<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
HOTJOBS.COM, LTD.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<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>
------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share........ 3,450,000 $26.2813 $90,670,485 $25,207
</TABLE>
(1) Includes 450,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 27, 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--Beneficial Conversion Feature." 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
<TABLE>
<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, consists 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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 630,000 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
initial 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 upon, 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
this 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.
21.1 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1999).
23.1 Consent of KPMG LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-80367), as amended.
+ Indicates compensatory plan or arrangement.
(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.
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
II-3
<PAGE>
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 27th 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>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below and on the following page constitutes and appoints each of Richard S.
Johnson and Stephen W. Ellis as his true and lawful attorney-in-fact and agent,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, including post-effective amendments,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all that any said attorney-in-fact and
agent, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
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 27, 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)
/s/ STEPHEN W. ELLIS Chief Financial Officer (principal financial
------------------------------------------- and accounting officer) and Director
Stephen W. Ellis
/s/ DIMITRI J. BOYLAN Chief Operating Officer, Secretary and
------------------------------------------- Director
Dimitri J. Boylan
/s/ PHILIP GUARASCIO Director
-------------------------------------------
Philip Guarascio
/s/ JOHN A. HAWKINS Director
-------------------------------------------
John A. Hawkins
/s/ JOHN G. MURRAY Director
-------------------------------------------
John G. Murray
/s/ KEVIN P. RYAN Director
-------------------------------------------
Kevin P. Ryan
</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.
21.2 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1999).
23.1 Consent of KPMG LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- --------------------------
* To be filed by amendment.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-80367), as amended.
+ Indicates compensatory plan or arrangement.
<PAGE>
EXHIBIT 5.1
BROBECK, PHLEGER & HARRISON LLP
1633 BROADWAY
NEW YORK, NEW YORK 10019
October 27, 1999
HotJobs.com, Ltd.
24 West 40th Street, 14th Floor
New York, New York 10018
Re: HotJobs.com, Ltd. Registration Statement on Form S-1
for 3,450,000 shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to HotJobs.com, Ltd., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 3,450,000 shares of the Company's common stock, par value $0.01 per share
(the "Shares"), pursuant to the Company's Registration Statement on Form S-1
(the "Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exhibit 10.18
- --------------------------------------------------------------------------------
LEASE AGREEMENT
BETWEEN
360 NORTH MICHIGAN TRUST, A DELAWARE BUSINESS TRUST,
AS LANDLORD,
AND
HOTJOBS.COM, LTD.,
A DELAWARE CORPORATION,
AS TENANT
DATED: SEPTEMBER ____, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LEASE INFORMATION SUMMARY........................................................................................iv
1. LEASE GRANT....................................................................................................1
2. TERM...........................................................................................................1
2.1. Commencement Date.........................................................................................1
2.2. Condition of Premises.....................................................................................1
2.3. INTENTIONALLY DELETED.....................................................................................1
3. RENT...........................................................................................................1
3.1. Base Rent.................................................................................................1
3.2. Additional Rent...........................................................................................2
3.3. Payment...................................................................................................4
4. SECURITY DEPOSIT...............................................................................................4
4.1. INTENTIONALLY DELETED.....................................................................................4
4.2. Letter of Credit..........................................................................................4
4.3. INTENTIONALLY DELETED.....................................................................................5
5. LANDLORD'S OBLIGATIONS.........................................................................................5
5.1. Services..................................................................................................5
5.2. Utilities.................................................................................................5
5.3. Excess Utility Use........................................................................................6
5.4. Restoration of Services...................................................................................6
6. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE................................................................6
6.1. Improvements; Alterations.................................................................................6
6.2. Repairs and Maintenance...................................................................................7
6.3. Performance of Work.......................................................................................7
6.4. Mechanic's Liens..........................................................................................7
7. USE............................................................................................................8
8. ASSIGNMENT AND SUBLETTING......................................................................................8
8.1. Transfers; Consent........................................................................................8
8.2. Recapture.................................................................................................9
8.3. Additional Compensation..................................................................................10
9. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY....................................................................10
9.1. Insurance................................................................................................10
9.2. Waiver of Negligence; No Subrogation.....................................................................11
9.3. Indemnity by Tenant......................................................................................11
10. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE....................................................11
10.1. Subordination...........................................................................................11
10.2. Attornment..............................................................................................11
10.3. Notice to Landlord's Mortgagee..........................................................................12
11. RULES AND REGULATIONS........................................................................................12
12. CONDEMNATION.................................................................................................12
12.1. Total Taking............................................................................................12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
12.2. Partial Taking --Tenant's Rights........................................................................12
12.3. Partial Taking --Landlord's Rights......................................................................12
12.4. Award...................................................................................................13
13. FIRE OR OTHER CASUALTY.......................................................................................13
13.1. Landlord's Rights.......................................................................................13
13.2. Repair Obligation.......................................................................................13
14. PERSONAL PROPERTY TAXES......................................................................................14
15. DEFAULT......................................................................................................14
15.1. Events of Default.......................................................................................14
15.2. Default Interest........................................................................................14
16. REMEDIES.....................................................................................................15
16.1. Right To Terminate......................................................................................15
16.2. Receipt Of Money After Termination......................................................................15
16.3. Recovery Of Damages.....................................................................................15
16.4. Right To Re-Enter.......................................................................................15
16.5. Independent Covenant....................................................................................16
16.6. Legal Expenses..........................................................................................16
17. PAYMENT BY TENANT; NON-WAIVER................................................................................16
17.1. Payment by Tenant.......................................................................................16
17.2. No Waiver...............................................................................................17
18. SURRENDER OF PREMISES........................................................................................17
19. HOLDING OVER.................................................................................................17
20. CERTAIN RIGHTS RESERVED BY LANDLORD..........................................................................17
21. MISCELLANEOUS................................................................................................19
21.1. Landlord Transfer.......................................................................................19
21.2. Landlord's Liability....................................................................................19
21.3. Force Majeure...........................................................................................20
21.4. Brokerage...............................................................................................20
21.5. Estoppel Certificates...................................................................................20
21.6. Notices.................................................................................................21
21.7. Severability............................................................................................21
21.8. Amendments; and Binding Effect..........................................................................21
21.9. Quiet Enjoyment.........................................................................................21
21.10. No Merger..............................................................................................21
21.11. No Offer...............................................................................................21
21.12. Entire Agreement.......................................................................................22
21.13. Calendar Days..........................................................................................22
21.14. Prohibition Against Leasehold Mortgages................................................................22
21.15. Waiver of Trial by Jury................................................................................22
21.16. Landlord's RemediesG30mulative.........................................................................22
21.17. Prohibition Against Recordation........................................................................22
21.18. Joint and Several Liability............................................................................23
21.19. Corporate Tenants......................................................................................23
21.20. Option to Renew........................................................................................23
21.21. Right of First Refusal.................................................................................23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT A - OUTLINE OF PREMISES
EXHIBIT B - BUILDING RULES AND REGULATIONS
EXHIBIT C - LETTER OF CREDIT
EXHIBIT D - ESTOPPEL CERTIFICATE
EXHIBIT E - INTENTIONALLY DELETED
EXHIBIT F - WORKLETTER
EXHIBIT G - CERTIFICATE OF COMMENCEMENT DATE
EXHIBIT H - SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
</TABLE>
iii
<PAGE>
LEASE INFORMATION SUMMARY
<TABLE>
<CAPTION>
<S> <C>
I. LEASE DATE September ____, 1999
II PARTIES AND ADDRESSES
A. LANDLORD: 360 North Michigan Trust, a Delaware business trust
c/o Douglas Elliman-Beitler Management Corporation
B. LANDLORD'S ADDRESS FOR NOTICES: 360 North Michigan Avenue
Chicago, Illinois 60601
Attention: General Manager
With copies to:
Mr. J. Paul Beitler
181 West Madison Street
Suite 3900
Chicago, Illinois 60602
And to:
Emmet, Marvin & Martin, LLP
120 Broadway
New York, New York 10271
Attention: Patrick A. McCartney, Esq.
And to:
Much Shelist Freed Denenberg Ament & Rubenstein, P.C.
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60601
Attention: Michael B. Sadoff, Esq.
C. TENANT: Hotjobs.com, Ltd.
D. TENANT'S ADDRESS FOR NOTICES: 24 West 40th Street
14th Floor
New York, New York 10018
Attention: Ms. Kelly Michaelian
E. GUARANTOR: None
III. PROPERTY INFORMATION
A. BUILDING: 360 North Michigan Avenue, Chicago, Illinois 60601,
including all related land, landscaped areas, driveways,
parking facilities and similar improvements to the extent
applicable
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
B. PREMISES: Suite No. 1300 in the Building comprising approximately
five thousand two hundred ninety-three (5,293) rentable
square feet (Section 1)
IV. TERM
A. TERM OF LEASE: Five (5) years beginning on the Commencement Date and
ending on the Termination Date; provided, however, if the
Commencement Date occurs on any date which is not the first day
of a calendar month, then the Term shall be increased to five
(5) years plus a partial month beginning on the Commencement
Date through and including the last day of the calendar month in
which the Commencement Date occurs (Section 2)
B. COMMENCEMENT DATE: The earlier of (i) November 1, 1999, or (ii) the date on
which the Premises have been substantially completed and are
ready for occupancy by Tenant (Section 2)
C. TERMINATION DATE: The date preceding the fifth (5th) anniversary of the
Commencement Date, unless the Commencement Date occurs on any
date which is not the first day of a calendar month, in which
event the Termination Date shall be the last day of the calendar
month in which the fifth (5th) anniversary of the Commencement
Date falls (Section 2)
V. RENT
A. BASE RENT: $23.25 per square foot, subject to $0.50 per square foot annual
escalations commencing in the second lease year;
$123,062.25 per year ($10,255.19 per month; $23.25 per sq. ft.)
during the first lease year;
$125,708.75 per year ($10,475.73 per month; $23.75 per sq. ft.)
during the second lease year;
$128,355.25 per year ($10,696.27 per month; $24.25 per sq. ft.)
during the third lease year;
$131,001.75 per year ($10,916.81 per month; $24.75 per sq. ft.)
during the fourth lease year; and
$133,648.25 per year ($11,137.35 per month; $25.25 per sq. ft.)
during the fifth lease year (Section 3.1)
B. LANDLORD'S ADDRESS FOR PAYMENT OF Douglas Elliman-Beitler Management Corporation
RENT: A/A/F 360 North Michigan Trust
7516 Collections Center Drive
Chicago, Illinois 60693 (Sections 3.1 and 3.3)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
C. TENANT'S PROPORTIONATE SHARE: two and three one-hundredths percent (2.03%), which equals the
percentage that the rentable square footage of the Premises
(which is stipulated by the parties to be 5,293 square feet)
bears to the total square footage of all rentable office space
in the Building (which is stipulated by the parties to be
260,823 square feet) (Section 3.2)
D. BASE YEAR: 2000 (Section 3.2)
E. OPERATING COSTS ADJUSTMENT: Tenant's Proportionate Share of the amount by which the Operating
Costs incurred during any calendar year during the Term exceed
the Operating Costs incurred during the Base Year. (Section 3.2)
F. TAX ADJUSTMENT: Tenant's Proportionate Share of the amounts by which the Taxes paid
during any calendar year of the Term exceed the Taxes paid during the
Base Year (Section 3.2)
VI. OTHER PROVISIONS
A. SECURITY DEPOSIT: Irrevocable standby letter of credit in the following
amounts:
$188,000.00 during the first lease year;
$150,400.00 during the second lease year;
$112,800.00 during the third lease year;
$ 75,200.00 during the fourth lease year; and
$ 37,600.00 during the fifth lease year;
No security deposit or letter of
credit shall be required during
any renewal period (Section 4.2)
B. ELECTRICAL USAGE RATE: Submetered (Section 5.2)
C. PERMITTED USE: General office and administrative use (Section 7)
D. LANDLORD'S BROKER: Douglas Elliman-Beitler Management Corporation (Section
21.4)
E. TENANT'S BROKER: Equis Corporation (Section 21.4)
</TABLE>
The summary of lease information set forth above and any addendum and/or
exhibit(s) attached to this Lease are incorporated into and made a part of the
following Lease. Each reference in this Lease to any of the lease information
set forth above means the respective information above, including all of the
terms provided under the particular section of this Lease pertaining to such
information. In the event of any conflict between the summary of lease
information and the provisions of this Lease, the latter will control. All
section references in this summary refer to the sections of the Lease where such
provision is described.
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<PAGE>
LANDLORD:
360 NORTH MICHIGAN TRUST,
a Delaware business trust
By: DOUGLAS ELLIMAN-BEITLER MANAGEMENT
CORPORATION, an Illinois
corporation, its agent
By:
-------------------------------------
Its:
-----------------------------------
TENANT:
HOTJOBS.COM, LTD.,
a Delaware corporation
By:
-------------------------------------
Its:
-----------------------------------
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THIS LEASE AGREEMENT (the "LEASE") is made and entered into as of the
Lease Date between Landlord and Tenant. All capitalized terms not otherwise
defined in the body of the Lease have the meanings established in the Lease
Information Summary above.
1. LEASE GRANT.
Subject to the terms of this Lease, Landlord leases to Tenant and
Tenant rents from Landlord the Premises in the Building. The Premises are
outlined on the floor plan attached to this Lease as EXHIBIT A.
2. TERM.
2.1. COMMENCEMENT DATE.
The term of this Lease (the "TERM") will commence on the Commencement
Date and will end on the Termination Date. Upon taking occupancy of the
Premises, Tenant agrees to sign the Certificate of Commencement Date attached to
this Lease as EXHIBIT G confirming the Commencement Date and the Termination
Date. If the Premises are not ready for occupancy by Tenant on the Commencement
Date for any reason other than a "Tenant Delay" (as defined in the Workletter,
if any, attached to this Lease as EXHIBIT F (the "WORKLETTER"), then (a)
Tenant's obligation to pay Base Rent and Additional Rent (as defined in Section
3 below) will be waived until the Possession Date, which is the earlier of (i)
three (3) business days after Landlord notifies Tenant that the Premises are
"substantially completed" (as defined in this Section 2.1), or (ii) the date
Tenant moves into the Premises; (b) the Term will be extended by the time
between the scheduled Commencement Date and the Possession Date; and (c)
Landlord will not be in default under this Lease, or be liable for damages as a
result of any delay. For purposes of this Section 2.1, substantial completion
means that state of completion of the Premises which will, except for any
special finishing work to be performed, allow Tenant to utilize the Premises for
the purpose permitted under this Lease.
