.com, Ltd.
HotJobs is an Internet-based recruiting solutions company. HotJobs leverages
the Internet to provide a direct exchange of information between job seekers and
employers. Hot Jobs' employment exchange, WWW.HOTJOBS.COM, allows member
employers access to a database of job seekers and provides the tools to post,
track and manage job openings in a real-time environment. HotJobs also provides
employers with additional recruiting solutions including Softshoe, its
proprietary recruiting software, WorkWorld job fairs, and online advertising and
consulting services.
HotJobs operates in a highly competitive environment and inherent in the
HotJobs' business are various risks and uncertainties including its limited
operating history and unproven business model. HotJobs' success may depend in
part upon the emergence of the Internet as a recruiting medium, prospective
product and service development efforts, and the acceptance of HotJobs' products
and services by the marketplace.
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) PRIVATE PLACEMENT AND INITIAL PUBLIC OFFERING
Effective May 10, 1999, HotJobs entered into a Series A convertible
preferred stock purchase agreement with a number of investors whereby HotJobs
issued 1,620,000 shares of Series A Preferred Stock for aggregate proceeds of
$16,200,000. Upon the closing of the initial public offering (the "IPO"), the
then outstanding shares of HotJobs' convertible preferred stock automatically
converted into 3,934,019 shares of common stock (see Note 8).
In the three months ended September 30, 1999, HotJobs completed its IPO
which resulted in the issuance of 3,350,000 shares of common stock at $8.00 per
share (which included 350,000 shares in connection with the exercise of the
underwriters' over-allotment option).
(B) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements of HotJobs as of June 30, 1999
and for the six months ended June 30, 1998 and 1999, included herein have been
prepared by HotJobs, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the SEC's rules and regulations relating to interim financial
statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
as of June 30, 1999, and the results of operations and cash flows for the six
months ended June 30, 1998 and 1999. The results of operations for any interim
period are not necessarily indicative of HotJobs' results of operations for any
future interim period or for a full year.
HotJobs financial statements as of and for the six months ended June 30,
1999 include the consolidated accounts of HotJobs and its wholly-owned
subsidiary, HotJobs.com Australia Pty,
F-8
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Ltd. from June 18, 1999 (date of inception). All significant intercompany
transactions and balances have been eliminated in consolidation.
(C) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(D) CASH AND CASH EQUIVALENTS
HotJobs considers all highly liquid securities with original maturities of
three months or less to be cash equivalents.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over three to five
years, which is the estimated useful life of the related assets. Leasehold
improvements are amortized over their estimated lives or the term of the related
lease, whichever is shorter. Equipment under capital leases is stated at the
present value of minimum lease payments and is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
assets.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
HotJobs reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. To date, no
impairment has occurred.
(G) INCOME TAXES
HotJobs accounts for income taxes using the asset and liability method.
Under this method, 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 bases and operating loss and tax credit carryforwards. 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. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that includes the enactment date.
F-9
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) REVENUE RECOGNITION
Service fee revenues consist of subscription fees paid by employers for
memberships to the WWW.HOTJOBS.COM employment exchange and software hosting fees
paid by customers of Softshoe software. HotJobs provides membership
subscriptions for a minimum term of three months and a maximum term of 24
months. HotJobs recognizes subscription revenue ratably over the subscription
term. HotJobs provides hosting services on a monthly basis and recognizes
revenue in the month it provides the hosting service.
HotJobs also licenses its Softshoe and miscellaneous proprietary recruiting
software and may provide hosting of the software. Software license fee revenue
is recognized ratably over the four year estimated useful life of the software
in accordance with the guidance provided in AICPA Statements of Position 97-2
and 98-9 "Software Revenue Recognition."
Job fair revenue consists of fees from employers that rent booths at
WorkWorld jobs fairs. Revenue is recognized in the month in which the job fair
takes place.
Other revenues primarily consist of fees derived from 30-day single ad job
postings on WWW.HOTJOBS.COM, banner advertising, and other Softshoe-related
services, including system customization and resume scanning services. HotJobs
recognizes revenue related to these services over the period of delivery of
service.
Other revenues also include barter revenues. Barter advertising revenues and
expenses are recorded at the fair market value of services provided or received,
whichever is more determinable in the circumstances. Revenue from barter
advertising transactions is recognized as income when advertisements are
delivered on WWW.HOTJOBS.COM. Barter expense is recognized when HotJobs'
advertisements are run on third-party web sites, which is typically in the same
period when barter revenue is recognized. Barter expense is included as a
component of cost of revenues.
In the first six months of 1999, HotJobs entered into a barter arrangement.
In exchange for providing a sponsorship on a television commercial, HotJobs was
provided with online advertising on the other party's website. HotJobs
recognized $252,500 of revenues and expenses in the first six months of 1999
relating to this barter arrangement. At June 30, 1999, there were no outstanding
unused amounts included on HotJobs' balance sheet as an asset or liability. The
values assigned to the barter revenue and expense were equal to the actual cost
of purchasing advertising on the other party's website.
Deferred revenue represents amounts billed or payments received in advance
of the subscription period and maintenance services to be rendered over a
certain period of time and is recognized as revenue ratably over the term of the
related contracts.
(I) PRODUCT DEVELOPMENT EXPENSES
Product development costs include expenses incurred by HotJobs for research,
design and development of HotJobs' proprietary technology. Product development
costs are expensed as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of
F-10
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a working model of the HotJobs product and general release have substantially
coincided. As a result, HotJobs has not capitalized any software developments
costs because such costs have not been significant.
(J) ADVERTISING EXPENSES
HotJobs expenses advertising costs the first time the advertising takes
place, in accordance with AICPA Statement of Position 93-7. Advertising costs
totaling $287,067 and $1,305,607, respectively, for the period from
February 20, 1997 (inception) through December 31, 1997 and the year ended
December 31, 1998 and $487,933 and $4,938,756 for the six months ended June 30,
1998 and 1999, respectively, are included in sales and marketing expenses in
HotJobs' statements of operations.
(K) STOCK-BASED COMPENSATION
HotJobs adopted Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
the fair value of all stock-based awards on the date of grant as expense over
the vesting period. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and provide pro forma net loss disclosure for employee stock option
grants made as if the fair value-based method defined in SFAS No. 123 has been
applied. Under APB Opinion No. 25, compensation expense would be recorded on the
date of grant only if the market price of the underlying stock options exceeded
the exercise price. HotJobs has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(L) BASIC AND DILUTED NET LOSS PER SHARE
HotJobs computes net income (loss) available per share in accordance with
SFAS No. 128, "Computation of Earnings Per Share," and the SEC Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98,
basic net income (loss) available per share is computed by dividing the net
income (loss) available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) available per share is computed by dividing the net income (loss)
for the period by the weighted average number of common and dilutive net income
(loss) available per share in accordance with common equivalent shares
outstanding during the period. HotJobs has presented historical basic and
dilutive net income (loss) available per share in accordance with SFAS No. 128.
As HotJobs had a net loss in each of the periods presented, basic and diluted
net income (loss) available per share is the same.
Diluted net loss per share for the period from February 20, 1997 (inception)
through December 31, 1997 and the year ended December 31, 1998 does not include
the effects of options to purchase 0, and 1,236,000 shares of common stock,
respectively as the effect of their inclusion is anti-dilutive during each
period. Diluted net loss per share for the six months ended June 30, 1998 and
1999 does not include the effect of options to purchase 1,104,000 and 4,314,200
shares of common stock. Dilutive common stock equivalents include an option
granted by the president of an affiliated company to purchase shares personally
owned by him.
F-11
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) STOCK SPLIT
On May 10, 1999, HotJobs authorized and implemented a 2,000-for-1 stock
split. Accordingly, all share and per share information in the accompanying
financial statements has been retroactively restated to reflect the effect of
this stock split.
On June 30, 1999, the Board of Directors approved a 24-for-one stock split
of HotJobs' common stock which was effected on August 13, 1999 in connection
with the IPO. All common share and per share amounts in the accompanying
financial statements have been adjusted retroactively.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, HotJobs adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The adoption of this standard has had no impact on
HotJobs' financial statements. Accordingly, HotJobs' comprehensive net loss is
equal to its net loss for all periods presented.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1") which provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. HotJobs has not yet determined the impact, if any, of
adopting SOP 98-1, which will be effective for HotJobs' year ending
December 31, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
HotJobs has determined that it does not have any separately reportable business
segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. This
statement is not expected to affect HotJobs as HotJobs currently does not engage
or plan to engage in derivative instruments or hedging activities.
F-12
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) PREPAID EXPENSES
Prepaid expenses as of December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Prepaid advertising....................................... $20,848 $ 791,700
Prepaid software license.................................. -- 155,292
Other..................................................... -- 95,683
------- ----------
Total..................................................... $20,848 $1,042,675
======= ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1998
-------- --------
Computer equipment, including assets under capital leases of
$0 and $200,543 respectively.............................. $ -- $686,117
Furniture and fixtures...................................... -- 11,480
-------- --------
-- 697,597
Less accumulated depreciation, including assets under
capital leases of $0 and $41,895, respectively............ -- (107,904)
-------- --------
Total................................................. $ -- $589,693
======== ========
</TABLE>
(5) INCOME TAXES
There has been no provision for U.S. federal or state income taxes for any
period as HotJobs has incurred operating losses since inception.
HotJobs has adopted the cash method of accounting for income tax purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the HotJobs' deferred tax assets and liabilities for federal and state income
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 397,000 $ 961,000
Excess depreciation for tax............................... -- (13,000)
--------- ---------
397,000 948,000
--------- ---------
Less valuation allowance.................................... (397,000) (948,000)
--------- ---------
Deferred tax assets......................................... $ -- $ --
========= =========
</TABLE>
F-13
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance as it is more likely
than not that the deferred tax assets will not be realized.
The net change in valuation allowance for the year ended December 31, 1998
was an increase of approximately $551,000.
As of December 31, 1998, HotJobs had net operating loss carryforwards for
federal income tax purposes of approximately $3.1 million. There can be no
assurance that HotJobs will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards are available to
offset future taxable income and expire at various dates through 2018 if not
utilized. The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including significant changes in ownership interest.
(6) RELATED PARTY TRANSACTIONS
For the period from February 20, 1997 (inception) to December 31, 1997, the
year ended December 31, 1998 and the six months ended June 30, 1999, OTEC, Inc.
("OTEC"), an affiliated company, paid various expenses on behalf of HotJobs.
