<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 333-12471
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TMP WORLDWIDE INC.*
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7311 13-3906555
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------------------
1633 BROADWAY
33RD FLOOR
NEW YORK, NEW YORK 10019
(212) 977-4200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
ANDREW J. MCKELVEY
CHAIRMAN OF THE BOARD
AND PRESIDENT
TMP WORLDWIDE INC.
1633 BROADWAY
33RD FLOOR
NEW YORK, NEW YORK 10019
(212) 977-4200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
PAUL JACOBS, ESQ. J.J. MCCARTHY, JR., ESQ.
FULBRIGHT & JAWORSKI L.L.P. DAVIS POLK & WARDWELL
666 FIFTH AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10103 NEW YORK, NEW YORK 10017
(212) 318-3000 (212) 450-4000
</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 (the "Securities Act"), 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, please 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 offering. / /________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT OF SHARES MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, .001 par value per
share................................ 5,520,000 $15.50 $85,560,000 $29,503.49(3)
</TABLE>
(1) Includes 720,000 shares which the U.S. Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act.
(3) The registration fee has previously been paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
*The registrant's current name is Telephone Marketing Programs Incorporated. The
registrant will change its name to TMP Worldwide Inc. prior to the
effectiveness of this registration statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of 3,840,000 shares of Common Stock (the "U.S. Offering"). The second
prospectus relates to a concurrent offering outside the United States and Canada
of an aggregate of 960,000 shares of Common Stock (the "International
Offering"). The prospectuses for each of the U.S. Offering and the International
Offering will be identical with the exception of the alternate front cover page
for the International Offering. Such alternate page appears in the Registration
Statement immediately following the complete prospectus for the U.S. Offering.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER 20, 1996
4,800,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,840,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 960,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS."
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 4,147,437 SHARES ARE
BEING OFFERED BY TMP WORLDWIDE INC. ("TMP" OR THE "COMPANY") AND 652,563
SHARES ARE BEING OFFERED BY CERTAIN STOCKHOLDERS OF THE COMPANY (THE
"SELLING STOCKHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE COMMON STOCK BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $13.50 AND $15.50 PER
SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TMPW," SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE.
------------------------
AFTER GIVING EFFECT TO THIS OFFERING (ASSUMING THE OVER-ALLOTMENT OPTION IS NOT
EXERCISED), THE COMPANY WILL HAVE OUTSTANDING 8,602,492 SHARES OF COMMON STOCK
WITH ONE VOTE PER SHARE (REPRESENTING 5.5% OF THE COMBINED VOTING POWER
OF THE COMPANY) AND 14,787,541 SHARES OF CLASS B COMMON STOCK WITH TEN
VOTES PER SHARE (REPRESENTING 94.5% OF THE COMBINED VOTING POWER OF
THE COMPANY). CLASS B COMMON STOCK IS CONVERTIBLE, ON A
SHARE-FOR-SHARE BASIS, INTO COMMON STOCK. OTHER THAN VOTING
AND CONVERSION RIGHTS, THE TERMS OF THE COMMON STOCK AND
CLASS B COMMON STOCK ARE SUBSTANTIALLY SIMILAR.
SEE "DESCRIPTION OF CAPITAL STOCK."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
PRICE $ A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE..................... $ $ $ $
TOTAL(3)...................... $ $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED AT $1,800,000.
(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 720,000
ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY
WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREOF IN
SAME DAY FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
, 1996
<PAGE>
[Photo Page]
2
<PAGE>
The contents of the Company's Web Sites and other Web Sites referred to
herein are not part of this Prospectus.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, any Selling Stockholder or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of the Prospectus nor
any sale made hereby shall under any circumstance imply that the information
herein is correct as of any date subsequent to the date hereof.
No action has been or will be taken in any jurisdiction by the Company, any
Selling Stockholder or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the United
States. Persons into whose possession this Prospectus comes are required by the
Company, the Selling Stockholders and the Underwriters to inform themselves
about, and to observe any restrictions as to, the offering of the Common Stock
and the distribution of this Prospectus.
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IN THIS PROSPECTUS, REFERENCES TO "DOLLAR" AND "$" ARE TO UNITED STATES
DOLLARS, EXCEPT WHERE OTHERWISE INDICATED, AND THE TERMS "UNITED STATES" AND
"U.S." MEAN THE UNITED STATES OF AMERICA, ITS STATES, ITS TERRITORIES, ITS
POSSESSIONS, AND ALL AREAS SUBJECT TO ITS JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 11
Use of Proceeds................................ 17
Dividend Policy................................ 17
Dilution....................................... 18
Capitalization................................. 20
Selected Consolidated Financial Information.... 21
Pro Forma Condensed Consolidated Financial
Information.................................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 29
Business....................................... 41
<CAPTION>
PAGE
-----
<S> <C>
Management..................................... 55
Certain Transactions........................... 60
Principal and Selling Stockholders............. 63
Description of Capital Stock................... 65
Certain United States Federal Tax Consequences
to Non-United States Holders of Common
Stock........................................ 69
Shares Eligible for Future Sale................ 72
Underwriters................................... 73
Legal Matters.................................. 76
Experts........................................ 76
Additional Information......................... 77
Index to Financial Statements.................. F-1
</TABLE>
------------------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
The Company has registered the following trademark: "The Monster
Board-Registered Trademark-". This Prospectus also includes product names and
other trade names and trademarks of the Company and of other organizations.
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY WILL BE THE SUCCESSOR TO THE BUSINESSES CONDUCTED BY TMP
WORLDWIDE INC. AND SUBSIDIARIES ("OLD TMP"), WORLDWIDE CLASSIFIED INC. AND
SUBSIDIARIES ("WCI") AND MCKELVEY ENTERPRISES, INC. AND SUBSIDIARIES, THE CHIEF
EXECUTIVE OFFICER OF WHICH IS ANDREW J. MCKELVEY (THE "PRINCIPAL STOCKHOLDER").
IMMEDIATELY PRIOR TO THE EFFECTIVENESS OF THIS OFFERING, OLD TMP WILL MERGE INTO
MCKELVEY ENTERPRISES, INC. THEREAFTER, WCI WILL MERGE INTO MCKELVEY ENTERPRISES,
INC. MCKELVEY ENTERPRISES, INC. WILL THEN MERGE INTO TELEPHONE MARKETING
PROGRAMS INCORPORATED. SUCH MERGERS ARE COLLECTIVELY REFERRED TO AS THE
"MERGERS." IN ADDITION, PRIOR TO THIS OFFERING, MR. MCKELVEY SOLD OR CONTRIBUTED
HIS INTEREST IN FIVE OTHER ENTITIES TO THE COMPANY. PURSUANT TO THE MERGERS,
TELEPHONE MARKETING PROGRAMS INCORPORATED WILL CHANGE ITS NAME TO TMP WORLDWIDE
INC. ALL HISTORICAL FINANCIAL DATA CONTAINED HEREIN REFLECTS THE HISTORICAL
FINANCIAL DATA OF OLD TMP, WCI, MCKELVEY ENTERPRISES, INC. AND THE OTHER
ENTITIES.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (A) ASSUMES THAT THE U.S. UNDERWRITERS'
OVER-ALLOTMENT OPTION TO PURCHASE FROM THE COMPANY UP TO 720,000 ADDITIONAL
SHARES OF COMMON STOCK WILL NOT BE EXERCISED, (B) IS ADJUSTED TO REFLECT SHARES
OF THE COMPANY TO BE ISSUED IN CONNECTION WITH THE MERGERS AND (C) ASSUMES THE
MERGERS HAVE BEEN CONSUMMATED. AS USED IN THIS PROSPECTUS, "GROSS BILLINGS"
REFER TO BILLINGS FOR ADVERTISING PLACED IN TELEPHONE DIRECTORIES, NEWSPAPERS,
NEW MEDIA AND OTHER MEDIA, AND ASSOCIATED FEES FOR RELATED SERVICES. WHILE GROSS
BILLINGS ARE NOT INCLUDED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS,
THE TRENDS IN GROSS BILLINGS DIRECTLY IMPACT THE COMMISSIONS AND FEES EARNED BY
THE COMPANY. THE COMPANY, WHICH OPERATES IN ONE BUSINESS SEGMENT, EARNS
COMMISSIONS BASED ON A PERCENTAGE OF THE MEDIA ADVERTISING PURCHASED AT A RATE
ESTABLISHED BY THE RELATED PUBLISHER, AND ASSOCIATED FEES FOR RELATED SERVICES.
IN ADDITION, THE COMPANY EARNS FEES FOR THE PLACEMENT OF ADVERTISEMENTS ON THE
INTERNET, INCLUDING ITS CAREER WEB SITES. GROSS BILLINGS WITH RESPECT TO
COMPANIES ACQUIRED BY THE COMPANY REFER TO THE COMPANY'S ESTIMATE OF THE
ACQUIRED COMPANIES' ANNUAL GROSS BILLINGS. EARNINGS BEFORE INTEREST, INCOME
TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") IS PRESENTED TO PROVIDE
ADDITIONAL INFORMATION ABOUT THE COMPANY'S ABILITY TO MEET ITS FUTURE DEBT
SERVICE, CAPITAL EXPENDITURES AND WORKING CAPITAL REQUIREMENTS AND IS ONE OF THE
MEASURES WHICH DETERMINES THE COMPANY'S ABILITY TO BORROW UNDER ITS CREDIT
FACILITY. EBITDA SHOULD NOT BE CONSIDERED IN ISOLATION OR AS A SUBSTITUTE FOR
OPERATING INCOME, CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER INCOME OR CASH
FLOW STATEMENT DATA PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES OR AS A MEASURE OF THE COMPANY'S PROFITABILITY OR LIQUIDITY.
THE COMPANY
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications and technology company that provides comprehensive, individually
tailored advertising services including development of creative content, media
planning, production and placement of corporate advertising, market research,
direct marketing and other ancillary services and products. The Company is the
world's largest yellow page advertising agency and, the Company believes, one of
the world's largest recruitment advertising agencies. In 1995, the Company began
marketing Internet-based services as extensions of its core business and has
become a growing provider of Internet content. The Company offers advertising
programs to more than 17,000 clients, including more than 70 of the Fortune 100
and more than 240 of the Fortune 500 companies. The Company's growth strategy is
to continue to actively pursue consolidation opportunities in its core
advertising business and to leverage its client base and its approximately 1,500
sales, marketing and customer service personnel to expand its Internet-based
business. Except for the acquisition of three small recruitment advertising
agencies, the Company has no current plans for any additional acquisitions. See
"Pro Forma Condensed Consolidated Financial Information." For the year ended
December 31, 1995, the Company's gross billings were $596.1 million, commissions
and fees were $123.9 million, net income was $3.2 million and EBITDA was $25.0
million.
TMP is the world's largest yellow page advertising agency, generating
approximately $425 million in gross billings for the year ended December 31,
1995. TMP believes it is one of the world's largest
4
<PAGE>
recruitment advertising agencies, generating approximately $165 million in gross
billings for the same period. With approximately 30% of the national accounts
segment of the U.S. yellow page advertising market, TMP is approximately three
times larger than its nearest competitor, based on gross billings. In the
fragmented recruitment advertising agency market, the Company believes that it
has a 7% market share in the U.S. and a 6% market share worldwide. A substantial
part of the Company's growth has been achieved through acquisitions. From
January 1, 1993 through December 31, 1995, TMP completed 26 acquisitions which
have estimated annual gross billings of $200 million. In 1996, through November
15, the Company completed ten acquisitions with estimated annual gross billings
of $180 million including the acquisition in July 1996 of Neville Jeffress
Australia Pty Limited ("Neville Jeffress"), one of the largest recruitment
advertising agencies in Australia, which has estimated annual gross billings of
$140 million. The Company believes additional acquisition opportunities exist,
particularly in the recruitment advertising and Internet markets, and intends to
continue its strategy of making acquisitions which relate to its core business.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
The Company has several career hubs, including The Monster Board-Registered
Trademark-, Online Career Center-SM-, Be the Boss-SM- and MedSearch-SM-, which
collectively contain over 35,000 job listings. In 1996, the Company began
marketing its Dealer Locator service to yellow page clients. Dealer Locator
provides clients with the ability to offer World Wide Web ("Web") pages for
their local offices, franchisees or dealers. Potential customers can then access
these pages on the Internet by zip code or other key word searches.
The Company's predecessor was formed in 1967 by Andrew J. McKelvey. The
Company was incorporated in Delaware in August 1996. Its executive offices are
located at 1633 Broadway, 33rd Floor, New York, New York 10019, and its
telephone number at that location is (212) 977-4200.
YELLOW PAGE ADVERTISING. TMP develops yellow page marketing programs for
national accounts, clients which sell products or services in multiple markets.
The national segment of the yellow page advertising market was a $1.4 billion
market in the U.S. for the year ended December 31, 1995. The national yellow
page market has grown each year since 1981. During the period of 1990 through
1995, the market grew at a compound average rate of approximately 4.5%. Yellow
page advertising is a complex process involving the creation of effective
imagery and message and the development of media plans which evaluate
approximately 7,000 yellow page directories of which TMP's larger accounts
utilize over 2,000. Coordinating the placement of advertisements in this number
of directories requires an extensive effort at the local level, and TMP's sales,
marketing and customer service staff of over 1,500 people provides an important
competitive advantage in marketing and executing yellow page advertising
programs. TMP earns commissions from yellow page advertising paid by directory
publishers which result in an effective commission rate to the Company of
approximately 20% of yellow page gross billings. See "Business-- TMP's Yellow
Page Business."
TMP takes a proactive approach to yellow page advertising by undertaking
original research on the efficacy of the medium, in many cases quantifying the
effectiveness of a given advertising campaign. The Company also has a rigorous
quality assurance program designed to ensure client satisfaction. The Company
believes that this program has resulted in an increase in TMP's yellow page
client retention rate from 90% in 1991 to 96% in 1995.
RECRUITMENT ADVERTISING. For the year ended December 31, 1995, total
spending on advertisements in North America in the recruitment classified
advertisement section of newspapers was approximately $4.5 billion. While the
recruitment advertising market has historically been cyclical, during the period
of 1990 through 1995, the U.S. market grew at a compound annual growth rate of
approximately 11.5%. The Company receives commissions generally equal to 15% of
recruitment advertising gross billings. The Company also earns fees from
value-added services such as design, research and other creative and
administrative services which resulted in aggregate commissions and fees equal
to approximately 21% of recruitment advertising gross billings.
5
<PAGE>
The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classifed advertisements to the creation
of comprehensive image campaigns which "brand" a client as a quality employer.
Further, shortages of qualified employees in many industries, particularly in
the technology area, have increased the need for recruitment advertising
agencies to expand the breadth of their service offerings to effect national and
sometimes global recruitment campaigns. For these reasons, the Company believes
that over time, the proportion of overall recruitment advertising placed through
recruitment advertising agencies will grow. Given the scale of its recruitment
advertising operations and the scope of its service offerings, the Company
believes it is well positioned to participate in this market growth. See
"Business--TMP's Recruitment Advertising Business."
INTERNET SERVICES. The Company's Internet based services complement its
traditional advertising businesses. In recruitment, the Company has several
career hubs, including The Monster Board-Registered Trademark-, Online Career
Center-SM-, Be the Boss-SM- and MedSearch-SM- which provide continuously
available databases of job opportunities. Users of these hubs can search for
employment opportunities by location, type of job and other criteria. Resumes
can be sent to prospective employers electronically and submitted on-line or via
mail. Users can also access other value-added services such as discussion forums
and on-line career advice. Based on its experience with its clients, TMP
believes that only 20% to 30% of open job positions are advertised using
traditional print media and that on-line solutions, which are significantly less
expensive than traditional recruitment methods, will significantly expand the
recruitment advertising market. More than 55 of the Fortune 100 companies are
utilizing the Company's career hubs.
Dealer Locator, which is marketed to both existing and potential yellow page
accounts, allows clients to offer Web pages for local offices, dealers or
franchise locations which are linked to the client's corporate Web site. These
pages are designed to generate additional customer flow while reinforcing brand
imagery contained in other advertising programs. Dealer Locator home pages will
typically include address, directions, hours of operation and potentially other
information such as sale items. Over time, the Company intends to increase the
utility of Dealer Locator through the introduction of additional interactive
functions.
TMP believes its pre-existing relationships with yellow page and recruitment
advertising clients and its sales, marketing and customer service staff of over
1,500 people provide an important competitive advantage in pursuing the market
for Internet clients. Further, the Company believes its innovative Internet
products will provide an opportunity to enhance its ability to market both
traditional advertising and Internet services to non-TMP clients. See
"Business--TMP's Yellow Page Business--Internet Based Solutions for Yellow Page
Advertising Clients" and "--TMP's Recruitment Advertising Business--Internet
Based Solutions for Recruitment Advertising Clients."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................ 4,147,437 shares
The Selling Stockholders................... 652,563 shares
Total.................................. 4,800,000 shares
Common Stock offered for sale in:
United States offering..................... 3,840,000 shares
International offering..................... 960,000 shares
Total.................................. 4,800,000 shares
Common Stock to be outstanding after this
offering................................... 23,552,898 shares(1)
Use of proceeds.............................. Repayment of certain indebtedness and to
redeem preferred stock. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... TMPW
</TABLE>
- ------------------------
(1) Includes 162,865 shares of Common Stock pursuant to the treasury stock
method for outstanding stock options. The former stockholders of a
recruitment advertising company (the "Kidd Stockholders") acquired by the
Company in 1995 have a number of options to acquire Common Stock. The
aggregate number of shares of Common Stock into which these options are
exercisable is determined by dividing $1,195,000 by the Company's per share
initial public offering price. The number of shares indicated above assumes
a per share initial public offering price of $14.50 (the midpoint of the
range of the estimated initial public offering price) which by application
of the foregoing formula results in these options being exercisable into
82,410 shares of Common Stock and assumes that such options were exercised
upon the effectiveness of this offering. BNY Financial Corporation has a
warrant to purchase approximately 1% of the issued and outstanding shares of
Common Stock, after giving effect to this offering (228,739 shares of Common
Stock). The number of shares of Common Stock to be outstanding after this
offering assumes that 82,410 shares were issued to the Kidd Stockholders and
that BNY Financial Corporation exercised its warrant in full.
7
<PAGE>
RISK FACTORS
An investment in the Common Stock involves certain risks associated with the
Company's business including the following: (i) the uncertain acceptance of the
Internet and the Company's Internet content, (ii) the Company has grown rapidly
and there can be no assurance that the Company will continue to be able to grow
profitably or manage its growth, (iii) risks associated with acquisitions, (iv)
competition, (v) the Company's quarterly operating results have fluctuated in
the past and are expect to fluctuate in the future, (vi) the Company's business
experiences seasonality, (vii) the loss of the services of certain key
individuals could have a material adverse effect on the Company's business,
financial condition or operating results, (viii) litigation involving a former
employee, (ix) the Company has entered into certain transactions with affiliated
parties, (x) following this offering, Andrew J. McKelvey will control the
Company and will be able, among other things, to elect all of the Company's
directors and (xi) purchasers of Common Stock in this offering will experience
immediate dilution in the net tangible book value of their Common Stock from the
initial public offering price.
For a fuller discussion of these and other risk factors affecting the
Company and its business, see "Risk Factors."
AFFILIATED PARTY TRANSACTIONS
From time to time, the Company has made advances to Messrs. Andrew J.
McKelvey, David A. Hosokawa, a Vice Chairman of the Company, and Thomas G.
Collison, a Vice Chairman of the Company. As of September 30, 1996, these
advances totaled approximately $9.7 million. These advances do not bear
interest; however, after the closing of this offering, Mr. McKelvey's advances
will bear interest at the prime rate. The Company and Mr. McKelvey and certain
other of the Company's affiliates and directors have also been parties to
certain other transactions with the Company. See "Risk Factors--Affiliated Party
Transactions" and "Certain Transactions."
8
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------ ---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1991 1992(1) 1993 1994 1995 1995(2) 1995 1996 1996(2)(3)
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
STATEMENT OF OPERATIONS
DATA:
Commissions and fees..... $ 59,062 $ 59,729 $ 73,791 $ 86,165 $ 123,907 $ 161,597 $ 89,686 $ 118,870 $ 134,084
Salaries and related
costs.................. 27,799 32,093 37,747 45,758 58,329 77,837 43,230 60,910 69,088
Office and general
expenses............... 27,319 23,620 29,824 30,316 43,432 60,077 32,616 44,077 51,575
Amortization of
intangibles............ 1,688 1,800 2,471 3,264 3,237 4,303 2,284 3,173 3,709
Special
compensation(3)........ -- -- -- -- -- -- -- 672 --
Restructuring charges.... -- 14,095 1,318 -- -- -- -- -- --
Total operating
expenses............... 56,806 71,608 71,360 79,338 104,998 142,217 78,130 108,832 124,372
Operating income
(loss)................. 2,256 (11,879) 2,431 6,827 18,909 19,380 11,556 10,038 9,712
Interest expense, net.... (3,545) (3,869) (7,652) (9,178) (10,894) (8,778) (7,879) (8,600) (7,046)
Other income (expense),
net.................... (430) 180 (386) (146) 150 (3) 26 (32) (26)
Income (loss) before
provision (benefit) for
income taxes, minority
interests and equity in
earnings (losses) of
affiliates............. (1,719) (15,568) (5,607) (2,497) 8,165 10,599 3,703 1,406 2,640
Provision (benefit) for
income taxes........... 954 (5,579) (1,322) (333) 4,222 5,710 2,298 1,655 2,090
Net income (loss)
applicable to common
and Class B common
stockholders........... (2,889) (10,537) (4,836) (2,677) 3,019 4,264 715 (697) 81
Net income (loss) per
common and Class B
common share........... $(.17) $(.61) $(.27) $(.14) $.15 $.18 $.04 $.00
Weighted average number
of common, Class B
common and common
equivalent shares
outstanding............ 17,393 17,393 17,776 19,230 19,518 23,665 19,518 23,717
PRO FORMA INCOME DATA(4):
Pro forma net loss....... $ (25)
Pro forma net loss per
common and Class B
common share........... $.00
Pro forma average shares
outstanding............ 19,281
OTHER DATA:
Gross Billings:
Yellow page
advertising.......... $ 293,188 $ 299,089 $ 336,714 $ 363,656 $ 429,176 $ 429,176 $ 331,694 $ 351,589 $ 351,589
Recruitment
advertising.......... -- -- 8,338 54,872 166,508 393,105 121,465 216,826 305,003
Internet(5)............ -- -- -- -- 392 788 -- 4,413 4,413
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Total Gross Billings..... $ 293,188 $ 299,089 $ 345,052 $ 418,528 $ 596,076 $ 823,069 $ 453,159 $ 572,828 $ 661,005
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Total operating expenses
as a percentage of
commissions and fees... 96.2% 119.9% 96.7% 92.1% 84.7% 88.0% 87.1% 91.6% 92.8%
Number of employees...... 825 870 970 1,200 1,400 1,800 1,400 2,000 2,000
Number of offices........ 30 30 30 40 50 65 50 65 70
</TABLE>
9
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
PRO FORMA
AS ADJUSTED
ACTUAL (2)(3)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $ 225,480 $ 230,884
Current liabilities................................................... 248,399 251,906
Total assets.......................................................... 335,447 351,245
Long-term liabilities................................................. 102,809 64,837
Minority interests.................................................... 3,214 239
Redeemable preferred stock............................................ 2,000 --
Redeemable common stock(6)............................................ 2,899 --
Total stockholders' equity (deficit).................................. (23,874) 34,263
</TABLE>
- ------------------------
(1) Operating results for the year ended December 31, 1992 include a
non-recurring charge of approximately $14.1 million principally related to
the write-off of development costs of a computerized data base system.
Excluding this charge, operating income, net loss (net of the related tax
effect of $5.6 million) and operating expenses as a percentage of
commissions and fees would have been $2.2 million, $(1.9 million) and 96.3%.
(2) The pro forma as adjusted financial information gives effect to (i) the
acquisitions that are described in the "Pro Forma Condensed Consolidated
Financial Information" (collectively, the "Acquisitions"), (ii) borrowings
under the Company's financing agreement to finance the Acquisitions, as if
these transactions had occurred on January 1, 1995 for purposes of the
statement of operations data and as if they had occurred on September 30,
1996 with respect to the balance sheet data, (iii) the sale of 4,147,437
shares of Common Stock by the Company hereby at an assumed initial public
offering price of $14.50 per share (the midpoint of the range of the
estimated initial public offering price) and the application of the
estimated net proceeds therefrom, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company to
repay debt (including debt used to finance the Acquisitions) as if the
offering had occurred on January 1, 1995 for purposes of the statement of
operations data, and as if this offering had occurred on September 30, 1996
with respect to the balance sheet data, and (iv) goodwill in the amount of
approximately $2 million and amortization thereon resulting from the
issuance of 271,278 shares of Common Stock of the Company, in connection
with the Mergers, to the Old TMP stockholders who had been previously issued
shares of Old TMP in exchange for their minority interests in certain
operating subsidiaries in which they were original owners and, accordingly,
were considered to have made a substantive investment, and is based on an
assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price), less $2,178
previously recorded on issuance of their Old TMP shares. See "Use of
Proceeds," "Capitalization" and "Pro Forma Condensed Consolidated Financial
Information."
(3) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares. This compensation has been
eliminated in the pro forma as adjusted financial information. The pro forma
as adjusted financial information does not reflect anticipated charges to
fourth quarter 1996 earnings, the quarter in which this offering is expected
to be completed for (i) special management compensation in the amount of
approximately $52 million resulting from the issuance of 3,584,790 shares of
Common Stock of the Company, in connection with the Mergers, to the Old TMP,
WCI and MEI subsidiary stockholders in exchange for their shares in those
companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the
Principal Stockholder and, accordingly, were not considered to have made
substantive investments for their minority shares, and is based on an
assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price) and (ii)
additional interest expense of approximately $2.7 million upon the exercise
of a warrant, issued in connection with the Company's financing agreement,
to reflect the difference between the value of the stock issued at the
assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price) and the valuation
recorded for the warrant when it was originally issued. The statement of
operations for the fourth quarter of 1996 will also include a pro forma
presentation for net income and earnings per share to exclude such
non-recurring charges.
(4) Reflects the pro forma elimination of special compensation in the amount of
$672 incurred during the nine months ended September 30, 1996.
(5) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(6) Upon the consummation of this offering, the put option related to certain
shares of Common Stock will be eliminated and such Common Stock will be
reclassified to stockholders' equity.
10
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE INFORMATION SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO (I) FUTURE GROSS BILLINGS LEVELS,
(II) FUTURE PERFORMANCE OF THE COMPANY'S INTERNET BUSINESS AND (III) FUTURE
PRODUCT OFFERINGS BY THE COMPANY. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
UNCERTAIN ACCEPTANCE OF THE INTERNET
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company's clients have only limited experience with the
Internet as an advertising medium and such clients have not devoted a
significant portion of their advertising budgets to Internet-based advertising
in the past. In addition, a significant portion of the Company's potential
clients have no experience with the Internet as an advertising medium and have
not devoted any portion of their advertising budgets to Internet-based
advertising in the past. Further, the recently enacted Communications Decency
Act could slow the growth of the Internet and decrease the acceptance of the
Internet as an advertising medium. There can be no assurance that advertisers
will be persuaded to allocate or continue to allocate portions of their budgets
to Internet-based advertising. If Internet-based advertising is not widely
accepted by advertisers and advertising agencies, the Company's business,
financial condition and operating results, including its expected rate of
commissions and fees growth, would be materially adversely affected. See
"Business--Government Regulation."
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT
The Company's future growth depends in part upon its ability to deliver
original and compelling services in order to attract users valuable to the
Company's advertising clients. There can be no assurance that the Company's
content will be attractive to a sufficient number of Internet users to generate
material advertising revenues. There also can be no assurance that the Company
will be able to anticipate, monitor and successfully respond to rapidly changing
consumer tastes and preferences so as to attract a sufficient number of users to
its Web sites. Internet users can freely navigate and instantly switch among a
large number of Web sites, many of which offer original content, making it
difficult for the Company to distinguish its content and attract users. In
addition, many other Web sites offer very specific, highly targeted content that
could have greater appeal than the Company's sites to particular subsets of the
Company's target audience.
UNCERTAIN ABILITY TO MANAGE GROWTH
The Company's business has grown rapidly in recent periods. The growth of
the Company's business has placed a significant strain on the Company's
management and operations. The Company's expansion has resulted, and is expected
in the future to result, in substantial growth in the number of its employees
and in increased responsibility for both existing and new management personnel
and strain on the Company's existing operations, financial and management
information systems. The Company's success depends to a significant extent on
the ability of its executive officers and other members of senior management to
operate effectively both independently and as a group. If the Company is not
able to manage existing or anticipated growth, the Company's business, financial
condition and operating results would be materially adversely affected. See
"Management--Executive Officers and Directors."
11
<PAGE>
RISKS ASSOCIATED WITH ACQUISITIONS
The Company expects that it will continue to grow, in part, by acquiring
businesses. The success of this strategy depends upon several factors including
the continued availability of financing and the Company's ability to identify
and acquire businesses on a cost-effective basis, as well as its continued
ability to integrate acquired personnel, operations, products and technologies
into its organization effectively, to retain and motivate key personnel and to
retain the clients of acquired firms. There can be no assurance that financing
will be available on terms acceptable to the Company, or that the Company will
be able to identify or consummate new acquisitions, or manage its recent or
future expansions successfully, and any inability to do so would have a material
adverse effect on the Company's business, financial condition and operating
results. There also can be no assurance that the Company will be able to sustain
the rates of growth that it has experienced in the past.
LITIGATION
In November 1996, an action was commenced in the Supreme Court of the State
of New York against Old TMP, WCI and Andrew J. McKelvey by a former employee.
The complaint alleges, among other things, that the defendants breached
purported contractual obligations pursuant to which the former employee was
entitled to a 40% ownership interest in the Company's recruitment advertising
business, and breached fiduciary obligations to the former employee arising out
of the deprivation of his supposed 40% interest. The former employee seeks
damages in an unspecified amount and punitive damages in the amount of $10
million for each claim. The Company and Mr. McKelvey intend to vigorously
contest the complaint. There can be no assurance as to the outcome of the
litigation and, in the event of a decision adverse to the Company, the Company's
business, financial condition and operating results, and the Company's
stockholders, could be materially adversely affected. Mr. McKelvey has agreed to
indemnify the Company against any adverse judgment. There can be no assurance,
however, that Mr. McKelvey will have sufficient financial resources to satisfy
any indemnification claims.