2.2. CONDITION OF PREMISES.
Tenant's acceptance of possession of the Premises will be deemed
conclusive evidence that Tenant has approved and accepted the Premises in their
"AS-IS" condition on the date Tenant accepts possession. Landlord has no
obligation to make any changes or improvements to the Premises except as set
forth in the Workletter. The cost of any such changes and/or improvements will
be paid for by Tenant in the manner set forth in the Workletter.
2.3. INTENTIONALLY DELETED.
3. RENT.
3.1. BASE RENT.
Base Rent is payable by Tenant throughout the Term in the amounts and
at the times set forth in the Lease Information Summary above. The first monthly
installment of Base Rent is due and payable contemporaneously with the execution
of this Lease; subsequently, Base Rent is payable no later than the first day of
each month beginning on the second full calendar month of the Term. The monthly
Base Rent for any partial month at the beginning of the Term will equal the
product of 1/365 of the annual Base Rent in effect during the partial month
multiplied by the number of days in the partial month from and after the
Commencement Date.
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3.2. ADDITIONAL RENT.
(a) PAYMENT OF ADDITIONAL RENT. Commencing on January 1st of
the calendar year immediately following the Base Year, Tenant will pay
to Landlord as Additional Rent ("ADDITIONAL RENT") the Operating Costs
Adjustment and the Tax Adjustment, which will be calculated and
determined by Landlord as set forth below.
(b) DEFINITION - OPERATING COSTS. The term "OPERATING COSTS"
means all expenses and disbursements (subject to the limitations set
forth below) that Landlord incurs in connection with the ownership,
operation, maintenance and management of the Building, determined in
accordance with sound accounting principles consistently applied,
including, but not limited to, the following costs: (1) wages and
salaries (including management fees and reimbursements of expenses
incurred by Landlord's management agent and not otherwise reimbursed by
other tenants) of all employees engaged in the operation, maintenance,
and security of the Building at or below the level of general manager,
including taxes, insurance and benefits relating to such costs; (2) all
uniforms, supplies, tools and materials used exclusively in the
operation, supervision, maintenance, repair, replacement and security
of the Building; (3) costs for improvements made to the Building which,
although capital in nature, are expected to reduce the normal operating
costs of the Building, as well as capital improvements made in order to
comply with any law, statute, ordinance, code, regulation or insurance
requirement(s) promulgated by any governmental authority, as amortized
over the useful economic life of such improvements as determined by
Landlord in its reasonable discretion; (4) cost of all utilities,
except the cost of utilities reimbursable to Landlord by the Building's
tenants; (5) insurance expenses; (6) repairs, replacements, and general
maintenance of the Building, including costs of inspecting and
depreciation of machinery and equipment; (7) service or maintenance
contracts and/or agreements for the operation, maintenance, repair,
replacement, or security of the Building (including, without
limitation, alarm service, window washing, landscaping, elevator
maintenance, HVAC system maintenance, security, cleaning, trash
removal, sweeping and snow removal); (8) legal, accounting, engineering
and other professional fees and expenses relating to managing and
maintaining the Building; (9) costs, including reasonable attorney's
fees, incurred in contesting, protesting, attempting to reduce and/or
attempting to restrict increases in taxes; and (10) all other costs
properly constituting operating costs according to sound accounting
principles consistently applied.
(c) EXCLUSIONS FROM OPERATION COSTS. Operating Costs do not
include costs for (1) capital improvements made to the Building (except
capital improvements described in Section 3.2(b)(3) above; (2) repair,
replacements and general maintenance paid by proceeds of insurance or
by Tenant or other third parties; (3) interest, principal, amortization
or other payments on loans to Landlord, except for interest payments
made in connection with Subsection 3.2(b)(3) above; (4) depreciation;
(5) real estate brokerage and/or leasing commissions and promotional or
marketing expenses; and (6) renovations, alterations or improvements to
the space of other tenants or occupants of the Building or vacant space
in the Building.
(d) DEFINITION - TAXES. The term "TAXES" means all taxes,
assessments, and governmental charges payable in a calendar year,
regardless when such Taxes become a lien upon the Building, including
but not limited to all real estate and transit district taxes and
assessments, sewer charges, sales and use taxes, ad valorem taxes,
personal property taxes, the Illinois Property Replacement Tax and any
other taxes and
2
<PAGE>
assessments attributable to the Building (or its operation), the
grounds, parking areas, driveways, and alleys around the Building, but
excluding any federal and state taxes on the income of Landlord from
the operation of the Building. If the present method of taxation
changes so that in lieu of the whole or any part of any Taxes, there is
levied on Landlord a capital tax directly on the rents received from
the Building or a franchise tax, assessment, or charge based, in whole
or in part, upon such rents for the Building, then all such taxes,
assessments, or charges, or the part of such taxes so based, will be
deemed to be included within the term "Taxes" for purposes of this
Lease.
(e) PAYMENT OF ADDITIONAL RENT. Landlord will make a good
faith estimate of the Additional Rent to be due from Tenant for all or
part of any calendar year during the Term, and Tenant agrees to pay to
Landlord, on the Commencement Date and on the first day of each
subsequent calendar month during the Term, an amount equal to 1/12th of
the estimated Additional Rent for such full or partial calendar year.
From time to time, Landlord may estimate and re-estimate the Additional
Rent to be due from Tenant and deliver a copy of the estimate or
re-estimate to Tenant. Subsequently, the monthly installments of
Additional Rent payable by Tenant will be appropriately adjusted in
accordance with Landlord's estimations so that by the end of the
calendar year in question Tenant will have paid all of the Additional
Rent as estimated by Landlord. By April 1 of each calendar year, or as
soon after that date as practicable, Landlord will furnish to Tenant a
statement of Operating Costs paid for the previous year, adjusted as
provided in Section 3.2(f) below (the "OPERATING COSTS STATEMENT"). By
September 1 of each calendar year, or as soon after that date as
practicable, Landlord will furnish to Tenant a statement of the Taxes
paid for the previous year, adjusted as provided in Section 3.2(f)
below (the "TAX STATEMENT"). If the Operating Costs Statement and/or
the Tax Statement reveal(s) that Tenant paid more in Operating Costs
Adjustment or Tax Adjustment than the actual amount for the year for
which such statement was prepared, then Landlord will promptly credit
Tenant for such excess. Likewise, if Tenant paid less in Operating
Costs Adjustment than the actual amount for the year for which such
statement was prepared, then Tenant shall pay such deficiency to
Landlord within ten (10) days after Landlord's demand. This provision
will survive the Termination Date of this Lease.
(f) OCCUPANCY AND TAX ADJUSTMENT. With respect to any calendar
year or partial calendar year in which the Building is not fully
occupied, the Operating Costs and/or Taxes for such period will, for
the purposes of this Lease, be increased to the amount which would have
been incurred had the Building been fully occupied.
(g) AUDIT OF BOOKS AND RECORDS. Landlord shall maintain books
and records with respect to Operating Costs and Taxes in accordance
with sound accounting and management practices. Tenant shall have the
right to examine such books and records showing the Operating Costs and
Taxes upon reasonable prior notice to Landlord and during normal
business hours within thirty (30) days following the delivery of the
Operating Costs Statement and the Tax Statement described in Section
3.2(e) above. Unless Tenant takes written exception to any item of
Operating Costs or Taxes and specifies to Landlord in detail the
reasons for such exception as to a particular item within thirty (30)
days after the delivery of the Operating Costs Statement and the Tax
Statement, the Operating Costs Statement and the Tax Statement shall be
considered as final and accepted by Tenant. Notwithstanding any
exception made by Tenant, Tenant shall pay to Landlord the full amount
of the Operating Costs Adjustment and the
3
<PAGE>
Tax Adjustment, subject to readjustment at such time as any such
exception may be resolved. If Tenant takes exception to the Operating
Costs Adjustment and/or the Tax Adjustment and so notifies Landlord in
writing prior to the expiration of said thirty (30) day period, then
Landlord will seek certification from Landlord's independent certified
public accountant or consultant as to the proper amount of the
Operating Costs Adjustment and/or the Tax Adjustment. In such event,
the certification obtained by Landlord shall be considered final and
binding on both Landlord and Tenant and Tenant shall reimburse Landlord
immediately upon demand for the cost of obtaining such certification,
unless the certification reveals that the Operating Costs Adjustment
and/or the Tax Adjustment were overstated by at least five percent
(5%), in which event the cost of obtaining such certification shall be
borne by Landlord.
3.3. PAYMENT.
Tenant agrees to timely pay to Landlord during the Term Base Rent,
Additional Rent and all additional sums to be paid by Tenant to Landlord under
this Lease (collectively the "RENT"), without notice, demand, abatement,
deduction, setoff or counterclaim, at Landlord's Address for Payment of Rent or
as otherwise specified by Landlord. Tenant further agrees to pay a late fee
equal to three percent (3%) of any delinquent payment to reimburse Landlord for
its cost and inconvenience incurred as a consequence of Tenant's delinquency. In
no event, however, will the charges permitted under this Section 3.3 or
elsewhere in this Lease, to the extent they are considered to be interest under
law, exceed the maximum lawful rate of interest.
4. SECURITY DEPOSIT.
4.1. INTENTIONALLY DELETED.
4.2. LETTER OF CREDIT.
As an alternative to the cash payment set forth in Section 4.1 above,
Landlord may require Tenant to deliver to Landlord, simultaneously with the
execution of this Lease, a letter of credit (the "LETTER OF CREDIT") in the
amount of the Security Deposit as security for the prompt, full and faithful
performance by Tenant of the terms and provisions of this Lease, subject to the
following provisions:
(a) FORM AND ISSUER. The Letter of Credit must be a
clean, unconditional, stand-by, irrevocable Letter of Credit in favor of
Landlord in substantially the form attached as EXHIBIT C, issued by a federally
insured national banking association which is acceptable to Landlord in all
respects.
(b) EXPIRATION; EXTENSION OR REPLACEMENT. The Letter of
Credit must: (i) have an expiration date no earlier than the Termination Date of
this Lease, or (ii) be renewed annually through the Termination Date, in which
event Tenant must submit to Landlord original amendments extending the Letter of
Credit expiration date (or replacement Letters of Credit with extended
expiration dates), on an annual basis no later than thirty (30) days prior to
the expiration date of the Letter of Credit then in effect. Failure to so extend
the expiration date of the Letter of Credit in the foregoing manner will, in
addition to all of Landlord's other remedies, entitle Landlord to draw down the
Letter of Credit without notice to Tenant and to hold or apply the proceeds as
provided in this Lease.
(c) DRAWS. If Tenant violates this Lease, Landlord may,
but is not obligated to, draw down on all or a portion of the Letter of Credit
without notice to Tenant and apply the proceeds to the payment of any sum owing
or any other sum which Landlord may be required or deems necessary to spend or
incur by reason of such violation. If Landlord draws upon the
4
<PAGE>
Letter of Credit and any portion of the proceeds of such draw is not required
for such purposes, Landlord will treat such unused proceeds as a cash security
deposit, as security for the full and prompt performance by Tenant of the terms
and covenants of this Lease and apply the same as provided in Section 4.1 above.
Following any such application of the Security Deposit as described above,
Tenant agrees to pay to Landlord on demand the amount so applied in order to
restore the Security Deposit to its original amount. Provided that Tenant has
performed all of its obligations under this Lease, Landlord will, within thirty
(30) days after the end of the Term, return the Letter of Credit to Tenant. If
Landlord transfers its interest in the Premises and the transferee assumes
Landlord's obligations under this Lease, then Landlord will assign the Security
Deposit to the transferee and Landlord subsequently will have no further
liability for the return of the Letter of Credit.
4.3. INTENTIONALLY DELETED.
5. LANDLORD'S OBLIGATIONS.
5.1. SERVICES.
Landlord will furnish to the Premises (1) water at those points of
supply provided for general use of tenants of the Building; (2) heating and air
conditioning between 8:00 a.m. and 6:00 p.m. on weekdays and from 8:00 a.m. to
1:00 p.m. on Saturdays (collectively "NORMAL BUSINESS HOURS"); (3) janitorial
service to the Premises on weekdays, other than holidays, for Building-standard
installations and such window washing as may, from time to time, be reasonably
required; (4) passenger elevators for ingress and egress, provided that Landlord
may reasonably limit the number of operating elevators during non-business hours
and holidays; and (5) electrical current for Tenant's equipment in a sufficient
quantity to meet normal office usage, provided that Tenant will be responsible
for the cost of any additional electrical requirements beyond the usage
contemplated under this Lease in accordance with Section 5.3 below. Landlord
will maintain the common areas of the Building in reasonably good order and
condition, except for damage caused by Tenant, or its employees, agents or
invitees. If Tenant desires any heating or air conditioning at any time other
than during Normal Business Hours, then such services will be supplied to Tenant
upon the written request of Tenant delivered to Landlord not less than
twenty-four (24) hours prior to the business day preceding such extra usage, and
Tenant, upon demand from Landlord, will pay Landlord for such services, at rates
determined by Landlord from time to time. Landlord and Tenant acknowledge that
Tenant has access to the Building twenty-four (24) hours a day, seven (7) days a
week.
5.2. UTILITIES.
If the respective utilities are not separately metered at the Premises
and billed directly to Tenant by the service provider, then Tenant will pay
directly to Landlord as Rent, upon demand by Landlord, the cost of all utilities
used or consumed at, on or in the Premises. Such cost will be computed by
multiplying the Electrical Usage Rate then in effect times the square footage of
the Premises, or as adjusted by Landlord from time to time. If the respective
utilities are separately metered at the Premises, then Tenant shall pay directly
to each provider of such utilities the cost of all utilities used or consumed
at, on or in the Premises as and when the charges for the same become due and
payable. If Tenant fails to pay for any of the above services when the same
become due and payable, Landlord will have the right but not the duty to pay the
same, which amount so paid will be deemed Rent and will be payable immediately
upon demand from Landlord. Tenant agrees to (i) keep and cause to be kept closed
all windows in the Premises, (ii) at all times cooperate fully with Landlord in
the operation of the
5
<PAGE>
heating and air conditioning systems, and (iii) abide by all reasonable
regulations and requirements which Landlord may prescribe to permit the proper
functioning and protection of the heating and air conditioning systems.