HotJobs recorded its allocated share of the expenses on its financial
statements. The effect of all operating expenses paid on behalf of HotJobs by
OTEC was approximately $741,600, $1,153,000 and $135,508 for the period ended
December 31, 1997, the year ended December 31, 1998 and the six months ended
June 30, 1999, respectively. These expenses primarily consist of rents,
salaries, computer expense and other administrative expenses. OTEC also provided
cash advances of $2,639,795 to HotJobs in 1998, of which $2,259,795 bore
interest at rates ranging from 8.75% to 9.5% per annum. The interest expense
relating to such cash advances was approximately $49,000 during 1998 and was
included in the due to affiliate balance as of December 31, 1998. In June 1999,
HotJobs repaid all amounts due to affiliates.
HotJobs believes that these transactions were entered into on an arms-length
basis. The expenses were based on the actual charge per HotJobs employee, with
respect to salaries and employee benefit plans. With respect to expenses such as
rents, computer expenses, and insurance, expenses were based on the number of
HotJobs employees using the facility or service as a percentage of all employees
using the facility or service. All of these expenses were paid to outside third
parties at market rates.
At December 31, 1997 and 1998, OTEC owned approximately 22.5% and 23.0%,
respectively of HotJobs.
The chief executive officer of HotJobs is a director, executive officer and
shareholder of OTEC. Compensation expense for the chief executive officer of
$137,500 and $182,000 for the period ending December 31, 1997 and for the year
ended December 31, 1998, respectively, was paid by OTEC. These amounts paid by
OTEC are included as capital contributions in the statements of stockholders'
deficit, as they are not required to be repaid.
F-14
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
HotJobs has recorded in the statement of operations $18,750 in 1997 for the
license of miscellaneous propriety software by OTEC and $294,000 in 1998 for
hosting that software and for purchasing additional software.
On March 2, 1999, the chief executive officer of HotJobs granted the
president of OTEC an option, which expires on March 2, 2002, to purchase 34
shares of OTEC common stock owned personally by him at a purchase price of
$4,880 per share aggregating to $165,920, and an additional option to purchase
50 shares of each of OTEC's affiliated companies at a purchase price of $1 per
share. Similarly, on March 2, 1999, the president of OTEC granted HotJobs' chief
executive officer an option, which expires on March 2, 2002, to purchase
3,264,000 shares of HotJobs' common stock owned personally by the president at a
purchase price of approximately $0.05 per share aggregating to $165,920. In
addition, the chief executive officer of HotJobs granted to the President of
OTEC an irrevocable proxy expiring March 2, 2002 to vote all of the chief
executive officer of HotJobs' shares of stock subject to the option. In turn,
the president of OTEC granted the chief executive officer of HotJobs an
irrevocable proxy expiring March 2, 2002 to vote all of his shares of stock in
HotJobs. This was a nonmonetary transaction between two individuals with respect
to shares personally owned by them and therefore no accounting was required by
HotJobs.
Until recently, HotJobs had several joint insurance polices with OTEC and
its affiliates. HotJobs' commercial property insurance issued by Federal
Insurance Company for a one year term beginning October 15, 1998, covered both
its California and New York offices as well as OTEC's California office.
HotJobs' commercial umbrella policy, also issued by Federal Insurance Company
for a one year term beginning October 15, 1998, also covered OTEC and its
affiliates, as did HotJobs' workers compensation insurance, issued by Lumbermans
Mutual Casualty Company on December 1, 1998 for a term ending October 15, 1999.
Effective June 1, 1999, HotJobs has stand alone insurance policies in place.
HotJobs had a joint fiduciary liability policy, issued by Travelers Insurance
for a one-year term beginning October 20, 1998, with OTEC and its affiliates.
Insurance expenses of $85,096 in 1998 have been allocated by OTEC to HotJobs
based on the respective number of personnel of these two companies. On July 20,
1999, HotJobs obtained its own directors and officers' liability insurance
policy.
OTEC and RBL, jointly and severally, guarantee certain of HotJobs'
obligations, including HotJobs' obligation to pay rent under its leases, dated
as of April 16, 1999, pursuant to which HotJobs rents the 10th, 14th and 16th
floors of a building located at 24 West 40th Street in New York City.
On April 2, 1999, HotJobs repurchased 1,200,000 shares of common stock from
the chief executive officer and two employees for approximately $0.05 per share.
On May 11, 1999, as part of the Series A Preferred Stock purchase agreement
(see note 8), FSA Capital, Inc. purchased 42,189 shares of Series A Preferred
Stock for $421,890. The chief financial officer and a director of HotJobs, is a
director of FSA Capital, Inc.
Generation Capital Partners, L.P. and affiliated investment entities
("Generation Partners") purchased in the aggregate 1,053,704 shares of Series A
Preferred Stock for $10,537,040. Generation Partners owns more than 5% of
HotJobs' stock. One of HotJobs' directors is a Managing Partner of an affiliate
of Generation Partners.
F-15
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
One of HotJobs' directors purchased 18,750 shares of Series A Preferred
Stock for $187,500. In connection with the Series A Preferred Stock financing,
GreenAcre Ventures LLC, of which one of HotJobs' directors is a managing member,
purchased 11,000 shares of HotJobs' common stock from two employees.
One of HotJobs' directors purchased 21,094 shares of Series A Preferred
Stock for $210,940.
(7) LINE OF CREDIT
On October 13, 1998, HotJobs entered into a $500,000 line of credit with The
Dime Savings Bank of New York (the "Bank"). Any outstanding balance is payable
on demand and bears interest at a fluctuating rate of 1% above the Bank's
reference lending rate for domestic commercial loans. All of HotJobs' assets
were pledged as collateral in the event of default. The amount borrowed on the
line of credit was $180,000 as of December 31, 1998.
On July 20, 1999, HotJobs repaid $180,000 in principal, along with interest
due under its line of credit with The Dime Savings Bank of New York. On
September 16, 1999, HotJobs terminated this $500,000 line of credit.
On October 13, 1998, an affiliated company refinanced an obligation under a
line of credit. As part of the refinancing agreement, the assets of HotJobs were
pledged as collateral in the event of default by the affiliated company. On
June 2, 1999, the bank removed all cross guarantees with both the HotJobs and
the affiliated company lines of credit.
(8) CAPITALIZATION
AUTHORIZED SHARES
In 1998, HotJobs amended and restated its certificate of incorporation to
change its name to HotJobs.com, Ltd. On April 9 and May 10, 1999, HotJobs
amended its certificate of incorporation. As a result, as of May 10, 1999, the
total number of shares which HotJobs was authorized to issue was 50,000,000:
48,000,000 of these shares were common stock, each having a par value of $0.01;
and 2,000,000 of these shares were preferred stock, each having a par value of
$0.01.
Effective upon the closing of the IPO, HotJobs is authorized to issue up to
100,000,000 shares of common stock par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Effective May 10, 1999, HotJobs issued an aggregate of 1,620,000 shares of
Series A Preferred Stock, at a purchase price of $10 per share, in consideration
for cash proceeds of $16.2 million. Holders of Series A Preferred Stock were not
entitled to any dividend. However, in the event of any liquidation, dissolution
or winding up of HotJobs, the holders of the Series A Preferred stock then
outstanding were entitled to be paid a preferential amount of $10 per share.
Each holder of Series A Preferred Stock was entitled to the number of votes
equal to the number of whole shares of common stock into which the shares of
preferred stock were convertible on the date of the vote.
F-16
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(8) CAPITALIZATION (CONTINUED)
Upon request of the majority of the Series A Preferred stockholders on or
after May 1, 2003, HotJobs could be required to redeem Series A Preferred Shares
at an amount equal to the greater of (a) the amount per share payable to the
holders of the Series A Preferred Stock in the event of liquidation, dissolution
or winding up of HotJobs and (b) $10 per share plus an additional amount equal
to 10% per annum.
At the option of the stockholders, Series A Preferred Stock was convertible,
at any time prior to the date of redemption, into shares of common stock. The
conversion would result from dividing the Preferential Amount (as defined) for
the Series A Preferred Stock as of the date of conversion by the conversion
price of $4.12 per share. Such shares automatically converted into common shares
upon the completion of the IPO.
Due to the sale of the Series A Preferred Stock with a conversion price that
was below the expected initial public offering price of the common stock,
HotJobs recorded a beneficial conversion feature of $16.2 million. The
beneficial conversion feature is limited to the net proceeds received from the
preferred stock transaction. HotJobs began amortizing the value of the
beneficial conversion feature as a non-cash preferred stock dividend over the
four-year period from the date of issuance of the preferred stock to the date on
which the preferred stock was first convertible into common stock, assuming no
acceleration of the date of conversion. Accordingly, for the three months ended
June 30, 1999, $566,129 of the beneficial conversion feature was recorded as a
non-cash preferred stock dividend. On August 13, 1999, in connection with the
IPO, all of the preferred stock automatically converted into common stock.
HotJobs expects to recognize all $15.3 million of the as yet unamortized amount
of the beneficial conversion feature as a deemed dividend to preferred
stockholders during the three months ended September 30, 1999.
COMMON STOCK
During 1997, HotJobs issued 21,300,000 shares of common stock to its
founders and original employees at $0.01 per share.
(9) CONCENTRATION OF CREDIT RISK
For the period from February 20, 1997 (inception) to December 31, 1997, no
customer, accounted for over 10% of total revenues generated by HotJobs. No
customers for more than 10% of gross accounts receivable at December 31, 1997.
For the year ended December 31, 1998, no customer accounted for over 10% of
total revenues generated by HotJobs during that period. Two customers had
balances of 18% and 17%, respectively, of gross accounts receivable at
December 31, 1998.
For the six months ended June 30, 1998, two customers, one of which is an
affiliate company, accounted for approximately 14% and 12%, respectively, of
total revenues generated by HotJobs during that period. One customer accounted
for more than 10% of gross accounts receivable at June 30, 1998.
F-17
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(9) CONCENTRATION OF CREDIT RISK (CONTINUED)
For the six months ended June 30, 1999, there were no customers that
accounted for more than 10% of total revenues generated by HotJobs during that
period, or of gross accounts receivable at June 30, 1999.
(10) PROFIT SHARING RETIREMENT PLAN
Until July 1, 1999, HotJobs' employees participated in a qualified profit
sharing retirement plan with a 401(k) deferred compensation provision through an
affiliated company. HotJobs contributed 50% of the amounts contributed by
employees up to a maximum of 6% of gross wages. Additionally, a discretionary
profit sharing contribution was determined annually by the Board of Directors.
The contributions charged to operations for the 401(k) plan amounted to $23,237
and $21,835 for 1998 and 1997, respectively. There were no discretionary profit
sharing contributions made by HotJobs during either 1997 or 1998. As of July 1,
1999, HotJobs established its own 401(k) Plan.