UNCERTAIN VIABILITY OF TRADITIONAL MEDIA
The Company derives a substantial portion of its commissions and fees from
placing advertising in yellow page directories, constituting approximately 60%
of total commissions and fees for the nine months ended September 30, 1996. The
Company also derives a substantial portion of its commissions and fees from
designing and placing recruitment advertisements in traditional media such as
newspapers and trade publications, constituting approximately 37% of total
commissions and fees for the nine months ended September 30, 1996. There can be
no assurance that the commissions received by the Company in the future will be
equal to the commissions which it has historically received. To the extent that
new media, such as the Internet, cause yellow page directories and other forms
of traditional media to be less desirable forms of advertising media without at
least a proportionate fee increase generated from advertising on the Internet,
of which there can be no assurance, the Company's business, financial condition
and operating results will be materially adversely affected.
COMPETITION; LOW BARRIERS TO ENTRY
The markets for the Company's services are highly competitive and are
characterized by pressures to reduce prices, incorporate new capabilities and
technologies and accelerate job completion schedules.
The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, specialized and integrated
marketing communication firms and traditional media companies. In addition, with
respect to new media, many advertising agencies and publications have started to
either internally develop or acquire new media capabilities. Some established
companies that provide integrated specialized services (such as advertising
services or Web site design) and are technologically proficient, especially in
the new media arena, are also competing with the Company. Many of the Company's
competitors or potential competitors have long operating histories, and some may
have greater financial, management, technological development, sales, marketing
and other resources than the
12
<PAGE>
Company. In addition, the Company's ability to maintain its existing clients and
generate new clients depends to a significant degree on the quality of its
services and its reputation among its clients and potential clients.
Although the Company believes that there are defensible barriers to entry
into its businesses, the Company has no significant proprietary technology that
would preclude or inhibit competitors from entering yellow page, recruitment or
on-line advertising markets. There can be no assurance that existing or future
competitors will not develop or offer services and products that provide
significant performance, price, creative or other advantages over those offered
by the Company, which could have a material adverse effect on the Company's
business, financial condition and operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY OF BUSINESS
The Company's quarterly operating results have fluctuated in the past and
may fluctuate in the future as a result of a variety of factors, including the
timing of acquisitions, the timing of yellow page directory closings, the
largest number of which currently occur in the third quarter, and the receipt of
commissions earned from yellow page publishers for achieving a specified volume
of advertising, which commissions are typically reported in the fourth quarter.
In addition, in the fourth quarter of fiscal 1996, the quarter in which this
offering is expected to be completed, there will be: (i) a non-recurring charge
of approximately $52 million for special management compensation resulting from
the issuance of 3,584,790 shares of Common Stock of the Company, in connection
with the Mergers, to the Old TMP, WCI and MEI subsidiary stockholders in
exchange for their shares in those companies which they had received for nominal
or no consideration, as employees or as management of businesses financed
substantially by the Principal Stockholder and, accordingly, were not considered
to have made substantive investments for their minority shares, and is based on
an assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price), and (ii) additional
interest expense of approximately $2.7 million upon the exercise of a warrant,
issued in connection with the Company's financing agreement, to reflect the
difference between the value of the stock issued at the assumed initial public
offering price of $14.50 per share (the midpoint of the range of the estimated
initial public offering price) and the valuation recorded for the warrant when
it was originally issued. The statement of operations for such quarter will also
include a pro forma presentation for net income and earnings per share to
exclude such non-recurring charges. The Company also experiences some
seasonality in its business. The Company's commissions and fees from recruitment
advertising are also subject to fluctuation based upon general economic
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results."
RISKS OF TECHNOLOGICAL CHANGE
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that the Company continually improve the
performance, features and reliability of its Internet content, particularly in
response to competitive offerings. There can be no assurance that the Company
will be successful in responding quickly, cost effectively and sufficiently to
these developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web sites and services and could affect the Company's
financial condition or operating results. In addition, new Internet services or
enhancements which are or may be offered by the Company may contain design flaws
or other defects that could require costly modifications or result in a loss of
client confidence, either of which could have a material adverse effect on the
Company's business, financial condition or operating results.
13
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend to a significant extent upon its
senior management, including Andrew J. McKelvey, the Company's Chairman of the
Board and President. The loss of the services of one or more key employees could
have a material adverse effect on the Company's business, financial condition or
operating results. In addition, if one or more key employees join a competitor
or form a competing company, the resulting loss of existing or potential clients
could have a material adverse effect of the Company's business, financial
condition or operating results. In the event of the loss of any such employee,
there can be no assurance that the Company would be able to prevent the
unauthorized disclosure or use of its procedures, practices, new product
development or client lists.
CONTROL BY PRINCIPAL STOCKHOLDER
Following completion of this offering, Andrew J. McKelvey will beneficially
own all of the outstanding Class B Common Stock, which will represent 94.5% of
the combined voting power of all classes of voting stock of the Company. As a
result, Mr. McKelvey will be able to direct the election of all of the members
of the Company's Board of Directors and exercise a controlling influence over
the business and affairs of the Company, including any determinations with
respect to mergers or other business combinations involving the Company, the
acquisition or disposition of assets of the Company, the incurrence of
indebtedness by the Company, the issuance of any additional Common Stock or
other equity securities and the payment of dividends with respect to the Common
Stock. Similarly, Mr. McKelvey will have the power to determine matters
submitted to a vote of the Company's stockholders without the consent of the
Company's other stockholders and will have the power to prevent a change of
control of the Company.
INDEBTEDNESS OF THE COMPANY
Upon consummation of this offering, the Company will have outstanding
indebtedness of approximately $74 million, including approximately $43 million
under its financing agreement with BNY Financial Corporation. In the past the
Company has violated certain financial covenants under a prior financing
agreement with BNY Financial Corporation; such violations were waived. To the
extent the Company violates its existing financial covenants and such violations
are not waived, the Company could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
AFFILIATED PARTY TRANSACTIONS
From time to time, the Company has made advances to Messrs. McKelvey, David
A. Hosokawa, a Vice Chairman of the Company, and Thomas G. Collison, a Vice
Chairman of the Company. As of September 30, 1996, these advances totaled
approximately $9.7 million. To the extent that these advances are not repaid,
the Company could be materially adversely affected. These advances do not bear
interest; however, after the closing of this offering, Mr. McKelvey's advances
will bear interest at the prime rate. In addition, these advances are unsecured
and the Company bears the risk of repayment. The Company and Mr. McKelvey and
certain other of the Company's affiliates and directors have also been parties
to certain other transactions with the Company. See "Certain Transactions."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 800,000 shares of undesignated preferred stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting and conversion rights of such shares, without any further vote
or action by the Company's stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. The
Company has no current plans to issue shares of preferred stock following this
offering. Further, certain provisions of the Company's
14
<PAGE>
Certificate of Incorporation and Bylaws and of Delaware law could delay, prevent
or make more difficult a merger, tender offer or proxy contest involving the
Company. Among other things, these provisions specify advance notice
requirements for stockholder proposals and director nominations. In addition,
upon consummation of this offering, Mr. McKelvey will control 94.5% of the
combined voting power of all classes of voting stock of the Company. See
"--Control by Principal Stockholder" and "Description of Capital Stock."
FOREIGN OPERATIONS AND RELATED RISKS
The Company conducts operations in various foreign countries, including
Australia, Canada and the United Kingdom. The Company receives commissions and
fees in local currency and, consequently, the Company is at risk for exchange
rate fluctuations between such local currencies and the dollar. The Company does
not conduct any significant hedging activities. The Company is also subject to
taxation in foreign jurisdictions. In addition, transactions between the Company
and its foreign subsidiaries may be subject to U.S. and foreign withholding
taxes. Applicable tax rates in foreign jurisdictions differ from those of the
U.S., and are subject to periodic change. The extent, if any, to which the
Company will receive credit in the U.S. for taxes paid in foreign jurisdictions
will depend upon the application of limitations set forth in the Internal
Revenue Code, as well as the provisions of any tax treaties which may exist
between the U.S. and such foreign jurisdictions.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market in the Common
Stock will develop or continue after this offering. The initial public offering
price will be determined through negotiations among the Company, the Selling
Stockholders and the Representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after this offering. See
"Underwriters."
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Factors such as announcements by the Company of variations
in its quarterly financial results and fluctuations in advertising commissions
and fees, including the percentage of the Company's commissions and fees derived
from Internet-based services and products could cause the market price of the
Common Stock to fluctuate significantly. Further, due to the volatility of the
stock market generally, the price of the Common Stock could fluctuate for
reasons unrelated to the operating performance of the Company.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, the Company is subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participated in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive.
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
15
<PAGE>
As a provider of Internet content, the Company is subject to the provisions
of the recently enacted Communications Decency Act (the "CDA"), which, among
other things, imposes criminal penalties on anyone that distributes certain
prohibited material over the Internet. Although the manner in which the CDA will
be interpreted and enforced and its effect on the Company's operations cannot
yet be fully determined, the CDA could subject the Company to substantial
liability. The CDA could also dampen the growth of the Internet generally and
decrease the acceptance of the Internet as an advertising medium, and could,
therefore, have a material adverse effect on the Company's business, financial
condition or operating results. It is also possible that new laws and
regulations will be adopted covering issues such as privacy, copyright
infringement, subject matter and the pricing, characteristics and quality of
Internet products and services. Application to the Internet of existing laws and
regulations governing issues such as property ownership, libel and personal
privacy is also subject to substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise capital
through a public offering of its equity securities. The Company, all of the
Company's executive officers and directors and certain other stockholders of the
Company, including the Selling Stockholders, have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters and subject to certain limited exceptions, they will not sell any
shares of Common Stock for a period of 180 days after the date of this
Prospectus. See "Underwriters." Following this 180 day period, approximately
14,787,541 shares of Common Stock held by Andrew J. McKelvey will be eligible
for sale in the public market without registration, subject to certain volume
and other limitations, pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Certain of the Company's stockholders have the
right to cause the Company to include their shares in any future registration of
securities effected by the Company under the Securities Act. If the Company is
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. See "Principal and Selling Stockholders" and "Shares Eligible for
Future Sale."
DILUTION
Investors in this offering will experience immediate and substantial
dilution in net tangible book value per share of their investment. See
"Dilution."
DIVIDEND POLICY
The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying dividends on its Common Stock and
Class B Common Stock in the foreseeable future. Payment of dividends on Common
Stock and Class B Common Stock is prohibited by the Company's financing
agreement. See "Dividend Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,147,437 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $14.50 per share are estimated to be $54,000,000, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of the
652,563 shares of Common Stock offered by the Selling Stockholders hereby.
TMP intends to use the net proceeds from this offering to repay a portion of
its outstanding indebtedness, which aggregated approximately $111,000,000 at
October 31, 1996. The indebtedness to be repaid and other amounts to be paid
consists of approximately: $45,000,000 of borrowings outstanding under the
Company's financing agreement; notes in the aggregate amount of $3,600,000
payable to Rogers & Associates Advertising, Inc. constituting the balance
payable to that company of the purchase price of assets of that company
(collectively, the "Rogers Note"); $3,200,000 to redeem the preferred stock of a
subsidiary, YPMS Acquisition, Inc.; and $2,200,000 to redeem the 10.5%
Cumulative Preferred Stock. See Certain Transactions" and "Description of
Capital Stock--10.5% Cumulative Preferred Stock." The Rogers Note bears interest
at 8.5% per annum. The financing agreement currently bears interest at 7.9% per
annum. The interest rate of the financing agreement is determined pursuant to a
formula whereby the interest rate is, at the Company's option, either (i) the
prime rate or 1/2% over the federal funds rate, whichever is higher, less 1% to
plus 1% as determined in the financing agreement or (ii) LIBOR plus 1 1/2% to
3 1/2% as determined under the financing agreement. The financing agreement
expires on June 27, 2001, subject to automatic renewals for 1 year periods,
thereafter. Amounts repaid under the Company's financing agreement will be
available for reborrowing under the same terms and, as a result, following this
offering the Company will have approximately $57,000,000 available for borrowing
under this facility. After this offering, the Company may borrow under this
facility to repay certain vendor financing (approximately $12,000,000 at
November 15, 1996). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for a
description of the Company's capital commitments for the year ending December
31, 1996. Pending such uses, the net proceeds will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
TMP has never declared or paid any cash dividends on its Common Stock. The
Company has paid dividends in the amount of $210,000 annually on its 10.5%
Cumulative Preferred Stock. The 10.5% Cumulative Preferred Stock will be
redeemed with a portion of the proceeds from this offering. The Company
currently anticipates that all future earnings will be retained by the Company
to support its growth strategy. Accordingly, TMP does not anticipate paying cash
dividends on the Common Stock for the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company, contractual
restrictions and general business conditions. The Company's financing agreement
prohibits the payment of dividends on common stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."
17
<PAGE>
DILUTION
The historical net tangible book deficit of the Common Stock and Class B
Common Stock at September 30, 1996 was approximately $89.8 million or $4.75 per
share of outstanding Common Stock and Class B Common Stock. Net tangible book
deficit per share represents total tangible assets of the Company less total
liabilities, Minority Interests, Redeemable Preferred Stock and Redeemable
Common Stock, divided by the number of shares of Common Stock and Class B Common
Stock outstanding plus 228,739 shares of Common Stock, issuable upon exercise of
the warrants granted to the BNY Financial Corporation and the 82,410 shares of
Common Stock, issuable upon exercise of the options issued to the Kidd
Stockholders, less the number of shares associated with the Redeemable Common
Stock. The pro forma net tangible book deficit as adjusted for the Acquisitions
was approximately $94.9 million or $5.02 per share. See "Pro Forma Condensed
Consolidated Financial Information."
After including the Redeemable Common Stock which will no longer be subject
to repurchase upon consummation of this offering and after giving effect to the
receipt of the estimated net proceeds from the Company's sale of 4,147,437
shares of Common Stock at an assumed initial public offering price of $14.50 per
share (after deducting the estimated underwriting discounts and commissions and
the estimated offering expenses payable by the Company), the adjusted pro forma
net tangible book deficit of the Company will be approximately $38.8 million, or
$1.66 per share of outstanding Common Stock and Class B Common Stock, at
September 30, 1996. This represents an immediate decrease in net pro forma
tangible book deficit of $3.36 per share to existing stockholders and an
immediate dilution of $16.16 per share to investors purchasing shares at the
assumed initial public offering price. The following table illustrates dilution
to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $ 14.50
Historical net tangible book deficit per share at September 30, 1996 before
the Acquisitions and before this offering................................ $ 4.75
Pro forma effect of the Acquisitions on historical net tangible book
deficit at September 30, 1996............................................ .27
---------
Pro forma historical net tangible book deficit at September 30, 1996,
before this offering..................................................... 5.02
Decrease in net tangible book deficit per share at September 30, 1996
attributable to new investors............................................ 3.36
---------
Adjusted net tangible book deficit per share at September 30, 1996 after
this offering............................................................ 1.66
---------
Dilution per share to new investors in this offering (1)................... $ 16.16
---------
---------
</TABLE>
(1) Goodwill in the amount of approximately $2 million resulting from the
issuance of 271,278 shares of common stock of the Company to Old TMP
stockholders who had been previously issued shares of Old TMP in exchange
for their minority interests in certain operating subsidiaries in which they
were original owners and, accordingly, were considered to have made a
substantive investment, and is based on an assumed initial public offering
price of $14.50 per share (the midpoint of the range of the estimated
initial public offering price), less $2,178 previously recorded on issuance
of these shares, is offset by a corresponding decrease in stockholders'
deficit, resulting in no effect on the pro forma net tangible book deficit.
The Company will not receive any of the proceeds from the sale of Common
Stock being offered by the Selling Stockholders hereby and, accordingly, such
proceeds will not affect the net tangible book deficit per share after this
offering.
The foregoing table assumes no exercise of outstanding employee options. At
September 30, 1996, 300,834 shares of Common Stock were subject to outstanding
options at an average exercise price of $6.65 per share. To the extent these
options are exercised and shares are issued, there will be further dilution to
new investors. See "Management--Stock Options."
18
<PAGE>
The following table sets forth at September 30, 1996 the number of shares of
Common Stock and Class B Common Stock purchased from the Company and the total
consideration and weighted average price per share paid by existing stockholders
of the Company and by new investors purchasing shares from the Company in this
offering, based upon an assumed initial public offering price of $14.50 per
share, before deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 19,242,596 82.3% $ 19,243 .03% $ .001
New public investors.............. 4,147,437 17.7 60,137,837 99.97 $ 14.50
------------ ----- ------------- ---------
Total............................. 23,390,033 100.0% $ 60,157,080 100.00%
------------ ----- ------------- ---------
------------ ----- ------------- ---------
</TABLE>
The foregoing table assumes that the 228,739 shares of Common Stock issuable
upon exercise of warrants granted to the BNY Financial Corporation and the
82,410 shares of Common Stock issuable upon exercise of the options issued to
the Kidd Stockholders were outstanding at September 30, 1996. See "Principal and
Selling Stockholders." The foregoing table assumes no exercise of outstanding
options. At September 30, 1996, 300,834 shares of Common Stock were subject to
outstanding employee options at an average exercise price of $6.65 per share. To
the extent these options are exercised and shares are issued, there will be
further dilution to new investors. See "Management--Stock Options."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, (i) on an historical basis, (ii) on a pro forma basis giving
effect to the Acquisitions and (iii) on a pro forma basis, as adjusted to give
effect to (a) the sale by the Company of the 4,147,437 shares of Common Stock
offered by the Company hereby and the application by the Company of the net
proceeds therefrom as described in "Use of Proceeds," (b) goodwill in the amount
of approximately $2 million resulting from the issuance of 271,278 shares of
common stock of the Company, in connection with the Mergers, to Old TMP
stockholders who had been previously issued shares of Old TMP in exchange for
their minority interests in certain operating subsidiaries in which they were
original owners and, accordingly, were considered to have made a substantive
investment, and is based on an assumed initial public offering price of $14.50
per share (the midpoint of the range of the estimated initial public offering
price), less $2,178 previously recorded on issuance of these shares, and (c)
reclassification to stockholders' equity of Redeemable Common Stock which, upon
completion of this offering, will no longer be subject to repurchase. The table
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and notes thereto of the Company included elsewhere in this
Prospectus and "Unaudited Consolidated Pro Forma Financial Data."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt............................ $ 11,022 $ 12,138 $ 8,973
--------- --------- -----------
--------- --------- -----------
Long-term debt, less current portion......................... $ 102,809 $ 109,908 $ 64,837
--------- --------- -----------
Minority interests(1)........................................ 3,214 3,241 239
--------- --------- -----------
Redeemable preferred stock(2)................................ 2,000 2,000 --
--------- --------- -----------
Redeemable common stock, 329,871 shares outstanding(3)....... 2,899 2,899 --
--------- --------- -----------
Stockholders' equity (deficit):
Preferred Stock, $.001 par value.
Authorized--800,000 shares; issued and
outstanding--none........................................ -- -- --
Common Stock, $.001 par value.
Authorized--200,000,000 shares; issued and
outstanding--actual 3,814,035, pro forma -- 3,814,035 and
8,602,492 pro forma as adjusted.......................... 4 4 8
Class B Common Stock, $.001 par value.
Authorized--39,000,000 shares; issued and outstanding--
14,787,541, actual, pro forma and pro forma as
adjusted................................................. 15 15 15
Additional paid-in capital................................. -- -- 58,622
Foreign currency translation adjustment.................... 266 266 266
Deficit.................................................... (24,159) (24,159) (24,648)
--------- --------- -----------
Total stockholders' equity (deficit)..................... (23,874) (23,874) 34,263
--------- --------- -----------
Total capitalization................................. $ 87,048 $ 94,174 $ 99,339
--------- --------- -----------
--------- --------- -----------
</TABLE>
(1) Includes the preferred stock of a subsidiary, YPMS Acquisition, Inc., which
the Company will redeem with a portion of the proceeds from this offering.
See "Use of Proceeds."
(2) Represents the 10.5% Cumulative Preferred Stock. The 10.5% Cumulative
Preferred Stock will be redeemed by the Company with a portion of the
proceeds from this offering. See "Use of Proceeds" and "Description of
Capital Stock -- 10.5% Cumulative Preferred Stock."
(3) The obligation to redeem these shares, based on a formula value, terminates
upon the effectiveness of this offering. These shares have been reclassified
as Common Stock in the pro forma, as adjusted column.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information with respect to
the Company's financial position as of December 31, 1994 and 1995 and its
results of operations for each of the years ended December 31, 1993, 1994 and
1995 has been derived from the audited consolidated financial statements of the
Company. The selected consolidated financial information with respect to the
Company's results of operations for the years ended December 31, 1991 and 1992
and the nine months ended September 30, 1995 and 1996 and with respect to the
Company's financial position as of December 31, 1991, 1992 and 1993 and as of
September 30, 1995 and 1996 have been derived from the unaudited consolidated
financial statements of the Company which, in the opinion of management of the
Company, have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of the information set forth therein. The results for the nine
months ended September 30, 1996 are not necessarily indicative of future
results. The selected consolidated financial information presented below should
be read in conjunction with the consolidated financial statements of the Company
and notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus. The
Other Data presented below has not been audited.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES
AND OFFICES)
1991 1992(1) 1993 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $ 59,062 $ 59,729 $ 73,791 $ 86,165 $123,907 $ 89,686
Operating expenses:
Salaries and related costs.......................................... 27,799 32,093 37,747 45,758 58,329 43,230
Office and general.................................................. 27,319 23,620 29,824 30,316 43,432 32,616
Amortization of intangibles......................................... 1,688 1,800 2,471 3,264 3,237 2,284
Special compensation(2)............................................. -- -- -- -- -- --
Restructuring charges............................................... -- 14,095 1,318 -- -- --
Total operating expenses.............................................. 56,806 71,608 71,360 79,338 104,998 78,130
Operating income (loss)............................................... 2,256 (11,879) 2,431 6,827 18,909 11,556
Other income (expense):
Interest expense, net............................................... (3,545) (3,869) (7,652) (9,178) (10,894) (7,879)
Other, net.......................................................... (430) 180 (386) (146) 150 26
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. (1,719) (15,568) (5,607) (2,497) 8,165 3,703
Provision (benefit) for income taxes................................ 954 (5,579) (1,322) (333) 4,222 2,298
Net income (loss) applicable to common and Class B common
stockholders........................................................ (2,889) (10,537) (4,836) (2,677) 3,019 715
Net income (loss) per common and Class B common share................. $(.17) $(.61) $(.27) $(.14) $.15 $.04
Weighted average number of common, Class B common and common
equivalent shares outstanding....................................... 17,393 17,393 17,776 19,230 19,518 19,518
PRO FORMA INCOME DATA(3):
Pro forma net loss....................................................
Pro forma net loss per common and Class B common share................
Pro forma average shares outstanding..................................
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $293,188 $299,089 $336,714 $363,656 $429,176 $331,694
Recruitment advertising............................................. -- -- 8,338 54,872 166,508 121,465
Internet (4)........................................................ -- -- -- -- 392 --
-------- -------- -------- -------- -------- --------
Total Gross Billings.................................................. $293,188 $299,089 $345,052 $418,528 $596,076 $453,159
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total operating expenses as a percentage of commissions and fees...... 96.2% 119.9% 96.7% 92.1% 84.7% 87.1%
Number of employees................................................... 825 870 970 1,200 1,400 1,400
Number of offices..................................................... 30 30 30 40 50 50
<CAPTION>
1996
--------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $118,870
Operating expenses:
Salaries and related costs.......................................... 60,910
Office and general.................................................. 44,077
Amortization of intangibles......................................... 3,173
Special compensation(2)............................................. 672
Restructuring charges............................................... --
Total operating expenses.............................................. 108,832
Operating income (loss)............................................... 10,038
Other income (expense):
Interest expense, net............................................... (8,600 )
Other, net.......................................................... (32 )
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. 1,406
Provision (benefit) for income taxes................................ 1,655
Net income (loss) applicable to common and Class B common
stockholders........................................................ (697 )
Net income (loss) per common and Class B common share.................
Weighted average number of common, Class B common and common
equivalent shares outstanding.......................................
PRO FORMA INCOME DATA(3):
Pro forma net loss.................................................... $ (25 )
Pro forma net loss per common and Class B common share................ $ .00
Pro forma average shares outstanding.................................. 19,281
--------
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $351,589
Recruitment advertising............................................. 216,826
Internet (4)........................................................ 4,413
--------
Total Gross Billings.................................................. $572,828
--------
--------
Total operating expenses as a percentage of commissions and fees...... 91.6%
Number of employees................................................... 2,000
Number of offices..................................................... 65
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ --------
(IN THOUSANDS)
1991 1992(1) 1993 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $ 91,503 $105,400 $122,168 $134,313 $180,516 $169,798
Current liabilities................................................... 108,524 115,224 135,033 146,124 186,247 178,801
Total assets.......................................................... 134,476 142,087 168,424 198,965 258,094 248,867
Long-term liabilities................................................. 26,255 38,112 49,694 72,008 88,070 88,219
Minority interests.................................................... 3,791 3,361 3,121 3,153 3,105 3,222
Redeemable preferred stock............................................ 2,000 2,000 2,000 2,000 2,000 2,000
Redeemable common stock(5)............................................ -- -- -- -- -- --
Total stockholders' deficit........................................... (6,094) (16,610) (21,424) (24,320) (21,328) (23,374)
<CAPTION>
1996
--------
<S> <C>
BALANCE SHEET DATA:
Current assets........................................................ $225,480
Current liabilities................................................... 248,399
Total assets.......................................................... 335,447
Long-term liabilities................................................. 102,809
Minority interests.................................................... 3,214
Redeemable preferred stock............................................ 2,000
Redeemable common stock(5)............................................ 2,899
Total stockholders' deficit........................................... (23,874 )
</TABLE>
- ------------------------
(1) Operating results for the year ended December 31, 1992, include a
non-recurring charge of approximately $14.1 million principally related to
the write-off of development costs of a computerized data base system.
Excluding this charge, operating income, net loss (net of the related tax
effect of $5.6 million) and operating expenses as a percentage of
commissions and fees would have been $2.2 million, $(1.9 million) and 96.3%,
respectively.
(2) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares. In addition, in the fourth
quarter of fiscal 1996, the quarter in which this offering is expected to be
completed, there will be (i) a non-recurring charge of approximately $52
million for special management compensation resulting from the issuance of
3,584,790 shares of Common Stock of the Company, in connection with the
Mergers, to the Old TMP, WCI and MEI subsidiary stockholders in exchange for
their shares in those companies which they had received for nominal or no
consideration, as employees or as management of businesses financed
substantially by the Principal Stockholder and, accordingly, were not
considered to have made substantive investments for their minority shares,
and is based on an assumed initial public offering price of $14.50 per share
(the midpoint of the range of the estimated initial public offering price)
and (ii) additional interest expense of approximately $2.7 million upon the
exercise of a warrant, issued in connection with the Company's financing
agreement, to reflect the difference between the value of the stock issued
at the assumed initial public offering price of $14.50 per share (the
midpoint of the range of the estimated initial public offering price) and
the valuation recorded for the warrant when it was originally issued. The
statement of operations for the fourth quarter of 1996 will also include a
pro forma presentation for net income and earnings per share to exclude such
non-recurring charges.
(3) Reflects the pro forma elimination of special compensation in the amount of
$672 incurred during the nine months ended September 30, 1996.
(4) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(5) Upon consummation of this offering, the put option related to certain shares
of Common Stock will be eliminated and such Common Stock will be
reclassified to stockholders' equity.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The Pro Forma Condensed Consolidated Financial Information reflects (A)
financial information with respect to the Company's (i) acquisitions in 1995 of
five companies for an aggregate purchase price of $8.9 million, (ii)
acquisitions in 1996, through November 15, of nine of the ten companies acquired
for an estimated aggregate purchase price of $19.2 million, and (iii) probable
acquisitions of two companies for an estimated aggregate purchase price of $5.5
million, and (B) is adjusted for the sale of 4,147,437 shares of Common Stock
offered hereby at an assumed initial public offering price of $14.50 (the
midpoint of the range of the estimated initial public offering price), and the
application of the net proceeds therefrom as described in "Use of Proceeds." The
acquisitions completed in 1995 and 1996, and those which are currently pending
(collectively, the "Acquisitions") have been and will be accounted for under the
purchase method of accounting. Acquisitions made prior to January 2, 1996, for
purposes of the 1996 Pro Forma Condensed Consolidated Statement of Operations
and the 1996 Pro Forma Condensed Consolidated Balance Sheet are reflected in the
Company's historical financial statements. The acquisitions completed in 1995
and 1996, and those which are currently pending, for which financial information
is not reflected in the "Pro Forma Condensed Consolidated Financial Information"
are not material either individually or in the aggregate.
The financial statements of the foreign companies acquired or deemed
probable and included in the Pro Forma Condensed Consolidated Financial
Information were translated at the following exchange rates: with respect to
Neville Jeffress, Australian dollars were converted to U.S. dollars at the rate
of .7494 and .7914, respectively, with respect to the 1995 statement of
operations and the 1996 statement of operations; Belgian francs were converted
to U.S. dollars at the rate of .0317, .0318 and .0320, respectively, with
respect to the 1995 statement of operations, the 1996 statement of operations
and the 1996 balance sheet; and British Pounds Sterling were converted to U.S.
dollars at the rate of 1.58, 1.57 and 1.54, respectively, with respect to the
1995 statement of operations, the 1996 statement of operations and the 1996
balance sheet.
The Pro Forma Condensed Consolidated Financial Information gives effect to
the Acquisitions, are based upon estimated allocations of the expected purchase
prices, and includes all adjustments described in the notes hereto.
The Pro Forma Condensed Consolidated Statements of Operations were prepared
as if the above transactions and this offering occurred as of January 1, 1995.
The Pro Forma Condensed Consolidated Balance Sheet was prepared as if the above
transactions and this offering occurred on September 30, 1996. The Pro Forma
Condensed Consolidated Financial Information should be read in conjunction with
the historical financial statements and notes thereto included elsewhere in this
Prospectus.
The Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1995, and the nine months ended September 30, 1996 do not
include any potential cost savings. The Company believes that it may be able to
reduce salaries and related costs and office and general expenses as it
centralizes operations, particularly at Neville Jeffress, and consolidates these
acquisitions into TMP. There can be no assurance that the Company will be
successful in effecting any such cost savings.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated results which actually would
have occurred if the above transactions and this offering had been consummated
at the beginning of the periods presented, nor does it purport to present the
future financial position and results of operations for future periods.