5.3. EXCESS UTILITY USE.
Landlord is not required to furnish electrical current for equipment
whose electrical energy consumption exceeds normal office usage. If Tenant's
requirements for or consumption of electricity exceed the electricity to be
provided by Landlord as described in Section 5.1 above, Landlord will, at
Tenant's expense, make reasonable efforts to supply such service through the
then-existing feeders and risers serving the Building and the Premises, and
Tenant agrees to pay to Landlord the cost of such service within ten days after
Landlord has delivered to Tenant an invoice for such services. Landlord may
determine the amount of such additional consumption and potential consumption by
any verifiable method, including installation of a separate meter in the
Premises installed, maintained, and read by Landlord, at Tenant's expense.
Tenant may not install any electrical equipment requiring special wiring or
requiring voltage in excess of normal office usage or otherwise exceeding
Building capacity unless approved in advance and in writing by Landlord, which
approval will be within Landlord's sole discretion. Tenant agrees not to use
electricity in the Premises which exceeds the capacity of existing feeders and
risers to or wiring in the Premises. If approved by Landlord, any risers or
wiring required to meet Tenant's excess electrical requirements will be
installed by Landlord, upon Tenant's request and at Tenant's cost, if, in
Landlord's judgment, the same are necessary and will not cause permanent damage
to the Building or the Premises, cause or create a dangerous or hazardous
condition, entail excessive or unreasonable alterations, repairs, or expenses,
or interfere with or disturb other tenants of the Building. If Tenant uses
machines or equipment in the Premises which affect the temperature otherwise
maintained by the air conditioning system or otherwise overload any utility,
Landlord may install supplemental air conditioning units or other supplemental
equipment in the Premises, and such cost, including the cost of installation,
operation, use, and maintenance, will be paid by Tenant to Landlord within ten
(10) days after Landlord has delivered to Tenant an invoice for such cost.
5.4. RESTORATION OF SERVICES.
Landlord agrees to use reasonable efforts to restore any service that
becomes unavailable. Such unavailability will not, however, render Landlord
liable for any damages, be a constructive eviction of Tenant, constitute a
breach of any implied warranty, or entitle Tenant to any abatement of Tenant's
obligations under this Lease.
6. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
6.1. IMPROVEMENTS; ALTERATIONS.
Landlord will afford Tenant an allowance of $30.00 per rentable square
foot to cover the cost of certain non-structural, tenant improvements, including
all architectural related fees, to be made to the Premises by Tenant, as more
particularly described in the Workletter. The cost of any tenant improvements
and all fees and expenses relating thereto in excess of the amount of said
allowance shall be borne and paid for by Tenant. Landlord will enter into a
contract with the general contractor to perform the alterations and tenant
improvements. No other alterations or physical additions in or to the Premises
may be made without Landlord's prior written consent. Landlord may withhold its
consent to any alteration or addition that could affect the Building's structure
or its HVAC, plumbing, electrical or mechanical systems. Tenant may not paint or
install lighting, signs, window or door lettering, or advertising media of any
type on or about the
6
<PAGE>
Premises without the prior written consent of Landlord. Landlord may withhold
its consent to any such painting or installation which could affect the
appearance of the exterior of the Building or of any common areas of the
Building. All alterations, additions, and improvements installed in the Premises
must be (i) performed at Tenant's expense and only in accordance with plans and
specifications which have been previously submitted to and approved in writing
by Landlord, and (ii) constructed, maintained and used by Tenant at its own risk
and expense in accordance with all laws. Landlord's approval of the plans and
specifications is not a representation by Landlord that such alterations,
additions, or improvements comply with any law. Prior to commencing any work,
Tenant agrees to pay to Landlord a supervisory and administrative fee equal to
five percent (5%) of the cost of any alterations, additions or improvements
performed by Tenant subsequent to the tenant improvements described in the
Workletter. Tenant agrees that it will remove or cause its contractor(s) to
remove all waste and debris from the Premises upon the completion of any
alterations, additions or improvements.
6.2. REPAIRS AND MAINTENANCE.
Tenant agrees to maintain the Premises in a clean, safe, and operable
condition, and will not permit or allow to remain any waste or damage to any
portion of the Premises. Tenant agrees to pay for the cost of repairing or
replacing, subject to Landlord's direction and supervision, any damage to the
Premises and the Building caused by Tenant, Tenant's employees, Tenant's
transferees, or their respective agents, contractors, or invitees. If Tenant
fails to make such repairs or replacements within twenty (20) days after the
occurrence of such damage, then Landlord may make the same at Tenant's cost. If
any such damage occurs outside of the Premises, then Landlord may elect to
repair such damage at Tenant's expense, rather than having Tenant repair such
damage. The cost of all repair or replacement work performed by Landlord under
this Section 6.2 must be paid by Tenant to Landlord, together with a supervisory
and administrative fee equal to five percent (5%) of the cost of the repair or
replacement work performed by Landlord, within twenty (20) days after Landlord
has invoiced Tenant for such cost and will constitute Rent under this Lease.
6.3. PERFORMANCE OF WORK.
Only Landlord or contractors and subcontractors approved in writing by
Landlord may perform the work described in this Section 6. Tenant will cause all
contractors and subcontractors to procure and maintain insurance coverage naming
Landlord as an additional insured against such risks, in such amounts, and with
such companies as Landlord may reasonably require. All such work must be
performed in accordance with all applicable governmental requirements and in a
good and workmanlike manner so as not to damage the Premises, the Building or
the components of the Building. Tenant agrees to defend, indemnify and hold
Landlord, its trustees, beneficiaries, employees, successors and assigns
harmless from and against any claims, liabilities, damages, losses, costs and
expenses, including but not limited to attorney's fees and court costs, suffered
or incurred by Landlord arising from any of Tenant's alterations, additions or
improvements to the Premises.
6.4. MECHANIC'S LIENS.
Tenant must not permit any mechanic's lien(s) to be filed against the
Premises or the Building for any work performed, materials furnished, or
obligations incurred by or at the request of Tenant. If such a lien is filed,
then, within ten (10) days after Landlord has delivered notice of the filing to
Tenant, Tenant must either pay the amount of the lien or diligently contest such
lien and deliver to Landlord a bond or other security reasonably satisfactory to
Landlord. If Tenant fails to timely take either such action, then Landlord may
pay the lien claim, and any amounts so
7
<PAGE>
paid, including expenses and interest, will constitute Rent payable by Tenant to
Landlord within ten (10) days after Landlord has invoiced Tenant for such
payment. Tenant agrees to defend, indemnify and hold Landlord, its trustees,
beneficiaries, employees, successors and assigns harmless from and against any
claims, liabilities, damages, losses, costs and expenses, including but not
limited to attorney's fees and court costs, suffered or incurred by Landlord
arising from the presence or removal of any mechanic's lien(s) affecting the
Premises and/or the Building relating to any work performed, materials furnished
or obligations incurred by or at the request of Tenant.
7. USE.
Tenant may use the Premises only for the Permitted Use, and must comply
with all applicable statutes, laws, ordinances, codes, orders, rules and
regulations, as well as all requirements of any of Landlord's insurance
providers, relating to the use, condition and occupancy of the Premises. The
Premises may not be used for any use which (i) is disreputable, creates fire
hazards, or results in an increased rate of insurance on the Building or its
contents; (ii) would violate any covenant, agreement, term, provision or
condition of this Lease or is in contravention of the certificate of occupancy
or zoning ordinances pertaining to the Building; (iii) would alter, affect or
interfere with or would overload the electrical, mechanical or HVAC systems or
any other component of the Building, or would exceed the floor load per square
foot which the floor was designed to carry and which is allowed by law; or (iv)
would, in Landlord's judgment, in any way impair or tend to impair or exceed the
design criteria, structural integrity, character, reputation or appearance of
the Building. Tenant will not conduct or permit the generation, transportation,
storage, installation, treatment or disposal, either in the Building or in the
Premises, of any hazardous or toxic materials, and Tenant will keep the Building
and the Premises free of any lien or claim imposed under any federal, state or
local environmental statute, law, ordinance, code, rule or regulation. If,
because of Tenant's acts, the rate of insurance on the Building or its contents
increases, then such acts will constitute an Event of Default, Tenant must pay
to Landlord the amount of such increase on demand, and acceptance of such
payment will not waive any of Landlord's other rights. Tenant agrees to conduct
its business and control its agents, employees, and invitees in such a manner as
not to create any nuisance or unreasonably interfere with other tenants or
Landlord in its management of the Building.
8. ASSIGNMENT AND SUBLETTING.
8.1. TRANSFERS; CONSENT.
(a) TRANSFERS. Tenant may not do any of the following
without the prior written consent of Landlord, which consent will not
be unreasonably withheld or delayed so long as Landlord determines in
its reasonable discretion that the proposed transferee is of similar
reputable character as Tenant, has a net worth and financial stability
comparable to or better than Tenant, and intends to use the Premises
only for the Permitted Use:
(i) assign, transfer, or encumber this Lease or
any estate or interest in this Lease, whether directly or by
operation of law;
(ii) permit any other entity to become Tenant
under this Lease by merger, consolidation, or other
reorganization; provided, however, Tenant does not need to
obtain Landlord's consent if the transfer is to an affiliate
of Tenant or if, after giving effect to such merger,
consolidation or other reorganization, the
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minimum tangible net worth of such new entity is the same as
that of Tenant at the beginning of this Lease (a "PERMITTED
TRANSFEREE");
(iii) if Tenant is an entity other than a
corporation whose stock is publicly traded, permit the
transfer of an ownership interest in Tenant so as to result in
a change in the current control of Tenant;
(iv) sublet any portion of the Premises;
(v) grant any license, concession, or other
right of occupancy of any portion of the Premises; or
(vi) permit the use of the Premises by any
parties other than Tenant.
Any of the events listed in Section 8.1(a)(i) through 8.1(a)(vi) above
are referred to as a "TRANSFER".
(b) PROCEDURE TO OBTAIN CONSENT. If Tenant requests Landlord's
consent to a Transfer, then Tenant must provide Landlord with a written
description of all terms and conditions of the proposed Transfer, copies of the
proposed documentation, and the following information about the proposed
transferee: name and address; reasonably satisfactory information about its
business and business history; its proposed use of the Premises; banking,
financial, and other credit information that Landlord may request; and general
references sufficient to enable Landlord to determine the proposed transferee's
creditworthiness and character. Provided Tenant acts promptly to respond to
Landlord's inquires, Landlord will provide Tenant with a written response to
such Transfer request within thirty (30) days after Landlord's receipt of
Tenant's written request. Concurrently with Tenant's request for consent to a
Transfer, Tenant agrees to (i) pay to Landlord an assignment fee in the amount
of Two Hundred Fifty and 00/100 Dollars ($250.00), and (ii) reimburse Landlord
immediately upon its request for all of its direct, third party expenses
(including but not limited to reasonable attorneys' fees and administrative
fees) incurred in connection with considering any request for consent to a
Transfer. Nothing in this Section 8.1(b) may be construed as granting to any
third party the rights of a third-party beneficiary, so as to entitle such third
party to seek to enforce any of the above provisions.
(c) OBLIGATIONS AFTER TRANSFER. If Landlord consents to a proposed
Transfer, then both Tenant and the proposed transferee must (i) deliver to
Landlord a written agreement reasonably acceptable in all respects to Landlord
under which the proposed transferee expressly assumes all of Tenant's
obligations under this Lease, and (ii) if requested by Landlord, execute the
consent form required by Landlord. Landlord's consent to a Transfer will not
release Tenant from its obligations under this Lease, but rather Tenant and its
transferee will be jointly and severally liable for such obligations. Landlord's
consent to any Transfer does not waive Landlord's rights as to any subsequent
Transfers. If an Event of Default occurs while the Premises or any part of the
Premises are subject to a Transfer, then Landlord, in addition to its other
remedies, may collect rent due and owing directly from such transferee and apply
such rent against Rent. Tenant authorizes its transferees to make payments of
rent directly to Landlord upon receipt of notice from Landlord to do so.
8.2. RECAPTURE.
In the event Tenant causes or seeks to cause a Transfer to any third
party other than a Permitted Transferee, Landlord may terminate this Lease and
recapture the applicable space as
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of the date the proposed Transfer is to be effective, or within thirty (30) days
after the date of Landlord's discovery of the Transfer, as the case may be.
Landlord may exercise this termination and recapture right (i) within ten (10)
days after Landlord's receipt of Tenant's written request for Landlord's
consent, unless Tenant rescinds its request by so notifying Landlord in writing
within ten (10) days after Landlord advises Tenant of Landlord's election to
exercise its termination and recapture right, in which event Landlord will not
exercise its termination and recapture right and Tenant may retain possession of
the applicable space in accordance with this Lease; or (ii) within thirty (30)
days after Landlord learns of such Transfer if Landlord's consent has not been
requested by Tenant. If Landlord terminates this Lease as provided above, then
this Lease will cease and Tenant shall pay to Landlord all Rent accrued through
the Termination Date. Subsequently, Landlord may lease the Premises to the
prospective transferee (or to any other person) without liability to Tenant.
8.3. ADDITIONAL COMPENSATION.
Tenant agrees to pay to Landlord, immediately upon receipt, any and all
funds received by Tenant for a Transfer in excess of the Rent aIlocable to the
Premises.
8.4 INJUNCTIVE RELIEF.
Notwithstanding anything in this Lease to the contrary, in the event
Landlord wrongfully prevents a Transfer by Tenant, or if Landlord commits any
other default under this Section 8, Tenant's sole remedy will be limited to an
action for injunctive relief to permit the Transfer to occur.
9. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY.
9.1. INSURANCE.
Tenant agrees to maintain throughout the Term the following insurance
policies:
(a) comprehensive general liability insurance in amounts of not
less than a combined single limit of $3,000,000 or such other amounts
as Landlord may, from time to time, reasonably require, insuring
Tenant, Landlord, Landlord's agents and their respective affiliates
against all liability for injury to or death of a person or persons or
damage to property arising from the use and occupancy of the Premises;
(b) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others) in the
Premises;
(c) contractual liability insurance sufficient to cover Tenant's
indemnity obligations under this Lease;
(d) worker's compensation insurance, containing a waiver of
subrogation endorsement acceptable to Landlord; and
(e) business interruption insurance.