(11) EMPLOYMENT AGREEMENTS
Richard Johnson, Stephen Ellis, Dimitri Boylan and George Nassef each has an
employment agreement with HotJobs. The agreements of Messrs. Johnson, Ellis and
Boylan each became effective on May 6, 1999 and expires on May 5, 2002, and will
automatically renew for additional one year terms after that date unless HotJobs
gives the executive written notice of its desire not to renew the agreement at
least six months prior to the expiration of the initial or any additional term.
Mr. Nassef's employment agreement became effective on June 18, 1999 and shall
continue until terminated by him or by HotJobs. The annual salary for each of
these executives is as follows: Richard Johnson, $200,000; Stephen Ellis,
$175,000; Dimitri Boylan, $175,000 and George J. Nassef, Jr., $175,000. The
annual salary of each of Messrs. Johnson, Ellis and Boylan will increase by a
minimum of 10% each year. In addition, Stephen Ellis received a non-qualified
stock option to purchase 360,000 shares of HotJobs' common stock. In connection
with the closing of HotJobs' initial public offering, 180,000 of these options
vested automatically, and 90,000 options will vest on each of May 6, 2001 and
May 6, 2002. Mr. Nassef received stock options to purchase 180,000 shares of
HotJobs' common stock. In connection with the closing of HotJob's initial public
offering, 90,000 of these options vested automatically; 30,000 options will vest
on June 18, 2001; and 60,000 options will vest on June 18, 2002. Also, each of
these executives is entitled to an annual bonus determined by the compensation
committee of the Board of Directors. HotJobs can terminate these employment
agreements with or without cause by delivering written notice to the executive.
Each executive may terminate his employment agreement with or without good
reason by delivering written notice to HotJobs. Upon termination of the
agreement by HotJobs without cause or by the executive for good reason, the
executive is entitled to the greater of his annual salary for the remainder of
the term of the agreement or one year of salary and all options become
immediately exercisable.
(12) STOCK OPTION PLAN
HotJobs has a Stock Award Plan which provides for the granting of options to
employees to purchase shares of its common stock. HotJobs granted options under
the Stock Award Plan until
F-18
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) STOCK OPTION PLAN (CONTINUED)
June 30, 1999. Such options have ten-year terms and have been issued at the fair
market value of the HotJobs' common stock on the date of the applicable grant
and will vest through 2008. Such options vest over three to five years. A
majority of the options granted under the Stock Award Plan became immediately
exercisable upon the consummation of the IPO.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
--------------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1997
Granted at $0.03.................................... 2,208,000 $0.03
Granted at $0.04.................................... 132,000 $0.04
Exercised........................................... -- $ --
Forfeited........................................... (1,104,000) $0.03
----------
Outstanding as of December 31, 1998................. 1,236,000 $0.03
----------
Granted at $0.05 (unaudited)........................ 2,342,400 $0.05
Granted at $3.38 (unaudited)........................ 750,200 $3.38
Exercised (unaudited)............................... -- $ --
Forfeited (unaudited)............................... (14,400) $0.05
----------
Outstanding as of June 30, 1999 (unaudited)......... 4,314,200 $0.62
==========
Vested at December 31, 1998......................... 0
==========
</TABLE>
The weighted-average remaining life of the 1,236,000 options outstanding at
December 31, 1998 is approximately 9.7 years.
HotJobs granted 48,000 options under the plan on April 1, 1998 at an
exercise price of $0.03 to a consultant, an employee of a related party who is
providing services to HotJobs. The value of this option using a Black-Scholes
pricing model was deemed insignificant.
HotJobs has adopted the disclosure provisions of SFAS No. 123. Had
compensation costs on the HotJobs' Stock Award Plan been determined based on the
fair market value on the grant date consistent with the provisions of SFAS
No. 123, HotJobs' net loss would have been increased as per the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net loss--actual............................................ $(2,257,314)
===========
Net loss--pro forma......................................... $(2,262,255)
===========
Basic and diluted net loss per share--actual and pro
forma..................................................... $ (0.11)
===========
</TABLE>
F-19
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) STOCK OPTION PLAN (CONTINUED)
Pro forma information regarding net loss has been determined using a
Black-Scholes option pricing model with the following assumptions for 1998:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6.0%
Dividend yield.............................................. 0.0%
Volatility factor........................................... 0.0%
Average expected life....................................... 9 years
</TABLE>
As of June 30, 1999, HotJobs recorded deferred compensation expense of
approximately $7.2 million, in connection with the grant of certain options to
employees and directors, representing the difference between the deemed fair
value of HotJobs' common stock at the date of grant for accounting purposes and
the exercise price of the related options. This amount is presented as a
reduction of stockholders (deficit) equity and amortized over the vesting
period. HotJobs granted approximately 750,200 options at a weighted average
exercise price of $3.38 per share; all of which were granted at less than the
deemed fair value at the date of the grant. HotJobs has amortized $164,948 of
deferred compensation of the six months ended June 30, 1999. HotJobs expects to
amortize the following amounts of deferred compensation annually: 1999 - $1.9
million; 2000 - $1.7 million; 2001 - $1.7 million; 2002 - $1.4 million; 2003 -
$0.5 million.
On June 30, 1999, HotJobs adopted the 1999 Stock Option/Stock Issuance Plan
and no future grants will be made under the Stock Award Plan subsequent to
June 30, 1999. 4,500,000 shares of common stock have been authorized under the
1999 Plan. 3,492,000 options granted under the Stock Award Plan became
exercisable upon the completion of the IPO and the remainder vest over a period
of three to four years. Subsequent to June 30, 1999, HotJobs granted 1,847,000
options at an average exercise price of $9.17.
Subsequent to June 30, 1999, HotJobs will record deferred compensation
approximately of $800,000 for options granted below the fair market value. This
amount will be amortized over the applicable vesting periods.
(13) EMPLOYEE STOCK PURCHASE PLAN
On August 10, 1999, the Employee Stock Purchase Plan became effective. The
plan is designed to allow eligible employees to purchase shares of common stock
at 85% of the lower of the fair market value of our common stock on the
employee's entry date into the offering period or the fair market value on the
semi-annual purchase date through periodic payroll deductions. A total of
250,000 shares of common stock are available for issuance under the plan.
The plan has a series of successive offering periods, each with a maximum
duration of 24 months. The initial offering period began on August 10, 1999 and
will end on the last business day in July 2001. The next offering period will
begin on the first business day in August 2001 and subsequent offering periods
will be set by HotJobs' compensation committee.
F-20
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(14) COMMITMENTS AND CONTINGENCIES
(A) OFFICE LEASES
HotJobs leases office space in New York and California. The minimum lease
payments under these leases are payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------- ----------
<S> <C>
1999........................................................ $ 132,344
2000........................................................ 252,007
2001........................................................ 267,886
2002........................................................ 259,375
2003........................................................ 240,839
Thereafter.................................................. 163,922
----------
$1,316,373
==========
</TABLE>
Rent expense for the period from February 20, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998 was $41,667 and $103,398,
respectively.
In March 1999, HotJobs entered into a five-year lease agreement for office
space in California. The lease is due to expire during May 2004 and has been
included above as part of the minimum lease payment schedule.
In April 1999, HotJobs entered into two five-year lease agreements for
office space in New York. These leases are due to expire on March 31, 2004. The
minimum lease payments under these leases amount to approximately $918,000.
Under the terms of these agreements, landlord and tenant have the right to
terminate these leases at any time after July 31, 1999 upon giving ninety days'
written notice. Due to the existence of this termination clause, these amounts
have not been included as part of minimum lease payable commitments.
In July 1999, HotJobs entered into a three-year lease agreement for office
space in Sydney, Australia. The lease is due to expire on July 22, 2002 and has
been included above as part of the minimum lease payment schedule.
In September 1999, HotJobs entered into a five-year lease agreement for
office space in Chicago, Illinois. The lease is due to expire on November 1,
2004 and has been included above as part of the minimum lease payment schedule.
An affiliated company unconditionally guaranteed payment and performance of
all obligations, liabilities, terms and conditions of HotJobs' office leases.
(B) EQUIPMENT LEASES
HotJobs is obligated under various capital leases that begin in 1998 and
expire at various dates through November 2001.
F-21
<PAGE>
HOTJOBS.COM, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(14) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum capital lease payments are payable as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR LEASES
- ---- ---------
<S> <C>
1999........................................................ $ 88,470
2000........................................................ 64,060
2001........................................................ 23,370
--------
Total minimum lease payments................................ 175,900
Less amount representing interest (at rates ranging from
9.7% to 18.7%)............................................ 22,951
--------
Present value of net minimum lease payments................. 152,949
Less current installment of obligations under capital
leases.................................................... 72,950
--------
Obligations under capital leases, excluding current
installments.............................................. $ 79,999
========
</TABLE>
From March through April 1999, HotJobs entered into three capital lease
agreements for an aggregate amount of approximately $457,000 to finance computer
equipment. These capital lease commitments are not included in the above lease
schedule.
(C) COMMITMENT TO PURCHASE COMMERCIAL AIRTIME
HotJobs entered into a commitment to purchase 30 seconds of commercial
airtime and a "banner" advertisement from Fox Broadcasting Company during the
National Football League's Super Bowl on January 31, 1999. The cost of the
airtime was $1,360,000. $680,000 was paid in November 1998 and was recorded
within prepaid expenses. The remainder was paid in January 1999.
The Company also committed approximately $590,000 to advertising firms and
production companies for development of the commercial. This amount was paid in
various installments through January 1999.
Between July 1, 1999 and September 30, 1999, HotJobs incurred $5,092,099 in
advertising expenses. Also, as of October 1, 1999, HotJobs has commitments of
approximately $5.8 million for various advertising campaigns through June 2000.
These commitments include broadcasting, print, online and outdoor advertising.
These commitments expire over various time periods.
(15) SUBSEQUENT EVENT--UNAUDITED
On September 16, 1999, HotJobs entered into a Loan and Security Agreement
with Silicon Valley Bank. The agreement consists of a $4,000,000 revolving line
of credit and a $1,000,000 equipment line of credit. The revolving line of
credit has a term of one year and bears interest at an annual rate of the bank's
prime rate plus 75 basis points. Interest on the revolving line of credit is
payable monthly and any principal outstanding is payable at the end of the term.
The equipment line of credit has a term of 42 months and bears interest at an
annual rate of the bank's prime rate plus 100 basis points. HotJobs may borrow
under this equipment line of credit during the first six months of the term.