23
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE 1996 PENDING PRO FORMA
INC. ACQUISITION(1) ACQUISITIONS(2) ADJUSTMENTS COMBINED(3)
---------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 6,297 $ $ 895 $ -- $ 7,192
Accounts receivable, net..................... 198,499 1,825 5,253 -- 205,577
Work-in-process.............................. 13,508 -- 107 -- 13,615
Asset held for sale.......................... 2,768 -- -- -- 2,768
Prepaid and other............................ 4,408 -- 92 -- 4,500
---------- ------- ------- ----------- ------------
Total current assets....................... 225,480 1,825 6,347 -- 233,652
Receivable from principal stockholder.......... 9,490 -- -- -- 9,490
Property and equipment, net.................... 17,738 277 521 (367)(a) 18,169
Deferred income taxes.......................... 9,949 -- -- -- 9,949
Intangibles, net............................... 65,878 -- -- 5,160(b) 71,038
Other assets................................... 6,912 -- 35 -- 6,947
---------- ------- ------- ----------- ------------
$ 335,447 $ 2,102 $ 6,903 $ 4,793 $ 349,245
---------- ------- ------- ----------- ------------
---------- ------- ------- ----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 201,908 $ 673 $ 4,184 -- $ 206,765
Accrued expenses and other liabilities....... 25,058 -- 630 -- 25,688
Deferred income taxes........................ 10,411 -- 69 -- 10,480
Current portion of long-term debt............ 11,022 -- 411 705(c) 12,138
---------- ------- ------- ----------- ------------
Total current liabilities.................. 248,399 673 5,294 705 255,071
Long-term debt, less current portion........... 102,809 756 6,343(c) 109,908
Minority interests............................. 3,214 -- 27(d) 3,241
Redeemable preferred stock..................... 2,000 -- -- -- 2,000
Redeemable common stock........................ 2,899 -- -- -- 2,899
Stockholders' equity (deficit):
Common stock................................. 4 -- -- -- 4
Class B common stock......................... 15 -- -- -- 15
Additional paid-in capital................... -- -- -- -- --
Foreign currency translation adjustment...... 266 -- -- -- 266
Deficit...................................... (24,159) -- -- -- (24,159)
Equity of recent and pending acquisitions.... -- 1,429 853 (2,282)(e) --
---------- ------- ------- ----------- ------------
Total stockholders' equity (deficit)....... (23,874) 1,429 853 (2,282) (23,874)
---------- ------- ------- ----------- ------------
$ 335,447 $ 2,102 $ 6,903 $ 4,793 $ 349,245
---------- ------- ------- ----------- ------------
---------- ------- ------- ----------- ------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENT ADJUSTED(4)
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ -- $ 7,192
Accounts receivable, net..................... -- 205,577
Work-in-process.............................. -- 13,615
Asset held for sale.......................... (2,768)(f) --
Prepaid and other............................ -- 4,500
-------------- -------------
Total current assets....................... (2,768) 230,884
Receivable from principal stockholder.......... 2,768(f) 12,258
Property and equipment, net.................... -- 18,169
Deferred income taxes.......................... -- 9,949
Intangibles, net............................... 2,000(g) 73,038
Other assets................................... -- 6,947
-------------- -------------
$ 2,000 $ 351,245
-------------- -------------
-------------- -------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. -- $ 206,765
Accrued expenses and other liabilities....... -- 25,688
Deferred income taxes........................ -- 10,480
Current portion of long-term debt............ (3,165)(h) 8,973
-------------- -------------
Total current liabilities.................. (3,165) 251,906
Long-term debt, less current portion........... (45,071)(h) 64,837
Minority interests............................. (3,002)(h) 239
Redeemable preferred stock..................... (2,000)(h) --
Redeemable common stock........................ (2,899)(i) --
Stockholders' equity (deficit):
Common stock................................. 4(j) 8
Class B common stock......................... -- 15
Additional paid-in capital................... 58,622 )(i 58,622
Foreign currency translation adjustment...... -- 266
Deficit...................................... (489)(h) (24,648)
Equity of recent and pending acquisitions.... -- --
-------------- -------------
Total stockholders' equity (deficit)....... 58,137 34,263
-------------- -------------
$ 2,000 $ 351,245
-------------- -------------
-------------- -------------
</TABLE>
See footnotes on next page.
24
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP 1996 NEVILLE PENDING PRO FORMA
WORLDWIDE INC. ACQUISITIONS(1) JEFFRESS ACQUISITIONS(2) ADJUSTMENTS COMBINED(3)
-------------- --------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees........... $ 118,870 $ 2,512 $ 10,081 $ 3,959 $ (1,338)(j) $ 134,084
-------------- ------ ------- ------- ----------- ------------
Operating expenses:
Salaries and related costs... 60,910 1,130 5,841 1,207 69,088
Office and general........... 44,077 1,076 4,639 1,783 51,575
Amortization of intangibles.. 3,173 -- -- -- 436(k) 3,609
Special Compensation......... 672 -- -- -- (672)(l) --
-------------- ------ ------- ------- ----------- ------------
Total operating expenses 108,832 2,206 10,480 2,990 (236) 124,272
-------------- ------ ------- ------- ----------- ------------
Operating income (loss)........ 10,038 306 (399) 969 (1,102) 9,812
Interest (expense), net........ (8,600) (8) (64) (34) (1,088)(m) (9,794)
Other, net..................... (32) -- -- 6 -- (26)
-------------- ------ ------- ------- ----------- ------------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity
in earnings of affiliates.... 1,406 298 (463) 941 (2,190) (8)
Provision (benefit) for income
taxes........................ 1,655 112 (186) 380 (970) (n) 991
Minority interests............. 343 -- (1) -- -- 342
Equity in earnings of
affiliates................... 53 -- -- -- 53
-------------- ------ ------- ------- ----------- ------------
Net income (loss).............. (539) 186 (276) 561 (1,220) (1,288)
Preferred stock dividends...... (158) -- -- -- -- (158)
-------------- ------ ------- ------- ----------- ------------
Net income (loss) applicable to
common and Class B common
stockholders................. $ (697) $ 186 $ (276) $ 561 $ (1,220) $ (1,446)
-------------- ------ ------- ------- ----------- ------------
-------------- ------ ------- ------- ----------- ------------
Pro forma net income (loss) per
common and Class B common
share........................ $ (.07)
------------
------------
Weighted average number of
common, Class B common and
common equivalent shares..... 19,281
------------
------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED(4)
----------- -------------
<S> <C> <C>
Commissions and fees........... -- $ 134,084
----------- -------------
Operating expenses:
Salaries and related costs... -- 69,088
Office and general........... -- 51,575
Amortization of intangibles.. 100(o) 3,709
Special Compensation......... -- --
----------- -------------
Total operating expenses 100 124,372
----------- -------------
Operating income (loss)........ (100) 9,712
Interest (expense), net........ 2,748(p) (7,046)
Other, net..................... (26)
----------- -------------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity
in earnings of affiliates.... 2,648 2,640
Provision (benefit) for income
taxes........................ 1,099(q) 2,090
Minority interests............. 75(r) 417
Equity in earnings of
affiliates................... 53
----------- -------------
Net income (loss).............. 1,474 186
Preferred stock dividends...... 53(s) (105)
----------- -------------
Net income (loss) applicable to
common and Class B common
stockholders................. $ 1,527 $ 81
----------- -------------
----------- -------------
Pro forma net income (loss) per
common and Class B common
share........................ $ .00
-------------
-------------
Weighted average number of
common, Class B common and
common equivalent shares..... 23,717
-------------
-------------
</TABLE>
- ------------------------
(1) Reflects the results of operations of four companies, other than Neville
Jeffress, that were acquired during the period January 1, 1996 through
September 30, 1996 for the portion of 1996 prior to acquisition, and the
results of operations for an acquisition completed after September 30, 1996
for the nine months ended September 30, 1996. The balance sheet 1996
acquisition column includes only the company acquired after the balance
sheet date, as if it was acquired on the balance sheet date. Acquisitions
made prior to January 2, 1996, for purposes of the 1996 Pro Forma Condensed
Consolidated Statement of Operations and the 1996 Pro Forma Condensed
Consolidated Balance Sheet are reflected in the Company's historical
financial statements.
(2) Gives effect for two companies, the acquisition of which the Company deems
to be probable.
(3) Reflects the acquisitions of Neville Jeffress and other 1996 completed and
pending acquisitions.
(4) Adjusted to give effect to (i) the sale by the Company of 4,147,437 shares
of Common Stock at an assumed initial public offering price of $14.50 per
share (the midpoint of the range of the estimated initial public offering
price) and the application of the net proceeds therefrom as described in
"Use of Proceeds," and (ii) goodwill in the amount of approximately $2
million and amortization thereon resulting from the issuance of 271,278
shares of Common Stock of the Company, in connection with the Mergers, to
Old TMP stockholders who had been previously issued shares of Old TMP in
exchange for their minority interests in certain operating subsidiaries in
which they were original owners and, accordingly, were considered to have
made a substantive investment, and is based on an assumed initial public
offering price of $14.50 per share (the midpoint of the range of the
estimated initial public offering price), less $2,178 previously recorded on
issuance of these shares, as if the transaction occurred on January 1, 1996
in the pro forma condensed consolidated statement of operations and as of
September 30, 1996 in the pro forma condensed consolidated balance sheet.
The pro forma as adjusted financial data for the nine months ended September
30, 1996 does not reflect anticipated charges to fourth quarter 1996
earnings, the quarter in which the offering is expected to be completed, for
(i) special compensation in the amount of approximately $52 million
resulting from the issuance of 3,584,790 shares of common stock of the
Company, in connection with the Mergers, to the Old TMP, WCI and MEI
subsidiary stockholders in exchange for their shares in those companies
which they had received for nominal or no consideration, as employees or as
management of businesses financed substantially by the Principal Stockholder
and, accordingly, were not considered to have made substantive investments
for their minority shares, and is based on an assumed initial public
offering price of $14.50 per share (the midpoint of the range of the
estimated initial public offering price) and (ii) additional interest
expense of approximately $2.7 million upon the exercise of a warrant issued
in connection with a financing agreement to reflect the difference between
the value of the stock issued at the assumed initial public offering price
of $14.50 per share (the midpoint of the range of the estimated initial
public offering price) and the valuation recorded for the warrant when it
was originally issued. The statement of operations for the fourth quarter of
1996 will also include a pro forma presentation for net income and earnings
per share to exclude such non-recurring charges.
25
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) To eliminate $367 of property and equipment owned by a company included in
pending acquisitions, not expected to be acquired.
(b) To record $5,160 for the excess of cost of $7,048 over net book value of
$1,888 of businesses acquired.
(c) To reflect $7,048 of additional borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition completed after September 30, 1996 and to fund the pending
acquisitions. The current portion of the seller financed notes is $705 and
the balance is $6,343.
(d) To record minority interest of $27 that will remain after consummation of a
pending acquisition.
(e) To eliminate $2,282 of net assets acquired in the acquisition completed
after September 30, 1996 and the pending acquisitions.
(f) Reflects the purchase of the asset held for sale by the Principal
Stockholder through an additional advance of $2,768 to such stockholder.
(g) To adjust for Goodwill in the amount of $2,000 resulting from the purchase
of certain minority interests for Company Stock.
(h) To reflect the use of the estimated net proceeds from the issuance of
4,147,437 shares of Common Stock in this offering as follows, see "Use of
Proceeds":
<TABLE>
<S> <C>
Repayment of current portion of Rogers Note...................................................................... $ 3,165
Repayment of long term portion of Rogers Note.................................................................... 628
Repayment of borrowings outstanding under the Company's financing agreement...................................... 44,443
Redemption of preferred stock of subsidiary...................................................................... 3,002
Redemption of preferred stock.................................................................................... 2,000
Payment of redemptin costs....................................................................................... 255
Paymnet of accelerated interest costs............................................................................ 234
---------
Estimated net proceeds........................................................................................... $ 53,727
---------
---------
</TABLE>
(i) To reclassify redeemable common stock to additional paid-in capital as it is
no longer subject to repurchase upon consummation of this offering.
(j) To eliminate clients not acquired from Neville Jeffress of $1,338 and the
40% tax reduction thereon of $535.
(k) To record amortization of intangibles arising from the acquisition of
Neville Jeffress, the acquisition completed after September 30, 1996, the
pending acquisitions and acquisitions completed after January 1 but before
September 30, 1996 for the portion of 1996 prior to acquisition. Such
amortization expense is based on a 30 year life and is computed as follows:
<TABLE>
<CAPTION>
Intangibles of $13,470 arising from the acquisition of Neville Jeffress, amortized for six months.................. $ 224
<S> <C>
Intangibles of $4,700 arising from pending acquisitions amortized for nine months.................................. 117
Intangibles of $1,037 arising from an acquisition completed during August, amortized for seven months.............. 20
Intangibles of $1,814 arising from an acquisition completed during April, amortized for four months................ 20
Intangibles of $1,236 arising from an acquisition completed during January, amortized for half of one month........ 7
Intangibles of $1,900 arising from an acquisition completed after September 30, 1996, amortized for nine months.... 48
---------
$ 436
---------
---------
</TABLE>
(l) To eliminate non-recurring special compensation charge.
(m) To record interest expense on borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition of Neville Jeffress, other completed acquisitions and pending
acquisitions. Interest on acquisition notes payable is determined as
follows:
<TABLE>
<CAPTION>
Notes payable of $11,400 arising from the acquisition of Neville Jeffress at 8.5% for six months........... $ 485
<S> <C>
Notes payable of $5,517 on pending acquisitions at 8.5% for nine months.................................... 352
Notes payable of $2,155 arising from the acquisition completed April 30, 1996 at 8.5% for four months...... 61
Note payable of $1,900 at 8.5% for the acquisition completed on November 6, 1996 for nine months........... 121
Notes payable of $1,170 for acquisitions completed during August 1996 at 8.5% for seven months............. 11
Note payable of $1,600 arising from the acquisition completed January 16, 1996 for one month............... 58
------
$ 1,088
------
------
</TABLE>
(n) To record the tax benefit on interest expense of $1,088 on borrowings for
the acquisition of Neville Jeffress, the acquisition completed after
September 30, 1996, other pending acquisitions and acquisitions completed
during the first nine months of 1996 for the portion of 1996 prior to
acquisition, at an estimated tax rate of 40%.
(o) Amortization during the nine months ended September 30, 1996 of $2,000 of
goodwill over its estimated useful life. See (g) above.
(p) Reflects the use of proceeds from this offering as described in "Use of
Proceeds." and the reduction of interest expense resulting from the
reduction of borrowings.
(q) Reduction of tax expense resulting from the $2,748 interest expense savings
realized from the reduction of debt from the use of proceeds.
(r) Reflects the elimination of the earnings attributable to the minority
interest of a subsidiary, YPMS Acquisition Corp. Inc., of $225 during the
nine months ended September 30, 1996, less the call premium of $150 payable
on the redemption of the subsidiary's preferred stock.
(s) Reflects the elimination of the preferred stock dividend of $158 during the
nine months ended September 30, 1996 less the call premium payable on
redemption of $105.
26
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE 1995 1996 NEVILLE PENDING PRO FORMA
INC. ACQUISITIONS(1) ACQUISITIONS(2) JEFFRESS ACQUISITIONS(3) ADJUSTMENTS COMBINED(4)
----------- -------------- -------------- --------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commissions and
fees............... $ 123,907 $ 4,613 $ 8,508 $ 22,320 $ 2,249 $ -- $ 161,597
----------- -------------- -------------- --------- -------------- ------------- ------------
Operating expenses:
Salaries and
related costs.... 58,329 1,997 4,036 12,533 942 -- 77,837
Office and
general.......... 43,432 2,050 3,611 9,967 1,017 -- 60,077
Amortization of
intangibles...... 3,237 -- -- -- -- 999(a) 4,236
----------- -------------- -------------- --------- -------------- ------------- ------------
Total operating
expenses......... 104,998 4,047 7,647 22,500 1,959 999 142,150
----------- -------------- -------------- --------- -------------- ------------- ------------
Operating income
(loss)............. 18,909 566 861 (180) 290 (999) 19,447
Interest (expense),
net................ (10,894) 1 (112) (15) (6) (2,674) (b) (13,700)
Other income, net.... 150 (164) 1 -- 10 -- (3)
----------- -------------- -------------- --------- -------------- ------------- ------------
Income (loss) before
provision (benefit)
for income taxes,
minority interests
and equity in
earnings (losses)
of affiliates...... 8,165 403 750 (195) 294 (3,673) 5,744
Provision (benefit)
for income taxes... 4,222 65 171 285 126 (1,199)(c) 3,670
Minority interests... 435 -- -- (17) -- -- 418
Equity in earnings
(losses) of
affiliates......... (279) -- -- -- -- -- (279)
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income (loss).... 3,229 338 579 (463) 168 (2,474) 1,377
Preferred
dividends.......... (210) -- -- -- -- -- (210)
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income (loss)
applicable to
common and Class B
common
stockholders....... $ 3,019 $ 338 $ 579 $ (463) $ 168 $ (2,474) $ 1,167
----------- -------------- -------------- --------- -------------- ------------- ------------
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income per common
and Class B common
share.............. $.06
------------
------------
Weighted average
number of common,
Class B common and
common equivalent
shares
outstanding........ 19,518
------------
------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED(5)
------------- -------------
<S> <C> <C>
Commissions and
fees............... $ -- $ 161,597
------ -------------
Operating expenses:
Salaries and
related costs.... -- 77,837
Office and
general.......... -- 60,077
Amortization of
intangibles...... 67(d) 4,303
------ -------------
Total operating
expenses......... 67 142,217
------ -------------
Operating income
(loss)............. (67) 19,380
Interest (expense),
net................ 4,922(e) (8,778)
Other income, net.... -- (3)
------ -------------
Income (loss) before
provision (benefit)
for income taxes,
minority interests
and equity in
earnings (losses)
of affiliates...... 4,855 10,599
Provision (benefit)
for income taxes... 2,040(f) 5,710
Minority interests... (177)(g) 241
Equity in earnings
(losses) of
affiliates......... -- (279)
------ -------------
Net income (loss).... 2,992 4,369
Preferred
dividends.......... 105(h) (105)
------ -------------
Net income (loss)
applicable to
common and Class B
common
stockholders....... $ 3,097 $ 4,264
------ -------------
------ -------------
Net income per common
and Class B common
share.............. $.18
Weighted average
number of common,
Class B common and
common equivalent
shares
outstanding........ 23,665
</TABLE>
- ----------------------------------
(1) Reflects the results of operations of five companies acquired during 1995
for the portion of 1995 prior to acquisition.
(2) Reflects the results of operations of eight companies acquired during the
period January 1, 1996 through November 15, 1996 as if they were acquired on
January 1, 1995 but excludes the acquisition of Neville Jeffress.
(3) Reflects the results of operations of two companies, the acquisition of
which the Company deems to be probable.
(4) Reflects the acquisition of Neville Jeffress and the other completed and
pending acquisitions for 1995 and 1996.
(5) Adjusted for the sale by the Company of 4,147,437 shares of Common Stock at
an assumed initial public offering price of $14.50 per share (the midpoint
of the range of the estimated initial public offering price) and the
application of the net proceeds therefrom as described in "Use of Proceeds,"
as if the transaction occurred on January 1, 1995, and records amortization
of goodwill resulting from the exchange of Company stock, in connection with
the Mergers, with certain minority stockholders of Old TMP who were
considered to have made a substantive investment in their shares.
27
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) To record amortization on $38,014 of intangibles arising from the
acquisition of Neville Jeffress, the 1995 acquisitions for the period prior
to acquisition, the 1996 acquisitions and the other pending acquisitions
over a period of 30 years.
(b) To record interest on borrowings under the Company's financing agreement and
seller financed notes issued in connection with the acquisition of Neville
Jeffress, the 1995 acquisitions for the period prior to acquisition, the
1996 acquisitions and the other pending acquisitions. Interest on
acquisition debt is determined as follows:
<TABLE>
<S> <C>
Borrowings of $18,368 arising from the acquisition of Neville Jeffress and other acquisitions completed during the
three months ended September 30, 1996 and other pending acquisitions at 8.5% for twelve months.................... $ 1,561
Borrowings of $4,023 arising from the acquisition completed April 30, 1996 at 8.5% for twelve months................ 342
Borrowings of $1,600 arising from the acquisition completed January 16, 1996 for twelve months...................... 136
Borrowings of $26,998 arising from acquisitions completed during 1995 at 8.5% for various months.................... 635
---------
$ 2,674
---------
---------
</TABLE>
(c) To record the tax benefit on $325 of amortization expense for certain
intangibles and $2,674 of interest expense on borrowings in connection with
the acquisition of Neville Jeffress, the 1995 acquisitions, the 1996
acquisitions and other pending acquisitions at an estimated tax rate of 40%.
(d) Reflects amortization over a 30 year period for the $2,000 in goodwill
resulting from the purchase of certain minority interests for Company stock.
(e) Reflects the use of proceeds from this offering as described in "Use of
Proceeds."
(f) Reflects the tax expense at 40% resulting from the savings of $4,722 of
interest resulting from the reduction of debt through the use of proceeds
and the net earnings of the $177 of deductible payments to minority
shareholders resulting from the redemption of the preferred stock of a
subsidiary.
(g) Reflects the elimination of the earnings attributable to the minority
interest of a subsidiary, YMPS Acquisition Corp., Inc. of $327 less the call
premium of $150 payable on the redemption of the subsidiary's preferred
stock.
(h) Reflects the elimination of the preferred stock dividend of $210 less the
call premium on redemption of $105.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
TMP is a marketing services, communications and technology company that
provides comprehensive, individually tailored advertising services including
development of creative content, media planning, production and placement of
corporate advertising, market research, direct marketing and other ancillary
services and products. The Company is the world's largest yellow page
advertising agency and, the Company believes, one of the world's largest
recruitment advertising agencies. In 1995, the Company began marketing
Internet-based services as extensions of its core business and has become a
growing provider of Internet content. The Company offers advertising programs to
more than 17,000 clients, including more than 70 of the Fortune 100 and more
than 240 of the Fortune 500 companies. For the year ended December 31, 1995, the
Company's gross billings were $596.1 million, commissions and fees were $123.9
million, net income was $3.2 million and EBITDA was $25.0 million.
A substantial part of the Company's growth has been achieved through
acquisitions. For the period January 1, 1993 through November 15, 1996, the
Company has completed 36 acquisitions with estimated annual gross billings of
approximately $380 million. Given the significant number of acquisitions in each
of the last three years, the results of operations from period to period are not
necessarily comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services. While gross billings are not included in the Company's
consolidated financial statements, the trends in gross billings directly impact
the commissions and fees earned by the Company. The Company earns commissions
based on a percentage of the media advertising purchased at a rate established
by the related publisher, and associated fees for related services. Publishers
typically bill the Company for the advertising purchased by the Company's
clients and the Company in turn bills its clients for this amount. Generally,
the payment terms with yellow page clients require payment to the Company prior
to the date payment is due to publishers. The payment terms with recruitment
advertising clients typically require payment when payment is due to publishers.
Historically, the Company has not experienced substantial problems with unpaid
accounts.
The Company designs and executes yellow page advertising programs, receiving
an effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. The Company typically recognizes this additional commission, if any,
in the fourth quarter when it is certain that such commission has been earned.
For recruitment advertising placements in the U.S., publisher commissions
average 15% of recruitment advertising gross billings. The Company also earns
fees from value-added services such as design, research and other creative and
administrative services resulting in aggregate commissions and fees equal to
approximately 21% of recruitment advertising gross billings. Outside of the
U.S., TMP's commission rates for recruitment advertising vary, ranging from
approximately 10% in Australia to 15% in Canada and the United Kingdom. Also,
outside the U.S., the Company earns fees for value-added services. The Company
also earns fees for the placement of advertisements on the Internet, including
its career Web sites.
29
<PAGE>
In 1993, the Company completed three acquisitions for an aggregate purchase
price of $8.7 million, including the purchase of the assets of US West Marketing
Resources Group, Inc., a yellow page advertising agency. Leveraging its strength
in yellow page advertising, the Company entered recruitment advertising in the
fourth quarter of 1993 with the purchases of the assets of Bentley, Barnes &
Lynn, Inc. and Unger & Associates, Inc. Bentley, Barnes & Lynn was one of the
largest recruitment advertising agencies in the midwest and developer of
Empower, a human resources public relations service, focusing on minority
recruitment issues.
In 1994, the Company completed nine acquisitions for an aggregate purchase
price of $12.2 million. Six of these acquisitions were in the business of
recruitment advertising and included Deutsch, Shea & Evans, Inc., an agency
based in New York, the second largest U.S. recruitment market. Two acquisitions
were yellow page advertising companies of which the largest was the yellow page
advertising agency business of GTE Directories Corporation, a Dallas-based
agency specializing in serving general agencies which do not have their own
yellow page placement capabilities. The Company also acquired a 50% interest in
a real estate advertising company which is accounted for on the equity method.
In 1995, the Company completed fourteen acquisitions for an aggregate
purchase price of $26.7 million. These acquisitions consisted of eleven
recruitment advertising agencies, Adion Information Services, Inc., creator of
The Monster Board-Registered Trademark-, and two small yellow page agencies. The
largest acquisitions included acquisitions of the assets of Rogers & Associates
Advertising, Inc., Adion, Inc. (an affiliate of Adion Information Services,
Inc.), and The Haughey Group, Inc. Rogers & Associates was based in Northern
California, the largest U.S. recruitment advertising market. Adion Inc. and The
Haughey Group, Inc. were based in Boston.
In 1996, through November 15, the Company has completed ten acquisitions,
all of which are in recruitment advertising, for an aggregate purchase price of
$19.4 million, making the Company one of the largest recruitment advertising
agencies in the world. These acquisitions have estimated annual gross billings
of $180 million. The largest acquisition was the purchase of Neville Jeffress,
which has estimated annual gross billings of $140 million. The Company also
purchased London-based Optima Direct Limited.
Primarily as a result of these acquisitions, the Company's commissions and
fees increased from $73.8 million in 1993 to $123.9 million in 1995. Assuming
that all of the acquisitions completed from January 1, 1995 through November 15,
1996 had been completed on January 1, 1995, the Company's commissions and fees,
on a pro forma basis, would have been approximately $159.3 million for the year
ended December 31, 1995. These acquisitions were funded primarily with debt
resulting in an increase in interest expense from approximately $7.9 million in
1993 to $11.2 million in 1995 and $13.7 million on a pro forma basis for 1995
for acquisitions completed in 1995 and in 1996, through November 15. All of
these acquisitions were accounted for using the purchase method of accounting
and are included in the Company's consolidated financial statements from their
respective dates of acquisition. The Company is continuously monitoring the
marketplace for opportunities to expand its presence in both yellow page and
recruitment advertising which include Internet-related opportunities and intends
to continue its acquisition strategy to supplement its internal growth.
The Company's operating expenses have increased significantly since 1993
primarily due to headcount increases as a result of acquisitions and hiring to
support gross billings growth. Salaries and related costs increased $20.6
million from $37.7 million for the year ended December 31, 1993 to $58.3 million
for the year ended December 31, 1995, a 54.6% increase, supporting a 72.7% gross
billings increase over the same period. Salaries and related costs include total
payroll and associated benefits as well as payroll taxes, sales commissions,
recruitment and training costs.
Office and general expenses increased $13.6 million from $29.8 million for
the year ended December 31, 1993 to $43.4 million for the year ended December
31, 1995, a 45.6% increase, primarily due to increased costs needed to support
the increased billings and the expansion of recruitment offices through
acquisitions in new U.S and foreign markets. This cost category includes
expenses for office
30
<PAGE>
operations, business promotion, market research, advertising, professional fees
and fees paid to the Company's primary lending institution for its services in
the processing and collection of payments for accounts receivable. Amortization
of intangibles includes amortization of acquisition related charges, including
the costs in excess of fair market value of net assets acquired and capitalized
costs for non-compete arrangements with the principals of acquired companies.
This acquisition related amortization was $2.5 million, $3.3 million and $3.2
million for the years ended December 31, 1993, 1994 and 1995, respectively.
Net interest expense includes interest payments made to the Company's
primary lender, to certain vendors and to the holders of seller financed notes.
During the fourth quarter of fiscal 1996, the quarter in which this offering
is expected to be completed, there will be: (i) a non-recurring charge of
approximately $52.0 million for special management compensation resulting from
the issuance of 3,584,790 shares of Common Stock of the Company, in connection
with the Mergers, to the Old TMP, WCI and MEI subsidiary stockholders in
exchange for their shares in those companies which they had received for nominal
or no consideration, as employees or as management of businesses financed
substantially by the Principal Stockholder and, accordingly, were not considered
to have made substantive investments for their minority shares, and is based on
an assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price) and (ii) additional
interest expense of approximately $2.7 million upon the exercise of a warrant,
issued to BNY Financial Corporation in connection with the Company's financing
agreement, to reflect the difference between the value of the stock issued at
the initial public offering price of $14.50 per share (the midpoint of the range
of estimated initial public offering price) and the valuation recorded for the
warrant when it was originally issued. The warrant is exercisable for 228,739
shares, was issued in October 1993 and is exercisable upon the effectiveness of
this offering. The statement of operations for such quarter will also include a
pro forma presentation for net income and earnings per share to exclude such
non-recurring charges.