Tenant will, prior to taking possession of the Premises and prior to
the commencement of any work in the Premises, furnish Landlord with certificates
of such insurance (which may be provided under blanket coverage) and such other
evidence reasonably satisfactory to Landlord confirming Tenant's maintenance of
all insurance coverages required under this Lease and naming Landlord and any
other parties reasonably requested by Landlord as additional insured(s). Each
certificate must contain a written obligation on the part of each insurance
company to notify Landlord at least thirty (30) days before cancellation or a
material change of
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any such insurance policies. All such insurance policies must be (i) issued by
insurers authorized to do business in the State of Illinois and which are rated
at least A+XII in Best's Key Rating Guide, and (ii) issued by companies and be
in form and substance reasonably satisfactory to Landlord. The term "AFFILIATE"
means any person or entity, directly or indirectly, controlling, controlled by,
or under common control with the party in question. Tenant acknowledges and
agrees that it is not permitted to self-insure under this Lease.
9.2. WAIVER OF NEGLIGENCE; NO SUBROGATION.
Landlord and Tenant each waives any claim it might have against the
other for damage to or theft, destruction, loss, or loss of use of any property
(a "LOSS"), to the extent the same is insured against under any insurance policy
that covers the Building, the Premises, Landlord's or Tenant's fixtures,
personal property, leasehold improvements, or business, or with respect to such
matters as are required to be insured against under the terms of this Section 9,
regardless of whether the negligence of the other party caused such loss.
Landlord's waiver under this Section 9.2 will not, however, include any
deductible amounts on insurance policies carried by Landlord or to any
coinsurance penalty which Landlord may sustain. Each party will cause its
insurance carrier to endorse all applicable policies waiving the carrier's
rights of recovery under subrogation or otherwise against the other party.
9.3. INDEMNITY BY TENANT.
Tenant agrees to defend, indemnify, and hold Landlord, its trustees,
beneficiaries, employees and agents harmless from and against (i) all claims,
demands, liabilities, causes of action, suits, judgments, and expenses
(including attorneys' fees) for any Loss arising from any occurrence on the
Premises and the Building caused or contributed to by Tenant, its subtenants,
licensees, employees, invitees, contractors and/or agents (collectively
"TENANT'S AFFILIATES"), and (ii) Tenant's or any of Tenant's Affiliates' failure
to perform its obligations under this Lease, except to the extent such Loss was
caused solely by the gross negligence of Landlord or its agents. This indemnity
provision will survive the termination or expiration of this Lease.
10. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE.
10.1. SUBORDINATION.
This Lease is automatically subordinate to any deed of trust, mortgage
or other security instrument, or any ground lease, master lease or primary
lease, that now or subsequently covers all or any part of the Building without
any further action or writing of the parties (the mortgagee under any such
mortgage or the lessor under any such lease is referred to below as a
"LANDLORD'S MORTGAGEE"). However, any Landlord's Mortgagee may at any time
unilaterally elect to make this Lease superior to its mortgage, ground lease or
other interest in the Premises by so notifying Tenant in writing. As a condition
to Tenant's execution of this Lease, Landlord will cause Landlord's Mortgagee to
sign a subordination, non-disturbance and attornment agreement in the form
attached hereto as EXHIBIT H, and Tenant agrees that it will also execute said
agreement.
10.2. ATTORNMENT.
Tenant agrees to attorn to any party succeeding to Landlord's interest
in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, attornment, termination of lease, or otherwise. Within twenty
(20) days after such party's request, Tenant will execute and deliver to the
requesting party a written agreement(s) confirming such attornment. If Tenant
fails to deliver the attornment agreement(s) described herein within the
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twenty (20) day period, Tenant acknowledges and agrees that Landlord is
authorized to act as Tenant's attorney-in-fact to execute the agreement(s) on
behalf of Tenant, and Tenant will be bound by the terms of the agreement(s)
executed by Landlord.
10.3. NOTICE TO LANDLORD'S MORTGAGEE.
Tenant may not seek to enforce any remedy it may have for any default
on the part of the Landlord without first giving written notice by (i) facsimile
accompanied by acknowledgment of receipt by the recipient, or (ii) certified
mail, return receipt requested, specifying the default in reasonable detail, to
any Landlord's Mortgagee whose address has been given to Tenant, and affording
such Landlord's Mortgagee a reasonable opportunity to perform Landlord's
obligations under this Lease.
11. RULES AND REGULATIONS.
Tenant must comply with the rules and regulations of the Building which
are attached as EXHIBIT B. Landlord may, from time to time, change such rules
and regulations for the safety, care, or cleanliness of the Building and related
facilities, provided that such changes will not unreasonably interfere with
Tenant's use of the Premises. Landlord will uniformly apply the rules and
regulations to all tenants in the Building. Tenant is responsible for the
compliance with such rules and regulations by its employees, agents, and
invitees.
12. CONDEMNATION.
12.1. TOTAL TAKING.
If the entire Building or Premises is taken by right of eminent domain
or conveyed in lieu of eminent domain (a "TAKING"), this Lease will terminate
and Rent will be apportioned as of the date of the Taking, and Tenant will have
no claim against Landlord for the value of the unexpired Term.
12.2. PARTIAL TAKING -- TENANT'S RIGHTS.
If any part of the Building becomes subject to a Taking and such Taking
will prevent Tenant from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such Taking for a
period of more than ninety (90) days, then Tenant may terminate this Lease as of
the date of such Taking by giving written notice to Landlord within twenty (20)
days after the Taking, and Rent will be apportioned as of the date of such
Taking. If Tenant does not terminate this Lease, then Rent will abate on a basis
reasonably determined by Landlord as to that portion of the Premises rendered
untenantable by the Taking.
12.3. PARTIAL TAKING -- LANDLORD'S RIGHTS.
If any material portion but less than all of the Building becomes
subject to a Taking and Landlord makes a good faith determination that (i) such
Taking will prevent Tenant from conducting its business in the Premises in a
manner reasonably comparable to that conducted immediately before such Taking
for a period of more than one hundred fifty (150) days, (ii) restoring the
Premises would be uneconomical, (iii) the condemnation award is insufficient to
rebuild or restore the Building or the Premises, or (iv) Landlord is required to
pay any condemnation award arising from the Taking to any Landlord's Mortgagee,
then Landlord may terminate this Lease by delivering written notice to Tenant
within twenty (20) days after such Taking, and Rent will be apportioned as of
the date of such Taking. If Landlord does not so
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terminate this Lease, then this Lease will continue, but if any portion of the
Premises has been taken, Rent will abate as provided in the last sentence of
Section 12.2 above.
12.4. AWARD.
If any Taking occurs, then Landlord is entitled to receive the entire
award or other compensation for the land on which the Building is situated, the
Building, and other improvements taken, and Tenant may separately pursue a claim
against the condemnor for the value of Tenant's personal property which Tenant
is entitled to remove under this Lease (but because of the condemnation is
unable to move such property), moving costs, and other claims it may have so
long as such claim does not diminish Landlord's award. In no event may Tenant
seek or file any claim against Landlord.
13. FIRE OR OTHER CASUALTY.
13.1. LANDLORD'S RIGHTS.
If all or any part of the Building and/or the Premises is(are) damaged
by fire or other casualty (a "CASUALTY"), and if Landlord makes a good faith
determination that (i) restoring the Premises would be uneconomical, (ii) there
are insufficient insurance proceeds to rebuild or restore the Building or the
Premises, or (iii) Landlord is required to pay any insurance proceeds arising
out of the Casualty to any Landlord's Mortgagee, then Landlord may terminate
this Lease by giving Tenant written notice of Landlord's election to terminate
(the "CASUALTY TERMINATION NOTICE") within one hundred twenty (120) days after
the Casualty has occurred, and Base Rent and Additional Rent will abate as of
the date of the Casualty, unless Tenant or any of Tenant's Affiliates caused
such damage, in which event Tenant shall continue to pay Rent without abatement.
Such termination shall be effective sixty (60) days after the date of the
Casualty Termination Notice.
13.2. REPAIR OBLIGATION.
If Landlord elects not to terminate this Lease following a Casualty,
then Landlord, within a reasonable time after such Casualty, will proceed with
reasonable diligence to repair, restore or rehabilitate the Building and/or the
Premises, as the case may be, to substantially the same condition as they
existed immediately before such Casualty. However, Landlord will not be required
to repair or replace any of the furniture, equipment, fixtures, and other
leasehold improvements which may have been placed by or at the request of Tenant
or other occupants in the Building or the Premises and required to be insured by
Tenant or other tenants, and Landlord's obligation to repair or restore the
Building and/or the Premises will be limited to the extent of the insurance
proceeds actually received by Landlord for the Casualty in question. In the
event that Landlord elects not to terminate the Lease and Landlord proceeds to
repair the Building and/or the Premises, then Tenant must apply to the
replacement or restoration of the furniture, equipment, fixtures and other
improvements in the Premises (if replacement or restoration is necessary because
of the Casualty) any proceeds of insurance that it may have received from its
policy(ies) on account of the Casualty. During such repair or rebuilding of the
Building and/or the Premises, Rent for the portion of the Premises rendered
untenantable by the damage will be abated on a reasonable basis determined by
Landlord from the date of damage until the completion of the repair, restoration
or rehabilitation, unless the Casualty was caused by Tenant or any of Tenant's
Affiliates, in which event Tenant shall continue to pay Rent without abatement.
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14. PERSONAL PROPERTY TAXES.
Tenant is liable for all taxes, if any, based upon this Lease or the
receipt of Rent due under this Lease and all taxes levied or assessed against
any personal property, furniture or fixtures placed by Tenant in the Premises.
If any taxes for which Tenant is liable are levied or assessed against Landlord
or Landlord's property and Landlord elects to pay the same, or if the assessed
value of Landlord's property is increased by inclusion of such personal
property, furniture or fixtures and Landlord elects to pay the taxes based on
such increase, then Tenant shall pay to Landlord as Rent, upon demand, the part
of such taxes for which Tenant is primarily liable under this Lease. Landlord
may not, however, pay such amount if Tenant notifies Landlord that it will
contest the validity or amount of such taxes before Landlord makes such payment,
and subsequently diligently proceeds with such contest in accordance with law
and if the non-payment does not pose a threat of lien or other cloud on
Landlord's title to the Building, or threat of loss or seizure of the Building
or interest of Landlord in the Building.
15. DEFAULT.
15.1. EVENTS OF DEFAULT.
Each of the following occurrences will constitute an "EVENT OF
DEFAULT":
(a) Tenant's failure to pay Rent or any other amount due
hereunder on or before the date said payment is due and such default
continues for three (3) days after notice from Landlord which may be
delivered by facsimile or in writing; provided, however, if Tenant
fails to make any such payment on more than two (2) occasions in any
consecutive twelve (12) month period, then no notice of any subsequent
default shall be required from Landlord;
(b) Tenant's failure to perform, comply with, or observe
any other agreement or obligation of Tenant under this Lease and the
continuance of such failure for a period of more than twenty (20) days
after Landlord has delivered to Tenant written notice;
(c) The filing of a petition by or against Tenant (the
term "TENANT" includes, for the purpose of this Section 15(c), any
guarantor of the Tenant's obligations under this Lease) (1) in any
bankruptcy or other insolvency proceeding; (2) seeking any relief under
any state or federal debtor relief law; (3) for the appointment of a
liquidator or receiver for all or substantially all of Tenant's
property or for Tenant's interest in this Lease; or (4) for the
reorganization or modification of Tenant's capital structure. If,
however, such a petition is filed against Tenant, then such filing will
not be an Event of Default unless Tenant fails to have the proceedings
initiated by such petition dismissed within sixty (60) days after such
filing;
(d) The failure by Tenant to take possession of the
Premises in accordance with the terms of this Lease;
(e) The discontinuance of its business by Tenant for
thirty (30) or more consecutive days; and
(f) Tenant's vacating or abandoning of the Premises for
thirty (30) or more days during the Term.
15.2. DEFAULT INTEREST.
All past due Rent and any other payments required of Tenant under this
Lease will be deemed Rent and interest will accrue from the date due until paid
at the rate of interest equal to
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two percent (2%) over the corporate base rate or so-called "prime rate" as
announced from time to time by Bank One Corporation or its successors and
assigns.
16. REMEDIES.
Upon any Event of Default, Landlord may, at its election, in addition
to all other rights and remedies afforded Landlord under this Lease or by law or
equity, take any one or more of the following actions:
16.1. RIGHT TO TERMINATE.
Upon the occurrence of an Event of Default, Landlord has the right to
terminate the Lease and obtain possession of the Premises. Landlord may make its
election to terminate known to Tenant by delivery of a notice of termination.
Such termination is immediately effective and Landlord, if necessary, is
entitled to commence immediately an action in summary proceedings to recover
possession of the Premises.
16.2. RECEIPT OF MONEY AFTER TERMINATION.
No receipt of money by the Landlord from the Tenant after the
termination of this Lease acts to reinstate, continue or extend the Term, nor
affect or waive any notice given by the Landlord to the Tenant prior to such
receipt of money.
16.3. RECOVERY OF DAMAGES.
Landlord agrees to use commercially reasonable efforts to mitigate
damages caused by a default or breach of Tenant. If Landlord at any time
terminates this Lease for any breach, then in addition to any other remedies it
may have, Landlord may recover from Tenant by reason of such breach all Rent and
Additional Rent accrued and unpaid for the period up to and including such
termination date, as well as all other additional sums payable by Tenant under
this Lease. In addition, Landlord may recover as damages for loss of the bargain
and not as a penalty the sum of (i) the unamortized cost to Landlord, computed
and determined in accordance with generally accepted accounting principles, of
any tenant improvements provided by Landlord at its expense, (ii) the aggregate
sum which at the time of such termination represents the excess, if any, of the
present value of the aggregate Rent and Additional Rent at the same annual rate
for the remainder of the Term as then in effect over the then present value of
the then aggregate fair rental value of the Premises for the balance of the Term
immediately prior to such termination, such present worth to be computed in each
case on the basis of a five percent (5%) per annum discount from the respective
dates upon which Rent would have been payable under this Lease had the Term not
been terminated, and (iii) any additional damages, including any costs or
expenditures to fit the Premises to the needs of Tenant, reasonable attorneys'
fees and court costs which Landlord sustains by reason of the breach of any of
the covenants of this Lease other than for the payment of Base Rent and
Additional Rent.