Interest on the equipment line of credit is payable monthly and the principal is
payable over 36 months commencing on April 1, 2000.
F-22
<PAGE>
INSIDE BACK COVER - ARTWORK
A circle segmented into sections. Each section includes the name of one of our
products: the www.hotjobs.com employment exchange, Softshoe software and
WorkWorld job fairs.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES
OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF
OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Forward-Looking Statements............ 19
Market Data........................... 19
Use of Proceeds....................... 20
Price Range of Common Stock........... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 36
Management............................ 49
Related Party Transactions............ 56
Principal Stockholders................ 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 66
Underwriting.......................... 68
Legal Matters......................... 71
Experts............................... 71
Where You Can Find More Information... 71
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
[LOGO]
3,000,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
SG COWEN
THOMAS WEISEL PARTNERS LLC
Prospectus
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 25,207
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... 250,000*
Accounting fees and expenses................................ 100,000*
Printing and engraving...................................... 250,000*
Transfer agent fees......................................... 15,000*
Other....................................................... 33,168*
----------
Total................................................. $ 700,000
==========
</TABLE>
- ------------------------
* Estimated Amount to be Paid.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL makes provision for the indemnification of officers
and directors in terms sufficiently broad to indemnify officers and directors
under certain circumstances from liabilities (including reimbursement for
expenses incurred) arising under the Securities Act. Section 145 of the DGCL
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of their capacity or status as
directors and officers, provided that this provision shall not eliminate or
limit the liability of a director: (1) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) arising under Section 174 of the DGCL or (4) for any transaction from
which the director derived an improper personal benefit. The DGCL provides
further that the indemnification permitted thereunder shall not be deemed
exclusive of any other rights to which the directors and officers may be
entitled under the corporation's bylaws, any agreement, a vote of stockholders
or otherwise.
Our certificate of incorporation provides for indemnification of our
directors against, and absolution of, liability to HotJobs.com and its
stockholders to the fullest extent permitted by the DGCL. HotJobs.com has
purchased directors' and officers' liability insurance covering liabilities that
may be incurred by our directors and officers in connection with the performance
of their duties.
The employment agreements we have entered into with Richard S. Johnson,
Stephen W. Ellis, Dimitri J. Boylan and George J. Nassef, Jr. provide that such
executives will be indemnified by us for all liabilities relating to their
status as officers or directors of HotJobs.com, and any actions committed or
omitted by the executives, to the maximum extent permitted by law of the State
of Delaware.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since
February 20, 1997 (inception):
COMMON STOCK AND PREFERRED STOCK.
1. In February 1997, the Registrant issued and sold 21,300,000 shares of
common stock to purchasers, including officers and directors, for par value.
2. Effective May 10, 1999, the Registrant issued and sold 1,620,000 shares
of Series A Preferred Stock to 18 accredited investors for an aggregate purchase
price of $16,200,000.
OPTIONS. The Registrant from time to time has granted stock options to
employees and consultants in reliance upon exemption from registration pursuant
to either (i) Section 4(2) of the Securities Act of 1933, as amended, or
(ii) Rule 701 promulgated under the Securities Act of 1933, as amended. The
following table sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
---------- --------------
<S> <C> <C>
February 20, 1997 (inception) to December 31,
1997.......................................... -- --
January 1, 1998 to December 31, 1998............ 1,236,000 $0.02 - $0.04
January 1, 1999 to June 30, 1999................ 3,078,200 $0.05 - $3.38
July 1, 1999 to October 27, 1999................ 1,847,000 $8.00 - $34.94
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering or (2) Rule 701 promulgated under the Securities Act of 1933, as
amended. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1** Certificate of Incorporation, as amended.
3.2** Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3** Bylaws.
3.4** Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1** Specimen Common Stock certificate.
4.2 Please see Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of
the certificate of incorporation and bylaws defining the
rights of holders of common stock.
5.1+ Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Convertible Preferred Stock Purchase Agreement,
dated as of May 10, 1999, between HotJobs.com and the
several purchasers names in Schedule I thereto.
10.2** Amended and Restated Stockholders' Agreement, dated as of
May 11, 1999.
10.3** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Richard S. Johnson+
10.4** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Dimitri J. Boylan+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
10.5** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Stephen W. Ellis.+
10.6** HotJobs.com Stock Award Plan+
10.7** 1999 Stock Option/Stock Issuance Plan+
10.8** Employee Stock Purchase Plan+
10.9** Lease Agreement, dated as of April 16, 1999, between 24 West
40th St. LLC, as landlord, and HotJobs.com, Ltd., as tenant
for the 14th and 16th floors.
10.10** Guarantee, made as of April 16, 1999, by OTEC, Inc. and RBL
Agency, Ltd., related to the above lease.
10.11** Lease Agreement, dated as of April 16, 1999, between 24 West
40th St. LLC, as landlord, and HotJobs.com, Ltd., as tenant
for the 10th floor.
10.12** Guarantee, made as of April 16, 1999, by OTEC, Inc. and RBL
Agency, Ltd., related to the above lease.
10.13** Office Lease, dated as of February 10, 1999, between 580
Market Street Corp., as landlord, and HotJobs.com, Ltd., as
tenant.
10.14** Line of Credit, dated as of October 3, 1998, granted by The
Dime Savings Bank to HotJobs.com, Ltd.
10.15** Line of Credit, dated as of October 3, 1999, granted by The
Dime Savings Bank to OTEC Consulting, Inc., RBL Agency, Ltd.
and OTEC, Inc.
10.16** Employment Agreement, dated as of June 18, 1999, between
HotJobs.com and George J. Nassef, Jr.+
10.17** 401(K) Plan.
10.18+ Lease Agreement, dated as of September 24, 1999, between 360
North Michigan Trust, as landlord, and HotJobs.com, Ltd., as
tenant.
10.19 Loan and Security Agreement, dated as of September 16, 1999,
between Silicon Valley Bank and HotJobs.com, Ltd.
10.20 Negative Pledge Agreement, dated as of September 16, 1999,
between Silicon Valley Bank and HotJobs.com, Ltd.
21.1* Subsidiaries of the Registrant.
23.1+ Consent of KPMG LLP.
23.2+ Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1+ Powers of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference to Exhibit 21 to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1999.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-80367), as amended.
+ Indicates compensatory plan or arrangement.
+ Previously filed.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
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.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of 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.
The undersigned Registrant 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 the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, 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 this offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in The City of New York,
State of New York, on this 28th day of October, 1999.
<TABLE>
<C> <S> <C>
HOTJOBS.COM, LTD.
By: /s/ RICHARD S. JOHNSON
-----------------------------------------
Name: Richard S. Johnson
Title: President and Chief Executive
Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on October 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<C> <S>
/s/ RICHARD S. JOHNSON President, Chief Executive Officer and
------------------------------------------- Chairman of the Board of Directors
Richard S. Johnson (principal executive officer)
* Chief Financial Officer (principal financial
------------------------------------------- and accounting officer) and Director
Stephen W. Ellis
* Chief Operating Officer, Secretary and
------------------------------------------- Director
Dimitri J. Boylan
* Director
-------------------------------------------
Philip Guarascio
* Director
-------------------------------------------
John A. Hawkins
* Director
-------------------------------------------
John G. Murray
* Director
-------------------------------------------
Kevin P. Ryan
</TABLE>
<TABLE>
<S> <C> <C>
* /s/ RICHARD S. JOHNSON
---------------------------------------
Richard S. Johnson Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
HOTJOBS.COM, LTD.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT PROVISION BALANCE AT
BEGINNING FOR DOUBTFUL END OF
OF PERIOD ACCOUNTS DEDUCTIONS PERIOD
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
For the period from February 20, 1997 (inception)
to December 31, 1997
Allowance for doubtful accounts................ $ 0 $ 0 $ 0 $ 0
======= ======= ======= =======
For the year ended December 31, 1998
Allowance for doubtful accounts................ $ 0 $85,000 $ 0 $85,000
======= ======= ======= =======
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1** Certificate of Incorporation, as amended.
3.2** Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3** Bylaws.
3.4** Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1** Specimen Common Stock certificate.
4.2 Please see Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of
the certificate of incorporation and bylaws defining the
rights of holders of common stock.
5.1+ Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Convertible Preferred Stock Purchase Agreement,
dated as of May 10, 1999, between HotJobs.com and the
several purchasers names in Schedule I thereto.
10.2** Amended and Restated Stockholders' Agreement, dated as of
May 11, 1999.
10.3** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Richard S. Johnson+
10.4** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Dimitri J. Boylan+
10.5** Employment Agreement, dated as of May 6, 1999, between
HotJobs.com and Stephen W. Ellis.+
10.6** HotJobs.com Stock Award Plan+
10.7** 1999 Stock Option/Stock Issuance Plan+
10.8** Employee Stock Purchase Plan+
10.9** Lease Agreement, dated as of April 16, 1999, between 24 West
40th St. LLC, as landlord, and HotJobs.com, Ltd., as tenant
for the 14th and 16th floors.
10.10** Guarantee, made as of April 16, 1999, by OTEC, Inc. and RBL
Agency, Ltd., related to the above lease.
10.11** Lease Agreement, dated as of April 16, 1999, between 24 West
40th St. LLC, as landlord, and HotJobs.com, Ltd., as tenant
for the 10th floor.
10.12** Guarantee, made as of April 16, 1999, by OTEC, Inc. and RBL
Agency, Ltd., related to the above lease.
10.13** Office Lease, dated as of February 10, 1999, between 580
Market Street Corp., as landlord, and HotJobs.com, Ltd., as
tenant.
10.14** Line of Credit, dated as of October 3, 1998, granted by The
Dime Savings Bank to HotJobs.com, Ltd.
10.15** Line of Credit, dated as of October 3, 1999, granted by The
Dime Savings Bank to OTEC Consulting, Inc., RBL Agency, Ltd.
and OTEC, Inc.
10.16** Employment Agreement, dated as of June 18, 1999, between
HotJobs.com and George J. Nassef, Jr.+
10.17** 401(K) Plan.
10.18+ Lease Agreement, dated as of September 24, 1999, between 360
North Michigan Trust, as landlord, and HotJobs.com, Ltd., as
tenant.
10.19 Loan and Security Agreement, dated September 16, 1999,
between Silicon Valley Bank and HotJobs.com, Ltd.
10.20 Negative Pledge Agreement, dated September 16, 1999, between
Silicon Valley Bank and HotJobs.com, Ltd.
21.1* Subsidiaries of the Registrant.
23.1+ Consent of KPMG LLP.