31
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated gross billings,
commissions and fees and commissions and fees as a percentage of gross billings
for the Company's yellow page advertising, recruitment advertising and Internet
businesses and EBITDA for the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Yellow page advertising................ $ 336,714 $ 363,656 $ 429,176 $ 331,694 $ 351,589
Recruitment advertising................ 8,338 54,872 166,508 121,465 216,826
Internet(1)............................ -- -- 392 -- 4,413
--------- --------- --------- ----------- ---------
Total.................................. $ 345,052 $ 418,528 $ 596,076 $ 453,159 $ 572,828
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES:
Yellow page advertising................ $ 72,106 $ 74,463 $ 87,456 $ 64,086 $ 71,179
Recruitment advertising................ 1,685 11,702 36,059 25,600 43,278
Internet(1)............................ -- -- 392 -- 4,413
--------- --------- --------- ----------- ---------
Total.................................. $ 73,791 $ 86,165 $ 123,907 $ 89,686 $ 118,870
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES AS A
PERCENTAGE OF GROSS
BILLINGS:
Yellow page advertising................ 21.4% 20.5% 20.4% 19.3% 20.2%
Recruitment advertising................ 20.2% 21.3% 21.7% 21.1% 20.0%
Internet(1)............................ -- -- 100.0% -- 100.0%
Total.................................. 21.4% 20.6% 20.8% 19.8% 20.8%
EBITDA(2)................................ $ 6,332 $ 12,582 $ 24,978 $ 15,649 $ 15,636
Cash provided by (used in) operating
activities............................... $ (2,321) $ (10,928) $ 6,706 $ (4,101) $ 14,084
Cash used in investing activities........ $ (4,342) $ (12,202) $ (13,778) $ (10,833) $ (21,011)
Cash provided by financing activities.... $ 4,372 $ 22,959 $ 7,432 $ 14,247 $ 10,505
</TABLE>
- ------------------------
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity. EBITDA for the
indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
EBITDA CALCULATION 1993 1994 1995 1995 1996
- ------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss)..................................... $ (4,626) $ (2,467) $ 3,229 $ 873 $ (539)
Interest, net....................................... 7,652 9,178 10,894 7,879 8,600
Income tax expense (benefit)........................ (1,322) (333) 4,222 2,298 1,655
Depreciation and amortization....................... 4,628 6,204 6,633 4,599 5,920
--------- --------- --------- --------- ---------
EBITDA................................................ $ 6,332 $ 12,582 $ 24,978 $ 15,649 $ 15,636
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
32
<PAGE>
The following table sets forth, for the periods indicated, certain statement
of operations data and
certain financial data expressed as a percentage of commissions and fees.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Commissions and fees.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and related costs.................................... 51.2% 53.1% 47.1% 48.2% 51.2%
Office and general expenses................................... 40.4% 35.2% 35.1% 36.4% 37.1%
Amortization of intangibles................................... 3.3% 3.8% 2.5% 2.5% 2.7%
Special compensation(1)....................................... -- -- -- -- 0.6%
Restructuring charges......................................... 1.8% -- -- -- --
Operating income.............................................. 3.3% 7.9% 15.3% 12.9% 8.4%
Interest expense, net......................................... (10.4% (10.7% (8.8% (8.8% (7.2%
Other, net.................................................... (0.5% (0.1% 0.1% -- --
Income (loss) before provision (benefit) for income taxes,
minority interests and equity in earnings of affiliates..... (7.6% (2.9% 6.6% 4.1% 1.2%
Provision (benefit) for income taxes.......................... (1.8% (0.4% 3.4% 2.6% 1.4%
Minority interests............................................ 0.5% 0.4% 0.4% 0.4% 0.3%
Equity in earnings (losses) of affiliates..................... -- -- (0.2% (0.2% --
Net income (loss)............................................. (6.3% (2.9% 2.6% 0.9% (0.5%
Preferred stock dividends..................................... (0.3% (0.2% (0.2% (0.1% (0.1%
Net income (loss) applicable to common and Class B common
stockholders................................................ (6.6% (3.1% 2.4% 0.8% (0.6%
Pro forma adjustment for special compensation................. -- -- -- -- 0.6%
Pro forma net loss applicable to common and Class B common
stockholders................................................ -- -- -- -- --
EBITDA(2)..................................................... 8.6% 14.6% 20.2% 17.4% 13.2%
Net cash provided by (used in) operating activities........... (3.1% (12.7% 5.4% (4.6% 11.8%
Net cash used in investing activities......................... (5.9% (14.2% (11.1% (12.1% (17.7%
Net cash provided by financing activities..................... 5.9% 26.6% 6.0% 15.9% 8.8%
</TABLE>
- ------------------------
(1) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity.
33
<PAGE>
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Gross billings for the nine months ended September 30, 1996 were $572.8
million, a $119.7 million or 26.4% increase compared to the nine months ended
September 30, 1995. More than half of this growth was attributable to
acquisitions.
Commissions and fees increased from $89.7 million for the nine months ended
September 30, 1995 to $118.9 million for the nine months ended September 30,
1996, or 32.5%. This increase was due to an increase of $17.7 million or 69.1%
in commissions and fees derived from recruitment advertising, $7.1 million or
11.1% in commissions and fees derived from yellow page advertising and $4.4
million in fees derived from Internet. A substantial portion of the increase in
commissions and fees derived from recruitment advertising was due to
acquisitions and the remainder was due to higher client spending and new
clients. The increase in commissions and fees derived from yellow page
advertising was due primarily to increased rates by the yellow page publishers
and higher client spending on new services. Fees derived from Internet were
generated from placements of internet advertising, as the Company's Internet
products gained initial customer acceptance both from the Company's existing
clients as well as new clients.
Salaries and related costs increased $17.7 million to $60.9 million for the
nine months ended September 30, 1996. As a percent of commissions and fees,
salaries and related costs increased from 48.2% for the nine months ended
September 30, 1995 to 51.2% for the nine months ended September 30, 1996. This
increase was primarily due to additional staff required to service increased
gross billings, a higher percentage for costs related to Neville Jeffress and
severance and temporary help expenses related to the consolidation of the
recruitment advertising acquisitions ($0.8 million). Also included in the $17.7
million increase is $1.9 million for Internet staffing, which is 43.9% of
Internet commissions and fees.
Office and general expenses increased $11.5 million to $44.1 million for the
nine months ended September 30, 1996. As a percent of commissions and fees,
office and general expenses increased from 36.4% for the period ended September
30, 1995 to 37.1% for the nine months ended September 1996. This increase was
primarily due to increased advertising of approximately $2.3 million, primarily
related to the Company's introduction of The Monster
Board-Registered Trademark-, increased bad debt charges ($0.5 million to
increase specific reserves to $1.0 million for a 1995 bankruptcy and a $0.3
million charge related to a client with liquidity problems), general expenses
related to higher gross billings, professional consulting fees for the
establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $2.3 million for the nine months ended
September 30, 1995 compared to $3.2 million for the nine months ended September
30, 1996 due to the Company's continued growth through acquisitions. As a
percentage of commissions and fees, amortization of intangibles was 2.5% and
2.7% for the nine months ended September 30, 1995 and 1996, respectively.
Special compensation of $0.7 million consists of the value of shares issued
in connection with the acquisition of a minority interest in a subsidiary in
August 1996 because the stockholder had received his shares in the subsidiary
for no consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares.
Operating income declined $1.5 million to $10.0 million for the nine months
ended September 30, 1996. The decline was primarily due to increased advertising
expenses of $1.5 million for the Company's Internet business. Excluding the fees
earned and direct operating expenses related to the Company's introduction of
its Internet business of $1.8 million for 1996 and $.8 million for 1995, and the
1996 $0.7 million special charge for compensation, (i) operating income
increased approximately $1.0 million to $12.5 million for the nine months ended
September 30, 1996. However, operating income as a percent of commissions and
fees declined from 13.8% for the nine months ended September 30, 1995 to 10.5%
for the nine months ended September 30, 1996. This decline in operating income
as a percent of commissions and fees was primarily due to costs in connection
with the consolidation of the recruitment advertising acquisitions and the
increased bad debt charge described above.
34
<PAGE>
Net interest expense increased $0.7 million to $8.6 million for the nine
months ended September 30, 1996 as compared to 1995. This increase in interest
expense is due primarily to higher debt balances for working capital needs and
acquisition financing partially offset by lower borrowing costs. The Company's
effective interest rate was 9.8% for the nine months ended September 30, 1996
compared with 11.1% for the nine months ended September 30, 1995.
Taxes on income decreased $0.6 million from $2.3 million for the nine months
ended September 30, 1995 to $1.7 million for the nine months ended September 30,
1996 primarily due to lower pre-tax income. The effective tax rate for the nine
months ended September 30, 1996 of 117.7% was higher than the U.S. Federal
statutory rate primarily due to nondeductible expenses of approximately $2.0
million and approximately $.8 million in losses for which there are no available
tax benefits.
On a pro forma basis, to adjust for the special charge for compensation, the
net loss applicable to common and Class B common stockholders was $25,000 for
the nine months ended September 30, 1996 compared with net income of $0.7
million for the nine months ended September 30, 1995, as a result of the above.
THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1995 were $596.1 million, a
$177.5 million or 42.4% increase over the year ended December 31, 1994.
Approximately half of this increase was attributable to acquisitions.
Commissions and fees increased from $86.2 million in 1994 to $123.9 million
in 1995 or 43.7%. This increase was due to an increase of $24.4 million or
208.1% in commissions and fees derived from recruitment advertising and $13.0
million or 17.4% in commissions and fees derived from yellow page advertising.
The increase in commissions and fees derived from recruitment advertising was
substantially due to acquisitions and, to a lesser extent, new business and
higher client spending spurred by high demand for labor in the U.S. The increase
in commissions and fees derived from yellow page advertising was primarily due
to higher client spending and acquisitions. Commissions for volume placements
from yellow page publishers increased $2.1 million to $4.2 million in 1995
largely due to a new sales program for yellow page employees to increase yellow
page advertising volumes.
Salaries and related costs increased $12.6 million to $58.3 million in 1995.
As a percent of commissions and fees, salaries and related costs declined from
53.1% in 1994 to 47.1% in 1995 primarily due to increased staffing efficiencies
related to the leveraging of management and support services over a larger
client base.
Office and general expenses increased $13.1 million to $43.4 million in
1995. As a percent of commissions and fees, office and general expenses remained
consistent at 35.0%. Bad debt expenses increased $2.0 million in 1995 compared
to 1994 due to an increase in general reserves as a result of the Company's
expanding client base and a specific reserve of $0.5 million for a client
bankruptcy.
Amortization of intangibles was $3.2 million in 1995 compared to $3.3
million in 1994. As a percentage of commissions and fees, amortization of
intangibles was 2.6% in 1995 and 3.8% in 1994 as a result of higher commissions
and fees.
Operating income increased $12.1 million to $18.9 million in 1995. As a
percent of commissions and fees, operating income increased from 7.9% in 1994 to
15.3% in 1995 due to higher commissions and fees and improved staffing
efficiencies and utilization levels.
Net interest expense increased $1.7 million to $10.9 million in 1995. The
increase in net interest expense is due primarily to higher debt balances for
working capital needs and acquisition financing. The Company's effective
interest rate was 11.2% and 11.1% in 1994 and 1995, respectively.
35
<PAGE>
Taxes on income increased $4.6 million in 1995 to an expense of $4.2 million
from a recovery of $0.3 million in 1994, primarily due to pre-tax income. The
effective tax rate for 1995 of 51.7% was greater than the U.S. federal statutory
rate primarily due to nondeductible expenses of approximately $1.2 million and
losses for which there were no available tax benefits of $1.5 million.
Net income applicable to common and Class B common stockholders was $3.0
million for the year ended December 31, 1995 compared to a $2.7 million net loss
for the year ended December 31, 1994, as a result of the above.
THE YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Gross billings for the year ended December 31, 1994 were $418.5 million, a
$73.5 million increase from the year ended December 31, 1993. Acquisitions
accounted for a substantial portion of billings growth.
Commissions and fees increased from $73.8 million in 1993 to $86.2 million
in 1994 or 16.8%. This increase was due to an increase of $10.0 million in
commissions and fees derived from recruitment advertising and $2.4 million in
commissions and fees derived from yellow page advertising. The increase in
commissions and fees derived from recruitment advertising and yellow page
advertising was primarily due to acquisitions. The increase in commissions and
fees derived from yellow page advertising was also due to increased rates and
increased client spending.
Salaries and related costs increased $8.0 million to $45.8 million in 1994.
As a percent of commissions and fees, salaries and related costs increased from
51.2% in 1993 to 53.1% in 1994 due primarily to higher salaries related to
additional staffing levels associated with acquisitions.
Office and general expenses increased $.5 million to $30.3 million in 1994.
As a percent of commissions and fees, office and general expenses declined from
40.4% in 1993 to 35.2% in 1994, due to lower administrative costs and increased
operating efficiencies resulting from the integration of six acquisitions into
existing TMP locations. In 1993, operating expenses included a restructuring
charge of $1.3 million for compensation related to the centralization of certain
support functions.
Amortization of intangibles was $3.3 million in 1994, compared to $2.5
million in 1993. As a percentage of commissions and fees, amortization of
intangibles was 3.8% in 1994 compared to 3.3% in 1993.
Operating income increased from $2.4 million in 1993 to $6.8 million in 1994
due primarily to growth in commissions and fees and increased operating
efficiency partially offset by higher salaries and related costs and
amortization of intangibles.
Net interest expense increased $1.5 million to $9.2 million in 1994. The
increase in net interest expense is primarily due to higher debt balances for
working capital needs and acquisition financing. The Company's effective
interest rate was 13.3% and 11.2% in 1993 and 1994, respectively.
The income tax benefit decreased $1.0 million in 1994 from a recovery of
$1.3 million in 1993, due to a smaller pre-tax loss. The effective tax benefit
rates for 1994 and 1993 were lower than the U.S. federal statutory rate
primarily due to nondeductible expenses of approximately $1.4 million and $1.0
million, respectively, and for 1993 losses for which there are no available tax
benefits of $0.9 million.
Net loss applicable to common and Class B common stockholders was $4.8
million in 1993 and $2.7 million in 1994 as a result of the above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (i)
acquisitions, (ii) working capital, (iii) capital expenditures and (iv)
advertising and development of its Internet business. The Company's
36
<PAGE>
working capital requirements are generally higher in the quarters ending March
31 and June 30 during which payments to the major yellow page directory
publishers are at their highest levels. The Company has met its liquidity needs
over the last three years through funds provided by long-term borrowings, vendor
financing and supplemented in 1995 by funds provided by operating activities.
Net cash provided by (used in) operating activities for the years ended
December 31, 1993, 1994, 1995, and the nine months ended September 30, 1996 was
($2.3 million), ($10.9 million), $6.7 million and $14.1 million, respectively.
Cash used increased in 1994 as compared with 1993 primarily due to the
acceleration of payment of trade payables to publishers over the rate of
collection of receivables. The increase in cash from operating activities for
1995 over 1994 was primarily due to the $5.7 million improvement in net income
combined with a net increase of trade payables over trade receivables of $7.0
million. For the nine months ended September 30, 1996, cash provided by
operations increased $18.2 million over the comparable 1995 period primarily as
a result of a $10.5 million reduction in the increase in accounts receivable
combined with a $12.0 million rise in the increase of accounts payable and
accrued liabilities.
Days sales outstanding in 1994, 1995 and for the first nine months of 1996
were 66, 63 and 62, respectively, reflecting improvement in the Company's
collection procedures and client billing arrangements.
Net cash used in investing activities for the years ended December 31, 1993,
1994, 1995 and the nine months ended September 30, 1996 was $4.3 million, $12.2
million, $13.8 million and $21.0 million, respectively. Payments for purchases
of business acquisitions were $1.0 million in 1993, $6.3 million in 1994, $11.3
million in 1995, and $16.6 million for the nine months ending September 30,
1996. Capital expenditures, primarily for computer equipment and furniture and
fixtures, were $0.5 million, $4.9 million, $5.0 million and $4.3 million for the
years ended December 31, 1993, 1994, 1995, and the nine months ended September
30, 1996, respectively. The Company expects to spend approximately $7.0 million
in total capital expenditures for 1996. In May 1996, the Company sold certain
transportation equipment for $3.3 million in cash, $1.2 million after payment of
related debt.
EBITDA was unchanged at $15.6 million for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995. Excluding fees
earned and direct operating expenses related to the Company's introduction of
its Internet business, EBITDA increased $0.3 million to $17.1 million or 1.8%
for the nine months ended September 30, 1996 compared to the nine months ended
September 30, 1995. Further adjusting for items related to increased bad debt
charges for two client bankruptcies ($.5 million) and expenses associated with
the consolidation of the recruitment advertising acquisitions ($.8 million),
EBITDA increased $1.6 million to $18.4 million or 12.2% for the nine months
ended September 30, 1996 compared to the nine months ended September 30, 1995.
Excluding the Company's Internet business and the non-recurring bad debt charges
described above, EBITDA as a percent of commissions and fees remained consistent
at 19.8% for the nine months ended September 30, 1995 and 19.5% for the nine
months ended September 30, 1996. EBITDA increased $12.4 million to $25.0 million
or 98.5% in 1995 as compared to 1994. As a percent of commissions and fees,
EBITDA increased from 14.6% in 1994 to 20.2% in 1995 primarily due to increased
staffing efficiencies and utilization levels. EBITDA increased $6.3 million to
$12.6 million in 1994 compared to 1993. Adjusting for the non-recurring charge
of $1.3 million in 1993, EBITDA as a percent of commissions and fees increased
from 10.4% in 1993 to 14.6% in 1994.
The Company's financing activities include borrowings and repayments under
its financing agreement and issuance and repayments of installment notes
principally to finance acquisitions and loans to stockholders. The Company's
financing activities resulted in net cash provided by financing activities of
$10.5 million, $7.4 million, $23.0 million and $4.4 million in 1996, 1995, 1994
and 1993, respectively. In June and August 1996, the Company amended its
financing agreement with BNY Financial Corporation to provide for borrowings up
to $100 million under a revolving credit facility. Such facility has been used
to finance the Company's acquisitions and for working capital requirements. As
of September 30, 1996, there
37
<PAGE>
was $90.9 million outstanding under such facility. As of October 31, 1996, there
was approximately $88.0 million outstanding under such facility. The Company
believes it will be able to fund its short-term cash needs through funds from
operations and a refinancing of a portion of the Neville Jeffress acquisition
financing with a working capital facility in Australia. The Company intends to
use approximately $45.0 million of the net proceeds from this offering to reduce
indebtedness under the financing agreement. See "Use of Proceeds." After giving
effect to this offering and the use of the estimated net proceeds thereof, as of
October 31, 1996 pro forma amounts outstanding under the financing agreement
would have been approximately $43.0 million. The financing agreement terminates
on June 27, 2001 and currently bears interest at 7.9% per annum. The interest
rate of the financing agreement is determined pursuant to a formula whereby the
interest rate is, at the Company's option, either (i) the prime rate or 1/2%
over the federal funds rate, whichever is higher, less 1% to plus 1% as
determined in the financing agreement or (ii) LIBOR plus 1 1/2% to 3 1/2% as
determined under the financing agreement. The borrowings are secured by a lien
on substantially all of the Company's assets. In addition, the financing
agreement contains certain covenants which restrict, among other things, the
ability of the Company to borrow, pay dividends, acquire businesses, make future
capital expenditures, guarantee debts of others and lend funds to affiliated
companies and contain criteria on the maintenance of certain financial statement
amounts and ratios. At December 31, 1995, the Company was in violation of
certain of the covenants and financial ratios under a prior financing agreement,
such violations were waived by BNY Financial Corporation. The covenants and/or
ratios which were violated consisted of (i) the limit on capital expenditures,
(ii) the ratio of current assets to current liabilities, (iii) the limit of
negative working capital, (iv) the limit of advances to affiliates, (v) the
permitted percentage of past due accounts payable, (vi) the timely delivery of
audited financial statements and (vii) the use of corporate guarantees. To
accommodate the Company's growth strategy, the financing agreement, including
the covenants and financial ratios, was amended in August 1996. As of September
30, 1996, the Company was in compliance with all of the required covenants and
ratios under the financing agreement.
Part of the Company's acquisition strategy is to pay, over time, a portion
of the purchase price of such acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt and the current portion
of long term debt. These notes are generally payable over five years and totaled
$14.8 million at September 30, 1996. The Company will repay approximately $4.0
million of these notes with a portion of the proceeds of this offering.
The Company made net advances of $3.2 million, $3.7 million and $3.0 million
to its principal stockholder in 1993, 1994 and the nine months ended September
30, 1996 and received payments of $1.7 million from such stockholder in 1995. As
of September 30, 1996, the Company has a receivable from its principal
stockholder in the amount of $9.5 million. These advances do not currently bear
interest. Upon consummation of this offering, Andrew J. McKelvey will convert
all of his indebtedness to the Company to a promissory note. Such promissory
note will initially bear interest at the prime rate established by The Bank of
New York at the date of the note and shall be adjusted December 31, 1997 and
each December 31st thereafter to the Bank of New York prime rate in effect on
such dates. The Note will provide for annual payments of all accrued but unpaid
interest commencing December 31, 1997. The principal amount shall be payable in
equal annual installments of one-sixtieth of the initial principal amount
commencing December 31, 1997, with all unpaid principal due ten years from the
date of the note.
The Company has an obligation for annual dividend payments of 10.5% on its
$2.0 million of redeemable preferred stock. In addition, the Company has an
obligation for annual dividend payments, included in minority interests, of
10.0% on approximately $3.0 million of preferred shares of a subsidiary (YPMS
Acquisition, Inc.) held by an employee stock ownership trust. The Company
intends to use a portion of the net proceeds from this offering to redeem both
the redeemable preferred stock and the subsidiary's preferred stock. See "Use of
Proceeds."
The Company intends to continue its acquisition strategy and promotion of
its internet activities through the use of operating profits, borrowings against
its long-term debt facility and seller financed
38
<PAGE>
notes. The Company believes that its anticipated cash flow from operations, as
well as the availability of funds under its existing financing agreement and the
net proceeds of this offering, will provide it with liquidity to meet its
current foreseeable cash needs for at least the next year.
QUARTERLY RESULTS
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting principals. The operating results for any interim period are
not necessarily indicative of results for any other period.
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. The Company's quarterly commissions and fees for recruitment
advertising are typically highest in the first quarter and lowest in the fourth
quarter; however, the cyclicality in the economy and the Company's clients'
employment needs have an overriding impact on the Company's quarterly results in
recruitment advertising. Moreover, the Company's recruitment advertising
acquisition activity has had more of an impact on the Company's recently
reported quarterly results than any other factors.
39
<PAGE>
UNAUDITED QUARTERLY RESULTS
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 QUARTERS
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $17.2 $17.7 $19.4 $20.2
Recruitment
advertising.......... 1.6 3.7 2.9 3.4
----- ----- ----- -----
Total commissions and
fees................. $18.8 $21.4 $22.3 $23.6
----- ----- ----- -----
----- ----- ----- -----
Operating income......... $ 0.9 $ 0.7 $ 0.9 $ 4.3
Income (loss) before
provision for income
taxes, minority
interest and equity
in earnings (losses)
of affiliates........ $(0.3) $(1.4) $(2.2) $ 1.4
Net income (loss)........ $(0.3) $(1.3) $(2.0) $ 1.1
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $19.0 $21.9 $23.2 $23.4
Recruitment
advertising.......... 7.4 9.2 9.0 10.4
Internet............... -- -- -- .4
----- ----- ----- -----
Total commissions and
fees................. $26.4 $31.1 $32.2 $34.2
----- ----- ----- -----
----- ----- ----- -----
Operating income......... $ 4.4 $ 4.4 $ 2.8 $ 7.3
Income (loss) before
provision for income
taxes, minority
interest and equity
in earnings (losses)
of affiliates........ $ 2.1 $ 1.6 $ -- $ 4.5
Net income (loss)........ $ 0.9 $ 0.7 $(0.7) $ 2.3
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTERS
--------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
----------- ---------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $20.4 $23.0 $27.8
Recruitment
advertising.......... 12.7 12.2 18.5
Internet............... .9 1.5 1.9
----- ----- -----
Total commissions and
fees................. $34.0 $36.7 $48.2
----- ----- -----
----- ----- -----
Operating income......... $ 3.7 $ 3.1 3.2
Income before provision
for income taxes,
minority interest and
equity in earnings
(losses) of
affiliates........... $ 1.0 $ 0.4 --
Net income (loss)........ $(0.1) $ 0.3 $(0.7)
</TABLE>
40
<PAGE>
BUSINESS
The Company is a marketing services, communications and technology company
that provides comprehensive, individually tailored advertising services
including development of creative content, media planning, production and
placement of corporate advertising, market research, direct marketing and other
ancillary services and products. The Company is the world's largest yellow page
advertising agency and, the Company believes, one of the world's largest
recruitment advertising agencies. In 1995, the Company began marketing
Internet-based services as extensions of its core businesses and has become a
growing provider of Internet content. The Company offers advertising programs to
more than 17,000 clients, including more than 70 of the Fortune 100 and more
than 240 of the Fortune 500 companies. The Company's growth strategy is to
continue to actively pursue consolidation opportunities in its core advertising
businesses and to leverage its client base and its approximately 1,500 sales,
marketing and customer service personnel to expand its Internet-based
businesses. Except for the acquisition of three small recruitment advertising
agencies, the Company has no current plans for any additional acquisitions. See
"Pro Forma Condensed Consolidated Financial Information." For the year ended
December 31, 1995, the Company's gross billings were $596.1 million, commissions
and fees were $123.9 million, net income was $3.2 million and EBITDA was $25.0
million.
TMP is the world's largest yellow page advertising agency, generating
approximately $425 million in gross billings for the year ended December 31,
1995. TMP believes it is one of the world's largest recruitment advertising
agencies, generating approximately $165 million in gross billings for the same
period. With approximately 30% of the national accounts segment of the U.S.
yellow page advertising market, TMP is approximately three times larger than its
nearest competitor, based on gross billings. In the fragmented recruitment
advertising agency market, the Company believes that it has a 7% market share in
the U.S. and a 6% market share worldwide. A substantial part of the Company's
growth has been achieved through acquisitions. From January 1, 1993 through
December 31, 1995, TMP completed 26 acquisitions which have estimated annual
gross billings of $200 million. In 1996, through November 15, the Company
completed ten acquisitions with estimated annual gross billings of $180 million
including the acquisition in July 1996, of Neville Jeffress, one of the largest
recruitment advertising agencies in Australia, which has estimated annual gross
billings of $140 million. The Company believes additional acquisition
opportunities exist, particularly in the recruitment advertising and Internet
markets and intends to continue its strategy of making acquisitions which relate
to its core business.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
The Company has several career hubs, including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-, which collectively contain over 35,000 job listings. In 1996, the
Company began marketing its Dealer Locator service to yellow page clients.
Dealer Locator provides clients with the ability to create Web pages for their
local offices, franchisees or dealers. Potential customers can then access these
pages on the Internet by zip code or other key word searches.
INDUSTRY OVERVIEW
THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been
published in the U.S. since at least the 1890s and, traditionally, have been
published almost exclusively by telephone utilities. In the early 1980's, due in
part to telephone deregulation, independent companies began publishing an
increasing number of directories. Currently, approximately 7,000 yellow page
directories are published annually by 200 publishers and, in the U.S., many
cities with populations in excess of 80,000 are served by multiple directories.
The percentage of adults who use the yellow pages has remained relatively
constant over the last ten years at over 56%, and such readers consult the
yellow pages approximately two times weekly. Accordingly, yellow page
directories continue to be a highly effective advertising medium. For example,
the
41
<PAGE>
Company believes that approximately 70% of Ryder's consumer truck rental
customers consulted yellow page directories prior to renting trucks.
For the year ended December 31, 1995, total spending on yellow page
advertisements in the U.S. was $9.9 billion. Of this amount, approximately $8.5
billion was spent by local accounts and approximately $1.4 billion was spent by
national accounts. "Local" and "national," as those terms are used in the yellow
page industry, refer to whether an advertisement is solicited by a yellow page
publisher's own sales staff or is placed by an advertising agency and meets
certain criteria specified by the publisher. Local accounts are typically
merchants who primarily conduct their business within the geographic area served
by the publisher's directories.
The national account market consists of companies which sell products or
services in multiple markets and is the market in which TMP competes. Most
national accounts use independent advertising agencies to design and implement
their yellow page advertising programs to create a consistent brand image and
compelling message, to develop an effective media plan and to execute the
placement of the advertising at the local level. Agencies which place national
yellow page advertising are paid commissions by yellow page publishers. The
market has grown each year since 1981. During the period of 1990 through 1995,
the market grew at a compound average rate of approximately 4.5%.
THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising consists
primarily of creating and placing recruitment advertisements in the classified
advertising sections of newspapers. While the recruitment advertising market has
historically been cyclical, during the period of 1990 through 1995, the U.S.
market grew at a compound annual growth rate of approximately 11.5%. Classified
readership by job seekers has remained constant over the last ten years and 88%
of companies use newspapers to attract potential employees. The services
provided by recruitment advertising agencies can be complex and range from the
design and placement of classified advertisements to the creation of
comprehensive image campaigns which "brand" a client as a quality employer.
Further, shortages of qualified employees in many industries, particularly in
the technology area, have increased the need for recruitment advertising
agencies to expand the breadth of their service offerings to effect national and
sometimes global recruitment campaigns. For the year ended December 31, 1995,
total spending on advertisements in North America in the recruitment classified
advertisement section of newspapers was approximately $4.5 billion. Agencies
which place recruitment advertising are paid commissions generally equal to 15%
of recruitment advertising gross billings.
INTERNET. The Internet has rapidly grown from a network connecting a
limited number of government, research and educational institutions to a global
medium accessed by millions of users to communicate and exchange information.
Growth in the Internet has been fueled by an increasing usage of personal
computers at home and in the workplace, improvements in the performance and
speed of personal computers and modems, improvements in network infrastructure,
enhanced ease of access to the Internet provided by service providers,
consumer-oriented on-line services and long-distance telephone companies,
emergence of standards for Internet navigation and information access, declining
costs of Internet service due to increased competition among access providers
and increased awareness of the Internet among businesses and consumers. Growth
in Internet usage by non-technical users in particular has also been fueled by
the emergence of the Web which makes use of browser technology and simplifies
the retrieval and transmission of information.
As the Internet has become more accessible, functional and widely used by
consumers and businesses, its commercial potential has grown. The Internet is
emerging as a medium through which businesses can interactively inform, educate,
entertain and conduct business with millions of individuals. Thousands of
companies have created corporate Web sites that feature information about their
product offerings and advertise employment opportunities. Through the Web,
Internet content providers are able to deliver
42
<PAGE>
timely, personalized content in a manner not possible through traditional media.
Internet content can be continuously updated, and accessed by users at any time.
STRATEGY
Key elements of the Company's strategy are to:
CONTINUE TO GROW THE COMPANY'S RECRUITMENT AND YELLOW PAGE BUSINESSES. The
Company plans to continue to grow and enhance its recruitment and yellow page
advertising businesses through acquisitions and internal growth. From January 1,
1993 to November 15, 1996, the Company completed 36 acquisitions, with estimated
annual gross billings of $380 million. The Company intends to actively pursue
additional acquisitions and believes that the fragmented nature of the
recruitment advertising business, with no one agency representing more than 6%
of annual gross billings on a worldwide basis, provides the Company with the
opportunity to be a leader in the consolidation of this industry. The Company
also intends to selectively pursue acquisitions in the yellow page advertising
business. In addition to acquisitions, the Company intends to expand its
billings base with existing clients and by attracting new clients by leveraging
its size, resources and Internet product offerings. The Company has a dedicated
new business sales staff which focuses on adding new clients which to date in
1996, has added 122 new clients with estimated annual gross billings of
approximately $45 million.