16.4. RIGHT TO RE-ENTER.
If the Event of Default is the nonpayment of Rent, Landlord may, as an
alternative to terminating the Lease, serve a written demand for possession or
payment. Unless the Rent is paid in accordance with the demand for possession or
payment, Landlord is entitled to possession of the premises and Tenant will then
have no further right to possession under the Lease. Tenant remains liable to
Landlord for the payment of all Rent and other charges which Tenant has agreed
to pay under this Lease throughout the remainder of its Term. If Landlord elects
to re-enter, as provided, it may from time to time, without terminating this
Lease, make such alterations and repairs as may be necessary in order to relet
the Premises, and relet all or
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any part of such Premises for such term or terms (which may be for a term
extending beyond the Term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Landlord in its reasonable discretion may
deem advisable. Upon each such reletting all rentals and other sums received by
Landlord from such reletting are applied, first, to the payment of any
indebtedness other than rent due under this Lease from Tenant to Landlord;
second, to the payment of any costs and expenses of such reletting, including
reasonable brokerage fees and attorneys' fees and of costs of such alterations
and repairs; third, to the payment of Rent and other charges due from Tenant,
and the residue, if any, will be held by Landlord and applied in payment of
future rent as the same may become due and payable. If such rentals and other
sums received from such reletting during any month are insufficient to pay the
Rent and other charges due from Tenant, Tenant agrees to pay such deficiency to
Landlord. Such deficiency will be calculated and paid monthly. No such re-entry
or taking possession of such premises by Landlord may be construed as an
election on its part to terminate this Lease. Notwithstanding any such reletting
without termination, Landlord may at any time elect to terminate this Lease for
such previous breach.
16.5. INDEPENDENT COVENANT.
Tenant acknowledges and agrees that its obligation to pay Rent under
this Lease is an independent covenant and that such obligation to pay rent is
not subject to setoff or recoupment in connection with any action for summary
proceedings to recover possession of the Premises.
16.6. LEGAL EXPENSES.
If Landlord or Tenant is required to bring an action arising out of the
covenants, terms, conditions or provisions of this Lease, or if Landlord
undertakes an action for summary proceedings to recover possession of the
Premises, the prevailing party will be reimbursed by the other party for such
reasonable costs and attorneys' fees as the prevailing party may incur in
connection with such action.
17. PAYMENT BY TENANT; NON-WAIVER.
17.1. PAYMENT BY TENANT.
Upon any Event of Default, Tenant agrees to pay to Landlord all costs
incurred by Landlord (including court costs and reasonable attorneys' fees and
expenses) in (1) obtaining possession of the Premises, (2) removing and storing
Tenant's or any other occupant's property, (3) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition acceptable to a new
tenant, (4) if Tenant is dispossessed of the Premises and this Lease is not
terminated, reletting all or any part of the Premises (including brokerage
commissions, cost of tenant finish work, and other costs incidental to such
reletting), (5) performing Tenant's obligations which Tenant failed to perform,
(6) enforcing its rights, remedies, and recourses arising out of the Event of
Default or in obtaining advice about same; and (7) the reasonable value of
Landlord's and its agents' and employees' time in connection with such activity.
To the full extent permitted by law, Landlord and Tenant agree the federal and
state courts of the state in which the Premises and Building are located have
exclusive jurisdiction over any matter relating to or arising from this Lease
and the parties' rights and obligations under this Lease. Tenant agrees to pay
all costs, expenses and reasonable attorneys' fees incurred by Landlord in
successfully enforcing and/or defending any provision contained in this Lease.
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17.2. NO WAIVER.
Landlord's acceptance of any payment from Tenant following an Event of
Default will be deemed Rent and will not waive Landlord's rights regarding such
Event of Default. No waiver by Landlord of any violation or breach of any of the
terms contained in this Lease will waive Landlord's rights regarding any future
violation of such term. Landlord's acceptance of any partial payment of Rent
will not waive Landlord's rights with regard to the remaining portion of the
Rent that is due, regardless of any endorsement or other statement on any
instrument delivered in payment of Rent or any writing delivered in connection
with such Rent. Accordingly, Landlord's acceptance of a partial payment of Rent
will not constitute an accord and satisfaction of the full amount of the Rent
that is due.
18. SURRENDER OF PREMISES.
No act by Landlord will be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender of the Premises will be valid
unless it is in writing and signed by Landlord. At the expiration or termination
of this Lease, Tenant must deliver to Landlord the Premises with all
improvements in good repair and condition, broom-clean, except for reasonable
wear and tear (and condemnation and Casualty damage not caused by Tenant, as to
which Sections 12 and 13 above control). All alterations, additions,
improvements, equipment, wiring and furniture made in or upon the Premises must,
at Landlord's option upon notice to Tenant, either be removed by Tenant (and
Tenant must repair all damage caused by such removal) or remain on the Premises
without compensation to Tenant. Tenant must also deliver to Landlord all keys to
the Premises. Provided that Tenant has performed all of its obligations under
this Lease, Tenant may remove all unattached trade fixtures and personal
property placed in the Premises by Tenant. Tenant is obligated to repair all
damage caused by such removal. All items not so removed will be deemed to have
been abandoned by Tenant and may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord without notice to Tenant and without any
obligation to account for such items. The provisions of this Section 18 will
survive the end of the Term.
19. HOLDING OVER.
If Tenant fails to vacate the Premises at the end of the Term, then
Tenant will be a tenant-at-will and, in addition to all other damages and
remedies to which Landlord may be entitled for such holding over, Tenant must
pay to Landlord a monthly Base Rent for all or any part of a month equal to 150%
of the aggregate Base Rent plus all other Rent payable during the last month of
the Term. Tenant is also responsible for all damages, consequential as well as
direct, incurred or sustained by Landlord by reason of such retention, together
with all costs incurred by Landlord (including but not limited to reasonable
attorneys' fees) in connection with such holdover. In addition, if Tenant holds
over for thirty (30) or more days, then Landlord may elect, upon notice to
Tenant, that such holding over will constitute a renewal of this Lease for one
(1) year at the stated holdover rate, but acceptance by Landlord of Rent after
such termination will not in and of itself constitute a renewal. Nothing
contained in this Section 19, however, will be construed or operate as a waiver
of Landlord's right of re-entry or any other right of Landlord.
20. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights which may be exercised without
notice (except as otherwise expressly provided below) and without liability to
Tenant for damage or injury to
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property, person or business, and without effecting an eviction or disturbance
of Tenant's use or possession of the Premises, nor giving rise to any claim for
setoff or abatement or Rent or affecting any of Tenant's obligations under this
Lease:
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise,
in and about the Building during ordinary business hours, and if Tenant
desires to have such work done during other than business hours, Tenant
agrees to pay all overtime and additional expenses resulting from such
work; to enter upon the Premises and, during the continuance of any
such work, to temporarily close doors, entryways, public space, and
corridors in the Building; and to interrupt or temporarily suspend
Building services and facilities agreed to be furnished by Landlord,
all without the same constituting an eviction of Tenant in whole or in
part and without abatement of Rent by reason of loss or interruption of
the business of Tenant or otherwise and without in any manner rendering
Landlord liable for damages or relieving Tenant from the performance of
Tenant's obligations under this Lease; provided, however, that
reasonable access to the Premises will be maintained and the business
of Tenant may not be interfered with unreasonably;
(b) To change the name and street address of the Building; and to
change the arrangement and location of entrances or passageways, doors,
and doorways, corridors, elevators, stairs, restrooms, or other public
parts of the Building;
(c) To take such reasonable measures as Landlord deems advisable
for the security of the Building and its occupants; evacuating the
Building for cause, suspected cause, or for drill purposes; temporarily
denying access to the Building; and closing the Building after normal
business hours and on Sundays and holidays, subject, however, to
Tenant's right to enter when the Building is closed after normal
business hours under such reasonable regulations as Landlord may
prescribe from time to time for application to and for the benefit and
protection of all tenants of the Building;
(d) Upon prior oral notice to Tenant, to enter the Premises during
reasonable hours (i) at any time during the Term to show the Premises
to prospective purchasers or lenders, or (ii) during the last twelve
(12) months of the Term to show the Premises to prospective tenants,
and to decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy at any time after Tenant vacates or abandons
the Premises;
(e) Upon prior written notice to Tenant, to relocate Tenant within
the Building to new space (the "RELOCATION SPACE") which is comparable
in size, utility and condition to the Premises and which is situated on
the west side of the Building and not lower than the tenth (10th) floor
of the Building. Such relocation will be effective on a date specified
by Landlord, which date will not be less than ninety (90) days after
Landlord's notice. If Landlord relocates Tenant, Landlord will
reimburse Tenant for (i) Tenant's reasonable out-of-pocket expenses
directly related to Tenant's move to the Relocation Space, and (ii)
Tenant's stationary costs not to exceed Five Thousand and 00/100
Dollars ($5,000.00). Upon such relocation, the Relocation Space will be
deemed to be the Premises, the terms of the Lease will remain in full
force and apply to the Relocation Space, and Landlord and Tenant agree
to execute an amendment to this Lease confirming such relocation of
Tenant to the Relocation Space within twenty (20) days after Tenant
takes possession of the Relocation Space;
(f) To maintain within the lobby of the Building a directory
containing a standard listing with Tenant's name;
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(g) To install and maintain signs on the exterior and interior of
the Building;
(h) To prescribe and approve in advance the location and style of
any suite number and identification sign or lettering on the door to
the Premises occupied by Tenant, the cost of which signage shall be
borne by Tenant;
(i) To retain at all times and to use in appropriate instances
pass keys to the Premises;
(j) To grant to anyone the right to conduct any business or render
any service in the Building, whether or not it is the same as or
similar to the use expressly permitted to Tenant in Section 7 above;
(k) To have access for Landlord and other tenants of the Building
to all mail chutes according to the rules of the United States Post
Office;
(l) To enter the Premises after advance notice to Tenant (except
that no such notice shall be required in the event of an emergency) at
any time for reasonable purposes, including and supplying janitor
service or other service to be provided to Tenant under this Lease;
(m) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time determine to identify
themselves to watchmen or security personnel by registration or
otherwise, and to establish their right to enter or leave the Building;
provided Landlord will not be liable in damages for any error with
respect to admission to or eviction or exclusion of any person from the
Building. In case of fire, invasion, insurrection, mob, riot, civil
disorder, public excitement or other commotion, or threat thereof,
Landlord reserves the right to limit or prevent access to the Building
during the continuance of same, shut down elevator service, activate
elevator emergency controls, or otherwise take such action or
preventive measures deemed necessary by Landlord for the safety of the
tenants or other occupants of the Building or the protection of the
Building and the property in the Building. Tenant agrees to cooperate
in any reasonable safety program developed by Landlord; and
(n) From time to time to make and adopt such reasonable
rules and regulations uniformly applied, in addition to or other than
or by way of amendment or modification of the rules and regulations
contained in EXHIBIT B attached to this Lease or other sections of this
Lease, for the protection and welfare of the Building, its tenants and
occupants, as Landlord may reasonably determine, and Tenant agrees to
abide by all such rules and regulations.
21. MISCELLANEOUS.
21.1. LANDLORD TRANSFER.
Landlord may transfer any portion of the Building and any of its rights
under this Lease. If Landlord assigns its rights under this Lease, then Landlord
will be released from any further obligations under this Lease, provided that
the assignee assumes Landlord's obligations under this Lease in writing and
written notice thereof is provided to Tenant.
21.2. LANDLORD'S LIABILITY.
The liability of Landlord and Landlord's Affiliates (as defined below)
to Tenant for any default by Landlord under the terms of this Lease will be
recoverable only from the interest of Landlord in the Building, and Tenant
agrees to look solely to landlord's interest in the Building for
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<PAGE>
the enforcement of any judgment, award, order or other remedy under or in
connection with this Lease. Under no circumstances will Landlord or Landlord's
Affiliates have any personal liability for any of the foregoing matters. The
term "LANDLORD'S AFFILIATES" means collectively Landlord's property manager and
its and Landlord's respective current and future affiliates, trustees,
beneficiaries, principals, investors, directors, officers, general or limited
partners, shareholders, managers, employees, agents, representatives, successors
and assigns.
21.3. FORCE MAJEURE.
Other than for Tenant's obligations under this Lease that can be
performed by the payment of money (e.g., payment of Rent and maintenance of
insurance), whenever a period of time is prescribed for action to be taken by
either party, such party will not be liable or responsible for, and there will
be excluded from the computation of any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever
which are beyond the reasonable control of such party.
21.4. BROKERAGE.
Neither Landlord nor Tenant has dealt with any broker or agent in
connection with the negotiation or execution of this Lease other than Landlord's
Broker and Tenant's Broker, whose commissions are payable by Landlord. Landlord
and Tenant agree to defend, indemnify and hold each other harmless from and
against all claims, damages, costs, expenses, attorneys' fees and other
liabilities for commissions or other compensation claimed by any other broker or
agent.
21.5. ESTOPPEL CERTIFICATES.
From time to time, Tenant agrees to furnish to Landlord, Landlord's
Mortgagee or any third party designated by Landlord, within ten (10) business
days after Landlord has made a request, a written estoppel certificate signed by
Tenant or an authorized signatory of Tenant in the form attached as EXHIBIT D,
confirming and certifying to such party, as of the date of such estoppel
certificate, to the extent factual or known, (i) that Tenant is in possession of
the Premises, (ii) that this Lease is unmodified and in full force and effect
(or if there have been modifications, that this Lease is in full force and
effect as modified and setting forth such modification); (iii) that Tenant has
no offsets, claims or defenses against Rent or the enforcement of any right or
remedy of Landlord, or any duty or obligation of Tenant under this Lease (and,
if so, specifying the same in detail); (iv) the dates through which Base Rent
and Additional Rent have been paid; (v) that Tenant has no knowledge of any then
uncured defaults on the part of Landlord under this Lease (or if Tenant has
knowledge of any such uncured defaults, specifying the same in detail); (vi)
that Tenant having made due investigation has no knowledge of any event having
occurred that authorizes the termination of this Lease by Tenant (or if Tenant
has such knowledge, specifying the same in detail): (vii) the amount of any
Security Deposit held by Landlord; (viii) that there are no actions, whether
voluntary or otherwise, pending against Tenant; and (ix) other matters
reasonably requested by Landlord or such other party. If Tenant fails to deliver
the estoppel certificate described above within such ten (10) business day
period, Tenant acknowledges and agrees that Landlord is authorized to act as
Tenant's attorney-in-fact to execute the estoppel certificate on behalf of
Tenant, and Tenant will be bound by the terms of the estoppel certificate
prepared and executed by Landlord.