23.2+ Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1+ Powers of Attorney
27.1+ Financial Data Schedule.
</TABLE>
- --------------------------
* Incorporated by reference to Exhibit 21 to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1999.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-80367), as amended.
+ Indicates compensatory plan or arrangement.
+ Previously Filed.
<PAGE>
EXHIBIT 1.1
3,000,000 Shares
HotJobs.com, Ltd.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
November ___, 1999
Deutsche Bank Securities Inc.
BancBoston Robertson Stephens
SG Cowen Securities Corporation
Thomas Weisel Partners LLC
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
HotJobs.com, Ltd., a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 3,000,000 shares (the "Firm Shares") of the Company's common stock, $.01 par
value (the "Common Stock"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to sell at the Underwriters' option
an aggregate of up to 450,000 additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
1
<PAGE>
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) A registration statement on Form S-1 (File No. 333-89813)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification, except such jurisdictions in which,
when considered in the aggregate, the failure to be so qualified would not have
a material adverse effect on the Company.
2
<PAGE>
(c) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable.
The Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct as of the date referenced
in the Prospectus. All of the Shares conform to the description thereof
contained in the Registration Statement. The form of certificates for the Shares
conforms to the General Corporation Law of the State of Delaware (the "DGCL").
(e) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus or Prospectus relating to the
proposed offering of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all statements which are required to be stated
therein by, and will conform to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and will not contain, any untrue statement of a material fact and do
not omit, and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any amendments and supplements thereto do not contain, and will
not contain, any untrue statement of material fact, and do not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement and the
Prospectus, present fairly the financial position and the results of operations
and cash flows of the Company at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data and the selected financial
and statistical data included in the Registration Statement and the Prospectus
3
<PAGE>
present fairly the information shown therein and such data has been compiled on
a basis consistent with the financial statements presented therein and the books
and records of the Company. The pro forma financial information included in the
Registration Statement and the Prospectus presents fairly the information shown
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(g) KPMG LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(h) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company before any court
or administrative agency or otherwise which if determined adversely to the
Company might, individually or in the aggregate, result in any material adverse
change in the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company or to
prevent the consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement and the Prospectus.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(j) The Company has filed all Federal, state, local and
foreign tax returns which have been required to be filed and has paid all taxes
indicated by said returns and all assessments received by it to the extent that
such taxes have become due and are not being contested in good faith and for
which an adequate reserve for accrual has been established in accordance with
generally accepted accounting principles. All tax liabilities have been
adequately provided for in the financial statements of the Company, and the
Company does not know of any actual or proposed additional material tax
assessments.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
4
<PAGE>
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business,
other than as described in the Registration Statement, as it may be amended or
supplemented. The Company has no material contingent obligations which are not
disclosed in the Company's financial statements which are included in the
Registration Statement.
(l) The Company is not, nor with the giving of notice or lapse
of time or both, will be, in violation of or in default under its Charter or
By-Laws or under any agreement, lease, contract, indenture or other instrument
or obligation to which it is a party or by which it, or any of its properties,
is bound and which default is of material significance in respect of the
condition, financial or otherwise of the Company or the business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company.
(m) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, (i) any agreement, lease,
contract, indenture or other instrument or obligation to which the Company is a
party, (ii) the Charter or By-Laws of the Company or (iii) any order, rule or
regulation applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction over the
Company.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(o) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to own or lease, as
the case may be, and to operate its properties and to conduct its business as
described in the Registration Statement; and, except as described in the
Prospectus (and any amendment or supplement thereto), the Company has not to its
knowledge infringed any patents issued prior to the Closing Date, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company as described in the Registration Statement. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company. The Company owns,
or possesses adequate rights to use, all patents, patent rights, inventions,
trade
5
<PAGE>
secrets, licenses, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names and copyrights described or
referred to in the Prospectus as owned or used by it or which are necessary for
the conduct of its business as described in the Prospectus, except as otherwise
disclosed in the Prospectus. To the best knowledge of the Company, except as
disclosed in the Prospectus, all such patents, patent rights, licenses,
trademarks, service marks and copyrights are (a) valid and enforceable and (b)
not being infringed by any third parties which infringement could, whether
singly or in the aggregate, materially and adversely affect the business,
properties, operations, condition (financial or otherwise), income, business
prospects or results of operations of the Company, as presently being conducted
or as proposed to be conducted in the Prospectus. Except as disclosed in the
Prospectus, the Company has no knowledge of, nor has it received any notice of,
infringement of or conflict with, asserted rights of others with respect to any
patents issued prior to the Closing Date, inventions, trade secrets, licenses,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding could
materially and adversely affect the business, properties, operations, condition
(financial or otherwise), income, business prospects or results of operations of
the Company as presently being conducted or as proposed to be conducted in the
Prospectus.
(p) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on the Nasdaq Stock Market in accordance with
Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(q) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations of the Commission thereunder.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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(s) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in the
same or similar businesses.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(u) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(v) The Company has implemented procedures to analyze and
address the risk that the computer hardware and software used or produced by it
may be unable to recognize and properly execute date-sensitive functions
involving certain dates after December 31, 1999 (the "Year 2000 Problem"), and
has determined, to the best of its knowledge, that such risk will be remedied on
a timely basis without material expense and will not have a material adverse
effect upon the financial condition and results of operations of the Company.
The Company believes, after due inquiry, that each supplier, vendor, customer or
financial service organization used or serviced by the Company has remedied or
will remedy on a timely basis the Year 2000 Problem, except to the extent that a
failure to remedy by any such supplier, vendor, customer or financial service
organization would not have a material adverse effect on the Company.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $______ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
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(b) Payment for the Firm Shares to be sold hereunder is to be
made by wire transfer in Federal (same day) funds against delivery of the Firm
Shares to the Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made through the facilities of the Depository
Trust Company, New York, New York at 10:00 a.m., New York time, on the third
business day after the date of this Agreement or at such other time and date not
later than five business days thereafter as you and the Company shall agree
upon, such time and date being herein referred to as the "Closing Date." (As
used herein, "business day" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business and are
not permitted by law or executive order to be closed.)
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such Option Shares are to be
delivered. The time and date at which the Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares purchased by the
Underwriters, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date, by wire transfer
drawn to the order of the Company, in Federal (same day funds) through the
facilities of the Depository Trust Company in New York, New York.
3. OFFERING BY THE UNDERWRITERS.
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It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the public offering price set forth in the Prospectus. The Representatives may
from time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
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shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
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(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of Common
Stock (or agreement for such) will be made for a period of 90 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder, except as consideration for business acquisitions, on exercise of
currently outstanding stock options or on the issuance of options to key
employees and directors under the Company's stock option plans or the exercise
of such options, or with the prior written consent of Deutsche Bank Securities
Inc.
(i) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq Stock Market.
(j) The Company will cause each officer and director and
certain stockholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree (the "Lockup
Agreements") that, without the prior written consent of Deutsche Bank Securities
Inc., he or she shall not, directly or indirectly offer, sell, sell short,
transfer, hypothecate, pledge, or otherwise dispose of any shares of Common
Stock or other securities convertible into or exchangeable or exercisable for
shares of Common Stock or derivatives of Common Stock (or to enter into any
agreement or transaction which is designed to effect, or could be expected to
result in, any such transaction) for a period of 90 days after the effective
date of the Registration Statement. Notwithstanding the foregoing, such officer,
director or stockholder may transfer any or all of the Shares by gift, will or
intestacy. It shall be a condition to any such permitted transfer by gift, will,
or intestacy that the transferee execute an agreement obliging such person to
hold the transferred Shares subject to the provisions of the Lockup Agreement.
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company to register as an investment company under the 1940
Act.
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(m) The Company will maintain a transfer agent and, if
necessary under the DGCL, a registrar for the Common Stock.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Invitation Letter, the Nasdaq
National Market Notification Form for Listing of Additional Shares, the Blue Sky
Survey and any supplements or amendments thereto; the filing fees of the
Commission; the filing fees and expenses incident to securing any required
review by the NASD of the terms of the sale of the Shares; the Listing Fee of
the Nasdaq Stock Market; and the expenses, including the fees and disbursements
of counsel for the Underwriters, incurred in connection with the qualification
of the Shares under state securities or Blue Sky laws. The Company agrees to pay
all costs and expenses of the Underwriters, including the fees and disbursements
of counsel for the Underwriters, incident to the offer and sale of directed
shares of the Common Stock by the Underwriters to employees and persons having
business relationships with the Company. The Company shall not, however, be
required to pay for any of the Underwriters' expenses (other than those related
to qualification under NASD regulations and state securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
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6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company contained herein, and to the performance by the Company of its covenants
and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date or the Option Closing Date, as the case may be, which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinions of Brobeck,
Phleger & Harrison LLP, counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; and the Company
is duly qualified to transact business in all jurisdictions in which the conduct
of its business requires such qualification, except such jurisdictions in which,
when considered in the aggregate, the failure to be so qualified would not have
a material adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus as of
the date referenced in the Prospectus; the authorized shares of the Company's
Common Stock have been duly authorized; the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform to the description thereof contained
in the
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Prospectus; the certificates for the Shares, assuming they are in the form filed
with the Commission, are in due and proper form; the shares of Common Stock,
including the Option Shares, if any, have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and no preemptive rights of stockholders exist
with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company,
and, to the knowledge of such counsel, there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares of such stock;
and except as described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any shares of
Common Stock or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company, which right has not been waived.
(iv) The Registration Statement has become effective under
the Act and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(vi) The statements under the captions "Business -
Business Alliances," "Business - Government Regulation and Legal Uncertainties,"
"Business - Facilities," "Management - Classes of Directors," "Management -
Employment Agreements," "Management - 1999 Stock Option/Stock Issuance Plan,"
"Management - Stock Award Plan," "Management - Employee Stock Purchase Plan,"
"Related Party Transactions," "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of New York,
Delaware General Corporation and Federal securities law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) To the knowledge of such counsel, there are no
contracts or documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus which
have not been so filed or described as required, and such
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contracts and documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) To the knowledge of such counsel, there are no
material legal or governmental proceedings pending or threatened against the
Company, except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under (i) the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of the Company or (ii) any material
agreement or instrument known to such counsel to which the Company is a party or
by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the NASD or
as required by state securities and Blue Sky laws as to which such counsel need
express no opinion) except such as have been obtained or made, specifying the
same, and where the failure to obtain such, when considered together with all
other such failures, would not reasonably be expected to have a material adverse
effect on the Company.