EXPAND SERVICES TO THE INTERNET BY CAPITALIZING ON TMP'S RECRUITMENT
ADVERTISING AND YELLOW PAGE ADVERTISING BUSINESSES. The Company believes the
Internet is a powerful communications medium which can be heavily utilized by
its yellow page and recruitment advertising clients in attracting more customers
and qualified prospective employees, respectively. TMP intends to capitalize on
this opportunity by rapidly expanding, marketing and implementing its Internet
service offerings. The Company believes it is at the forefront in acquiring and
designing products to meet the needs of its client base. Since 1995, TMP has
acquired three recruitment oriented Web site companies including Adion
Information Services Inc., the creator of The Monster
Board-Registered Trademark-, Online Career Center, L.P. and MedSearch America,
Inc. In addition, during this time, the Company created Dealer Locator, a
product for yellow page clients, and modified Dealer Locator technology to
create Physician Finder, a database designed to provide information regarding
board certified physicians. The Company is designing and developing additional
Internet products and intends to opportunistically acquire Internet content
providers related to its core businesses. TMP also believes that its more than
1,500 person sales, marketing and customer service staff, and extensive base of
existing clients, provide it with a significant competitive advantage in
identifying, implementing and selling new Internet products to yellow page and
recruitment advertisers.
DIFFERENTIATE INTERNET PRODUCT OFFERINGS. The Company believes it is
important to differentiate its Internet service offerings. TMP intends to do
this by leveraging its experience in yellow page and recruitment advertising to
design and develop the most effective and frequently accessed products, by
branding its products through the use of traditional advertising mediums, by
tailoring its services to specific geographic markets, and by continually adding
incremental value-added features to its services thereby increasing their
utility to the Company's client base. The Company has begun implementing this
strategy most notably with The Monster Board-Registered Trademark- which has
been tailored to individual countries around the world, focusing on local
customs and terminology. Customized versions of The Monster
Board-Registered Trademark- currently exist in the U.S., Canada, the United
Kingdom and Australia. The Monster Board-Registered Trademark- is also tailored
for specific user groups. For example, The Monster Board-Registered Trademark-'s
Roar community targets college students and entry level job seekers.
TMP'S YELLOW PAGE BUSINESS
TMP entered the yellow page business in 1967 and has grown to become the
largest yellow page advertising agency both in the world and in the U.S. based
on gross billings. For the year ended
43
<PAGE>
December 31, 1995, the Company had worldwide yellow page gross billings of
approximately $425 million. With approximately 30% of the U.S. national yellow
page market, TMP is approximately three times larger than its nearest
competitor, based on gross billings. The Company's growth in yellow pages has
been driven in part by acquisitions. Since January 1, 1993, TMP has completed
five acquisitions and intends to continue to pursue acquisitions as a part of
its overall growth strategy.
CREATING AND PLACING YELLOW PAGE ADVERTISEMENTS. There are currently
approximately 7,000 yellow page directories in the U.S. Each has a separate
closing date for accepting advertisements and one or more of these closings
occur on every working day of the year. The steps involved in placing an
advertisement are numerous and can take as long as nine months.
The first step in the process is the formulation of the advertising
program's creative elements including illustrations, advertising copy, slogans
and other elements which are designed to attract a potential customer's
attention. To assess the effectiveness of a proposed campaign, TMP generally
undertakes extensive research to determine which alternatives best reach the
client's target market. This research typically includes focus group testing and
the running of split-run advertisements. Focus group testing involves forming
groups of potential customers and gauging their reaction to a variety of
potential advertisements. Split-run testing measures the results of specific
campaigns by placing more than one version of an advertisement in various
editions of the same yellow page directory. By using multiple phone numbers and
various monitoring methods, the Company can then determine which advertisements
generate the most effective response.
After designing an advertising program, TMP creates a media plan which
cost-effectively reaches the client's customer base. The Company analyzes
targeted directories to determine circulation, rate of usage and demographic
profile. It then recommends advertisements ranging from a full page to as little
as a one line listing. For some of the Company's larger yellow page clients,
advertisements are placed in over 2,000 directories.
To ensure client satisfaction, TMP maintains an extensive quality control
program. Account teams have frequent in-person client contact as well as formal
annual creative reviews. The Company also solicits feedback through client
interviews, written surveys and other methods consisting of focus groups made up
of yellow page users and yellow page user pollings. The principal aims of this
program are client retention and sales growth. TMP believes that its focus on
customer service has enabled it to increase its client retention rate from 90%
in 1991 to 96% in 1995, and to increase billings to existing clients by 7% for
the year ended December 31, 1995, as compared to the year ended December 31,
1994.
In addition to traditional advertising, the Company offers selected yellow
page clients a variety of value-added services ranging from managing the
maintenance and installation of telephone lines for branch locations to the
staffing and operation of fulfillment centers which respond to toll-free calls
requesting product brochures and other information. While beyond the typical
scope of services provided by an advertising agency, these ancillary services
are designed to further integrate TMP into client processes for the mutual
benefit of both parties.
TMP earns commissions from yellow page advertising paid by directory
publishers, which results in an effective commission rate to the Company of
approximately 20% of yellow page gross billings.
CLIENTS. TMP has over 2,100 yellow page clients, virtually all of whom
determine the content of their advertising programs on a centralized basis.
Placement of the advertising, however, requires an extensive local selling and
quality control effort because many of TMP's clients are franchisors or
manufacturers who are dependent upon franchisees or independent dealers for
distribution. The participation of franchisees and dealers in the yellow page
program is discretionary and must be solicited at the local level. As an example
of the scale of this task, TMP visited approximately 80% of the over 1,800 Midas
shops owned by over 600 franchisees while executing the 1995 Midas yellow page
program.
44
<PAGE>
To implement this local effort, TMP has a yellow page sales, marketing and
customer service staff of approximately 680 people. The Company believes the
size and breadth of this staff, its local client relationships and its databases
of client branch locations, franchisees, and dealers provide it with a strong
competitive advantage in executing the yellow page programs of existing clients.
TMP believes these resources are critical in marketing its services to potential
new clients and in marketing and executing its new Internet-based service
offerings.
The following are some of TMP's larger yellow page accounts:
<TABLE>
<S> <C> <C>
Beneficial Management ITT Industries Inc. Sears, Roebuck & Co.
Corporation Kohler Co. ServiceMaster L.P.
Bridgestone/Firestone Inc. Mailboxes, Etc. Sharp Electronics Corp.
Columbia/HCA Healthcare Corp. MCI Telecommunications Siemens Rohm--AG
Culligan International Corporation Communications
Company Midas International Terminix International L.P.
Ford Motor Company Corporation United Van Lines, Inc.
Hallmark Cards, Inc. Pizza Hut Inc. York Heating and Air
H&R Block Tax Services Inc. PRIMESTAR Partners L.P. Conditioning
Ryder
</TABLE>
No account represents more than 5% of the Company's yellow page commissions
and fees.
INTERNET-BASED SOLUTIONS FOR YELLOW PAGE ADVERTISING CLIENTS. To complement
the broad reach and penetration of yellow page advertising, the Company has
recently begun to offer its clients an Internet-based solution called Dealer
Locator. In creating a Dealer Locator program, the Company typically creates a
home page for each franchise or dealer location and links it to the client's
corporate Web site. Internet users can then retrieve information on a specific
location such as directions to, or a map of, such location, hours of operation
and potentially other information such as sale items and other special offers.
Dealer Locator is designed to provide an additional source of customer flow to
TMP's clients while, through linkage to the corporate Web sites, reinforcing the
desired brand imagery. TMP charges clients who utilize the Dealer Locator
product an up-front fee for the development of each individual home page as well
as an annual maintenance fee thereafter.
The Company's strategy with respect to Internet yellow page products is
twofold. First, develop appropriate Internet products which are attractive to
yellow page clients. Second, work with yellow page clients to drive traffic to
the client's Web sites.
The Company believes its pre-existing relationships with yellow page clients
is a key competitive advantage in marketing Dealer Locator. The Company
maintains databases containing the address, telephone number and contact person
for each of its accounts and, in addition, the Company's sales and marketing
staff personally visits most of its accounts at least annually. The Company
believes that these databases and personal relationships when combined with
TMP's knowledge of its client's businesses will position TMP to capitalize on
its marketing Internet-based products.
45
<PAGE>
The Company began marketing Dealer Locator in June 1996. The following
illustrates the Dealer Locator program which the Company created for Midas
International Corporation:
[LOGO]
The Company believes that Internet services must be interactive in order to
maintain or expand their rate of usage. Dealer Locator was designed to be as
interactive as the user desires. For example, a user utilizing Dealer Locator
can retrieve pertinent information about the nearest Midas location or,
alternatively, the user can learn to diagnose certain car problems, learn about
the history of Midas or learn about Midas products. In addition, Midas' Dealer
Locator has an e-mail function which enables Midas to respond to customers'
questions and comments. The Company is researching other ways to make Dealer
Locator even more interactive.
The Company believes that the Dealer Locator concept is appropriate for many
of its yellow page clients. For example, the Company is adapting Dealer Locator
technology to create Physician Finder. Physician Finder will list the names and
addresses of, and other pertinent information pertaining to, board certified
physicians. The Company anticipates that Physician Finder will be on-line by the
beginning of 1997.
TMP'S RECRUITMENT ADVERTISING BUSINESS
TMP entered the recruitment advertising business in 1993 with the
acquisition of Bentley, Barnes & Lynn, Inc. and has grown both through
acquisitions and internally. Since 1993, the Company has acquired 28 recruitment
advertising agencies, and the Company believes it is one of the largest
recruitment advertising agencies. For the year ended December 31, 1995, TMP had
recruitment advertising gross billings of $166.5 million representing
approximately 7% of the U.S. market. In addition to its 45 offices in the United
States, the Company has 25 locations outside the United States. The Company also
maintains relationships with 24 agencies throughout the world, further enhancing
the Company's ability to reach qualified job candidates. As a full service
agency, TMP offers its clients comprehensive recruitment advertising services
including creation and placement of classified advertising, development of
employer image campaigns, creation of collateral materials such as recruiting
brochures and implementation of alternative recruitment programs such as job
fairs, employee referral programs and campus recruiting. The Company specializes
in designing recruitment advertising campaigns for clients in high growth
industries and in industries with high employee turnover rates. TMP believes
that the scope of its services and scale of its operations differentiate it from
its competitors. Further, the Company believes that as employers find it more
difficult to attract qualified employees, they will increasingly seek out
agencies that can implement national and, in some cases, global recruitment
strategies.
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<PAGE>
CREATING AND PLACING THE ADVERTISEMENT. The Company's task in formulating
and implementing a global recruitment advertising program is to design the
creative elements of the campaign and to select the appropriate media and/or
other recruitment methods. This is done in the context of the client's staffing
parameters which generally include skill requirements, job location and
advertising budget. In addition, while executing a given campaign, TMP will
often undertake basic research with respect to demographic profiles of selected
geographic areas to assist the client in developing an appropriate overall
strategy.
The Company has historically found that the strongest recruitment
advertising campaigns "brand" the client's image, demonstrate the client's
unique selling points and stress the client's employee benefits and corporate
culture. Effectively differentiating one employer from another has become
particularly important in the technology and healthcare sectors where there is
an acute shortage of qualified job candidates. The success of the campaign may
depend on whether an organization is seen as sufficiently distinct from its
competitors.
After completing the design of an advertisement's creative elements, the
Company develops an appropriate media plan. Typically, a variety of media is
used, including newspapers, trade journals, the Internet, billboards, direct
mail, radio and television. If the Company recommends use of newspapers, it may
recommend certain newspapers or editions of a particular newspaper which are
targeted to a specific demographic segment of the population. TMP may also
recommend a variety of advertisement sizes and vary the frequency with which an
advertisement appears.
After an advertisement is placed, the Company conducts extensive customer
analysis to assure satisfaction, including monitoring the effectiveness of the
chosen media. As an example, for a transportation client, TMP analyzed
cost-per-response, cost-per-application and cost-per-hire data for over a dozen
media vehicles running in approximately 30 markets in an effort to determine the
return on investment of each media vehicle. TMP's recruitment advertising
division also maintains a quality assurance program for its larger clients which
provides services similar to those provided to the Company's yellow page
clients.
The Company receives commissions generally equal to 15% of recruitment
advertising gross billings. The Company also earns fees from value-added
services such as design, research and other creative and administrative services
which resulted in aggregate commissions and fees equal to approximately 21% of
recruitment advertising gross billings.
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<PAGE>
CLIENTS. The Company has more than 2,500 recruitment advertising clients.
The Company believes that an important component of its growth in recruitment
advertising is working with clients in high growth industries and in industries
with high employee turnover rates. The following are some of TMP's larger
recruitment advertising clients:
<TABLE>
<CAPTION>
TECHNOLOGY FINANCE RETAIL
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
Cisco Systems Inc. Bank America Corp. Good Guys Inc.
Compaq Computer Corp. Dean Witter Reynolds, Inc. Kohl's Corp.
Gateway 2000 Federated Department Stores Inc.
International Business Machines Nike Inc.
Corp. Office Max Inc.
Motorola Inc. Target Stores Inc.
Sun Microsystems Inc.
</TABLE>
<TABLE>
<CAPTION>
PHARMACEUTICALS RESTAURANTS TRANSPORTATION
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
Abbott Laboratories Darden Restaurants Inc. J.B. Hunt Transport Services Inc.
Genentech Inc. Pizza Hut Inc.
</TABLE>
<TABLE>
<CAPTION>
HEALTHCARE CONSULTING
- ------------------------------------------------------------------ ----------------------------------------------
<S> <C>
Cigna Corp. Price Waterhouse LLP
Kaiser Permanente/Kaiser Foundation Health Plan Inc. System Software Associates Inc.
NovaCare Inc.
</TABLE>
Through its acquisition strategy, the Company believes it has become one of
the largest full service recruitment advertising agencies and is now leveraging
its size and service offerings to attract new and larger clients. For example,
of the accounts shown above, 12 became clients as a result of the Company's new
business efforts. No account represents more than 5% of the Company's
recruitment advertising commissions and fees.
INTERNET-BASED SOLUTIONS FOR RECRUITMENT ADVERTISING CLIENTS. To complement
the broad reach and penetration of print recruitment advertising, the Company
offers its clients Internet-based solutions to meet their recruitment needs. The
Company has several career hubs including, The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-. Each of these Web sites consists of a database of job and resume
listings and a variety of other value added features. Collectively, TMP's career
hubs contain more than 35,000 job postings. The Company intends to continue to
build and expand its portfolio of product offerings through both internal
development and acquisitions.
Based on its experience with its clients, the Company believes that only 20%
to 30% of open job positions are advertised using traditional print media. It is
the Company's belief that on-line solutions will significantly expand the
recruitment advertising market because of their global reach and continuous
availability. Furthermore, on-line advertising is extremely cost effective when
compared to other traditional recruitment methods. TMP intends to aggressively
pursue this market by leveraging its relationships with its existing clients and
by using its portfolio of on-line services to attract new accounts. TMP's
Internet recruitment services have been actively marketed since May 1995 and are
currently generating approximately $700,000 in monthly revenue, approximately
45% of which is from new clients.
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The Company's strategy with respect to Internet recruitment products is
twofold. First, develop a portfolio of attractive product offerings and
differentiate them through functionality, target market and price points.
Second, drive user traffic to its Web sites to maximize the value of the medium
to TMP's customers.
The Monster Board-Registered Trademark- (HTTP://WWW.MONSTER.COM), launched
in April 1994, was rated by COMMUNICATIONS WEEK (June 10, 1996 edition) as the
premier career oriented Web site in terms of its search and responding
capabilities. It was also one of the first 1,000 commercial Web sites out of the
more than 300,000 which currently exist. The Monster Board-Registered Trademark-
currently lists approximately 15,000 jobs offered by over 3,000 employers, and
clients of The Monster Board-Registered Trademark- include Nike, McDonald's, BBN
Planet, CompuServe, Deloitte & Touche, and USA TODAY. According to Nielson Media
Research Internet Profiles Corporation, The Monster Board-Registered Trademark-
received over 7.7 million hits (an entry into the log file on its server) in
June 1996, and is averaging approximately 15,000 visits daily with the average
length of each visit approaching nine and one-half minutes. Users of The Monster
Board-Registered Trademark- can search for employment opportunities three ways.
Monster Search-TM- utilizes intuitive scrollbar functionality to access the full
Monster Board-Registered Trademark- database according to location, discipline,
company and job title. Keyword Search allows a user to enter specific keywords
to match skills, job titles or other requirements and Monster NewsSearch employs
Verity-TM- technology to search over 40 Usenet Newsgroups on the Internet which
deliver over 50,000 additional job opportunities. Job seekers can post their
resume into the database free of charge, enabling them to easily transmit their
resume to prospective employers electronically. The Monster
Board-Registered Trademark- currently contains over 45,000 resumes and attracts
on average over 100 new resumes per day.
Online Career Center-SM- (HTTP://WWW.OCC.COM) ("OCC") is the Internet's
earliest career site, originating in late 1992 when a group of U.S. corporations
developed an employment database. Launched in April 1993, OCC is designed to
provide corporate recruiters and job-seekers with efficient and easy-to-use
search software. OCC enters into subscription based agreements with member
companies and functions as a central Internet recruitment and human resources
management service. OCC maintains a Member Services Department which assists
corporate users during business hours. As with The Monster
Board-Registered Trademark-, job seekers can place their resumes on-line. OCC
currently lists more than 20,000 jobs for a broad client base including Allied
Signal, Andersen Consulting, Eli Lilly and Co., Levi Strauss & Co., Smith Barney
and Viacom. OCC is designed for users who prefer Web sites which are more direct
with fewer ancillary features. Its value-added services include career
assistance, a self-help career information section for applicants, recruiter's
office, which provides resource information for corporate recruiters, on-campus,
a link to over 700 colleges and universities nationwide, and membership
opportunities for contractors, agencies and search firms. OCC's pricing
structure is membership-based rather than volume-based, consistent with its
"less frills" market positioning.
MedSearch-SM- (HTTP://WWW.MEDSEARCH.COM) is a leading Internet Web site for
the healthcare industry. Launched in May 1994, MedSearch-SM- attracts healthcare
professionals and many of North America's largest health care providers,
including Duke University Medical Center, Henry Ford Health System, Johns
Hopkins Hospital, Kaiser Permanente, Mayo Clinics & Hospitals and NovaCare.
MedSearch-SM- offers detailed employer profiles, resume postings, discussion
groups, career and industry information, and direct links to numerous healthcare
resources on the Internet. MedSearch-SM- provides access to job listings which
can be searched by location, category, title, employer and key word. Beyond the
core business functions of jobs, resumes and employer profiles, MedSearch-SM-
provides outplacement information and a physician locator.
Be the Boss-SM- (HTTP://WWW.BETHEBOSS.COM/BTB) focuses on the growing
franchising industry. Be the Boss-SM- users can search for current franchise
opportunities on-line and apply directly to franchisors using a
franchisor-customized questionnaire. Franchisor profiles allow users to learn
more about today's top franchise companies such as The Athlete's Foot, Subway
and 7-Eleven. In addition, Be the Boss-SM- provides extensive resources to the
prospective franchisee including sound clips and articles on franchising,
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<PAGE>
interactive financial worksheets and links to other entrepreneurs' resources on
the Web. Be the Boss-SM- also includes a comprehensive directory of franchises
worldwide.
TMP has also developed private label applications of its interactive
recruitment products. For example, the Company adapted The Monster
Board-Registered Trademark- technology to create a database of jobs for Fidelity
Investments which resides, through a hyper-link, on the Fidelity home page. The
search features have the look and ease of use associated with The Monster
Board-Registered Trademark- while appearing to the user as a seamless part of
the Fidelity site. TMP intends to continue to market private label products as a
way to increase the scale of its databases.
To differentiate its on-line products, the Company has focused on segmenting
the user market place. For example, The Monster Board-Registered Trademark- is
TMP's premium general recruitment product and is therefore populated with a
variety of value-added features including:
ROAR. A segment of The Monster Board-Registered Trademark- targeted to
the college and entry-level job seekers. Roar offers young professionals the
opportunity to conduct an entry-level career search, access the latest
career and lifestyle trends, pose career-related questions, and enter into
on-line discussions with their peers.
HR1. HR1 is an interactive forum which provides Human Resources
professionals with the ability to catch up on the latest industry trends,
network with colleagues through on-line discussions, learn about pertinent
associations and educational offerings, and review current Human Resources
opportunities.
CEO EXCHANGE. CEO Exchange is an executive resource featuring
interviews with leading CEO's, on-line discussions, and strategies to
approach typical issues or dilemmas. CEO Exchange also offers an executive
level career search.
CAREER CENTER. This employment resource features interviewing and
resume tips, career fair listings, important career links and a career
counselor to respond to questions submitted by users.
In addition to market segmentation, the Company intends to differentiate its
products by tailoring them to specific geographic areas and by branding them
using both traditional advertising media and the Internet. To date, The Monster
Board-Registered Trademark- has been tailored to reflect the local customs and
terminology of the U.S., Canada, the United Kingdom and Australia. In March
1996, the Company began to execute a media plan aimed at branding The Monster
Board-Registered Trademark-.
To attract the maximum amount of volume to its Web sites, TMP intends to
continue to develop additional value-added content while developing strategic
alliances with other on-line content providers. The Company's current strategic
alliances center on The Monster Board-Registered Trademark- and include:
THE GARTNER GROUP. The Gartner Group is the leading provider of
independent research, analysis and advisory services to the information
technology industry. In August 1996, The Monster Board-Registered Trademark-
became the official career hub for Gartner Group's Web site @VANTAGE.COM.
Individuals who access this site can therefore directly access The Monster
Board-Registered Trademark- database through a hyper-link. The interface has
the same functionality and ease of use of The Monster
Board-Registered Trademark-. This arrangement was established on a
co-branded basis such that users will see the logos of both The Monster
Board-Registered Trademark- and the Gartner Group. This alliance serves to
continue to reinforce The Monster Board's brand equity while driving volume
to The Monster Board-Registered Trademark-'s jobs database.
AT&T BUSINESS NETWORK. AT&T Business Network is a comprehensive,
Web-based information and productivity resource designed for business
managers, professionals and entrepreneurs. In July 1996, TMP established a
co-branded career hub alliance with AT&T Business Network structured in a
similar fashion to the Gartner Group alliance. AT&T Business Network and
Industry.Net have merged to form Netts, Inc. and the Company anticipates
that its relationship will expand with this merger.
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<PAGE>
ZIFF DAVIS INTERACTIVE'S ZDNET. Ziff Davis is a leading publisher of
magazines for the computer industry. In August 1995, TMP entered into an
agreement with Ziff Davis Interactive to use The Monster
Board-Registered Trademark- as the official job site for the Ziff Davis
Interactive's ZDNet Web site. Unlike co-branded alliances, however, this was
structured as a private label application. Therefore, the site has the
functionality of The Monster Board-Registered Trademark-, while appearing to
be a seamless component of the host site. The strategic alliance adds
approximately 1,500 users to The Monster Board-Registered Trademark-'s
circulation each day.
RESTRAC, INC. Restrac, Inc. is the leading provider of software used to
automate the recruitment, selection, and placement of an organization's
workforce. Restrac, Inc.'s software is licensed by 450 organizations with
over 4,000 users. Imbedded in Restrac, Inc.'s software is an automatic
download feature whereby job postings can be fed directly into The Monster
Board-Registered Trademark-. Further, resumes posted on The Monster
Board-Registered Trademark- can be downloaded directly into Restrac, Inc.
This alliance significantly streamlines TMP's interface with its clients who
utilize Restrac, Inc.'s software, further enhancing the cost effectiveness
of The Monster Board-Registered Trademark-.
The Monster Board-Registered Trademark- utilizes Sun Microsystem's high-end
Sparc workstations (Sparc 1000's, Super Sparcs, Ultra Sparcs) to provide
commercial-grade Web service to an expanding Internet user-base. The Monster
Board-Registered Trademark- is currently co-located at BBN Planet and connected
to a 10 megabit/second feed. An Oracle-TM- database is incorporated to store
resumes and jobs. Oracle-TM- also allows The Monster Board-Registered Trademark-
to take advantage of agent technology, which allows enhanced user interaction,
personalization and passive, independent data searches which the user can
customize and view the next time they log on to the site. An Open Market-TM-
server is installed to ensure the speed and reliability of The Monster
Board-Registered Trademark- and to add the ability to handle encrypted credit
card transactions over the Web.
SALES AND MARKETING
TMP has over 1,500 employees focused on its sales, marketing and customer
service efforts worldwide. The Company has divided its sales, marketing and
customer service staff into two groups: (i) new business generation
(approximately 150 employees) and (ii) existing client relationships maintenance
and improvement (approximately 1,400 employees). In 1995, the Company acquired
73 new clients with estimated annual gross billings of approximately $30
million. Within each group, TMP maintains separate sales and marketing staffs
for its yellow page advertising business, recruitment advertising business and
Internet business. In addition to specializing by product, each group undertakes
a cross-selling effort of TMP's other products as appropriate. The Company's
Internet sales staff has targeted its yellow page and recruitment advertising
clients to capitalize on the interactivity and additional services that its
Internet products can cost effectively provide such clients. In addition to
pursuing cross-selling opportunities within TMP's existing client base, each
product sales force also designs targeted selling campaigns for non-TMP clients.
TMP's clients have a marketing manager who works closely with the client to
develop and design the appropriate marketing and advertising campaign. The
customer service representatives work closely with the marketing manager and the
client to implement the marketing and advertising campaign, evaluate the
effectiveness of the campaign and monitor client satisfaction levels.
The Company has more than 17,000 clients, including more than 70 of the
Fortune 100 companies and more than 240 of the Fortune 500 companies. No one
client accounts for more than 5% of the Company's annual commissions and fees.
The Company has 45 sales, marketing and customer service offices located in the
United States and 25 offices in the rest of the world. The Company also
maintains relationships with 24 international recruitment advertising agencies
throughout the world, further enhancing the Company's ability to reach qualified
job candidates.
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COMPETITION
The markets for the Company's services and products are highly competitive
and are characterized by pressure to reduce prices, incorporate new capabilities
and technologies and accelerate job completion schedules.
The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, media companies, as well as
specialized and integrated marketing communication firms. Many advertising
agencies and media companies have started to either internally develop or
acquire new media capabilities. New boutiques that provide integrated or
specialized services (such as advertising services or Web site design) and are
technologically proficient, especially in the new media arena, are also
competing with the Company. Many of the Company's competitors or potential
competitors have long operating histories, and some have greater financial,
management, technological, development, sales, marketing and other resources
than the Company. In addition, the Company's ability to maintain its existing
clients and generate new clients depends to a significant degree on the quality
of its services, pricing and its reputation among its clients and potential
clients.
TMP believes that its five largest competitors in the recruitment
advertising segment are Bernard Hodes Advertising, Inc., a subsidiary of
Omnicom, Nationwide Advertising Service, Inc., controlled by the Gund Brothers,
Austin Knight, JWT Specialized Communications, a subsidiary of the WPP Group
USA, Inc., and Universal Communications, a subsidiary of The Interpublic Group
of Companies, Inc. The Company also competes with hundreds of Internet content
providers.
The principal factors on which the Company competes are service, creative
quality, price, technological and new media sophistication and intangible
factors such as the interpersonal skills of the individuals managing the client
account and an adaptive corporate culture. The Company believes that it competes
favorably with respect to each of these factors. See "Risk
Factors--Competition."
PROPERTIES
Substantially all offices of the Company are located in leased premises.
The Company's principal office is located at 1633 Broadway, New York, New
York, where it occupies approximately 44,000 square feet of space under a lease
expiring in June 2004. Monthly payments under the lease currently are $105,712
and escalate during the term of the lease.
The Company also has leases covering local offices throughout the United
States and in some foreign countries.
All leased space is considered to be adequate for the operation of TMP's
business, and no difficulties are foreseen in meeting any future space
requirements.
INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part on the
protection of its original content for the Internet and on the goodwill
associated with its trademarks, trade names, service marks and other proprietary
rights. The Company relies on copyright laws to protect the original content
that it develops for the Internet. In addition, the Company relies on federal
trademark laws to provide additional protection for the appearance of its
Internet sites. A substantial amount of uncertainty exists concerning the
application of copyright laws to the Internet, and there can be no assurance
that existing laws will provide adequate protection for the Company's original
content. In addition, because copyright laws do not prohibit independent
development of similar content, there can be no assurance that copyright laws
will provide any competitive advantage to the Company.
The Company has registered "The Monster Board-Registered Trademark-." The
Company also asserts common law protection on certain names and marks that it
has used in connection with its business activities.
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<PAGE>
The Company relies on trade secret and copyright laws to protect the
proprietary technologies that it has developed to manage and improve its
Internet sites and advertising services, but there can be no assurance that such
laws will provide sufficient protection to the Company, that others will not
develop technologies that are similar or superior to the Company's, or that
third parties will not copy or otherwise obtain and use the Company's
technologies without authorization. The Company has filed patent applications
with respect to certain of its software systems, methods and related
technologies, but there can be no assurance that such applications will be
granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a competitive
advantage for the Company. In addition, the Company relies on certain technology
licensed from third parties, and may be required to license additional
technology in the future, for use in managing its Internet sites and providing
related services to users and advertising customers. The Company's ability to
generate fees from Internet commerce may also depend on data encryption and
authentication technologies that the Company may be required to license from
third parties. There can be no assurance that these third party technology
licenses will be available or will continue to be available to the Company on
acceptable commercial terms or at all. The inability to enter into and maintain
any of these technology licenses could have a material adverse effect on the
Company's business, financial condition and operating results.
Policing unauthorized use of the Company's proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford the Company little or
no effective protection of its intellectual property. In addition, there can be
no assurance that third parties will not bring claims of copyright or trademark
infringement against the Company or claim that the Company's use of certain
technologies violates a patent. The Company anticipates an increase in patent
infringement claims involving Internet-related technologies as the number of
products and competitors in this market grows and as related patents are issued.
Further, there can be no assurance that third parties will not claim that the
Company has misappropriated their creative ideas or formats or otherwise
infringed upon their proprietary rights in connection with its Internet content.
Any claims of infringement, with or without merit, could be time consuming to
defend, result in costly litigation, divert management attention, require the
Company to enter into costly royalty or licensing arrangements or prevent the
Company from using important technologies or methods, any of which could have a
material adverse effect on the Company's business, financial condition or
operating results.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, the Company is subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participated in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive.