20
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21.6. NOTICES.
All notices and other communications given pursuant to this Lease must
be in writing and must be sent to the parties listed in the Lease Information
Summary above by any of the following: (1) first class mail, United States Mail,
postage prepaid, certified, with return receipt requested, and addressed to the
parties at the address specified next to their signature block, (2) a nationally
recognized overnight courier, (3) personal delivery to the intended address, or
(4) prepaid telegram, cable, facsimile transmission or telex with confirmation
of successful transmission followed by a confirmatory letter. All notices will
be effective upon delivery to the address of the addressee, or, if the addressee
refuses delivery, then delivery will be deemed effective as of the date of the
attempted delivery. The parties may change their addresses by giving notice of
such change to the other party in conformity with this provision.
21.7. SEVERABILITY.
If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws, then the remainder of this Lease
will not be affected, and in lieu of such clause or provision, a clause or
provision as similar in terms to such illegal, invalid, or unenforceable clause
or provision will be deemed added to this Lease as may be possible and be legal,
valid, and enforceable.
21.8. AMENDMENTS; AND BINDING EFFECT.
This Lease may not be amended except by instrument in writing signed by
Landlord and Tenant. No provision of this Lease will be deemed to have been
modified or waived by Landlord unless such modification or waiver is in writing
signed by Landlord. No custom or practice which may evolve between the parties
in the administration of the terms of this Lease will waive or diminish the
right of Landlord to insist upon the performance by Tenant in strict accordance
with the terms of this Lease, except as expressly modified in writing signed by
Landlord and Tenant. The terms and conditions contained in this Lease will inure
to the benefit of and be binding upon the parties, and upon their respective
successors in interest and legal representatives, except as otherwise expressly
provided. This Lease is for the sole benefit of Landlord and Tenant, and, other
than Landlord's Mortgagee, no third party may be deemed a third party
beneficiary.
21.9. QUIET ENJOYMENT.
Provided Tenant has performed all of its obligations under this Lease,
Tenant may peaceably and quietly hold and enjoy the Premises for the Term,
without hindrance from Landlord or any party claiming by, through, or under
Landlord, subject to the terms and conditions of this Lease.
21.10. NO MERGER.
No merger of the leasehold estate created under this Lease with the fee
estate in all or any part of the Premises will occur if the same person acquires
or holds, directly or indirectly, this Lease or any interest in this Lease and
the fee estate in the leasehold Premises or any interest in such fee estate.
21.11. NO OFFER.
The submission of this Lease to Tenant may not be construed as an
offer, and Tenant will have no rights under this Lease unless Landlord executes
a copy of this Lease and delivers it to Tenant.
21
<PAGE>
21.12. ENTIRE AGREEMENT.
This Lease constitutes the entire agreement between Landlord and Tenant
regarding the subject matter of this Lease and supersedes all prior related oral
statements and writings. Except for those set forth in this Lease, no
representations, warranties, or agreements have been made by Landlord or Tenant
to the other with respect to this Lease or the obligations of Landlord or Tenant
in connection with this Lease.
21.13. CALENDAR DAYS.
All references in this Agreement to a certain number of days will be
deemed to mean calendar days, unless otherwise expressly stated.
21.14. PROHIBITION AGAINST LEASEHOLD MORTGAGES.
Tenant will not mortgage, pledge or otherwise encumber its interest in
this Lease or in the Premises during the Term without the prior written consent
of Landlord, which consent will not be unreasonably withheld.
21.15. WAIVER OF TRIAL BY JURY.
Landlord and Tenant mutually, knowingly, irrevocably, voluntarily and
intentionally waive the right to a trial by jury in any action, proceeding or
counterclaim brought by either of the parties against the other in connection
with this Lease. Each party further warrants and represents that it has reviewed
this waiver with its legal counsel and that each has waived its jury trial
rights following consultation with legal counsel. This waiver applies to any and
all subsequent amendments and any other agreements relating to this Lease. In
the event of litigation, this Lease may be filed as a written consent to a trial
by the court sitting without a jury. Tenant further agrees that in the event
Landlord commences any summary proceeding for non-payment of Rent, Tenant will
not interpose any counterclaim of any nature or description in such proceeding.
21.16. LANDLORD'S REMEDIES CUMULATIVE.
No reference to any specific right or remedy will preclude Landlord
from exercising any other right, having any other remedy or maintaining any
action to which it may otherwise be entitled at law or in equity. No failure by
Landlord to insist upon the strict performance of any agreement, term, covenant
or condition of this Lease, or to exercise any right or remedy consequent upon a
breach thereof, and no acceptance of full or partial Rent during the continuance
of any such breach will constitute a waiver of any such breach, agreement, term,
covenant or condition. No waiver by Landlord of any breach by Tenant under this
Lease or of any breach by any other tenant under any other lease or any portion
of the Building will affect or alter this Lease in any way whatsoever. No
covenant, term or condition of this Lease will be deemed waived by Landlord
unless such waiver is in writing and executed by Landlord. Landlord may accept a
partial payment of Rent or other sums due under this Lease without such
acceptance constituting an accord and satisfaction and without prejudice to
Landlord's right to demand the balance of such Rent or other sum,
notwithstanding any notation on a check or letter accompanying such partial
payment, unless Landlord expressly waives its right to such balance in writing.
21.17. PROHIBITION AGAINST RECORDATION.
Tenant may not record all or any part of this Lease or any memorandum
of this Lease. Any recording by Tenant of all or any part of this Lease or any
memorandum of this Lease will be in violation of this Lease and will be void,
and Tenant agrees to indemnify Landlord, its
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trustees, beneficiaries, agents, successors and assigns for any losses, damages
or expenses of any nature whatsoever incurred by reason of such recording. In
the event Tenant records or causes all or any part of this Lease or any
memorandum of this Lease to be recorded, Tenant hereby irrevocably appoints
Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute and
record a certificate to clear any cloud on the title to the Building created by
the improper recordation.
21.18. JOINT AND SEVERAL LIABILITY.
If two (2) or more individuals, corporations, partnerships or other
business associations (or any combination of two (2) or more thereof) sign this
Lease as Tenant, the liability of each such individual, corporation, partnership
or other business association to pay Rent and perform all of Tenant's other
obligations under this Lease are deemed to be joint and several.
21.19. CORPORATE TENANTS.
If Tenant is a corporation, the persons executing this Lease on behalf
of Tenant hereby covenant and warrant that Tenant is a duly constituted
corporation qualified to do business in the State of Illinois; all of Tenant's
franchise and corporate taxes have been paid to date; all future forms, reports,
fees and other documents necessary for Tenant to comply with all applicable laws
will be filed by Tenant when due; and such persons are duly authorized by the
board of directors of such corporation to execute and deliver this Lease on
behalf of Tenant.
21.20. OPTION TO RENEW.
So long as (i) Tenant is not in default under this Lease, and (ii) no
event has occurred but for the passage of time or the giving of notice, or both,
would constitute a default under this Lease, Tenant shall have the option (the
"RENEWAL OPTION") to renew the Term of this Lease for one (1) additional five
(5) year period (the "RENEWAL PERIOD"). If Tenant desires to exercise the
Renewal Option, Tenant must deliver written notice (the "RENEWAL NOTICE") to
Landlord at least six (6) months prior to the expiration of the Term. The same
terms and conditions as contained in this Lease will apply during the Renewal
Period, except that the Base Rent during the Renewal Period will be equal to 95%
of the then prevailing fair market rental rate for buildings of similar size and
class located in the downtown Chicago area as reasonably determined by
Landlord., which rate will be communicated to Tenant by Landlord within ten (10)
days after Landlord's receipt of the Renewal Notice. Tenant shall then have
twenty (20) days to accept or reject the rental terms for the Renewal Period by
so notifying Landlord in writing within said twenty (20) day period. Any attempt
by Tenant to exercise the Renewal Option by any method, at any time or in any
circumstances other than as specifically set forth herein will be deemed null
and void and of no force or effect at the sole option and discretion of
Landlord.
21.21. RIGHT OF FIRST REFUSAL.
Subject to the right(s) of any pre-existing tenant(s) of the Building
to lease the "Additional Premises" (as defined below) or any portion of the
Additional Premises [about which Landlord hereby acknowledges it knows of no
such right(s) of any pre-existing tenant(s)], and provided Tenant has
continuously occupied the Premises and is not in default under the terms and
conditions of this Lease as of the date Tenant notifies Landlord of its desire
to exercise a "Right of First Refusal" (as defined below), and further provided
no event has occurred but for the passage of time or the giving of notice, or
both, would constitute a default under this Lease, at any time prior to the end
of the third lease year Tenant shall have an ongoing right of first refusal (the
"RIGHT OF FIRST REFUSAL") to rent any space on the thirteenth (13th) floor of
the Building which is contiguous to that portion of the Premises on the
thirteenth (13th) floor then being
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occupied by Tenant (the "ADDITIONAL PREMISES"), subject to the terms and
conditions below. Prior to entering into any lease or other agreement with a
third party with respect to the Additional Premises during the first three (3)
years of the Term, Landlord will give Tenant notice in writing ("LANDLORD'S
NOTICE") when the Additional Premises can be made available to Tenant (the
"AVAILABILITY DATE") and the terms evidenced in writing upon which a third party
is willing to rent the Additional Premises. Tenant must notify Landlord in
writing within ten (10) business days after Tenant's receipt of Landlord's
Notice whether Tenant desires to exercise its Right of First Refusal. Tenant's
Right of First Refusal may only be exercised as to the entire Additional
Premises and on the same terms as offered by Landlord to the third party. If
Tenant does not notify Landlord of its election to exercise its Right of First
Refusal with respect to the Additional Premises within the ten (10) business day
period described herein, then Tenant will be deemed to have waived and elected
not to exercise its Right of First Refusal with respect to the Additional
Premises, and Landlord may enter into a lease or other agreement with any third
party with respect to the Additional Premises on the same terms and conditions
set forth in Landlord's Notice. If Tenant elects to exercise its Right of First
Refusal and so notifies Landlord within such ten (10) business day period, then
Tenant will accept the Additional Premises on the Availability Date in "AS-IS"
condition and on the same terms and conditions as offered to the third party,
except that (1) the term "PREMISES" for all purposes of this Lease will
thereafter include the Additional Premises, and (2) the numerator of Tenant's
Proportionate Share will increase by the amount of rentable square feet
contained within the Additional Premises. Tenant will commence paying Rent for
the Additional Premises on the Availability Date.
LANDLORD:
360 NORTH MICHIGAN TRUST,
a Delaware business trust
By: DOUGLAS ELLIMAN-BEITLER MANAGEMENT
CORPORATION,
an Illinois corporation, its agent
By
------------------------------
Its:
------------------------------
TENANT:
HOTJOBS.COM, LTD.,
a Delaware corporation
By:
---------------------------------
Its:
--------------------------------
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EXHIBIT A
OUTLINE OF PREMISES
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations will apply to the Premises, the
Building and any appurtenances:
Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas may not be obstructed by tenants or used by any tenant for purposes other
than ingress and egress to and from their respective leased premises and for
going from one to another part of the Building.
Plumbing fixtures and appliances may be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable material may
be thrown or deposited in such fixtures and appliances. Damage resulting to any
such fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
No signs, advertisements or notices may be painted or affixed on or to
any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws may be driven or inserted in any
part of the Building except by Building maintenance personnel. No curtains or
other window treatments may be placed between the glass and the Building
standard window treatments.
Landlord will provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
Landlord will provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant may place any additional door locks in
its leased premises without Landlord's prior written consent. Landlord will
furnish to each tenant a reasonable number of keys to such tenant's leased
premises, at such tenant's cost, and no tenant may make a duplicate.
Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby may be conducted under Landlord's supervision at such times
and in such a manner as Landlord may reasonably require. Each tenant assumes all
risks of and will be liable for all damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property and personnel of Landlord if damaged or injured as a result of acts in
connection with carrying out this service for such tenant.
Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which will in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building, will
be repaired at the expense of such tenant.
Corridor doors, when not in use, must be kept closed. Nothing may be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals may be brought into or kept in, on or about any tenant's leased
premises. No portion of any tenant's leased premises may at any time be used or
occupied as sleeping or lodging quarters.
<PAGE>
Tenant will cooperate with Landlord's employees in keeping its leased
premises neat and clean. Tenants will not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel.
To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. may be delivered to any leased area except by
persons approved by Landlord.
Tenant may not make or permit any improper, objectionable or unpleasant
noises or odors in the Building or otherwise interfere in any way with other
tenants or persons having business with them.
No machinery of any kind (other than normal office equipment) may be
operated by any tenant on its leased area without Landlord's prior written
consent, nor may any tenant use or keep in the Building any flammable or
explosive fluid or substance.
Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord, which
permission will not be unreasonably withheld or delayed.
<PAGE>
EXHIBIT C
LETTER OF CREDIT
<PAGE>
EXHIBIT D
ESTOPPEL CERTIFICATE
The undersigned tenant ("TENANT") certifies as follows:
1. Tenant entered into a written lease dated September ___, 1999 (the
"LEASE") with 360 North Michigan Trust, as landlord ("LANDLORD"), under which
Lease Landlord leased to Tenant and Tenant rented from Landlord certain premises
on the 13th floor of the building located at 360 North Michigan Avenue, Chicago,
Illinois 60601 (the "PREMISES").
2. The Lease is in full force and effect; Tenant accepted and presently
occupies the Premises and is paying rent currently; Tenant has no setoffs,
claims or defenses to the enforcement of the Lease; and Tenant has not assigned
or transferred its interest thereunder.
3. Tenant's Base Rent under the Lease is currently $____________.
4. As of this date, Tenant is not in default in the performance of the
Lease, has not committed any breach of the Lease and no notice of default has
been given to Tenant.
5. As of this date, Landlord is not in default under the Lease, and no
notice of default has been given to Landlord.
6. No rent or other moneys have been paid to Landlord or Landlord's
agent by Tenant more than thirty (30) days in advance under the Lease, and a
security deposit has been paid by Tenant in the amount of
$_____________.