(xii) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion Brobeck, Phleger & Harrison LLP may
rely as to matters governed by the laws of states other than Delaware or Federal
laws on local counsel in such jurisdictions, provided that in each case Brobeck,
Phleger & Harrison LLP shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that (i) such counsel is of the opinion that the Registration Statement
and the Prospectus (other than the financial statements, including the notes and
schedules thereto, and the other financial and statistical data
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included in the Registration Statement and Prospectus, as to which such counsel
need not express an opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the requirements of
the Act and the applicable rules and regulations thereunder; (ii) such counsel
confirms that such counsel has no reason to believe that the Registration
Statement (other than the financial statements, including the notes and
schedules thereto, and the other financial and statistical data included in the
Registration Statement, as to which such counsel need not express a belief), at
the time the Registration Statement became effective, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(iii) such counsel confirms that such counsel has no reason to believe that the
Prospectus (other than the financial statements, including the notes and
schedules thereto, and the other financial and statistical data included in the
Prospectus, as to which such counsel need not express a belief), as of its date
and as of the Closing Date or the Option Closing Date, as the case may be,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. With respect to such statement, Brobeck, Phleger & Harrison LLP may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(c) The Representatives shall have received from Shaw Pittman,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv), and (ix) of Paragraph (b) of this Section 6,
and that the Company is a duly organized and validly existing corporation under
the laws of the State of Delaware. In rendering such opinion, Shaw Pittman may
rely as to all matters governed other than by the laws of the State of Delaware
or Federal laws on the opinion of counsel referred to in Paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Shaw Pittman may state that their
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belief is based upon the procedures set forth therein, but is without
independent check and verification.
(d) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of KPMG LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
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(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company,
whether or not arising in the ordinary course of business.
(f) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq Stock Market.
(h) The Lockup Agreements described in Section 4(j) shall be
in full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Shaw
Pittman, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
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<PAGE>
8. INDEMNIFICATION.
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities
to which such Underwriter or any such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, (ii) the omission or alleged omission to state
in the Registration Statement or any amendment or supplement thereto a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (iii) the omission or alleged
omission to state in any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto a material fact required to be
stated therein or necessary to make the statement therein not
misleading in the light of the circumstances under which they were made
or (iv) any act or failure to act or any alleged act or failure to act
by any Underwriter in connection with, or relating in any manner to,
the Shares or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i), (ii)
or (iii) above (PROVIDED, that the Company shall not be liable under
this clause (iv) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or willful misconduct); provided, however,
that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof.
(2) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any
action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments
for legal
19
<PAGE>
and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced
pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act, against any losses, claims, damages
or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, (ii) the omission or the alleged omission to state in the
Registration Statement or any amendment or supplement thereto a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (iii) the omission or the alleged omission to state in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly
20
<PAGE>
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by Deutsche Bank Securities Inc. in the case
of parties indemnified pursuant to Section 8(a), and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding with respect
to which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or
21
<PAGE>
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative
22
<PAGE>
and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any persons controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, and the Company may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
23
<PAGE>
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Deutsche Bank
Securities Inc., One South Street, Baltimore, Maryland 21202, Attention: David
Weaver; with a copy to Deutsche Bank Securities Inc., One Bankers Trust Plaza,
130 Liberty Street, New York, New York 10006, Attention: General Counsel; if to
the Company, to HotJobs.com, Ltd., 24 W. 40th Street, 14th Floor, New York, New
York 10018, Attention: General Counsel with a copy to Brobeck, Phleger &
Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019, Attention:
Alexander D. Lynch, Esq.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the Nasdaq Stock Market, the Commission, or any
other governmental authority, or (vii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
24
<PAGE>
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement consists
of the legends required by Item 502(d) of Regulation S-K under the Act and the
information in the third, ninth and eleventh paragraphs, the fourth sentence of
the eighth paragraph and the first sentence of the thirteenth paragraph under
the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
25
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
HOTJOBS.COM, LTD.
By:
---------------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DEUTSCHE BANK SECURITIES INC.
BANCBOSTON ROBERTSON STEPHENS
SG COWEN SECURITIES CORPORATION
THOMAS WEISEL PARTNERS LLC
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
-----------------------------
Authorized Officer
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------
<S> <C>
Deutsche Bank Securities Inc.
BancBoston Robertson Stephens
SG Cowen Securities Corporation
Thomas Weisel Partners LLC
---------------
Total 3,000,000
</TABLE>
<PAGE>
Exhibit 10.19
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of September
16, 1999, between SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02481, doing business under the name
"Silicon Valley East" ("Bank") and HOTJOBS.COM, LTD., a Delaware corporation
with its chief executive office located at 24 West 40th Street, 14th Floor, New
York, New York 10018 ("Borrower"), provides the terms on which Bank will lend to
Borrower and Borrower will repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13. This Agreement shall be construed to impart
upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower will pay Bank the unpaid principal amount
of all Credit Extensions and interest on the unpaid principal amount of the
Credit Extensions in accordance with the terms of this Agreement.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the Committed Revolving
Line or the Borrowing Base, whichever is less. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee. Bank may rely on
any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due
to that reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances are immediately payable.
2.1.2 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make advances (each an "Equipment Advance" and collectively, the
"Equipment Advances") to Borrower in an aggregate amount not to exceed the
Committed Equipment Line in the following manner: (i) on the Closing Date (the
"Equipment Availability End Date No. 1") in an aggregate amount no greater than
Six Hundred Thousand Dollars ($600,000.00) (the "Equipment Line No. 1"), and
(ii) at any time from the Closing Date through the Equipment Availability End
Date
<PAGE>
No. 2, in an aggregate amount no greater than the Committed Equipment Line, less
the outstanding principal amounts advanced pursuant to Equipment Line No. 1 (the
"Equipment Line No. 2"). To evidence the Equipment Advances, Borrower shall
deliver to Bank, at the time of each Equipment Advance request, an invoice for
the Equipment to be purchased or refinanced. Equipment Advance requests under
Equipment Line No. 1 shall only be permitted to refinance existing equipment
leases entered into on or after October 1, 1998, provided that such request is
submitted to the Bank on or before the Closing Date. Equipment Advance requests
under Equipment Line No. 2 shall only be permitted for Equipment purchased after
March 31, 1999. The Equipment Advances shall not exceed One Hundred Percent
(100%) of the invoice amount of such equipment approved from time to time by
Bank, including taxes, shipping, warranty charges, freight discounts and
installation expense. Equipment comprised of software shall not constitute
greater than twenty-five percent (25.0%) of aggregate Equipment Advances.
(b) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Eastern time one (1)
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.
2.2 OVERADVANCES. Notwithstanding the Equipment Advances, if Borrower's
Obligations under Section 2.1.1 exceed the lesser of the Committed Revolving
Line or the Borrowing Base, Borrower must pay in cash to Bank the excess within
one (1) Business Day after receiving notice from Bank.
2.3 INTEREST RATE; PAYMENTS.
(a) COMMITTED REVOLVING LINE RATE OF INTEREST. Advances accrue
interest on the outstanding principal balance at a per annum rate equal to the
aggregate of the Prime Rate, PLUS Three-Quarters of One Percent (0.75%).
(b) COMMITTED EQUIPMENT LINE RATE OF INTEREST/PAYMENTS. Interest
shall accrue from the date of each Equipment Advance at the per annum rate equal
to the aggregate of the Prime Rate, PLUS One percent (1.0%), and shall be
payable monthly on the Payment Date of each month. Any Equipment Advances made
pursuant to the Equipment Line No. 1 will be payable in Thirty-Six (36) equal
monthly installments of principal, plus all accrued interest, beginning on the
Payment Date of each month following the Equipment Availability End Date No. 1
and ending on the Equipment Maturity Date No. 1. Any Equipment Advances made
pursuant to the Equipment Line No. 2 that are outstanding on the Equipment
Availability End Date No. 2 will be payable in Thirty-Six (36) equal monthly
installments of principal, plus all accrued interest, beginning on the Payment
Date of each month following the Equipment Availability End Date No. 2 and
ending on the Equipment Maturity Date No. 2. Equipment Advances, once repaid,
may not be reborrowed.
(c) DEFAULT RATE OF INTEREST. After an Event of Default, for the
period during which any Event of Default continues Advances and Equipment
Advances accrue interest at five percent (5.0%) above the rate effective
immediately before the Event of Default.
(d) COMPUTATION. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.
<PAGE>
(e) PAYMENTS. Interest is payable on the Payment Date of each month.
Bank may debit any of Borrower's deposit accounts including Account Number
[______________] for principal and interest payments under the Committed
Revolving Line and the Committed Equipment Line or any amounts Borrower owes
Bank. Bank will notify Borrower when it debits Borrower's accounts. These debits
are not a set-off. Payments received after 12:00 noon Eastern time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day.
2.4 FEES. Borrower will pay to Bank:
(a) Facility Fee. A fully earned, non-refundable facility fee equal
to Twenty Thousand Dollars ($20,000.00), which fee shall be due on the Closing
Date and shall be fully earned and non-refundable; and
(b) Bank Expenses. All Bank Expenses incurred through and after the
Closing Date when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Bank's obligation to
make the initial Credit Extension is subject to the condition precedent that it
receives, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a Negative Pledge Agreement covering Borrower's intellectual
property;
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) a Perfection Certificate;
(g) an insurance certificate;
(h) payoff of all lienholders;
(i) payment of the fees and Bank Expenses as provided herein; and
(j) Certificates of Good Standing and Foreign Qualification.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's obligations to
make each Credit Extension, including the initial Credit Extension, is subject
to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each
<PAGE>
Credit Extension is Borrower's representation and warranty on that date that the
representations and warranties in Section 5 remain materially true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants Bank a continuing
security interest in all presently existing and later acquired Collateral to
secure all Obligations and performance of each of Borrower's duties under the
Loan Documents; PROVIDED, HOWEVER, that Bank agrees to release its security
interest in Collateral to the extent that any such Collateral is subject to a
third party purchase money security interest, as such term is defined under
ss.9-107 of the Uniform Commercial Code. Except for Permitted Liens, any
security interest will be a first priority security interest in the Collateral.
If the Agreement is terminated, Bank's lien and security interest in the
Collateral will continue until Borrower fully satisfies its Obligations.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing in its state of incorporation and
qualified and licensed to do business in, and in good standing in, any state in
which the failure to be so qualified would have a material adverse effect on the
Borrower's business or operation.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL. Borrower has good title to the Collateral, free of Liens
except Permitted Liens. The Eligible Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered, as the
case may be, to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor. Borrower has no notice of any
actual or imminent Insolvency Proceeding of any account debtor whose accounts
are an Eligible Account in any Borrowing Base Certificate. All Inventory is in
all material respects of good and marketable quality, free from material
defects.