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
As a provider of Internet content, the Company is subject to the provisions
of the recently enacted Communications Decency Act (the "CDA"), which, among
other things, imposes criminal penalties on
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<PAGE>
anyone that distributes certain prohibited material over the Internet. Although
the manner in which the CDA will be interpreted and enforced and its effect on
the Company's operations cannot yet be fully determined, the CDA could subject
the Company to substantial liability. The CDA could also dampen the growth of
the Internet generally and decrease the acceptance of the Internet as an
advertising medium, and could, therefore, have a material adverse effect on the
Company's business, financial condition or operating results. It is also
possible that new laws and regulations will be adopted covering issues such as
privacy, copyright infringement, subject matter and the pricing, characteristics
and quality of Internet products and services. Application to the Internet of
existing laws and regulations governing issues such as property ownership, libel
and personal privacy is also subject to substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. The Company is not involved in any pending or
threatened legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's financial condition
or results of operations.
LITIGATION
In November 1996, an action was commenced in the Supreme Court of the State
of New York against Old TMP, WCI and Andrew J. McKelvey by a former employee.
The complaint alleges, among other things, that the defendants breached
purported contractual obligations pursuant to which the former employee was
entitled to a 40% ownership interest in the Company's recruitment advertising
business, and breached fiduciary obligations to the former employee arising out
of the deprivation of his supposed 40% interest. The former employee seeks
damages in an unspecified amount and punitive damages in the amount of $10
million for each claim. The Company and Mr. McKelvey intend to vigorously
contest the complaint. There can be no assurance as to the outcome of the
litigation and, in the event of a decision adverse to the Company, the Company's
business, financial condition and operating results, and the Company's
stockholders, could be materially adversely affected. Mr. McKelvey has agreed to
indemnify the Company against any adverse judgment. There can be no assurance,
however, that Mr. McKelvey will have sufficient financial resources to satisfy
any indemnification claims.
EMPLOYEES
At October 31, 1996, the Company employed 2,205 people, of whom 1,448 were
client services personnel, 159 were sales and marketing personnel and 300 were
creative and graphics personnel. The remainder of the Company's personnel are
financial and administrative personnel. The Company's employees are not
represented by a labor union or a collective bargaining agreement. The Company
regards its employee relations as excellent.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. Their respective backgrounds
are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ----------- ---------------------------------------------------------
<S> <C> <C>
Andrew J. McKelvey............................... 62 Chairman of the Board, President and Director
Thomas G. Collison............................... 57 Vice Chairman and Secretary
David A. Hosokawa................................ 53 Vice Chairman
Paul M. Camara................................... 49 Executive Vice President--Creative/Sales/Marketing
Jeffrey C. Taylor................................ 36 Executive Vice President--Interactive
James J. Treacy.................................. 38 Executive Vice President--Finance and Strategy
Roxane Previty................................... 37 Chief Financial Officer
Bernice M. Hazell................................ 42 Senior Vice President--Client Service
V. Miller Newton................................. 37 Senior Vice President--Sales and Marketing
Myron F. Olesnyckyj.............................. 35 Vice President--General Counsel
George R. Eisele................................. 60 Executive Vice President of TMP Worldwide Direct and
Director
John R. Gaulding (1)(2).......................... 51 Director
Graeme K. Howard, Jr. (1)........................ 64 Director
Jean-Louis Pallu................................. 56 Director
John Swann (1)(2)................................ 60 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
ANDREW J. MCKELVEY founded the Company in 1967, and has served as Chairman
of the Board and President since that time. Mr. McKelvey has a B.A. from
Westminster College. Mr. McKelvey was a member of the Board of Directors of the
Yellow Pages Publishers Association and the Association of Directory Marketing
from 1994 through September 1996.
THOMAS G. COLLISON joined the Company in February 1977 as Controller.
Subsequently, he was named Vice President--Finance; Senior Vice President;
Executive Vice President and Chief Financial Officer and, in March 1996, Vice
Chairman. Mr. Collison received a B.S. from Fordham University.
DAVID A. HOSOKAWA joined the Company in November 1991 as Chief Executive
Officer and, prior thereto, was a consultant to the Company for four years. He
was named to his current position in April 1996. Mr. Hosokawa has a B.A. from
St. Olaf College.
PAUL M. CAMARA joined the Company in February 1970. Mr. Camara was elected
as a Vice President of the Company in 1978 and as a Senior Vice President in
1987. He was named to his current position in April 1996. Mr. Camara received a
B.A. from University of Massachusetts--Dartmouth.
JEFFREY C. TAYLOR joined the Company in November 1995. Mr. Taylor was
founder and president of Adion, Inc., a recruitment advertising firm, from May
1989 until its purchase by the Company in November 1995. Mr. Taylor founded The
Monster Board-Registered Trademark- in April 1994. He attended the University of
Massachusetts.
JAMES J. TREACY joined the Company in June 1994 as chief executive officer
of the recruitment division. In April 1996, Mr. Treacy was named to his current
position. Prior to joining the Company, Mr. Treacy was Senior Vice
President--Western Hemisphere Treasurer for the WPP Group USA, Inc. Prior
thereto,
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Mr. Treacy was a corporate officer of The Ogilvy Group Inc. Mr. Treacy received
a B.B.A. from Siena College and an M.B.A. from St. John's University.
ROXANE PREVITY joined the Company in November 1994. Ms. Previty was employed
by WPP Group USA, Inc. in various capacities from June 1987 until October 1994.
Ms. Previty holds a B.A. from Stanford University and an M.B.A. from Harvard
Business School.
BERNICE M. HAZELL joined the Company in 1975. Ms. Hazell has been named to
various managerial positions with increasing responsibility. She was named to
her present position in October 1991.
V. MILLER NEWTON joined the Company in June 1986 as Director of New Business
Development. From 1991 through March 1996, he was appointed to various executive
positions with increasing responsibility including Group Vice President from
January 1993 through March 1996. In April 1996, he assumed his current position.
Mr. Newton attended the University of South Florida.
MYRON F. OLESNYCKYJ joined the Company in June 1994. From September 1986
through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P.
and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown
University's School of Foreign Service and a J.D. from the University of
Pennsylvania Law School.
GEORGE R. EISELE joined the Company in 1976, and has been Executive Vice
President of TMP Worldwide Direct, the Company's direct marketing division,
since 1989, and a director of the Company since September 1987.
JOHN R. GAULDING became a director in January 1996. Mr. Gaulding is a
private investor and business consultant in the fields of strategy and
organization. He was Chairman and Chief Executive Officer of National Insurance
Group, a publicly traded financial information services company, from April
through July 11, 1996, the date of such company's sale and Corporate Vice
President of ADP, Inc. For six years prior thereto, he was President and Chief
Executive Officer of ADP Claims Solutions Group. From 1985 to 1990, Mr. Gaulding
was President and Chief Executive Officer of Pacific Bell Directory, the yellow
page publishing unit of Pacific Telesis Group. Mr. Gaulding served as
Co-Chairman of the Yellow Pages Publishers Association from 1987 to 1990. He
holds a B.S. from the University of California at Los Angeles and an M.B.A. from
the University of Southern California.
GRAEME K. HOWARD, JR. became a director in September 1996. Mr. Howard is an
investment banker, lawyer and publisher. Mr. Howard is a partner of Howard,
Lawson & Co., an investment banking firm which he founded in 1972. He has been
the editor or publisher of GOING PUBLIC; THE IPO REPORTER; PRIVATE PLACEMENTS;
GROWTH CAPITAL; BUSINESS BORROWER; EUROPEAN TAXATION; AND THE TAXATION OF PATENT
ROYALTIES, DIVIDEND, INTEREST IN EUROPE. Mr. Howard is a member of the
Connecticut and Pennsylvania bars and practiced international business law in
Amsterdam and Philadelphia from 1960-1967. From 1967-1972 he was a partner in
the corporate finance department of a regional investment banking firm. Mr.
Howard was a member of the Board and the audit committee of Advanta Corp., a
NASDAQ listed credit card, leasing and consumer lender from 1986-1995. From
1994-1996, Mr. Howard was vice chairman of the Board of Datatec Industries Inc,
a network integrator. Since April 1996, Mr. Howard has been a financial advisor
to Datatec. Mr. Howard received a B.A. from Amherst College and a LLB from Yale
Law School.
JEAN-LOUIS PALLU became a director in September 1996. From 1992 until June
1996, Mr. Pallu was President of ODA, the yellow pages subsidiary of Havas, a
French advertising firm. Prior thereto, since 1974, he was employed by that firm
in various executive capacities. Mr. Pallu was graduated from Diplome de l'
Ecole des Hautes Etudes Commerciales with a concentration in business. He is a
Chevalier of the National Order of Merit.
JOHN SWANN became a director in September 1996. In 1995, Mr. Swann founded
Cactus Digital Imaging Systems, Ltd., Canada's largest supplier of
electronically produced large format color prints.
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All directors hold office until the next meeting of the stockholders of the
Company and until their successors are elected and qualified. Officers are
appointed to serve, at the discretion of the Board of Directors, until their
successors are appointed.
The Board of Directors has a Compensation Committee charged with
recommending to the Board the compensation for the Company's executives and
administering the Company's stock option and benefit plans. The Compensation
Committee is currently composed of Messrs. Gaulding and Swann.
The Board of Directors has an Audit Committee charged with recommending to
the Board the appointment of independent auditors of the Company, as well as
discussing and reviewing, with the independent auditors, the scope of the annual
audit and results thereof. The Audit Committee is currently composed of Messrs.
Gaulding, Swann, and Howard.
The Board of Directors has a Strategy Committee charged with recommending to
the Board strategic plans. The Strategy Committee is currently composed of
Messrs. Gaulding, Pallu and Swann.
DIRECTOR COMPENSATION
Prior to this offering, Mr. Gaulding, a non-employee director, received a
director's fee of $20,000 per quarter plus reimbursement of expenses incurred in
connection with his duties as a director. Prior to this offering, Messrs. Swann,
Pallu and Howard, each of whom is a non-employee director, was provided with
reimbursement of expenses incurred in connection with their respective duties as
a director. Upon completion of this offering, non-employee directors will
receive $15,000 per year for services rendered as directors, plus a per meeting
fee of $5,000 for each meeting of the board of directors or a committee of the
board of directors attended in person after the fifth such meeting attended in
person, plus reimbursement of expenses incurred in connection with their duties
as directors. Each current and future non-employee director is also eligible to
receive stock options under the Company's Stock Option Plan for Non-Employee
Directors. See "Management--Stock Options."
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's chief executive
officer and each of the next four most highly compensated executive officers for
services rendered to the Company during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
Andrew J. McKelvey (1),..................................... $558,731 $ 710,000 $ 2,730(3)
Chairman of the Board and President
David A. Hosokawa,.......................................... 299,066 129,000 2,730(3)
Vice Chairman
James J. Treacy (2),........................................ 180,000 197,500 2,730(3)
Executive Vice President--Finance and Strategy
Thomas G. Collison,......................................... 205,418 62,000 2,730(3)
Vice Chairman and Secretary
Paul M. Camara,............................................. 223,566 37,000 2,730(3)
Executive Vice President--Creative/Sales/Marketing
</TABLE>
- ------------------------
(1) Mr. McKelvey has entered into an employment agreement with the Company
effective as of November 15, 1996. See "--Employment Agreements."
(2) Mr. Treacy has entered into an employment agreement with the Company
effective as of November 18, 1996. See "-- Employment Agreements."
(3) Represents matching contributions made to the Company's 401k Plan.
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STOCK OPTIONS
In January 1996, the Company's Board of Directors adopted the 1996 Employee
Stock Option Plan (the "Stock Option Plan"), which provides for the issuance of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options,
to purchase an aggregate of up to 900,000 shares of the Common Stock of the
Company. The Stock Option Plan permits the grant of options to officers,
employees and consultants of the Company and its affiliates.
The Stock Option Plan is administered by the Compensation Committee. Each
option is evidenced by a written agreement in a form approved by the
Compensation Committee. No options granted under the Stock Option Plan are
transferable by the optionee other than by will or by the laws of descent and
distribution, and each option is exercisable, during the lifetime of the
optionee, only by the optionee.
Under the Stock Option Plan, the exercise price per share of an incentive
stock option must be at least equal to 100% of the fair market value of a share
of the Common Stock on the date of grant (110% of the fair market value in the
case of options granted to employees who hold more than ten percent of the
voting power of the Company's capital stock on the date of grant). The per share
exercise price of a non-qualified stock option must be not less than the par
value of a share of the Common Stock on the date of grant. The term of an
incentive or non-qualified stock option is not to exceed ten years (five years
in the case of an incentive stock option granted to a ten percent holder). The
Compensation Committee has the discretion to determine the period required for
full exercisability of stock options; however, in no event can the Compensation
Committee shorten such period to less than six months. Upon exercise of any
option granted under the Stock Option Plan, the exercise price may be paid in
cash, and/or such other form of payment as may be permitted under the applicable
option agreement, including, without limitation, previously owned shares of
Common Stock. The Stock Option Plan provides that the maximum option grant which
may be made to an executive officer in any calendar year is 45,000 shares.
On January 3, 1996, options to purchase an aggregate of 296,640 shares of
Common Stock were granted to 97 officers, employees and consultants of the
Company at a per share purchase price equal to $6.65, the fair market value of
the Common Stock on the date of grant as determined by the Board. Of the 296,640
options, 7,056 options which were not vested were subsequently canceled upon the
recipients' leaving the Company's employ. Mr. Hosokawa was granted incentive
stock options to purchase 11,250 shares of Common Stock at a per share exercise
price of $6.65 per share.
The Company has adopted a Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), pursuant to which options to acquire a maximum aggregate of
180,000 shares of Common Stock may be granted to non-employee directors. Options
granted under the Directors' Plan do not qualify as incentive stock options
within the meaning of Section 422 of the Code. Pursuant to the Directors' Plan,
each of Messrs. Gaulding, Howard, Pallu and Swann, its non-employee directors,
was granted an option to purchase 11,250 shares of Common Stock at a purchase
price per share equal to the fair market value of the Common Stock on the date
of such Director's election ($6.65 in the case of Mr. Gaulding and the per share
initial public offering price in the cases of Messrs. Swann, Pallu and Howard).
The options have a ten-year term and become exercisable as determined by the
Committee. The options may be exercised by payment in cash, check or shares of
Common Stock.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Andrew J.
McKelvey, effective as of November 15, 1996, for a term ending on November 14,
2001. The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. The agreement also provides that Mr. McKelvey will serve as
Chairman of the Board and President of the Company and will be nominated for
election as a director during all periods of his employment. Under the
agreement, Mr. McKelvey is entitled to a base salary of $1,500,000 per year
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and mandatory bonuses of $375,000 per quarter. Under the agreement, Mr. McKelvey
may terminate his employment upon 90 days' prior written notice for any reason.
The agreement also provides that in the event Mr. McKelvey's employment is
terminated by the Company prior to its expiration for reasons other than for
"cause," the Company shall pay Mr. McKelvey his base salary and mandatory
bonuses for the remaining term of the agreement at the times they would have
been payable had he remained employed. The agreement further provides that in
the event of Mr. McKelvey's voluntary resignation, termination of his employment
by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not
be entitled to any severance, and in the event of his disability or death he or
his estate be paid his base salary and mandatory bonuses for a period of 180
days at the times they would have been payable had he remained employed. The
agreement also contains confidentiality provisions, whereby Mr. McKelvey agrees
not to disclose any confidential information regarding the Company and its
affiliates.
The Company has entered into an employment agreement with James J. Treacy,
effective as of November 18, 1996, for an indefinite term on an at-will basis.
The agreement provides that either party may terminate the agreement for any
reason. Pursuant to the agreement, Mr. Treacy will serve as Executive Vice
President - Finance and Strategy of the Company for a base salary of $200,000
and an annual minimum bonus of at least $35,000. The agreement provides that in
the event Mr. Treacy is terminated for "cause" or voluntarily resigns, he shall
not be entitled to any severance, and in the event Mr. Treacy is terminated by
reason of his death, disability or for other reasons, he or his estate shall be
entitled to his base salary and minimum annual bonus for a period of one year
after the effective date of his termination payable at the times they would have
been payable had he remained employed, less income earned by him from the
performance of any personal services during such period. The agreement contains
confidentiality provisions, whereby Mr. Treacy agrees not to disclose any
confidential information regarding the Company and its affiliates, as well as
nonsolicitation provisions which prohibit Mr. Treacy from soliciting any active
or prospective accounts of the Company or its affiliates for a period of one
year following termination.
The Company's subsidiary, TMP Interactive Inc., entered into an amended and
restated employment agreement with Jeffrey C. Taylor, effective as of September
11, 1996, for a term ending November 9, 1998. That agreement provides for
automatic renewal for successive one year terms unless either party notifies the
other to the contrary at least 60 days prior to its expiration. The agreement
provides that Mr. Taylor will serve as Chief Executive Officer of TMP
Interactive Inc. and provides Mr. Taylor with a base salary of $125,000 per year
and annual bonuses of at least $50,000 per year based on formulae mutually
agreed to by the parties. Under the agreement, Mr. Taylor may terminate his
employment upon written notice for certain material alterations in his
responsibilities, duties, and authorities or upon 60 days' prior written notice
for any reason. The agreement provides that in the event Mr. Taylor's employment
is terminated by TMP Interactive Inc. prior to its expiration for reasons other
than cause or is terminated by Mr. Taylor for certain material alterations in
his responsibilities, duties and authorities, TMP Interactive Inc. shall pay Mr.
Taylor his base salary and a minimum $50,000 annual bonus for the remaining term
of the agreement at the times they would have been payable had he remained
employed, less the consideration paid or earned by Mr. Taylor from other
employment during such period. The agreement also provides that in the event of
Mr. Taylor's voluntary resignation, termination of his employment by TMP
Interactive Inc. for "cause" or nonrenewal of the agreement, Mr. Taylor shall
not be entitled to any severance, and in the event of his disability or death he
or his estate shall be paid his base salary and certain other benefits for a
period of 90 days at the times they would have been payable had he remained
employed. The agreement contains confidentiality provisions, whereby Mr. Taylor
agrees not to disclose any confidential information regarding TMP Interactive
Inc. and its affiliates, as well as noncompetition provisions. The
noncompetition covenants generally survive the termination or expiration of Mr.
Taylor's employment for two years, provided that in certain circumstances TMP
Interactive Inc. must pay Mr. Taylor one-half of his base salary and one-half of
his $50,000 minimum annual bonus for the duration of the noncompetition
obligation. Mr. Taylor's agreement also prohibits him from soliciting or
servicing customers or prospective customers of
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TMP Interactive Inc. and its affiliates for a period of two years following the
termination or expiration of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On September 16, 1996, the Company's Board of Directors established a
Compensation Committee, which currently consists of Messrs. Gaulding and Swann
to recommend compensation for the Company's executives and to administer the
Company's stock option and other benefit plans. Prior to September 16, 1996, all
matters concerning executive officer compensation were addressed by the entire
Board of Directors. During 1995, Messrs. McKelvey and Eisele were directors and
executive officers of the Company. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company has made advances to Messrs. McKelvey, Hosokawa and Collison in
the respective amounts of $3,209,305, $123,689 and $119,840 for 1993;
$3,720,431, $0 and $58,927 for 1994; $0, $4,031 and $0 for 1995; and $2,606,243,
$4,958 and $0 for 1996. Mr. McKelvey repaid $1,658,322 in 1995, Mr. Hosokawa
repaid $22,689 in 1994 and $2,218 in 1995 and Mr. Collison repaid $16,837 in
1993, $20,700 in 1994, $4,550 in 1995 and $2,275 in 1996. At September 30, 1996,
Messrs. McKelvey, Hosokawa and Collison were indebted to the Company in the
amounts of $9,490,002, $113,317 and $133,087, respectively. These advances do
not bear interest. The foregoing advances were unsecured and are repayable on
demand. The advances consisted primarily of tuition loans and personal loans.
These loans were deemed to be in the best interests of the Company for purposes
of facilitating the cash needs of key executive officers of the Company. The
advances were approved or ratified by the entire Board, including disinterested
directors, in accordance with applicable law and in accordance with general
Company policies. The foregoing advances were provided by either McKelvey
Enterprises, Inc. or Old TMP. Since 1993 until the effectiveness of the Mergers,
the Board of McKelvey Enterprises, Inc. consisted of Messrs. McKelvey, Eisele
and a non-employee director; since 1993 until January 1996, the Board consisted
of Messrs. Eisele, Hosokawa and McKelvey; in January 1996, Mr. Gaulding joined
the Board and in September 1996 the Board took its present form. The advances
were made on an unsecured basis in light of the creditworthiness of the
individuals receiving such advances. Upon consummation of this offering, Mr.
McKelvey's indebtedness will be converted to a promissory note, as described
below. The Company has adopted a policy that will be effective upon the
consummation of this offering prohibiting loans (other than travel advances in
the ordinary course of business and tuition loans in accordance with Company
policy) to its executive officers, directors and principal stockholders unless
such loans are approved by the Compensation Committee, which must determine that
such loans are in the best interests of the Company. Any loans made will bear
interest at a rate and be on such terms as determined by the Compensation
Committee to be fair to the Company. The Compensation Committee currently
consists of Messrs. Gaulding and Swann, each of whom is a non-employee director.
In the event a member of the Compensation Committee has a direct personal
interest in a matter, that member's vote shall not be counted in determining
whether such matter is approved by the Compensation Committee. All other
transactions with affiliates other than loans will be subject to approval by the
Board which must determine that such transactions are in the best interests of
the Company.
On January 3, 1995, in connection with the acquisition of a yacht, the
Company and a subsidiary of the Company, Aeronautic Media, Inc. ("AMI") entered
into an agreement with Mr. McKelvey pursuant to which Mr. McKelvey agreed to be
solely responsible for the $1,690,000 loan used to finance the yacht. Mr.
McKelvey has agreed to purchase the yacht upon consummation of this offering at
the then net book value of such yacht, thereby increasing his indebtedness to
the Company in the amount of approximately $2,920,000, the net book value of the
yacht on October 31, 1996. Upon consummation of this offering, Mr. McKelvey will
convert all of his indebtedness to the Company, including but not limited to the
indebtedness incurred in connection with Mr. McKelvey's acquisition of the
yacht, to a promissory note. Such
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promissory note will initially bear interest at the prime rate established by
The Bank of New York at the date of the note and shall be adjusted December 31,
1997 and each December 31st thereafter to the Bank of New York prime rate in
effect on such dates. The Note will provide for annual payments of all accrued
but unpaid interest commencing December 31, 1997. The principal amount shall be
payable in equal annual installments of one-sixtieth of the initial principal
amount commencing December 31, 1997, with all unpaid principal due ten years
from the date of the note.
On January 1, 1996, the Company purchased Mr. McKelvey's 100% interest in
Volando, Inc., the sole stockholder of Online Career Center Management, Inc.,
for $1,000, the same consideration paid by Mr. McKelvey in connection with the
initial issuance of those shares to him on December 20, 1994.
On January 1, 1996, Mr. McKelvey contributed to the Company his 100%
interest in EPI Aviation, Inc., which leases an aircraft. The aircraft is leased
by EPI Aviation, Inc. from an unaffiliated third party pursuant to a lease
agreement dated October 27, 1995. The lease provides for a term of 24 months and
a basic rent of $85,000 per month plus additional rent of $379.36 per flight
hour. In consideration of a payment of $350,000, EPI Aviation, Inc. also
acquired an option to purchase the aircraft no earlier than January 1, 1997 for
a purchase price of $6,060,000. EPI Aviation, Inc. has no cost basis in the
aircraft.
On July 16, 1996, Mr. McKelvey contributed to the Company his 100% interest
in General Directory Advertising Services, Inc., a yellow page advertising
agency. On August 15, 1996, the Company purchased Mr. McKelvey's 80.42% interest
in National Media Holding Company, Inc., the sole stockholder of a yellow page
advertising agency, for $280,000. On September 1, 1996, the Company purchased
Mr. McKelvey's 48.92% interest in Telephone Directory Advertising, Inc., a
yellow page advertising agency, for $837,000. The Company had originally sold
such stock to Mr. McKelvey on December 31, 1992 for $837,306.
On September 4, 1996, Mr. McKelvey sold his interest in S.M.E.T. Servizio
Marketing Elenchi Telefonici s.r.l. to the Company for $140,620. The Company had
originally sold such interest to Mr. McKelvey on June 5, 1990 for $140,620.
Messrs. McKelvey, Collison, Camara, Newton, Eisele and Ms. Hazell have
17.8%, 5.8%, 5.4%, 0.6% and 0.2% interests, respectively, in the McKelvey
Enterprises, Inc. Profit Sharing Plan. Proceeds of this offering will be used to
redeem all of the shares of the Company's preferred stock owned by such plan.
Messrs. McKelvey, Eisele, Camara and Collison have approximately 69.4%, 10%,
5% and 5% interests, respectively, in International Drive, L.P., the lessor of
the Company's 48,000 square foot office in Mt. Olive, New Jersey. This lease
runs through December 1998 and the Company's rent for this space is $44,000 per
month. Mr. McKelvey has an 80% interest in 12800 Riverside Drive Corporation,
the lessor of the Company's 15,802 square foot office in North Hollywood,
California. This lease runs through May 2013 and the Company's rent for this
space is $16,000 per month. Mr. McKelvey has a 49% interest in TMP Development
Company Inc., the lessor of the Company's 5,000 square foot office in Holliston,
Massachusetts. This lease is month to month and the Company's rent for this
space is currently $6,875 per month. Mr. McKelvey has a 49% interest in TPH &
AJM, a partnership, the lessor of the office occupied by Telephone Directory
Advertising, Inc., an entity in which the Company has 48.92% interest. This
lease runs through May 1999 and Telephone Directory Advertising, Inc.'s rent for
this space is currently $9,955 per month.
Messrs. Collison and Camara each have a 1% interest in Programmes Marketing
Annuaires, a yellow page advertising agency in France in which the Company has a
32% interest.
On March 17, 1996, Mr. Eisele exchanged his 10% interest in M.S.I. - Market
Support International, Inc., a subsidiary of the Company providing order
fulfillment services, for 70,056 shares of common stock of the Company.
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On January 1, 1996, 3055078 Canada Inc. redeemed Mr. John Swann's ownership
interest for $510 (in Canadian Dollars), the same amount paid by Mr. Swann for
such shares in connection with their initial issuance on September 7, 1994. On
January 1, 1996, Cala H.R.C. Ltd., the Company's Canadian recruitment
advertising subsidiary, entered into a management agreement with Cala Services
Inc., a recruitment advertising company owned by Mr. Swann, pursuant to which
Cala H.R.C. Ltd. provides management services in exchange for a percentage of
the billings of Cala Services Inc. which is agreed to from time to time. The
agreement has no stated term but is terminable by either party on 30 days'
notice. To date, Cala Services Inc. has had no billings and Cala H.R.C. Ltd. has
not provided nor been compensated for any management services.
On November 10, 1995, two of the Company's subsidiaries acquired
substantially all of the assets of Adion, Inc. and Adion Information Services,
Inc. for purchase prices of $2,744,428 and $200,000, respectively, as well as
the assumption of substantially all of the liabilities of such companies,
exclusive of liabilities under or related to employee benefit plans, taxes, and
under laws, rules and regulations regarding health benefits. Mr. Taylor owned
approximately 28% of each of those two companies. In connection with these
acquisitions, the Company and two of its subsidiaries, HGI Acquisition Corp.,
the entity which acquired the assets of Adion, Inc., and TMP Interactive Inc.,
the entity which acquired the assets of Adion Information Services, Inc., also
entered into arrangements with Mr. Taylor personally which arrangements, as
amended, provided for payments of an aggregate of $453,333.37, $230,000 of which
was paid at the time of the acquisitions and a lump sum payment of $150,000
which was paid in March 1996. The balance of these payments was paid in 11
monthly installments of $6,666.67 commencing on December 10, 1995.
Immediately prior to the effectiveness of this offering, Old TMP will merge
into McKelvey Enterprises, Inc. Thereafter Worldwide Classified Inc. will merge
into McKelvey Enterprises, Inc. McKelvey Enterprises, Inc. will then merge into
Telephone Marketing Programs Incorporated and Telephone Marketing Programs
Incorporated will acquire the remaining interest in TMP Interactive Inc., a
subsidiary of the Company which operates The Monster Board, not currently owned
by it. As a result of the foregoing, Messrs. McKelvey, Hosokawa, Camara, Treacy,
Eisele and Taylor will acquire 14,787,540, 467,640, 138,564, 355,860, 151,036
and 142,740 shares of the Company, respectively.
Other than the advances, the Company believes that all transactions with the
aforementioned directors and executive officers were made on terms no less
favorable to the Company than would have been obtained from unaffiliated third
parties and were approved or ratified by the entire Board, including
disinterested directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the effective date of the Mergers
by (i) those persons known to the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock, (ii) each of the Company's
directors, (iii) each of the persons named in the Summary Compensation Table,
(iv) all directors and executive officers of the Company as a group and (v) each
Selling Stockholder. Unless otherwise indicated below, the persons named below
have sole voting and investment power with respect to the number of shares set
forth opposite their names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE OFFERING(1) NUMBER OF THE OFFERING(1)
------------------------- SHARES BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ---------------------------------------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Andrew J. McKelvey.................................. 14,787,541(2) 71.43% -- 14,787,541 59.44%
Paul M. Camara...................................... 138,564 * -- 138,564 *
Thomas G. Collison.................................. 144,720 * 7,236 137,484 *
David A. Hosokawa(3)................................ 470,453 2.27% 23,382 447,071 1.80%
James J. Treacy..................................... 355,860 1.72% 17,793 338,067 1.36%
George R. Eisele.................................... 151,056 * 42,000 109,056 *
Graeme K. Howard, Jr.(4)............................ 5,625 * -- 5,625 *
John R. Gaulding(5)................................. 8,438 * -- 8,438 *
Jean-Louis Pallu(4)................................. 5,625 * -- 5,625 *
John Swann(4)....................................... 5,625 * -- 5,625 *
Edward C. Albertson................................. 46,350 * 7,631 38,719 *
Mark O. Brown....................................... 56,700 * 6,700 50,000 *
Alfred M. Cady III.................................. 792,270 3.83% 39,614 752,656 3.03%
Gerda L. Carlson.................................... 69,840 * 10,000 59,840 *
Chatelain Family Trust(6)........................... 1,034 * 517 517 *
Daniel Collins...................................... 44,586 * 5,000 39,586 *
Crawford Charitrust(6).............................. 4,137 * 2,069 2,068 *
Jennifer Dersh and Steven Dersh(6).................. 4,137 * 1,034 3,103 *
Grech Family Limited Partnership.................... 82,890 * 30,000 52,890 *
Lance S. Johnson.................................... 81,000 * 10,000 71,000 *
Robert M. Kanne..................................... 277,056 1.34% 69,264 207,792 *
Kidd Family Trust(6)................................ 68,965 * 34,483 34,482 *
Harold L. Levy...................................... 81,000 * 16,000 65,000 *
Ronald Plotkin...................................... 340,380 1.64% 40,000 300,380 1.21%
Roxane Previty...................................... 19,080 * 954 18,126 *
Nancy Rooney........................................ 22,680 * 2,680 20,000 *
Susan Schneider and Mark Schneider(6)............... 4,137 * 2,069 2,068 *
J. Christopher Stimac............................... 141,282 * 23,261 118,021 *
Jeffrey C. Taylor(3)................................ 145,553 * 7,137 138,416 *
Michael Torrey...................................... 44,586 * 15,000 29,586 *
Lance Willis........................................ 115,614 * 10,000 105,614 *
BNY Financial Corporation(7)........................ 228,739 1.10% 228,739 0 --
All directors and executive officers as a group (15
persons)(2)....................................... 16,324,765 78.86% 98,502 16,226,263 65.22%
</TABLE>
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- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities.