7. The term of the Lease expires on __________________, and Tenant has
no rights to extend the term of the Lease nor purchase all or any portion of the
Premises.
8. Tenant has no claim against Landlord for any security deposit or
prepaid rent.
9. The Lease constitutes the only agreement between Landlord and Tenant
with respect to the Premises, and the Lease has not been amended, modified or
superseded.
Dated: September ___, 1999.
TENANT:
HOTJOBS.COM, LTD.,
a Delaware corporation
By
--------------------------
Its
--------------------------
<PAGE>
EXHIBIT E
INTENTIONALLY DELETED
EXHIBIT F
WORKLETTER
This Workletter (the "WORKLETTER") is referred to in and specifically
made a part of that certain lease dated September ___, 1999 (the "LEASE")
between DOUGLAS ELLIMAN-BEITLER MANAGEMENT CORPORATION, as agent for 360 North
Michigan Trust, a Delaware business trust ("LANDLORD"), and HOTJOBS.COM, LTD., a
Delaware corporation ("TENANT").
Landlord and Tenant agree that their respective rights and obligations
with respect to the construction of the Premises shall be as provided in the
Lease and in this Workletter. All of the terms used herein which are defined in
the Lease shall have the same meanings as provided in the Lease unless otherwise
stated herein.
1. TENANT'S PLANS AND SPECIFICATIONS
(A) Tenant, at Tenant's sole cost and expense, except as
otherwise provided herein, shall cause Tenant's architect and
Landlord's MPE engineer(s) to prepare complete, finished architectural
plans and specifications in sufficient detail as to heat loads,
ventilation, electrical loads and plumbing requirements for preparation
of HVAC, mechanical, electrical, plumbing, fire protection, structural
and telephone drawings by other professionals engaged by Tenant,
including all dimensions and specifications for all work to be
performed in the Premises as tenant improvements (collectively
"TENANT'S PLANS").
(B) Tenant's Plans shall include all information which may be
required by Landlord's engineers in connection with mechanical plans,
including but not limited to the following:
(1) Any special floor loading conditions which
may exceed the structural weights limits of any floor;
(2) Specifications of any heat emanating
equipment to be installed by Tenant which may require special
air conditioning;
(3) Telephone specifications and electrical
specifications of any equipment that requires additional
electrical power or outlets;
(4) Complete specifications of any dataline wiring
required, including routing, conduit size, cable type and
similar items.
<PAGE>
(5) Furniture plans (including locations of
files) showing details of space occupancy;
(6) Reflected ceiling plans;
(7) Partition and door location plans;
(8) Fire safety plans;
(9) Detail and finish plans and schedules,
together with specifications for any "TENANT'S WORK" (as
hereinafter defined) to be performed in the Premises; and
(10) Plans for any stairwell to be constructed in
the Premises.
(C) Tenant's Plans are expressly subject to Landlord's
prior written approval. Landlord shall, within ten (10) business days
after submission of any of Tenant's Plans, either (i) approve Tenant's
Plans as submitted, or (ii) advise Tenant of the changes required in
Tenant's Plans in order to meet Landlord's requirements. If Landlord
does not respond to Tenant within said ten (10) business day period,
then Tenant's Plans shall be deemed approved as submitted. Neither
review nor approval by Landlord of any of Tenant's Plans shall
constitute a representation or warranty by Landlord that Tenant's Plans
are complete or suitable for their intended purpose, or comply with
applicable laws, ordinances, codes and regulations, it being expressly
agreed by Tenant that Landlord assumes no responsibility or liability
to Tenant or to any other person or entity for such completeness,
suitability or compliance.
(D) Tenant shall make no material changes in Tenant's Plans
after approval thereof by Landlord without the prior written consent of
Landlord.
(E) Tenant's preliminary space plans have been delivered to
Landlord. Tenant's final mechanical and engineering plans and
specifications, and final architectural plans shall be delivered to
Landlord on or before four (4) weeks after the date of the Lease.
Revised plans incorporating any changes requested by Landlord shall be
resubmitted to Landlord within ten (10) business days after notice of
disapproval is delivered to Tenant.
(F) All requests by Tenant for reimbursement of expenses as
provided in this Workletter shall be paid: (i) by Landlord within
thirty (30) days after
-2-
<PAGE>
Landlord's receipt of such written request, accompanied by invoices or
other appropriate documentation reasonably satisfactory to Landlord
which evidences the actual charges incurred by Tenant pursuant to
subparagraph (E) above; or (ii) in accordance with the construction
escrow agreement in the form attached hereto as Schedule A, if
applicable. All costs in excess of the maximum reimbursements specified
herein or in the Lease shall be paid by Tenant.
2. THE WORK. Upon receipt and approval by Landlord of all of
Tenant's Plans, Landlord shall cause the Premises to be improved in
accordance with Tenant's Plans. The improvement of the Premises in
accordance with Tenant's Plans is sometimes referred to herein as the
"WORK". Upon approval by Landlord of Tenant's Plans, Landlord shall
cause Tenant's Plans to be filed with the governmental agencies having
jurisdiction thereof in order to obtain all governmental permits and
authorizations which may be required in connection with the Work to be
done.
3. ACCEPTANCE OF WORK. Landlord shall give Tenant or shall cause
Landlord's architect or interior space planner to give Tenant written
notice (the "COMPLETION NOTICE") of the date on which (i) the Work
shall be "SUBSTANTIALLY COMPLETED" in accordance with Tenant's Plans
(the "SUBSTANTIAL COMPLETION DATE"), and (ii) the Premises shall be
"READY FOR OCCUPANCY." Tenant shall then have the obligation, within
three (3) business days after Landlord's delivery of the Completion
Notice, to prepare a punchlist (to be signed by both Landlord and
Tenant) of all items to be completed and/or corrected (the "PUNCHLIST
ITEMS") based on Tenant's inspection of the Premises with Landlord or
Landlord's representative(s) within such three (3) business day period.
Any items not listed or described on such punchlist shall be deemed
accepted by Tenant. Subject to any "EXCUSED DELAY", Landlord shall
correct the Punchlist Items within a reasonable period of time after
the Substantial Completion Date; provided, however, in no event shall
such period exceed sixty (60) days. The determination by Landlord's
architect or interior space planner that the Work has been
substantially completed shall be final, conclusive and binding on
Tenant as to whether the Premises are substantially complete in
accordance with Tenant's Plans and Ready for Occupancy. Substantial
completion of the Work shall mean the completion of the Work in a good
and workmanlike manner and substantially in accordance with Tenant's
Plans, as the same may be amended from time to time, with the exception
of minor or insubstantial details of construction, mechanical
adjustment or decoration, the incompletion of which will not
unreasonably interfere with the normal use or occupancy of the Premises
by Tenant.
4. LANDLORD'S CONTRIBUTION. Landlord shall contribute the sum of
$158,790.00 (based on $30.00 per rentable square foot of Rentable Area
in the
-3-
<PAGE>
Premises) (the "CONTRIBUTION") toward the "COST OF THE WORK" (as
hereinafter defined). As used herein, "COST OF THE WORK" shall mean the
costs of all labor and materials for improvements to the Premises in
accordance with Tenant's Plans, the preparation of Tenant's Plans,
general contractor's fees, costs of built-in furniture, costs of
separately metering electricity to the Premises and costs for the
purchase, delivery and installation of any other item which, when
installed in the Premises, shall be deemed a fixture or a permanent
improvement to the Premises. No supervisory fees shall be payable to
Landlord in connection with the Work. In the event the Cost of the Work
is for an amount in excess of the Contribution, or, as a result of
approved change orders, becomes in excess of the Contribution, or if
the Cost of the Work is or becomes in excess of the Contribution, then
Tenant shall deposit the amount of such excess into the construction
escrow (if applicable). In no event shall Landlord have any liability
or responsibility for any Cost of the Work in excess of the
Contribution. At Landlord's election, the Contribution shall, within
fourteen (14) days after the execution of the Lease, be placed into the
construction escrow (if applicable) which shall provide for payments
from the escrowee to the general contractor upon the deposit into
escrow of customary contractors' affidavits, lien waivers and
architects' affidavits in accordance with the provisions of the
construction escrow agreement (if applicable) attached hereto as
Schedule A. The cost of any such escrow shall be included in the Cost
of the Work.
5. ACCESS BY TENANT PRIOR TO COMPLETION OF WORK. If Tenant
desires to do any construction, decorating or finish work in the Premises in
addition to the Work ("TENANT'S WORK"), then Tenant's Work shall comply with all
of the provisions of the Lease, including, without limitation, section 6 of the
Lease. Landlord will permit Tenant and Tenant's agents, suppliers, contractors
and workmen to enter the Premises to perform Tenant's Work prior to the
Commencement Date, provided that Tenant's Work does not interfere with or delay
the completion of the Work to the extent applicable. Landlord shall also provide
Tenant with access to loading docks, freight elevators, construction hoists and
electrical service prior to the Commencement Date in connection with the
completion of Tenant's Work. Scheduling of Tenant's Work in the Premises and the
use of loading docks, freight elevators and construction hoists shall be subject
to advance scheduling as reasonably determined by Landlord. Tenant's right of
entry as provided herein shall be a license only, conditioned upon Tenant fully
performing and complying with each of the following covenants, conditions and
requirements:
(A) Tenant and Tenant's agents, contractors, workmen,
mechanics, suppliers and invitees shall work in harmony and not
interfere with Landlord and Landlord's agents in the performance of the
Work or work for other tenants and occupants of the Building. If at any
time such entry shall, in the reasonable judgment of
-4-
<PAGE>
Landlord, cause or threaten to cause disharmony or interference,
Landlord shall have the right to withdraw such permission upon
twenty-four (24) hours notice to Tenant;
(B) Tenant agrees that any such entry into the Premises shall
be deemed to be under all of the terms, covenants, conditions and
provisions of the Lease, except as to the covenant to pay Rent, and
Tenant further agrees that in connection therewith Landlord shall not
be liable in any way for any injury, loss or damage (unless caused by
Landlord's gross negligence) which may occur to any of Tenant's Work
and/or to property placed in the Premises prior to the Commencement
Date and thereafter, the same being at Tenant's sole risk. Tenant shall
allow Landlord access to the Premises for inspection purposes at all
times during the period that Tenant is performing any Tenant's Work. If
Tenant or any entity performing Tenant's Work on behalf of Tenant
causes any injury to any person or any damage to the Premises, the
Building, any other property of Landlord or to any other person, then
Tenant agrees to indemnify, defend and hold Landlord harmless from and
against any loss, damage or injury suffered in connection with any such
damage or injury. Further, Tenant shall cause such damage to be
repaired at Tenant's expense, and if Tenant fails to cause such damage
to be repaired within ten (10) days after Landlord's demand therefor,
then Landlord may, in addition to any other rights or remedies
available to Landlord under this Lease or at law or in equity, cause
such damage to be repaired, in which event Tenant shall promptly upon
Landlord's demand pay to Landlord the cost of such repairs;
(C) All contractors and subcontractors performing Tenant's
Work shall use only those service corridors and service entrances
designated by Landlord for ingress and egress of personnel, and the
delivery and removal of equipment and material through or across any
common areas of the Building shall only be permitted with the written
approval of Landlord and during hours determined by Landlord. Landlord
shall have the right to order Tenant or any contractor or subcontractor
who violates these requirements to cease work in the Building and
remove its equipment and its employees from the Building. At Landlord's
option, Landlord may require Tenant to remove any work that has not
been done according to approved plans, and to restore any portion of
the Building on which Tenant has performed such nonconforming work to
its original condition;
(D) During the performance of Tenant's Work and Tenant's
fixturing, Landlord shall provide trash removal service from a location
designated by Landlord. Tenant shall be responsible for breaking down
boxes and placing trash in Landlord's containers at such designated
location. Tenant shall accumulate its
-5-
<PAGE>
trash in containers supplied by Landlord and shall not permit trash to
accumulate within the Premises or in any Building corridors or public
areas. Tenant shall perform Tenant's Work in a manner that dust or dirt
is contained entirely within the Premises, and Tenant shall cause
Tenant's contractors to leave the Premises in broom clean condition at
the end of each day. Should Landlord deem it necessary to remove
Tenant's trash because of accumulation, Tenant shall pay to Landlord an
additional charge for such removal on a time and material basis;
(E) Tenant agrees that all services and work performed on the
Premises by, on behalf of or for the account of Tenant, including
installation of telephones, carpeting, materials and personal property
delivered to the Premises, shall be done in a first-class, workmanlike
manner using only good grades of material and shall be performed only
by persons covered by a collective bargaining agreement with the
appropriate trade union; and
(F) Tenant agrees to protect, indemnify, defend and hold
Landlord and its agents, partners, contractors and employees harmless
from and against any and all losses, damages, liabilities, claims,
liens, costs and expenses (except those caused by the grossly negligent
or intentional actions of Landlord), including reasonable attorney's
fees, of whatever nature, including those to the person and property of
Tenant, its employees, agents, invitees, licensees and others arising
out of or in connection with the activities of Tenant or Tenant's
contractors in or about the Premises or the Building, and the cost of
any repairs to the Premises or the Building necessitated by activities
of Tenant or Tenant's contractors.
6. COMPLETION OF WORK. Subject to any Tenant Delay or "EXCUSED DELAY"
(as defined below), the Premises shall be Ready For Occupancy on the
Commencement Date. In the event the Premises are not Ready for Occupancy on the
Commencement Date as a result of any Tenant Delay, Rent shall commence as
scheduled on the Commencement Date. As used herein, the following terms are
defined as follows:
(A) "EXCUSED DELAY" means any delay caused by strike, lockout
or labor trouble; civil disorder; inability to procure materials,
provided that failure to order materials in a commercially reasonable
and timely manner shall not be deemed to be inability to procure such
materials; failure of power; restrictive governmental laws and
regulations not in effect on the date the Lease is executed; riots,
insurrections or war; fuel shortages; accidents; casualties; acts of
God; or any other cause beyond the reasonable control of Landlord.