5.3 LITIGATION. Except as shown in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, to the knowledge of Borrower's
Responsible Officers and legal counsel, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a
Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 SOLVENCY. Borrower is able to pay its debts (including trade debts) as
they mature.
5.6 REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not
<PAGE>
engaged as one of its important activities in extending credit for margin stock
(under Regulations T and U of the Federal Reserve Board of Governors). Borrower
has complied with the Federal Fair Labor Standards Act. Borrower has not
violated any laws, ordinances or rules, the violation of which could cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted.
5.7 SUBSIDIARIES. Borrower does not own any stock, partnership interest or
other equity securities except for Permitted Investments.
5.8 FULL DISCLOSURE. No representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE. Borrower will maintain its and all
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a material adverse effect on Borrower's
business or operations. Borrower will comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than twenty-five (25) days after the last day of each month (except that
subsequent to an IPO: (A) for months in which no Obligations are outstanding or
Credit Extensions were made, within twenty-five (25) days after the last day of
each quarter, and (B) for months in which Obligations are outstanding or Credit
Extensions were made, within twenty-five (25) days after the last day of each
month), a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a form
acceptable to Bank and certified by a Responsible Officer; (ii) as soon as
available, but no later than ninety (90) days after the end of Borrower's fiscal
year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm acceptable to
Bank; (iii) within five (5) days of filing, copies of all statements, reports
and notices made available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that could reasonably
be expected to result in damages or costs to Borrower or any Subsidiary of
$100,000 or more; and (v) budgets, sales projections, operating plans or other
financial information Bank may reasonably request.
(b) Within twenty-five (25) days after the last day of each month in
which either
<PAGE>
(i) Obligations under the Committed Revolving Line are outstanding, or (ii)
Advances were made, Borrower will deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable.
(c) Within twenty-five (25) days after the last day of each month
(except that subsequent to an IPO: (i) for months in which no Obligations are
outstanding or Credit Extensions were made, within twenty-five (25) days after
the last day of each quarter, and (ii) for months in which Obligations are
outstanding or Credit Extensions were made, within twenty-five (25) days after
the last day of each month), Borrower will deliver to Bank with the monthly
and/or quarterly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than once every twelve
(12) months unless an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS. Borrower will keep all Inventory in good and
marketable condition, free from material defects. Returns and allowances between
Borrower and its account debtors will follow Borrower's customary practices as
they exist at the Closing Date. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than $50,000.00 per
occurrence.
6.4 TAXES. Borrower will make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE. Borrower will keep its business and the Collateral insured
for risks and in amounts, as Bank requests. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as a loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least twenty (20) days notice before
canceling its policy. At Bank's request, Borrower will deliver certified copies
of policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 [Intentionally deleted].
6.7 FINANCIAL COVENANTS.
Borrower will maintain:
(A) ADJUSTED QUICK RATIO. The Borrower shall maintain, as of the
last day of each month (except that subsequent to an IPO: (i) for months
in which no Obligations are outstanding or Credit Extensions were made, as
of the last day of each quarter, and (ii) for months in which Obligations
are outstanding or Credit Extensions were made, as of the last day of each
month), a ratio of Quick Assets to Current Liabilities minus (i) Deferred
Maintenance Revenue, and (ii) pre-paid website subscriptions of at least
1.25 to 1.0.
(B) TANGIBLE NET WORTH. The Borrower shall maintain, as of the last
day of each month, a Tangible Net Worth plus Subordinated Debt of at
least: (i) Eight Million Dollars ($8,000,000.00) commencing with the
period ending June 30, 1999, and (ii) Four Million Dollars ($4,000,000.00)
for each period thereafter. Notwithstanding the foregoing, upon the
occurrence of an IPO, the Borrower shall maintain, as of the last day of
each quarter, a
<PAGE>
Tangible Net Worth plus Subordinated Debt of at least Ten Million Dollars
($10,000,000.00).
6.8 FURTHER ASSURANCES. Borrower will execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank's
security interest in the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following without the Bank's written
consent, which will not be unreasonably withheld:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than a Transfer (i) of Inventory
in the ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) of worn-out or obsolete Equipment, (iv) of
assets by any of Borrower's wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries or to the Borrower, or (v) of assets by Borrower to
any of its wholly-owned Subsidiaries PROVIDED that such transfer or transfers of
assets by the Borrower in the aggregate shall be limited to the amount of One
Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) when aggregated with
the exception for investments in and loans to Subsidiaries provided for in
paragraph (d) of the definition of Permitted Investments in Section 13.1.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or have a material change in its
ownership or management. Borrower will not, without at least 30 days prior
written notice to Bank, relocate its principal executive office or, without at
least five (5) day's prior written notification to Bank, add any new offices or
business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person except where (i) such transactions
do not in the aggregate result in a decrease of more than 25% of Tangible Net
Worth and (ii) no Event of Default has occurred and is continuing or would exist
after giving effect to the transactions. A Subsidiary may merge or consolidate
into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness in excess of $50,000.00 in the aggregate.
7.5 ENCUMBRANCE. Create, incur, or allow any Lien on any of its property,
or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to Bank's first priority
security interest in the Collateral to change except for Permitted Liens.
7.6 INVESTMENTS; DISTRIBUTIONS. (i) Directly or indirectly acquire or own
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock; except with respect to the repurchase of stock pursuant to an
employee stock option plan or severance agreement.
<PAGE>
7.7 TRANSACTIONS WITH AFFILIATES. Except for Permitted Liens and Permitted
Investments, directly or indirectly enter or permit any material transaction
with any Affiliate, except transactions that are in the ordinary course of
Borrower's business, on terms less favorable to Borrower than would be obtained
in an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT. Make or permit any payment on any Subordinated
Debt, except under the terms of the Subordinated Debt, or amend any provision in
any document relating to the Subordinated Debt, without Bank's prior written
consent.
7.9 COMPLIANCE. Undertake as one of its important activities extending
credit to purchase or carry margin stock, or use the proceeds of any Advance for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could have a material adverse effect on Borrower's
business or operations or cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT. Borrower fails to pay any of the Obligations within
three (3) Business Days after their due date (the "Cure Period"). During the
Cure Period the failure to cure the default is not an Event of Default (but no
Credit Extensions will be made during the Cure Period);
8.2 COVENANT DEFAULT. Borrower does not perform any obligation in Sections
6.1, 6.2, 6.3, 6.4, 6.5, 6.7, and 6.8 or violates any covenant in Article 7 or
does not perform or observe any other material term, condition or covenant in
this Agreement, or any Loan Documents, or in any agreement between Borrower and
Bank and as to any default under a term, condition or covenant that can be
cured, has not cured the default within 10 days after it occurs, or if the
default cannot be cured within 10 days or cannot be cured after Borrower's
attempts in such 10-day period, and the default may be cured within a reasonable
time, then Borrower has an additional time, (of not more than 30 days) to
attempt to cure the default. During the additional period the failure to cure
the default is not an Event of Default (but no Credit Extensions will be made
during the cure period);
8.3 MATERIAL ADVERSE CHANGE. A material adverse effect on: (i) the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral which is not covered by adequate insurance occurs; or
(ii) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole, or (iii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
8.4 ATTACHMENT. (i) Any material portion of Borrower's assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in 10 days; (ii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iii) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any material portion of Borrower's assets by any
government agency and not paid within 10 days after Borrower receives notice.
These are not Events of Default if stayed or if a bond is posted pending contest
by Borrower (but no Credit Extensions will be made during the cure period);
8.5 INSOLVENCY. (i) Borrower becomes insolvent; (ii) Borrower begins an
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or
<PAGE>
stayed within 30 days (but no Credit Extensions will be made before any
Insolvency Proceeding is dismissed);
8.6 MISREPRESENTATIONS. If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any communication
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. When an Event of Default occurs and continues
Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers
advisable;
(d) Make any payments and do any acts it reasonably considers
necessary or reasonable to protect its security interest in the
Collateral. Borrower will assemble the Collateral if Bank requests and
make it available as Bank designates. Bank may enter premises where the
Collateral is located, take and maintain possession of any part of the
Collateral, and pay, purchase, contest, or compromise any Lien which
appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any
of its premises, without charge, to exercise any of Bank's rights or
remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the
credit or the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY. When an Event of Default occurs and continues,
Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse
Borrower's name on any checks or other forms of payment or security; (ii) sign
Borrower's name on any invoice or bill of lading for any Account or drafts
against account debtors, (iii) make, settle, and adjust all claims under
Borrower's insurance policies; (iv) settle and adjust disputes and claims about
the Accounts directly with account debtors, for amounts and on terms Bank
determines reasonable; and (v) transfer the Collateral into the name of Bank or
a third party as the Code permits. Bank may exercise the power of attorney to
sign Borrower's name on any documents necessary to perfect or continue the
perfection of any security interest regardless of whether an Event of Default
has occurred. Bank's appointment as Borrower's attorney in fact, and all of
Bank's rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank's obligation to
provide Credit Extensions terminates.
<PAGE>
9.3 ACCOUNTS COLLECTION. When an Event of Default occurs and continues,
Bank may notify any Person owing Borrower money of Bank's security interest in
the funds and verify the amount of the Account. Borrower must collect all
payments in trust for Bank and, if requested in writing by Bank, deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit, within five (5) Business Days after such request.
9.4 BANK EXPENSES. If Borrower fails to pay any amount or furnish any
required proof of payment to third persons Bank may make all or part of the
payment or obtain insurance policies required in Section 6.5, and take any
action under the policies Bank reasonably deems prudent. Any amounts paid by
Bank are Bank Expenses and due and payable within five (5) Business Days after
such payment, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL. If Bank complies with reasonable
banking practices, it is not liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in
the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other person. Borrower bears all risk of loss, damage
or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements are cumulative. Bank has all rights
and remedies provided under the Code, by law, or in equity. Bank's exercise of
one right or remedy is not an election, and Bank's waiver of any Event of
Default is not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed at the beginning of this Agreement.
A Party may change its notice address by giving the other Party written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
<PAGE>
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
12.2 INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Bank and its officers, employees and agents against: (a) all obligations,
demands, claims, and liabilities asserted by any other party in connection with
the transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, are one
Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information, Bank will
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest in the Loans; (iii) as required by law, regulation, subpoena, or
other order, (iv) as required in connection with Bank's examination or audit;
and (v) as Bank considers appropriate in exercising
<PAGE>
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of the Loan Documents, the prevailing
party will be entitled to recover its reasonable attorneys' fees and other costs
and expenses incurred, in addition to any other relief to which it may be
entitled, whether or not a lawsuit is filed.