(2) Consists of Class B Common Stock which is convertible, on a share for share
basis, into Common Stock. See "Description of Common Stock--Common Stock and
Class B Common Stock."
(3) Includes 2,813 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(4) Consists of 5,625 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(5) Consists of 8,438 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(6) Represents shares subject to an option to purchase the indicated number of
shares. The stockholder intends to exercise such option upon the
effectiveness of this offering.
(7) Represents shares subject to a warrant to purchase the indicated number of
shares. BNY Financial Corporation intends to exercise such warrant upon the
effectiveness of this offering.
(8) Does not include an aggregate of 53,440 shares subject to the exercise of
outstanding stock options, none of which are exercisable within 60 days of
the date hereof.
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DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation of the Company provides the Company with
the authority to issue 200,000,000 shares of Common Stock, 39,000,000 shares of
Class B Common Stock, 200,000 shares of 10.5% Cumulative Preferred Stock and
800,000 shares of Preferred Stock. After giving effect to this offering
(assuming the U.S. Underwriters' over-allotment option is not exercised), the
Company will have outstanding 8,602,492 shares of Common Stock with one vote per
share (representing 5.5% of the combined voting power of the Company) and
14,787,541 shares of Class B Common Stock with ten votes per share (representing
94.5% of the combined voting power of the Company). The Company intends to use a
portion of the net proceeds of this offering to redeem all the outstanding
shares of 10.5% Cumulative Preferred Stock. No shares of Preferred Stock are
outstanding.
COMMON STOCK AND CLASS B COMMON STOCK
DIVIDENDS. Each share of Common Stock and Class B Common Stock is entitled
to dividends if, as and when dividends may be declared by the Board of Directors
of the Company and paid. Under the Delaware General Corporation Law, the Company
may declare and pay dividends only out of its surplus, or in case there shall be
no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding year. No dividends may be declared,
however, if the capital of the Company has been diminished by depreciation,
losses or otherwise to an amount less than the aggregate amount of capital
represented by any issued and outstanding stock having a preference on
distribution. Dividends must be paid on both the Common Stock and the Class B
Common Stock at any time that dividends are paid on either. Any dividend so
declared and payable in cash, capital stock of the Company (other than Common
Stock or Class B Common Stock) or other property will be paid equally, share for
share, on the Class B Common Stock and Common Stock. Dividends and distributions
payable in shares of Class B Common Stock may be paid only on shares of Class B
Common Stock, and dividends and distributions payable in shares of Common Stock
may be paid only on shares of Common Stock. If a dividend or distribution
payable in Common Stock is made on the Common Stock, the Company must also make
a simultaneous dividend or distribution on the Class B Common Stock. Pursuant to
any such dividend or distribution, each share of Class B Common Stock will
receive a number of shares of Class B Common Stock equal to the number of shares
of Common Stock payable on each share of Common Stock.
VOTING RIGHTS. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters. Except as
described below, the Common Stock and the Class B Common Stock vote together as
a single class on all matters presented for a vote of the stockholders,
including the election of directors. The holders of a majority of the
outstanding shares of Common Stock or Class B Common Stock, voting as separate
classes, must approve certain amendments affecting shares of such class.
Specifically, if there is any proposal to amend the Certificate of Incorporation
in a manner that would increase or decrease the number of authorized shares of
Common Stock or Class B Common Stock, increase or decrease the par value of the
shares of Common Stock or Class B Common Stock or alter or change the powers,
preferences, or special rights of the shares of Common Stock or Class B Common
Stock so as to affect them adversely, such an amendment must be approved by a
majority of the outstanding shares of the affected class, voting separately as a
class. In addition, any merger or consolidation in which each share of Common
Stock receives consideration that is not of the same type or is less than the
amount of the consideration to be received by each share of Class B Common
Stock, other than consideration payable in securities which provide each share
of Class B Common Stock with the number of votes that is no more than ten times
the number of votes provided each share of Common Stock, must be approved by a
majority of the outstanding shares of Common Stock, voting separately as a
class. Shares of Common Stock and Class B Common Stock do not have cumulative
voting rights.
TERMS OF CONVERSION. Each share of Class B Common Stock is convertible at
any time, at the option of and without cost to the stockholder, into one share
of Common Stock. If at any time (i) the outstanding
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shares of Class B Common Stock represent less than 15% of the combined voting
power of issued and outstanding shares of Common Stock and Class B Common Stock,
or (ii) the Board of Directors and the holder of a majority of the outstanding
shares of Class B Common Stock approve the conversion of all of the Class B
Common Stock into Common Stock, or (iii) the holder of a majority of the
outstanding shares of Class B Common Stock dies, then each outstanding share of
Class B Common Stock shall be converted automatically into one share of Common
Stock without any action by the holder. In the event of such a conversion,
certificates formerly representing outstanding shares of Class B Common Stock
will thereafter be deemed to represent an equal number of shares of Common
Stock.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding
up of the Company, holders of the shares of Common Stock and Class B Common
Stock are entitled to share equally, share for share, in the assets available
for distribution.
OTHER. Additional shares of Class B Common Stock may only be issued upon
stock splits of, or stock dividends on, the existing Class B Common Stock. No
stockholder of the Company has preemptive or other rights to subscribe for
additional shares of the Company.
10.5% CUMULATIVE PREFERRED STOCK
DIVIDENDS. Each share of 10.5% Cumulative Preferred Stock (the "Cumulative
Preferred Stock") is entitled to receive a cumulative cash dividend at an annual
rate of $1.05 per share, payable on the first day of May of each year (or if
such date is not a regular business day, then the next business day thereafter),
commencing on May 1, 1996. Dividends on the issued and outstanding shares of
Cumulative Preferred Stock shall be preferred and cumulative and shall accrue
from day to day from the date on which such shares are originally issued by the
Corporation ("Original Issue Date"). Holders of Cumulative Preferred Stock
("Cumulative Preferred Holders") are not entitled to participate in any other or
additional earnings or profits of the Company. The Cumulative Preferred Stock
ranks superior in terms of dividend payments to other capital stock of the
Company.
VOTING RIGHTS. Except as may otherwise be required by the Delaware General
Corporation Law, the Cumulative Preferred Holders are not entitled to vote their
shares of Cumulative Preferred Stock on any matter submitted to a vote of the
shareholders of the Company or at any meeting of such shareholders.
REDEMPTION RIGHTS. At any time or from time to time after the Original
Issue Date, Cumulative Preferred Holders may give the Company notice of
intention to require the Company, subject to certain limitations, to redeem
("Put") all or any portion of their Cumulative Preferred Stock (collectively,
"Put Shares"). If a Cumulative Preferred Holder exercises a Put, and if the
Company does not have sufficient surplus to permit it to lawfully purchase all
of the Put Shares subject to any Put under the Delaware General Corporation Law,
the Company shall purchase the Put Shares as soon thereafter as it may lawfully
do so. Upon the Company's default in the redemption of the full amount of Put
Shares subject to an exercised Put, no distribution or dividends (other than
dividends payable in Common Stock or Class B Common Stock) may be made with
respect to other capital stock until such default shall be cured in full. The
Company, pursuant to a certain schedule, may redeem the entire amount or any
part of the shares of issued and outstanding Cumulative Preferred Stock, upon
not less than 60 days' written notice to the Cumulative Preferred Holders
thereof.
LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or winding
up of the Company (hereinafter referred to as "liquidation"), each Cumulative
Preferred Holder is entitled to receive out of the assets of the Company or the
proceeds thereof, with priority over all subordinate capital stock, a
preferential payment in an amount equal to the par value for each share of
Cumulative Preferred Stock, plus an amount equal to all unpaid cumulative
dividends accrued thereon, but without interest. The Cumulative Preferred
Holders are not, however, entitled to participate in any further distribution of
the assets of the Company or otherwise by reason of owning Cumulative Preferred
Stock. Cumulative
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Preferred Stock may not be made subordinate to any other class of capital stock
of the Company unless at least two-thirds of the shares of the Cumulative
Preferred Stock then outstanding permit such action.
TRANSFER RIGHTS. Cumulative Preferred Holders must deliver written notice
("Notice of Transfer") to the principal business office of the Company to the
attention of its Secretary in connection with proposed transfers of Cumulative
Preferred Stock. The Notice of Transfer constitutes an offer to transfer all of
the offered shares to the Company for the same consideration proposed to be
received from a third party.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of such Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, including the loss of voting control to
others. The Company currently has no plan to issue any shares of such Preferred
Stock.
REGISTRATION RIGHTS
If the Company proposes to register any of its securities, either for its
own account or for the account of other stockholders, the Company is required,
with certain exceptions, to notify stockholders of the Company holding 1,944,276
shares of Common Stock in the aggregate and, subject to certain limitations, to
include in such registration all of the shares of Common Stock requested to be
included by such holders. Registration rights with respect to 1,861,866 shares
of Common Stock terminate on December 31, 1996. The Company is generally
required to pay all the expenses of such registration other than underwriting
discounts and commissions.
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
Anti-Takeover Law"), certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and any person acquiring 15% or more of the voting stock
of such Delaware corporation (an "interested stockholder") are prohibited for a
three-year period following the time that such stockholder became an interested
stockholder, unless (i) either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder" was approved by
the board of directors of the corporation prior to the time the other party to
the business combination became an interested stockholder, (ii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers and stock held in employee stock plans in
which the employees do not have a right to determine confidentially whether to
tender or vote stock held by the plan), or (iii) the business combination was
approved by the board of directors of the corporation and authorized by 66 2/3%
of the voting stock which the interested stockholder did not own. The
corporation may opt out of the effect of this statement by (i) including a
provision to such effect in the corporation's original certificate of
incorporation, (ii) amendment to the corporation's bylaws made by the board of
directors within 90 days after the effective date of the statute or (iii)
amendment of the corporation's certificate of incorporation or bylaws approved
by holders of a majority of the shares entitled to vote; provided that such
amendment shall generally not take effect until 12 months after its adoption and
shall not effect any business
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combination with interested stockholders which are effected during such 12
months. The three-year prohibition does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who becomes the beneficial owner of 15% or more of a
Delaware corporation's voting stock. Section 203 could have the effect of
delaying, deferring or preventing a change in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. Moreover, the provisions do not
apply to claims against a director for violations of certain laws, including
federal securities laws. If the Delaware General Corporation Law is amended to
authorize the further elimination or limitation of directors' liability, then
the liability of directors of the Company shall automatically be limited to the
fullest extent provided by law. The Company's Bylaws also contain provisions to
indemnify the directors and officers of the Company to the fullest extent
permitted by the Delaware General Corporation Law. In addition, the Company has
entered into indemnification agreements with its current directors. These
provisions and agreements may have the practical effect in certain cases of
eliminating the ability of stockholders to collect monetary damages from
directors. The Company believes that these contractual agreements and the
provisions in its Certificate of Incorporation and Bylaws are necessary to
attract and retain qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is The Bank of New York.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a "Non-U.S. Holder"), and
who acquires and owns such Common Stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). For
this purpose, the term "Non-U.S. Holder" is defined as any person other than (i)
a citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in the United States or under the laws of the
United States or of any state, or (iii) an estate or trust whose income is
includible in gross income for United States federal income tax purposes,
regardless of its source. This discussion does not consider specific facts and
circumstances that may be relevant to a particular Non-U.S. Holder's tax
position, does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local tax consequences or
United States federal gift taxes that may be relevant to such Non-U.S. Holders
in light of their particular circumstances. Further, it does not discuss the
rules applicable to Non-U.S. Holders subject to special tax treatment under the
federal income tax laws (including, but not limited to, banks and insurance
companies, dealers in securities, and holders of securities held as part of a
"straddle," "hedge," or "conversion transaction"). Furthermore, this discussion
is based on current provisions of the Code, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all of which are subject to change, possibly on a retroactive basis. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding,
and disposing of Common Stock.
Proposed United States Treasury Regulations were issued on April 22, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the Proposed Regulations would
have if adopted.
An individual may, among other ways, subject to certain exceptions, be
deemed to be a resident alien (as opposed to a nonresident alien) by virtue of
being present in the United States on at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year (counting, for such purposes, all of the days present in
the current year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding year). Resident
aliens are subject to United States federal income tax as if they were United
States citizens.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States ("United States trade or business
income"). If the dividend is United States trade or business income, the
dividend would be subject to United States federal income tax on a net income
basis at applicable graduated individual or corporate rates and would be exempt
from the 30% withholding tax described above if such holder claims the exemption
from withholding by filing Form 4224 or any successor thereto. Any such
dividends that are United States trade or business income received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Certain
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certification and disclosure requirements must be complied with in order to be
exempt from withholding under the United States trade or business income
exemption discussed above.
Under current United States Treasury regulations, dividends paid to a
stockholder at an address in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and, under the current interpretation
of United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate, unless an applicable tax treaty requires
some other method for determining a stockholder's residence.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder would generally be required to provide an
Internal Revenue Service Form W-8 and/or other document certifying such Non-U.S.
Holder's entitlement to benefits under a treaty. The Proposed Regulations would
also provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an
entity should be treated as paid to the entity or those holding an interest in
that entity.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to a tax treaty or whose dividends have
otherwise been subjected to withholding in an amount which exceeds such holder's
United States federal income tax liability, may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with the conduct of a
trade or business of such holder in the United States, (ii) in the case of a
Non-U.S. Holder who is a nonresident alien individual and who holds the Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
provisions of United States tax law that apply to certain expatriates, or (iv)
under certain circumstances if the Company is or has been during certain time
periods a "U.S. real property holding corporation" for United States federal
income tax purposes. The Company is not and does not anticipate becoming a "U.S.
real property holding corporation" for United States federal income tax
purposes.
If an individual Non-U.S. Holder falls under clause (i) above, such person
will be taxed on the net gain derived from the sale under regular graduated
United States federal income tax rates. If the individual falls under clause
(ii) above, such person will be subject to a flat 30% tax on such person's
United States source capital gains for the taxable year which may be offset by
United States source capital losses for such year (notwithstanding the fact that
he is not considered a resident of the United States). Thus, Non-U.S. Holders
who spend 183 days or more in the United States in the taxable year in which
they contemplate a sale of the Common Stock are urged to consult their tax
advisors as to the tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain on a net income basis at applicable
graduated corporate rates and, in addition, may be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
Periodically, legislation has been introduced in Congress pursuant to which
the gain from the sale of stock of a domestic corporation by a foreign
corporation or a non-resident alien individual would be considered to be
effectively connected income, if such person owns 10% or more (by vote or value)
of the domestic corporation at any time during the previous five years. It is
not known whether such or similar legislation will be enacted.
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FEDERAL ESTATE TAXES
Common Stock that is owned, or treated as owned, by a non-resident alien
individual (as specifically determined under residence rules for United States
federal estate tax purposes) at the time of death or that has been the subject
of certain lifetime transfers will be included in such holder's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the amount, if any, tax withheld
with respect to such dividends. These information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available, under the
provisions of an applicable treaty or agreement, to the tax authorities in the
country in which such holder resides.
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of thirty-one percent (31%) on certain payments to persons
that fail to furnish certain information under the United States information
reporting requirements) generally will not apply to dividends paid on Common
Stock to a Non-U.S. Holder at an address outside the United States. Except as
provided below, Non-U.S. Holders will not be subject to backup withholding with
respect to the payment of proceeds from the disposition of Common Stock effected
by the foreign office of a broker; except that if the broker is a United States
person or a "U.S. related person," information reporting (but not backup
withholding) is required with respect to the payment, unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary) and certain other requirements
are met or the holder otherwise establishes an exemption. For this purpose, a
"U.S. related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the collection or payment of such proceeds
(or for such part of the period that the broker has been in existence) is
derived from activities that are effectively connected with the conduct of a
United States trade or business. The payment of the proceeds of a sale of shares
of Common Stock to or through a United States office of a broker is subject to
information reporting and possible backup withholding unless the owner certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from a payment to a Non-U.S. Holder will be
allowed as a refund or a credit against such Non-U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the Service.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject to
backup withholding in the absence of the required certification.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS NOT
BASED ON AN OPINION OF COUNSEL. ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED
TO CONSULT WITH HIS TAX ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL INCOME
TAX AND FEDERAL ESTATE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF
ANY STATE, LOCAL, FOREIGN, OR OTHER TAXING JURISDICTION.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices.
Upon completion of this offering, the Company will have 23,390,033 shares of
Common Stock outstanding. Of those shares, the 4,800,000 shares sold in the
offering will be freely tradeable without restriction (except as to affiliates
of the Company) or further registration under the Securities Act.
The Company, all of the Company's executive officers and directors and
certain other stockholders of the Company, including the Selling Stockholders,
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
such stockholder or are hereafter acquired prior to or in connection with this
offering) (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, for a period of 180 days after the date of this Prospectus,
other than (A) the sale to the Underwriters of the shares of Common Stock under
the Underwriting Agreement or (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing. These individuals and entities collectively hold 16,324,765
shares of Common Stock. Of such shares of Common Stock, 14,787,541 shares of
Common Stock held by an affiliate will be eligible for sale in the public
market, subject to certain volume and other limitations, 181 days from the date
of this Prospectus pursuant to Rule 144 under the Securities Act. Certain of the
Company's stockholders have the right to include their shares in any future
registration of securities effected by the Company under the Securities Act. See
"Risk Factors--Shares Eligible for Future Sale" and "Description of Capital
Stock--Registration Rights."
In general, under Rule 144 of the Securities Act as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 ("Restricted Shares") for
at least two years (including any period of ownership of immediately preceding
non-affiliated holders), would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock on the National Association of Securities Dealers Automated
Quotation System during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least three years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. The Securities and Exchange Commission has
proposed to reduce the holding period requirements of Rule 144 to permit sales
in accordance with such rule after one year and two years, respectively, as
opposed to the two year and three year periods currently permitted, as described
above.
The Company intends to file registration statements under the Securities Act
registering the 1,900,000 shares of Common Stock reserved for issuance under the
Stock Option Plan and the 180,000 shares of Common Stock reserved for issuance
under the Directors' Plan shortly after the closing of this offering. See
"Management--Stock Options." These registration statements will become effective
automatically upon filing. Accordingly, shares registered under such
registration statements will be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Stockholders have agreed to sell 4,800,000 shares of Common
Stock and the U.S. Underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg
Thalmann & Co. Inc. are serving as U.S. Representatives, have severally agreed
to purchase, and the International Underwriters named below, for whom Morgan
Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Ladenburg Thalmann & Co. Inc. are serving as International
Representatives, have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................................
Donaldson, Lufkin & Jenrette Securities Corporation............................
Ladenburg Thalmann & Co. Inc...................................................
----------
Subtotal..................................................................... 3,840,000
International Underwriters:
Morgan Stanley & Co. International Limited.....................................
Donaldson, Lufkin & Jenrette Securities Corporation............................
Ladenburg Thalmann & Co. Inc...................................................
----------
Subtotal..................................................................... 960,000
----------
Total........................................................................ 4,800,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby if any such shares are
taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (a) it is not purchasing any U.S. Shares (as defined below)
being sold by it for the account of anyone other than a United States or
Canadian Person (as defined below) and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any U.S. Shares or distribute any
prospectus relating to the U.S. Shares outside the United States or Canada or to
any one other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions, (a) it is
not purchasing any International Shares (as defined below) being sold by it for
the account of any United States or Canadian Person and (b) its has not offered
or sold, and will not offer or sell, directly or indirectly, any International
Shares or distribute any prospectus relating to the International Shares within
the United States or Canada or to any United States or Canadian Person. With
respect to any Underwriter that is a U.S. Underwriter and an International
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Underwriter, the foregoing representations and agreements (i) made by it in its
capacity as a U.S. Underwriter shall apply only to shares purchased by it in its
capacity as a U.S. Underwriter, (ii) made by it in its capacity as an
International Underwriter shall apply only to shares purchased by it in its
capacity as an International Underwriter, and (iii) do not restrict its ability
to distribute any prospectus relating to the shares of Common Stock to any
person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S.
Underwriters and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States and Canada
or any corporation, pension, profit-sharing, or other trust or other entity
organized under the laws of the United States or Canada or any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian Person) and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Common Stock to be purchased by the U.S. Underwriters and
the International Underwriters under the Underwriting Agreement are referred to
herein as the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer of shares of Common
Stock in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such shares of Common Stock, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any such shares of Common Stock in any province or territory of
Canada or to, or for the benefit of, any resident of any province of territory
of Canada in contravention of the securities laws thereof and that any offer of
shares of Common Stock in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares of Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that (a)
it has not offered or sold, during the period of six months from the date
hereof, and will not offer or sell any shares of Common Stock in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing, or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation (1995) (the
"Regulations"); (b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered hereby
in, from, or otherwise involving the United Kingdom; and (c) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the shares of Common
Stock, if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements)(Exemptions) Order 1995, or is a
person to whom such document may lawfully be issued or passed on.
74
<PAGE>
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that it
has not offered or sold, and agrees not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident thereof, any of
the shares of Common Stock acquired in connection with the distribution
contemplated hereby, except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law or any other
relevant laws and regulations of Japan. Each International Underwriter further
agrees to send to any dealer who purchases from it any of the shares of Common
Stock a notice stating in substance that, by purchasing such shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell any of such shares, directly or indirectly in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and any other
relevant laws and regulations of Japan. Each International Underwriter further
agrees to send to any dealer who purchases from it any of the shares of Common
Stock a notice stating in substance that, by purchasing such shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell any of such shares, directly or indirectly in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan, and that
such dealer will send to any other dealer to whom it sells any of such shares of
Common Stock a notice containing substantially the same statement as contained
in the foregoing.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share below the initial public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ a share to other Underwriters or to certain dealers.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to 720,000 additional
shares of Common Stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, made in connection with this offering.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 240,000 shares offered hereby for
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
The Company, all of the Company's executive officers and directors and
certain other stockholders of the Company, including the Selling Stockholders,
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
such stockholder or are hereafter acquired prior to or in connection with this
offering), or (ii) enter into any swap or other arrangement that
75
<PAGE>
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus, other than (A) the sale to the Underwriters of the shares of
Common Stock under the Underwriting Agreement or (B) the issuance by the Company
of shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price
will be determined by negotiation among the Company, the Selling Stockholders
and the Representatives. Among the factors considered in determining the initial
public offering price will be the Company's record of operations, the Company's
current financial condition and future prospects, the experience of its
management, the economics of the industry in general, the general condition of
the equity securities market and the market price of similar securities of
companies considered comparable to the Company. There can be no assurance that a
regular trading market for the shares of Common Stock will develop after the
offering or, if developed, that a public trading market can be sustained. There
can also be no assurance that the prices at which the Common Stock will sell in
the public market after the offering will not be lower than the price at which
it is issued by the Underwriters in the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York 10103. Certain legal matters will
be passed upon for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements and schedule of TMP Worldwide Inc. and
Subsidiaries and the financial statements of Rogers & Associates Advertising,
Inc. included in this Prospectus and in the Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, and the
consolidated financial statements of Neville Jeffress Australia Pty Limited and
Subsidiaries included in this Prospectus and in the Registration Statement have
been audited by BDO Nelson Parkhill, independent auditors, to the extent and for
the periods set forth in their reports appearing elsewhere in this Prospectus
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firms as experts in auditing and
accounting.
76
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the Common Stock offered
hereby has been filed by the Company with the Securities and Exchange Commission
(the "Commission"). This Prospectus, which is part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the financial statements, exhibits and schedules thereto. The
Registration Statement may be inspected without charge and may be obtained at
prescribed rates at the Public Reference Section of the Commission, maintained
by the Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at 7 World Trade
Center, New York, New York 10048, and the Chicago Regional Office located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TMP WORLDWIDE INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 1994 and 1995 and
September 30, 1996 (unaudited)....................................................................... F-3
Statements of operations for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1995 and 1996 (unaudited)................................ F-4
Statements of stockholders' deficit for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited)......................................... F-5
Statements of cash flows for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1995 and 1996 (unaudited).................................... F-6
Notes to consolidated financial statements............................................................. F-7
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT............................................................................. F-27
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of June 30, 1995 and 1996............................................................ F-28
Statements of profit and loss for the years ended June 30, 1995 and 1996............................... F-29
Statements of shareholders' equity for the years ended June 30, 1995 and 1996.......................... F-30
Statements of cash flows for the years ended June 30, 1995 and 1996.................................... F-31
Summary of accounting policies......................................................................... F-32
Notes to consolidated financial statements............................................................. F-36
ROGERS & ASSOCIATES ADVERTISING, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-51
FINANCIAL STATEMENTS:
Statements of operations for the year ended March 31, 1994 and the nine months
ended December 31, 1994.............................................................................. F-52
Statements of cash flows for the year ended March 31, 1994 and the nine months
ended December 31, 1994.............................................................................. F-53
Notes to financial statements.......................................................................... F-54
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
[THE FOLLOWING IS THE FORM OF OPINION THAT BDO SEIDMAN, LLP WILL BE IN A
POSITION TO ISSUE UPON THE CONSUMMATION OF THE MERGERS DISCUSSED IN NOTE 1 AND
THE STOCK ISSUANCE DISCUSSED IN NOTE 2]
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
New York, New York
March 15, 1996, except for
Note 7 which is as of August 29, 1996 and
Notes 1 and 2 which are as of November , 1996
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 2,359 $ 2,719 $ 6,297
Accounts receivable, net................................................ 117,938 155,720 198,499
Work-in-process......................................................... 11,710 13,220 13,508
Assets held for sale.................................................... -- 5,735 2,768
Prepaid and other....................................................... 2,306 3,122 4,408
---------- ---------- -------------
Total current assets................................................ 134,313 180,516 225,480
Receivable from principal stockholder..................................... 8,188 6,530 9,490
Property and equipment, net............................................... 15,392 11,937 17,738
Deferred income taxes..................................................... 10,962 9,474 9,949
Intangibles, net.......................................................... 25,263 46,837 65,878
Other assets.............................................................. 4,847 2,800 6,912
---------- ---------- -------------
$ 198,965 $ 258,094 $ 335,447
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable........................................................ $ 123,991 $ 151,680 $ 201,908
Accrued expenses and other liabilities.................................. 11,018 13,336 25,058
Deferred income taxes................................................... 7,905 9,422 10,411
Current portion of long-term debt....................................... 3,210 11,809 11,022
---------- ---------- -------------
Total current liabilities........................................... 146,124 186,247 248,399
Long-term debt, less current portion...................................... 72,008 88,070 102,809
---------- ---------- -------------
Total liabilities................................................... 218,132 274,317 351,208
---------- ---------- -------------
Minority interests........................................................ 3,153 3,105 3,214
---------- ---------- -------------
Redeemable preferred stock................................................ 2,000 2,000 2,000
---------- ---------- -------------
Redeemable common stock, 329,871 shares outstanding....................... -- -- 2,899
---------- ---------- -------------
Commitments and contingencies.............................................