-6-
<PAGE>
(B) "TENANT DELAY" means any delay (which delays the
completion of the Work beyond the Commencement Date) caused by (i)
Tenant's failure to submit Tenant's Plans, supply information or give
authorizations, approvals or responses within the time periods set
forth herein; (ii) changes, alterations or additions to the Work
required by Tenant in the improvement of the Premises; (iii) Tenant's
performance of any Tenant Work in a manner that interferes with or
delays the completion of the Work; (iv) special equipment, fixtures or
materials ordered by or requested by Tenant requiring long lead times
and not included in Tenant's Plans; or (v) any other delay or default
on the part of Tenant or its agents or contractors.
(C) The Premises shall be deemed "READY FOR OCCUPANCY" on the
date of substantial completion of the Work in a manner which will allow
Tenant to occupy the Premises for its intended use, even though
punchlist items relating to construction, decoration or mechanical
adjustments remain to be completed.
In no event shall Landlord incur any liability for failure to deliver the
Premises to Tenant on the Commencement Date if such failure is caused by any
Tenant Delay or any Excused Delay.
7. MISCELLANEOUS.
(A) Except as expressly set forth herein, Landlord has no
other agreement with Tenant to improve the Premises and has no other
obligation to do any other work or pay any amounts with respect to the
Premises. Any other work in the Premises which may be permitted by
Landlord pursuant to the terms and conditions of the Lease or this
Workletter shall be done at Tenant's sole cost and expense and in
accordance with the terms and conditions of the Lease.
(B) This Workletter shall not be deemed applicable to any
additional space added to the original Premises at any time or from
time to time, whether by any options under the Lease or otherwise, or
to any portion of the original Premises or any additions thereto if the
initial term of the Lease is renewed or extended, whether by any
options under the Lease or otherwise, unless expressly so provided in
the Lease or any amendment or supplement thereto.
(C) The failure by Tenant to pay any amount(s) due Landlord
pursuant to this Workletter within the time periods herein stated shall
be deemed a default under the terms of the Lease, for which Landlord
shall be entitled to exercise all
-7-
<PAGE>
remedies available to Landlord for nonpayment of Rent, and all late
payments shall be subject to interest and late charges as provided in
the Lease.
(D) This Workletter is being executed in conjunction with the
Lease and is subject to the limitation of Landlord's liability set
forth therein. In the event of a conflict between the Lease and this
Workletter, the terms of this Workletter shall govern.
(E) Tenant agrees that any existing improvements in the
Premises not used in construction of the Work, including but not
limited to doors, door frames, lighting, light fixtures and other
detachable improvements, shall be returned to Landlord for its use.
IN WITNESS WHEREOF, the parties hereto have executed this Workletter as
of this _____ day of September, 1999.
LANDLORD: TENANT:
DOUGLAS ELLIMAN-BEITLER MANAGEMENT HOT JOBS.COM, LTD.,
CORPORATION, as agent for 360 North a Delaware corporation
Michigan Trust, a Delaware business trust
By: By:
--------------------------- ------------------------------
Its: Its:
--------------------------- ------------------------------
-8-
<PAGE>
EXHIBIT G
CERTIFICATE OF COMMENCEMENT DATE
With respect to that certain Lease Agreement dated September ___, 1999
(the "LEASE") for the premises commonly known as Suite 1300 in the Building
located at 360 North Michigan Avenue, Chicago, Illinois, the undersigned certify
and agree that the date of the commencement of the Term of the Lease will be
_______________, 1999, and the date of expiration of the Term of the Lease will
be ______________, 2004.
Dated this _____ day of September, 1999.
LANDLORD:
360 NORTH MICHIGAN TRUST,
a Delaware business trust
By: DOUGLAS ELLIMAN-BEITLER MANAGEMENT
CORPORATION,
an Illinois corporation, its agent
By
-----------------------------
Its:
-----------------------------
TENANT:
HOTJOBS.COM, LTD.,
a Delaware corporation
By:
-----------------------------------
Its
-----------------------------------
-9
<PAGE>
EXHIBIT H
AFTER RECORDING, RETURN TO:
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
(hereinafter referred to as the "Agreement"), is dated as of September ____,
1999 by and among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, a Delaware
limited liability company, having an office at 11 Madison Avenue, New York, New
York 10010 (hereinafter referred to as "MORTGAGEE"), HOTJOBS.COM, LTD., a
Delaware corporation, having an office at 24 West 40th Street, 14th Floor, New
York, New York 10018 (hereinafter referred to as "TENANT"), and 360 NORTH
MICHIGAN TRUST, a Delaware business trust, having an office at 360 North
Michigan Avenue, Chicago, Illinois 60601 (hereinafter referred to as
"LANDLORD").
W I T N E S S E T H:
WHEREAS, Mortgagee made a loan to Landlord which is secured by a
mortgage encumbering certain real property described in EXHIBIT A attached
hereto and made a part hereof (hereinafter called the "MORTGAGED Property"),
which was executed by Landlord as of September ____, 1999 and recorded in the
Office of the Recorder of Deeds of Cook County, Illinois on _____________, 1999
as Document No. __________ (hereinafter called the "MORTGAGE");
WHEREAS, by written Lease Agreement dated September ____, 1999
(hereinafter called the "LEASE") Tenant has leased a portion of the Mortgaged
Property as more fully described in the Lease (the "PREMISES") for an initial
term commencing on the "COMMENCEMENT DATE" and ending on the "TERMINATION DATE"
(as such terms are
-10-
<PAGE>
defined in the Lease), subject to being shortened or extended on terms and
conditions specified in the Lease; and
WHEREAS, Tenant has agreed to acknowledge the subordination of the
Lease to the lien of the Mortgage and Mortgagee has agreed to grant
non-disturbance to Tenant under the Lease.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00)
paid by each party to the other, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Provided Tenant is not in default under the Lease, (a) the rights of
Tenant under the Lease shall not be affected or disturbed by Mortgagee in the
exercise of any of its rights under the Mortgage or any note secured thereby,
(b) any sale of the Mortgaged Property pursuant to the exercise of any rights
and remedies under the Mortgage or otherwise shall be made subject to Tenant's
right of possession under the Lease, and (c) Mortgagee shall not join Tenant in
any foreclosure or summary proceedings.
2. Tenant shall attorn to Mortgagee, any receiver or any other person
or entity which acquires title to the Mortgaged Property pursuant to any remedy
set forth in the Mortgage or by deed in lieu of foreclosure (any such person or
entity being hereinafter referred to as a "SUCCESSOR LANDLORD"), and the Lease
shall continue in accordance with its terms between Tenant and Mortgagee or such
Successor Landlord, except as modified by this Agreement.
3. (a)______Neither Mortgagee nor any Successor Landlord shall be (i)
liable for any act or omission of any prior landlord (including Landlord), (ii)
liable for the return of any security deposit not actually received by Successor
Landlord, (iii) subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord), (iv) bound by any advance
payment of rent or additional rent made by Tenant to Landlord except for rent or
additional rent applicable to the then current month, (v) bound by any amendment
or modification of the Lease made without the written consent of Mortgagee, or
(vi) bound to effect or pay for any construction for Tenant's occupancy.
(b)______Tenant agrees that it will not, without the prior
consent of Mortgagee, do any of the following, and any such purported action
without such consent shall be void as against Mortgagee and any Successor
Landlord: (i) modify or amend the Lease, (ii) terminate the Lease, (iii) enter
into any extensions or renewals of the lease in such a way as to reduce the
rent, accelerate rent payments, shorten the term of the Lease, or change any
renewal option, or (iv) tender or accept a surrender of the Lease or make a
prepayment in excess of one month of rent thereunder.
-11-
<PAGE>
4. The Lease and the rights of Tenant thereunder shall be subject and
subordinate to the lien of the Mortgage and to all of the terms, conditions and
provisions thereof, to all advances made or to be made thereunder, and to all
renewals, extensions, modifications and replacements thereof, including any
increases therein or supplements thereto.
5. The foregoing provisions shall be self-operative. However, Tenant agrees to
execute and deliver to Mortgagee or to any person to whom Tenant herein agrees
to attorn, such other instrument as either shall reasonably request in order to
effectuate said provisions.
6. Tenant certifies that there are no known defaults on the part of Landlord,
that the Lease is a complete statement of the agreement of the parties thereto
with respect to the letting of the Premises, that (after the release of any
escrow governing the delivery of the Lease pending receipt by Tenant of this
Agreement) the Lease is in full force and effect and that all conditions to the
effectiveness and continuing effectiveness thereof required to be satisfied at
the date hereof have been satisfied.
7. Tenant shall notify Mortgagee at the aforesaid address, by registered or
certified mail, return receipt requested, of any default of Landlord which would
entitle Tenant to cancel the Lease or abate the rent payable thereunder or
exercise any rights of "self-help", and agrees that, notwithstanding any
provision of the Lease to the contrary, no notice of cancellation thereof nor
any abatement shall be effective and no right of "self-help" shall be exercised
unless Mortgagee has received the aforesaid notice and has failed within the
period provided in the Lease for Landlord to cure such default plus an
additional thirty (30) days to cure Landlord's default or, if the default cannot
be cured within such period, has failed, within such period, to commence and to
thereafter diligently prosecute the cure of Landlord's default which gave rise
to such right of cancellation, abatement or "self-help". Notwithstanding the
foregoing, Mortgagee may, but shall not be obligated to, so cure Landlord's
default.
8. Tenant agrees that notice from Mortgagee to Tenant shall have the same effect
under the Lease as notice to Tenant from Landlord thereunder and Tenant agrees
to be bound by such notice notwithstanding the existence or nonexistence of a
default under the Mortgage or any dispute with respect thereto between Mortgagee
and the mortgagor under the Mortgage.
9. In the event that a default occurs under the terms of the Mortgage, Tenant
agrees, upon written notification from Mortgagee of said default made to Tenant,
to pay all rents then due or to become due directly to Mortgagee (which notice
Mortgagee agrees shall only be given in accordance with the terms of the
Mortgage) or until further notice is received from Mortgagee. Landlord agrees
that any such payment to
-12-
<PAGE>
Mortgagee shall satisfy pro tanto the obligations of Tenant under the Lease.
Tenant shall continue to look to Landlord for the performance of Landlord's
obligations under the Lease.
10. Any notice required or desired to be given hereunder shall be in writing and
shall be sent by certified or registered mail, return receipt requested,
addressed as follows:
<TABLE>
<S> <C>
If to Mortgagee: CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
11 Madison Avenue
New York, New York 10010
Attention: Suzette Fandino
If to Tenant: HOTJOBS.COM, LTD.
24 West 40th Street
14th Floor
New York, New York 10018
Attention: Kelly Michaelian
If to Landlord: 360 NORTH MICHIGAN TRUST
360 North Michigan Avenue
Chicago, Illinois 60601
Attention: General Manager
</TABLE>
11. Anything herein or in the Lease to the contrary notwithstanding, in the
event that Successor Landlord shall acquire title to the Mortgaged Property,
Successor Landlord shall have no obligation, nor incur any liability, beyond its
then interest, if any, in the Mortgaged Property and Tenant shall look
exclusively to such interest, if any, of Successor Landlord in the Mortgaged
Property for the payment and discharge of all obligations and liabilities
imposed upon Mortgagee hereunder or under the Lease, and Successor Landlord is
hereby released and relieved of any and all other obligations and liabilities
hereunder and under the Lease in excess of Successor Landlord's interest in the
Mortgaged Property. Tenant agrees that, with respect to any money judgment which
may be obtained or secured by Tenant against Successor Landlord, Tenant shall
look solely to the estate or interest owned by Successor Landlord in the
Mortgaged Property, and
-13-
<PAGE>
Tenant will not collect or attempt to collect any such judgment out of any other
assets of Successor Landlord.
12. This Agreement shall inure to the benefit of and be binding upon Tenant and
any successor or assignee of Tenant which pursuant to the provisions of the
Lease is entitled to succeed to Tenant's interest therein. This Agreement shall
inure to the benefit of and be binding upon Mortgagee and its successors and
assigns, including any purchaser of the Mortgaged Property at a foreclosure sale
and the Landlord and its successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
MORTGAGEE:
CREDIT SUISSE FIRST BOSTON
MORTGAGE CAPITAL LLC
By:
---------------------------------
Name:
----------------------------
Title:
----------------------------
TENANT:
HOTJOBS.COM, LTD.
By:
---------------------------------
Name:
----------------------------
Title:
----------------------------
LANDLORD:
-14-
<PAGE>
360 NORTH MICHIGAN TRUST, a
Delaware business trust
By:
---------------------------------
Name:
----------------------------
Title:
----------------------------
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On the ____ day of September in the year 1999 before me, the
undersigned, a notary public in and for said state, personally appeared
___________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
------------------------------
Notary Public
My Commission Expires:
----------------
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
On the ____ day of September in the year 1999 before me, the
undersigned, a notary public in and for said state, personally appeared
___________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
------------------------------
Notary Public
My Commission Expires:
----------------
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On the ____ day of September in the year 1999 before me, the
undersigned, a notary public in and for said state, personally appeared
___________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
------------------------------
Notary Public
My Commission Expires:
----------------
<PAGE>
EXHIBIT 23.1
The Board of Directors
HotJobs.com, Ltd.
The audits referred to in our report dated March 15, 1999, except for
notes 2(a), 6 and 11 which are as of June 18, 1999, included the related
financial statement schedule for the period from February 20, 1997 (inception)
to December 31, 1997 and the year ended December 31, 1998, included in the
registration statement. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
October 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 9,181,291 167,004
<SECURITIES> 0 0
<RECEIVABLES> 3,598,412 1,638,297
<ALLOWANCES> (318,365) (85,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,666,599 2,762,976
<PP&E> 2,152,425 697,597
<DEPRECIATION> (337,349) (107,904)
<TOTAL-ASSETS> 15,703,185 3,653,954
<CURRENT-LIABILITIES> 7,111,857 6,457,051
<BONDS> 0 0
566,129 0
0 0
<COMMON> 196,200 208,200
<OTHER-SE> 7,509,444 (3,091,296)
<TOTAL-LIABILITY-AND-EQUITY> 15,703,185 3,653,954
<SALES> 0 0
<TOTAL-REVENUES> 6,433,814 3,512,478
<CGS> 0 0
<TOTAL-COSTS> 11,494,851 5,706,734
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 85,000
<INTEREST-EXPENSE> 55,273 63,058
<INCOME-PRETAX> (5,116,310) (2,257,314)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,116,310) (2,257,314)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,116,310) (2,257,314)
<EPS-BASIC> (0.28) (0.11)
<EPS-DILUTED> (0.28) (0.11)
</TABLE>