13 DEFINITIONS
13.1 DEFINITIONS.
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all reasonable out of pocket audit fees and expenses
and reasonable costs or expenses (including reasonable attorneys' fees and
expenses) for preparing, negotiating, administering, defending and enforcing the
Loan Documents (including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is Eighty percent (80%) of Eligible Accounts, as
determined by Bank from Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Massachusetts Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"COMMITTED EQUIPMENT LINE" is one or more Credit Extensions of up to One
Million Dollars ($1,000,000.00).
<PAGE>
"COMMITTED REVOLVING LINE" is one or more Credit Extensions of up to Four
Million Dollars ($4,000,000.00) at any time outstanding.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Equipment Advance, or any other
extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year, which shall include, without
limitation, all obligations and liabilities of Borrower to Bank.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contracts and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2.
Unless Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within ninety (90)
days of invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts
have not been paid within ninety (90) days of invoice date;
(c) Accounts for an account debtor, including Affiliates, whose
total obligations to Borrower exceed 25% of all Accounts, to the extent
such obligations exceed that percentage, unless Bank approves in writing;
(d) Accounts for which the account debtor does not have its
principal place of business in the United States;
(e) Accounts for which the account debtor is a federal, state or
local government entity or any department, agency, or instrumentality
thereof;
(f) Accounts for which Borrower owes the account debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(g) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if
<PAGE>
account debtor's payment may be conditional;
(h) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(i) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
and
(j) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 2.1.2.
"EQUIPMENT AVAILABILITY END DATE NO. 1" has the meaning set forth in
Section 2.1.2.
"EQUIPMENT AVAILABILITY END DATE NO. 2 " means the date which is six (6)
months following the Closing Date.
"EQUIPMENT MATURITY DATE NO. 1" means the date which is thirty-six (36)
months following the Closing Date.
"EQUIPMENT MATURITY DATE NO. 2" means the date which is forty-two (42)
months following the Closing Date.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
<PAGE>
"IPO" means an initial registered public offering of shares of the
Borrower's common stock in compliance with the Securities Act of 1933, as
amended (or any successor law), which shares are listed on a recognized national
securities exchange or approved for quotation on NASDAQ-AMEX.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"MATURITY DATE" means, as applicable, (i) the Revolving Maturity Date with
respect to Advances under the Committed Revolving Line pursuant to Section
2.1.1, and (ii) the Equipment Maturity Date No. 1 and the Equipment Maturity
Date No. 2, as applicable, with respect to Equipment Advances pursuant to
Section 2.1.2.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"PAYMENT DATE" means the first (1st) calendar day of each month commencing
on the first such day after the Closing Date and ending on the Maturity Date.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on Schedule
13.1(a);
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens; and
(f) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (f) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
"PERMITTED INVESTMENTS" are:
(a) Investments existing on the Closing Date and shown on Schedule
13.1(b);
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the
<PAGE>
United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue;
(c) all investments permitted under Section 7.3; and
(d) (i) investments in the capital stock of its wholly-owned
Subsidiaries, and (ii) extensions of credit or loans to any of its
wholly-owned Subsidiaries and any of its wholly-owned Subsidiaries
extensions of credit or loans to another of its wholly-owned Subsidiaries
or to the Borrower, PROVIDED that: (A) the aggregate amount of such
investments or extensions of credit in paragraphs (i) and (ii) above shall
not be greater than One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00) when aggregated with the exception provided for in Section
7.1(v), and (B) such investments or extensions of credit in paragraphs (i)
and (ii) above shall be in the ordinary course of business in each
instance.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule
13.1(c), or arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for
which Borrower maintains adequate reserves on its Books, IF they have no
priority over any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, IF the Lien is
confined to the property and improvements and the proceeds of the
equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business, IF the leases, subleases, licenses
and sublicenses permit granting Bank a security interest; and
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of less than 12 months determined according to GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
<PAGE>
"REVOLVING MATURITY DATE" means the date which is one day prior to one (1)
year from the Closing Date.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities plus Subordinated Debt.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
HOTJOBS.COM, LTD.
By /s/ Stephen W. Ellis
----------------------------
Name: Stephen W. Ellis
Title: CFO, SVP
BANK:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By /s/ Pamela A. Braren
----------------------------
Name: Pamela A. Braren
Title: AVP
SILICON VALLEY BANK
By /s/ Michael Jordan
----------------------------
Name: Michael Jordan
Title: AVP
(Signed in Santa Clara County, California)
<PAGE>
EXHIBIT A
The Collateral consists of all right, title and interest of Borrower in
and to the following:
All goods, equipment, inventory, contract rights, general intangibles,
accounts, documents, instruments, chattel paper, cash, deposit accounts,
fixtures, letters of credit, investment property, and financial assets, whether
now owned or hereafter acquired, wherever located PROVIDED, HOWEVER, that no
more than sixty-five percent (65%) of Borrower's right, title or interest in the
capital stock of any of Borrower's non-U.S. Subsidiaries shall constitute
Collateral hereunder; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
The Collateral does not include:
(a) Any copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work,
whether published or unpublished, now owned or later acquired; (b) any
patents, trademarks, service marks and applications therefor; any trade
secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; (c) any claims for damages
by way of any past, present and future infringement of any of the
foregoing; or (d) except as otherwise provided under Uniform Commercial
Code ss.9-318(4), any general intangibles of the Borrower (whether owned
or held as licensee or lessee, or otherwise), to the extent that (i) such
general intangibles are not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction
shall be enforceable under applicable law), without the consent of the
licensor or lessor thereof or other applicable party thereto and (ii) such
consent has not been obtained.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _____________________________
FAX#: (781) 431-0755 TIME: _____________________________
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: HOTJOBS.COM, LTD. Lender: Silicon Valley Bank
Commitment Amount: $4,000,000.00
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of __________________ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Balance of 50% over 90 day accounts $_______________
6. Credit balances over 90 days $_______________
7. Concentration Limits $_______________
8. Foreign Accounts $_______________
9. Governmental Accounts $_______________
10. Contra Accounts $_______________
11. Promotion or Demo Accounts $_______________
12. Intercompany/Employee Accounts $_______________
13. Other (please explain on reverse) $_______________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
15. Eligible Accounts (#3 minus #14) $_______________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $_______________
BALANCES
17. Maximum Loan Amount $_______________
18. Total Funds Available (Lesser of #17 or #16) $_______________
19. Present balance owing on Line of Credit $_______________
20. RESERVE POSITION (#18 minus #19) $_______________
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT,
AND THAT THE INFORMATION IN THIS BORROWING BASE CERTIFICATE COMPLIES WITH THE
REPRESENTATIONS AND WARRANTIES IN THE LOAN AND SECURITY AGREEMENT BETWEEN THE
UNDERSIGNED AND SILICON VALLEY BANK.
COMMENTS:
By: ___________________________
Authorized Signer
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: HOTJOBS.COM, LTD.
The undersigned authorized officer of HOTJOBS.COM, LTD. certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date. Attached are the required
documents supporting the certification. The Officer certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Financial Statements & CC Monthly within 25 days
(if not borrowing, quarterly within 25
days subsequent to IPO) Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
BBC & A/R Agings Monthly within 25 days when borrowing Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain:
Minimum Adjusted Quick Ratio* 1.25:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth** *** $________ Yes No
*Tested monthly (except that subsequent to an IPO, when not borrowing, tested
quarterly)
**Tested monthly, changing to quarterly after IPO
***See Section 6.7 of Loan Agreement
Comments Regarding Exceptions: See Attached.
Sincerely,
- --------------------------------------------------------------------------------
SIGNATURE
________________________TITLE
-----------------------------
<PAGE>
Exhibit 10.20
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of September 16, 1999, by and
between HOTJOBS.COM, LTD. ("Borrower") and SILICON VALLEY BANK, a
California-chartered bank, with its principal place of business at 3003 Tasman
Drive, Santa Clara, California 95054 and with a loan production office located
at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, Massachusetts
02481, doing business under the name "Silicon Valley East".("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Agreement") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:
1. Except for the granting of licenses or sublicenses by Borrower in
the ordinary course of business or as otherwise permitted under the
Loan Agreement, Borrower shall not sell, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of
Borrower's Intellectual Property (as defined below):
2. Borrower has not, and shall not, enter into a negative pledge
agreement, or similar agreement, affecting the rights of the
Intellectual Property with any other party.
3. It shall be an event of default under the Loan Agreement between
Borrower and Bank if there is a breach of any term of this Negative
Pledge Agreement.
4. As used herein,
(a) "Intellectual Property" means:
(i) Any and all Copyrights;
(ii) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer
software products now or hereafter existing, created,
acquired or held;
(iii) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or
held;
(iv) All Mask Works or similar rights available for the
protection of semiconductor chips;
(v) All Patents;
(vi) Any Trademarks;
(vii) Any and all claims for damages by way of past, present
and future infringements of any of the rights included
above, with the right, but not the obligation, to sue
for and collect such damages for said use or
infringement of the intellectual property rights
identified above;
(viii) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works and all
license fees and royalties arising from such use to the
extent permitted by such license or rights; and
<PAGE>
(ix) All amendments, extensions, renewals and extensions of
any of the Copyrights, Trademarks, Patents, or Mask
Works; and
(x) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the
foregoing.
(b) "Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in
each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing,
created, acquired or held.
(c) "Mask Works" means all mask work or similar rights available
for the protection of semiconductor chips, now owned or
hereafter acquired;
(d) "Patents" means all patents, patent applications and like
protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
(e) "Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and
registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and
symbolized by such trademarks.
5. Capitalized terms used but not otherwise defined herein shall have
the same meaning as in the Loan Agreement.
6. The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH
OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND,
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT;
PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF
OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS
JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY,
CALIFORNIA.
7. This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall
this Agreement become effective until signed by an officer of Bank
in California).
EXECUTED as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first written above.
BORROWER:
HOTJOBS.COM, LTD.
By: /s/ Stephen W. Ellis
--------------------------
Name: Stephen W. Ellis
Title: CFO, SVP
<PAGE>
BANK:
SILICON VALLEY BANK d/b/a SILICON
VALLEY EAST
By: /s/ Pamela A. Braren
--------------------------
Name: Pamela A. Braren
Title: AVP
SILICON VALLEY BANK
By: /s/ Michael Jordan
--------------------------
Name: Michael Jordan
Title: AVP
(Signed in Santa Clara, California)