Stockholders' deficit:
Preferred stock, $.001 par value, authorized 800,000 shares; issued and
outstanding--none..................................................... -- -- --
Common stock, $.001 par value, authorized 200,000,000 shares; issued and
outstanding--4,276,869, 4,276,869 and 3,814,035 shares,
respectively.......................................................... 4 4 4
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding--14,787,541 shares............................. 15 15 15
Additional paid-in capital.............................................. 655 655 --
Foreign currency translation adjustment................................. 2 (25) 266
Deficit................................................................. (24,996) (21,977) (24,159)
---------- ---------- -------------
Total stockholders' deficit......................................... (24,320) (21,328) (23,874)
---------- ---------- -------------
$ 198,965 $ 258,094 $ 335,447
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Commissions and fees......................... $ 73,791 $ 86,165 $ 123,907 $ 89,686 $ 118,870
----------- ----------- ----------- ----------- ------------
Operating expenses:
Salaries and related costs................. 37,747 45,758 58,329 43,230 60,910
Office and general......................... 29,824 30,316 43,432 32,616 44,077
Amortization of intangibles................ 2,471 3,264 3,237 2,284 3,173
Special compensation....................... -- -- -- -- 672
Restructuring charges...................... 1,318 -- -- -- --
----------- ----------- ----------- ----------- ------------
Total operating expenses................. 71,360 79,338 104,998 78,130 108,832
----------- ----------- ----------- ----------- ------------
Operating income......................... 2,431 6,827 18,909 11,556 10,038
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest expense........................... (7,952) (9,434) (11,249) (8,113) (8,909)
Interest income............................ 300 256 355 234 309
Other, net................................. (386) (146) 150 26 (32)
----------- ----------- ----------- ----------- ------------
(8,038) (9,324) (10,744) (7,853) (8,632)
----------- ----------- ----------- ----------- ------------
Income (loss) before provision (benefit) for
income taxes, minority interests and equity
in earnings (losses) of affiliates......... (5,607) (2,497) 8,165 3,703 1,406
Provision (benefit) for income taxes......... (1,322) (333) 4,222 2,298 1,655
----------- ----------- ----------- ----------- ------------
Income (loss) before minority interests and
equity in earnings (losses) of
affiliates................................. (4,285) (2,164) 3,943 1,405 (249)
Minority interests........................... 351 336 435 321 343
Equity in earnings (losses) of affiliates.... 10 33 (279) (211) 53
----------- ----------- ----------- ----------- ------------
Net income (loss)............................ (4,626) (2,467) 3,229 873 (539)
Preferred stock dividends.................... (210) (210) (210) (158) (158)
----------- ----------- ----------- ----------- ------------
Net income (loss) applicable to common and
Class B common stockholders................ $ (4,836) $ (2,677) $ 3,019 $ 715 $ (697)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net income (loss) per common and Class B
common share............................... $ (.27) $ (.14) $ .15 $ .04
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common,
Class B common and common equivalent shares
outstanding................................ 17,775,525 19,230,022 19,517,956 19,517,956
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma:
Historical net loss........................ $ (697)
Pro forma adjustment for special
compensation............................. 672
------------
Pro forma net loss......................... $ (25)
------------
------------
Pro forma net loss per common and Class B
common share............................. $ .00
------------
------------
Pro forma weighted average common, Class B
common and common equivalent shares
outstanding.............................. 19,281,250
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, $.001 COMMON STOCK, FOREIGN
PAR VALUE $.001 PAR VALUE CURRENCY
---------------------- ---------------------- ADDITIONAL TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL ADJUSTMENT DEFICIT
--------- ----------- --------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.......... 2,439,609 $ 2 14,787,541 $ 15 $ -- $ (32) $ (16,595)
Issuance of warrant............... -- -- -- -- 600 -- --
Sale of common stock.............. 1,837,260 2 -- -- -- -- --
Repurchase of common stock........ -- -- -- -- -- -- (888)
Foreign currency translation
adjustment...................... -- -- -- -- -- 308 --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net loss.......................... -- -- -- -- -- -- (4,626)
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1993........ 4,276,869 4 14,787,541 15 600 276 (22,319)
374,940 shares of common stock
given to employees by principal
stockholder as compensation..... -- -- -- -- 55 -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- (274) --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net loss.......................... -- -- -- -- -- -- (2,467)
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1994........ 4,276,869 4 14,787,541 15 655 2 (24,996)
Foreign currency translation
adjustment...................... -- -- -- -- -- (27) --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net income........................ -- -- -- -- -- -- 3,229
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1995........ 4,276,869 4 14,787,541 15 655 (25) (21,977)
Stock repurchase agreements
(unaudited)..................... -- -- -- -- 1,172 -- --
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 159,231 -- -- -- 1,055 -- --
Reclassification of redeemable
common stock (unaudited)........ (283,521) -- -- -- (2,227) -- --
Issuance of shares as compensation
(unaudited)..................... 142,740 -- -- -- 20 -- --
Repurchase and cancellation of
common stock (unaudited)........ (481,284) -- -- -- (675) -- (1,485)
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 46,350 -- -- -- 672 -- --
Reclassification of redeemable
common stock (unaudited)........ (46,350) -- -- -- (672) -- --
Foreign currency translation
adjustment (unaudited).......... -- -- -- -- -- 291 --
Dividends on preferred stock
(unaudited)..................... -- -- -- -- -- -- (158)
Net loss (unaudited).............. -- -- -- -- -- -- (539)
--------- --- --------- --- ------- ----- ---------
BALANCE, September 30, 1996
(unaudited)..................... 3,814,035 $ 4 14,787,541 $ 15 $ -- $ 266 $ (24,159)
--------- --- --------- --- ------- ----- ---------
--------- --- --------- --- ------- ----- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
<S> <C>
BALANCE, January 1, 1993.......... $ (16,610)
Issuance of warrant............... 600
Sale of common stock.............. 2
Repurchase of common stock........ (888)
Foreign currency translation
adjustment...................... 308
Dividends on preferred stock...... (210)
Net loss.......................... (4,626)
-------------
BALANCE, December 31, 1993........ (21,424)
374,940 shares of common stock
given to employees by principal
stockholder as compensation..... 55
Foreign currency translation
adjustment...................... (274)
Dividends on preferred stock...... (210)
Net loss.......................... (2,467)
-------------
BALANCE, December 31, 1994........ (24,320)
Foreign currency translation
adjustment...................... (27)
Dividends on preferred stock...... (210)
Net income........................ 3,229
-------------
BALANCE, December 31, 1995........ (21,328)
Stock repurchase agreements
(unaudited)..................... 1,172
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 1,055
Reclassification of redeemable
common stock (unaudited)........ (2,227)
Issuance of shares as compensation
(unaudited)..................... 20
Repurchase and cancellation of
common stock (unaudited)........ (2,160)
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 672
Reclassification of redeemable
common stock (unaudited)........ (672)
Foreign currency translation
adjustment (unaudited).......... 291
Dividends on preferred stock
(unaudited)..................... (158)
Net loss (unaudited).............. (539)
-------------
BALANCE, September 30, 1996
(unaudited)..................... $ (23,874)
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
----------- ----------- ---------- ---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (4,626) $ (2,467) $ 3,229 $ 873 $ (539)
----------- ----------- ---------- ---------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and
equipment..................................... 2,157 2,940 3,396 2,315 2,747
Amortization of intangibles..................... 2,471 3,264 3,237 2,284 3,173
Provision for doubtful accounts................. 1,744 793 2,850 1,664 3,123
Minority interests.............................. 351 336 435 321 343
Provision (benefit) for deferred income taxes... (1,430) (987) 3,005 2,919 (514)
Other........................................... 446 154 522 (197) 114
Changes in assets and liabilities, net of
effects from purchase of businesses:
Increase in accounts receivable, net........ (10,367) (11,630) (30,256) (28,867) (18,352)
(Increase) decrease in work-in-process...... (1,486) (1,269) (1,510) 188 (288)
(Increase) decrease in prepaid and other.... (1,342) 1,820 (425) (1,376) (397)
(Increase) decrease in other assets......... (378) (70) 430 (436) (3,502)
Increase (decrease) in accounts payable and
accrued liabilities....................... 10,139 (3,812) 21,793 16,211 28,176
----------- ----------- ---------- ---------- -----------
Total adjustments............................... 2,305 (8,461) 3,477 (4,974) 14,623
----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) operating
activities.................................... (2,321) (10,928) 6,706 (4,101) 14,084
----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Principal Stockholder................. (4,515) (9,207) (613) (413) (4,537)
Repayments from Principal Stockholder............. 1,306 5,487 2,271 1,983 1,577
Capital expenditures.............................. (480) (4,946) (4,954) (4,156) (4,259)
Payments for purchases of businesses, net of cash
acquired........................................ (973) (6,327) (11,324) (8,632) (16,611)
Proceeds from sale of assets...................... -- 1,949 7 -- 3,347
Advances to and investments in affiliates......... 320 842 835 385 (528)
----------- ----------- ---------- ---------- -----------
Net cash used in investing activities............. (4,342) (12,202) (13,778) (10,833) (21,011)
----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized leases.................... (736) (739) (1,064) (650) (615)
Borrowings under line of credit and proceeds from
issuance of long-term debt...................... 302,466 410,883 540,333 374,430 471,292
Repayments under line of credit and principal
payments on long-term debt...................... (296,557) (386,671) (531,144) (359,124) (459,780)
Distribution to Minority Interests................ (591) (304) (483) (251) (234)
Dividends on preferred stock...................... (210) (210) (210) (158) (158)
----------- ----------- ---------- ---------- -----------
Net cash provided by financing activities......... 4,372 22,959 7,432 14,247 10,505
----------- ----------- ---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... (2,291) (171) 360 (687) 3,578
Cash and cash equivalents, beginning of period.... 4,821 2,530 2,359 2,359 2,719
----------- ----------- ---------- ---------- -----------
Cash and cash equivalents, end of period.......... $ 2,530 $ 2,359 $ 2,719 $ 1,672 $ 6,297
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. (the "Company") is the successor to businesses formerly
conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder has voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. Immediately prior
to the effectiveness of this offering, Old TMP, which sells yellow page
advertising, will merge into MEI. Thereafter, WCI will merge into MEI, MEI will
merge into Telephone Marketing Programs Incorporated and MEI will acquire the
outstanding minority interest of a subsidiary (the "Mergers").
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling-of-interests, and upon the consummation of the Mergers, the interests
owned by the Principal Stockholder will continue to be carried at predecessor
basis, and (i) goodwill in the amount of approximately $2 million will be
recorded for the issuance of 271,278 shares of common stock of the Company to
Old TMP stockholders who had been previously issued shares of Old TMP in
exchange for their minority interests in certain operating subsidiaries in which
they were original owners and, accordingly, were considered to have made a
substantive investment, and is based on an assumed intial public offering price
of $14.50 per share (the midpoint of the range of the estimated initial public
offering price), less $2,178 previously recorded on issuance of these shares,
and (ii) special compensation in the amount of approximately $52 million will be
recorded for the issuance of 3,584,790 shares of common stock of the Company to
the Old TMP, WCI and the MEI subsidiary stockholders in exchange for their
shares in those companies which they had received for nominal or no
consideration, as employees or as management of businesses financed
substantially by the Principal Stockholder and, accordingly, were not considered
to have made substantive investments for their minority shares, and is based on
an assumed initial public offering price of $14.50 per share (the midpoint of
the range of the estimated initial public offering price). The minority
stockholders of Old TMP had received compensation in lieu of their share of
earnings of the Old TMP in exchange for waiving their rights to such earnings,
and WCI and the MEI subsidiary had cumulative losses. Accordingly, no amounts
were attributable to these minority interests in the accompanying consolidated
financial statements.
The accompanying consolidated financial statements reflect the shares of the
Company that will be outstanding after the Mergers.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling-of-interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
acquisition by the Principal Stockholder. Pursuant to the Mergers, Telephone
Marketing Programs Incorporated will change its name to TMP Worldwide Inc.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for using the equity
method when the Company owns at least 20% but no more than 50% of such
affiliates. Under the equity method, the Company records its proportionate share
of profits and losses based on its percentage interest in earnings of companies
50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 32
Furniture and equipment................................................................ 5-7
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis. Intangibles
are evaluated for impairment when events or changes in circumstances indicate
that the carrying amounts of the assets may not be recoverable through the
estimated undiscounted future cash flows resulting from the use of these assets.
When any such impairment exists, the related assets will be written down to fair
value. This policy is in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for Long-Lived Assets to Be Disposed Of," which is effective for fiscal years
beginning after December 15, 1995. Adoption of this pronouncement did not have a
material impact on the financial statements.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries (which are not material) are determined using local currency as the
functional currency. Assets and liabilities of these subsidiaries are translated
at the exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment account
in stockholders' deficit. Gains and losses resulting from foreign currency
transactions are included in other income (expense).
REVENUE RECOGNITION AND WORK IN PROCESS
Substantially all revenues are derived from commissions for advertisements
placed in telephone directories, newspapers and other media, plus associated
fees for related services. In addition, the Company earns fees for the placement
of advertisements on the Internet, including its career Web sites. Commissions
and fees are generally recognized upon placement date for newspapers and other
media and on publication close date for yellow page advertisements.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision (benefit) for income taxes is computed on the pretax income
(loss) based on the current tax law. Deferred income taxes are recognized for
the tax consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in one business segment and primarily earns commission
income for selling and placing yellow page and recruitment advertising to a
large number of customers in many different industries, principally throughout
North America. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, miscellaneous receivables, accounts
payable and accrued expenses and other liabilities approximate fair value
because of the immediate or short-term maturity of these financial instruments.
The carrying amount reported for long-term debt approximates fair value because,
in general, the interest on the underlying instruments fluctuates with market
rates. The carrying amounts for minority interests and redeemable preferred
stock approximate fair value based on appraisals in prior periods. The fair
values of the receivable from the Principal Stockholder and redeemable common
stock cannot be determined.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principles Board No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The Company will be
required to disclose the pro forma net income or loss and per share amounts in
the notes to consolidated financial statements using the fair value based method
beginning in 1996. The Company has not determined the impact of these pro forma
adjustments.
EARNINGS PER SHARE OF COMMON AND CLASS B COMMON STOCK
(A) HISTORICAL
Historical net income (loss) per common and Class B common share is computed
using the weighted average number of common, Class B common and common
equivalent shares outstanding, after reflecting the issuance of shares pursuant
to the Mergers immediately prior to this offering. Common equivalent shares from
stock options and warrants are excluded from the computation if their effect is
antidilutive, except that, pursuant to the Securities and Exchange Staff
Accounting Bulletins, common and common equivalent shares issued at prices below
the public offering price during the twelve months immediately preceding the
initial filing date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and the
assumed initial public offering price of $14.50 (the midpoint of the range of
the estimated initial public offering price).
(B) PRO FORMA
Pro forma net income per share is computed using pro forma net income and
the weighted average number of common, Class B common and common equivalent
shares outstanding, after reflecting the issuance of shares pursuant to the
Mergers immediately prior to this offering. Common equivalent shares from stock
options and warrants are excluded from the computation if their effect is
antidilutive, except that, pursuant to the Securities and Exchange Staff
Accounting Bulletins, common and common equivalent shares issued at prices below
the public offering price during the twelve months immediately preceding the
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
initial filing date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and the
assumed initial public offering price of $14.50 (the midpoint of the range of
the estimated initial public offering price).
(C) SUPPLEMENTAL
Supplemental net income per common and Class B common share for the year
ended December 31, 1995 was $.24. For this calculation, the weighted average
number of common and Class B common shares includes the number of shares whose
assumed sale at the assumed initial public offering price of $14.50 per share
would provide the proceeds needed to retire $45,000 of borrowings outstanding
under the Company's financing agreement; notes payable totaling $3,800; $3,200
to redeem the preferred stock of a subsidiary and $2,200 to redeem the Preferred
Stock of the Company, and the net income applicable to Common and Class B
stockholders was adjusted to exclude the related financing and interest expenses
of the debt.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company's management, the consolidated balance sheet
as of September 30, 1996, the consolidated statements of operations and cash
flows for the nine months ended September 30, 1995 and 1996, and the
consolidated statement of stockholders' deficit for the nine months ended
September 30, 1996 contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results for any other period.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments and other short-term investments
with an initial maturity of three months or less to be cash equivalents. The
Company has determined that the effect of foreign exchange rate changes on cash
flows is not material.
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3 -- ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Trade..................................................................... $ 108,056 $ 146,002 $ 185,849
Earned commissions (A).................................................... 11,900 13,583 17,563
---------- ---------- -------------
119,956 159,585 203,412
Less: Allowance for doubtful accounts..................................... 2,018 3,865 4,913
---------- ---------- -------------
Accounts receivable, net................................................ $ 117,938 $ 155,720 $ 198,499
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
- ------------------------
(A) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1994 and 1995 and
September 30, 1996 are recorded as accounts receivable of $63,049, $75,161
and $97,317, respectively, and the related advertising costs are recorded as
accounts payable of $51,149, $61,578 and $79,754, respectively.
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- --------------
<S> <C> <C> <C>
Buildings and improvements.................................................. $ 969 $ 881 $ 884
Furniture and equipment..................................................... 22,080 25,028 37,506
Leasehold improvements...................................................... 2,524 3,027 3,202
Transportation equipment (see below)........................................ 5,643 226 453
--------- --------- -------
31,216 29,162 42,045
Less: Accumulated depreciation and amortization............................. 15,824 17,225 24,307
--------- --------- -------
Property and equipment, net............................................... $ 15,392 $ 11,937 $ 17,738
--------- --------- -------
--------- --------- -------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1994 and 1995 and September 30, 1996 with a cost of $3,001, $3,637, and
$7,375, respectively, and accumulated amortization of $1,578, $2,063 and $2,960,
respectively.
Assets held for sale of $5,735 and $2,768 at December 31, 1995 and September
30, 1996, respectively, represents certain transportation equipment, part of
which was sold during May 1996 to a third party for a $314 gain which is
included in Other, net in the consolidated statement of operations for the nine
months
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4 -- PROPERTY AND EQUIPMENT, NET (CONTINUED)
ended September 30, 1996, and the balance of which will be purchased by the
Principal Stockholder at net book value upon the closing of this offering.
NOTE 5 -- BUSINESS ACQUISITIONS
The Company has acquired 35 businesses (primarily recruitment advertising
businesses) between January 1, 1993 and September 30, 1996 including, on July 2,
1996, all of the outstanding shares of Neville Jeffress Australia Pty Limited
("Neville Jeffress"). Neville Jeffress had commissions and fees of approximately
$24,000 for the year ended June 30, 1996. The total amount of cash paid and
promissory notes issued for these acquisitions was approximately $8,743, $12,230
and $26,709 during 1993, 1994 and 1995, respectively, and $17,509 during the
nine months ended September 30, 1996. These acquisitions have been accounted for
under the purchase method. Accordingly, operations of these businesses have been
included in the consolidated financial statements from their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1995 and 1996 assume the acquisitions in 1994 and 1995 and the nine months
ended September 30, 1996 occurred as of the beginning of the year of acquisition
and the beginning of the preceeding year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
---------- ---------- --------- ----------
Commissions and fees.......................... $ 100,353 $ 157,550 $ 98,034 $ 120,061
Net income (loss) applicable to common and
Class B common stockholders................. (3,287) 3,676 191
Net income (loss) per common and
Class B common share........................ (.17) .19 .01
Pro forma net income, reflecting adjustment
for special compensation.................... -- -- -- 381
Pro forma net income per common and Class B
common share................................ -- -- -- .02
</TABLE>
In addition, for the period October 1 through November 15, 1996, the Company
has also acquired one and entered into agreements to acquire or is probable of
acquiring a majority interest in three other unrelated companies, primarily
engaged in recruitment advertising, which had aggregate annual commissions and
fees of approximately $7,000. The aggregate purchase price for these
acquisitions is expected to be approximately $8,000.
These acquisitions will be accounted for using the purchase method of
accounting. The excess of the acquisition costs over the fair value of net
tangible assets acquired, which is expected to be approximately $7,200, will be
amortized on a straight-line basis over 30 years.
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6 -- INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30, AMORTIZATION
1994 1995 1996 PERIOD
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(YEARS)
Client lists, net of accumulated amortization of $2,388,
$2,935 and $3,558, respectively........................ $ 5,796 $ 7,567 $ 9,129 5 to 30
Covenants not to compete, net of accumulated
amortization of $1,076, $1,314 and $1,594,
respectively........................................... 844 1,764 1,370 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$3,153, $4,377 and $6,194, respectively................ 17,388 36,485 54,452 10 to 30
Other, net of accumulated amortization of $1,053, $1,447
and $1,577, respectively............................... 1,235 1,021 927 4 to 10
------------ ------------ -------------
$ 25,263 $ 46,837 $ 65,878
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7 -- FINANCING AGREEMENT
The Company obtains its financing from a financial institution under a
five-year financing agreement as amended and restated on June 27, 1996, and as
further amended on August 29, 1996, with automatic one-year extensions unless
terminated by either party at least 90 days prior to expiration of the initial
term or any renewal term (the "Agreement"). The Agreement provides for
borrowings of up to $100,000 at an interest rate of either: (a) prime rate or
1/2% over the Federal Funds Rate, whichever is higher, less 1% to plus 1% as
determined under the Agreement; or (b) LIBOR, plus 1 1/2% to 3 1/2% as
determined under the Agreement; at the borrower's option. Borrowings under the
Agreement are based on 90% of eligible accounts receivable, which are amounts
billed under 120 days old and amounts to be billed on an installment basis under
360 days old from first installment billing, as defined. Substantially all
assets of the Company are pledged as collateral for borrowings under the
Agreement. The Agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. In addition, the Agreement also provides for a
0.50% fee on any unused portion of the commitment and a termination fee of
$3,000 through June 30, 1997 which is reduced annually thereafter. However, in
the event of an initial public offering, the termination fee is fixed at $1,000
for the life of the Agreement. At December 31, 1995, the Company was in
violation of certain of the covenants and financial ratios under a prior
agreement, which violations were waived by the lender.
At September 30, 1996, the prime rate, Federal Funds Rate and one month
LIBOR were 8.25%, 6.38% and 5.44%, respectively, and borrowings outstanding were
at a weighted average interest rate of 7.98%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant is
exercisable in whole or in part only upon the closing of an initial public
offering of the Company's common stock and expires on December 31, 2000 (the
"Expiration Date"). The warrant was independently appraised at $600, which
amount is being amortized over the remaining term of the original financing
agreement of 30 months from October 1993. In the event that the warrant does not
become exercisable prior to the Expiration Date, the financial institution has a
right to surrender the unexercised warrant to the Company at any time thereafter
for $500. If the value of the shares covered by this warrant at the initial
public offering price is less than $1,000, then the Company is obligated to make
up the deficiency. In addition, in the quarter in which this offering is
completed, there will be an additional interest charge of approximately $2.7
million upon the exercise of such warrant to reflect the difference between the
value of the stock issued (228,739 shares) at the assumed initial public
offering price of $14.50 per share (the midpoint of the range of the estimated
initial public offering price) and the original amount recorded.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Borrowings under financing agreement (see Note 7)............................ $ 66,541 $ 77,536 $ 90,885
Borrowings under financing agreement, interest payable at the Canadian Prime
Rate (which approximated 7.0% at December 31, 1995), expiring March 1998
and collateralized by the assets of a subsidiary in the amount of
approximately $4,000 at September 30, 1996................................. 275 2,200 1,641
Acquisition notes payable in annual and monthly installments through 1997
with interest at 8.5%...................................................... -- 7,026 3,793
Other acquisition notes payable, noninterest bearing, interest imputed at
6.7% to 8.0%, in varying installments through 2000......................... 2,822 8,277 11,055
Capitalized lease obligations, payable with interest from 9% to 15%, in
varying installments through 2000.......................................... 1,869 1,571 3,868
Notes payable, in varying monthly installments maturing through 2001, with
interest at rates ranging from 7.5% to 8.5%................................ 3,711 3,269 2,589
--------- --------- -------------
75,218 99,879 113,831
Less: Current portion........................................................ 3,210 11,809 11,022
--------- --------- -------------
$ 72,008 $ 88,070 $ 102,809
--------- --------- -------------
--------- --------- -------------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1997............................................................................ $ 5,755
1998............................................................................ 3,379
1999............................................................................ 1,010
2000............................................................................ 340
Thereafter...................................................................... 77,586
------------
$ 88,070
------------
------------
</TABLE>
NOTE 9--MINORITY INTEREST
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. The
preferred stock is callable by this subsidiary at $36.00 per share plus accrued
dividends and is subject to a put option on the shares of the subsidiary's
common stock exercisable by participants in the plan upon distribution and a put
option by the plan or participants. The redemption price with respect to the put
is the greater of $36.00 plus a call premium of $1.80 per share and any unpaid
dividends on the preferred stock or the fair market value of the subsidiary's
common stock, into which the
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--MINORITY INTEREST (CONTINUED)
preferred stock may be converted. The conversion rate is equal to the number of
shares of the subsidiary's common stock which have a fair market value equal to
the number of shares of preferred stock. The respective fair market values would
be determined by an independent appraiser. The book value of these shares of
approximately $3,000, which approximates the redemption price, is included in
minority interest in the consolidated balance sheets. These shares are expected
to be redeemed upon the completion of this offering.
NOTE 10--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. The preferred stock is puttable by the holders and redeemable in an
amount equal to the par value plus a call premium of $.525 per share and any
unpaid cumulative dividends. There are certain restrictions, as defined,
regarding the maximum amount of shares which can be put to the Company in any
year. These shares are expected to be redeemed upon the completion of this
offering.
NOTE 11--STOCKHOLDERS' DEFICIT
STOCK INCENTIVE PLANS
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options, to purchase an aggregate of up to 900,000 shares of the common stock of
the Company. The Stock Option Plan permits the granting of options to officers,
employees and consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares.
On January 3, 1996, options to purchase an aggregate of 296,640 shares of
common stock were granted to officers, employees and consultants of the Company
at a purchase price equal to $6.65 per share, the fair market value of the
common stock on the date of grant as determined by the Board. Such options vest
at the rate of 25% of the original grant commencing one year after the date of
grant. During the nine months ended September 30, 1996, 7,056 options were
cancelled. At September 30, 1996, none of the outstanding options were
exercisable.
In January 1996, the Company also adopted a stock option plan for
non-employee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of
F-17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' DEFICIT (CONTINUED)
common stock may be granted to non-employee directors. Options granted under the
Directors' Plan do not qualify as incentive stock options within the meaning of
Section 422 of the Code. The Directors' Plan provides for an automatic grant to
each of the Company's nonemployee directors of an option to purchase 11,250
shares of common stock on the date of such director's initial election or
appointment to the Board. The options will have an exercise price of 100% of the
fair market value of the common stock on the date of grant, have a ten-year term
and become exercisable in accordance with a vesting schedule determined by the
Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant as determined by the Board, were granted on January 24, 1996 to
one non-employee director. Half of these options vested on the date of the grant
and the balance vests in 2 equal annual installments commencing one year after
the date of grant. In September 1996, options to purchase an aggregate of 33,750
of common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant as determined by the Board. Vesting is on terms
similar to that of the previous director's grant. At September 30, 1996, 22,500
options are exercisable.
STOCK OPTIONS
In connection with an acquisition in 1995, the Company issued options to
acquire shares of the Company's common stock in exchange for a $400 obligation
of the Company incurred in connection with this acquisition. That obligation was
amended in September 1996 in consideration of the termination of a put option.
The number of shares to be acquired is determined by formula. Based on the
assumed initial public offering price of $14.50, the number of shares to be
issued will be 82,410. The option holders have given notice to exercise their
options on the closing of the public offering.
NOTE 12--RESTRUCTURING CHARGE
During 1993, the Company recorded a charge of $1,318 for the restructuring
of its operations which consisted primarily of accruals for severance pay and
related items. As of December 31, 1995 such accruals were fully utilized.
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings of affiliates are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
---------- --------- --------- --------- ---------
Domestic..................................................... $ (5,548) $ (2,661) $ 6,955 $ 2,473 $ (944)
Foreign...................................................... (59) 164 1,210 1,230 2,350
---------- --------- --------- --------- ---------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings of
affiliates............................................... $ (5,607) $ (2,497) $ 8,165 $ 3,703 $ 1,406
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Current tax provision (benefit):
U.S. Federal................................................. $ 64 $ 194 $ 87 $ (1,333) $ 1,051
State and local.............................................. 16 298 320 222 263
Foreign...................................................... 28 162 810 490 855
--------- --------- --------- --------- ---------
Total current.......................................... 108 654 1,217 (621) 2,169
--------- --------- --------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal................................................. (543) (787) 2,051 2,754 (410)
State and local.............................................. (887) (200) 535 114 (127)
Foreign...................................................... -- -- 419 51 23
--------- --------- --------- --------- ---------
Total deferred......................................... (1,430) (987) 3,005 2,919 (514)
--------- --------- --------- --------- ---------
Total provision (benefit).............................. $ (1,322) $ (333) $ 4,222 $ 2,298 $ 1,655
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C> <C>
SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
Current deferred tax assets (liabilities):
Earned commissions......................................................... $ (4,760) $ (5,433) $ (7,025)
Allowance for doubtful accounts............................................ 832 1,462 1,965
Work-in-process............................................................ (4,684) (5,316) (5,403)
Accrued expenses and other liabilities..................................... 707 (135) 52
--------- --------- -------------
Total current deferred tax liability................................... (7,905) (9,422) (10,411)
--------- --------- -------------
Noncurrent deferred tax assets (liabilities):
Property and equipment..................................................... 2,056 1,237 140
Intangibles................................................................ 38 (76) (681)
Tax loss carryforwards..................................................... 8,868 8,313 10,490
--------- --------- -------------
Total noncurrent deferred tax asset.................................... 10,962 9,474 9,949
--------- --------- -------------
Net deferred tax asset (liability)..................................... $ 3,057 $ 52 $ (462)
--------- --------- -------------
--------- --------- -------------
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
U.S. federal tax purposes of approximately $21,300 which expire through 2009.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized.
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed
using the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Provision (benefit) at federal statutory rate................. $ (1,906) $ (849) $ 2,776 $ 1,259 $ 479
State income taxes, net of federal income tax effect.......... (159) (35) 514 222 90
Nondeductible expenses........................................ 231 342 419 330 437
Non-deductible special compensation charge.................... -- -- -- -- 228
Interest imputed on receivable from principal stockholder..... 127 146 198 42 102
Losses for which no tax benefits are available................ 313 4 503 310 282
Foreign income taxes at other than the federal
statutory rate.............................................. 47 (19) 149 123 79
Other......................................................... 25 78 (337) 12 (42)
--------- --------- --------- --------- ---------
Income tax provision (benefit)................................ $ (1,322) $ (333) $ 4,222 $ 2,298 $ 1,655
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Those earnings have been and
will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were
loaned to the Company or a U.S. affiliate, or if the Company should sell its
stock in the foreign subsidiaries. It is not practicable to determine the amount
of additional tax, if any, that might be payable on the foreign earnings;
however, the Company believes that foreign tax credits would substantially
offset any U.S. tax. At December 31, 1995, the cumulative amount of reinvested
earnings was not material.
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -----------
<S> <C> <C>
1996................................................................................... $ 673 $ 6,189
1997................................................................................... 507 5,171
1998................................................................................... 283 4,740
1999................................................................................... 171 4,510
2000................................................................................... 102 3,789
Thereafter............................................................................. -- 6,867
------ -----------
1,736 $ 31,266
-----------
-----------
Less: Amount representing interest..................................................... 229
------
Present value of minimum lease payments................................................ 1,507
Less: Current portion.................................................................. 531
------
$ 976
------
------
</TABLE>
Rent and related expenses under operating leases amounted to approximately
$6,035, $6,470 and $7,735 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $5,535 and $7,582 for the nine months ended September 30, 1995
and 1996, respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally three to five years in length, with
one for a term of fifteen years and two providing aggregate annual lifetime
payments of approximately $135, and provide for the following total payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
1996............................................................................ $ 1,483
1997............................................................................ 1,220
1998............................................................................ 833
1999............................................................................ 536
2000............................................................................ 472
Thereafter...................................................................... 1,414
------
$ 5,958
------
------
</TABLE>
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to approximately $392, $368 and $584 for
the years ended December 31, 1993, 1994 and 1995, respectively, and $413 and
$392 for the nine months ended September 30, 1995 and 1996, respectively.
In addition, the Company has a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1996. The Board does not
anticipate any contributions will be made in the future.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600. In addition, a corporate
asset is pledged as collateral for the repayment of this note.
(ii) The majority stockholder of an unconsolidated equity investee has
an agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1995 is
approximately $4,000 based on the formula.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) The Company has loaned three affiliates, in which the Principal
Stockholder of the Company is an equity owner, a total of $1,346, $258 and $658
at December 31, 1994 and 1995 and September 30, 1996, respectively.
(B) The Company has receivables from certain of its stockholders
aggregating $235, $500, and $311 at December 31, 1994 and 1995 and September 30,
1996, respectively.
(C) Receivables from its Principal Stockholder of $8,188, $6,530 and $9,490
at December 31, 1994 and 1995 and September 30, 1996, respectively, consist
primarily of noninterest-bearing advances. These advances are expected to be
paid in full promptly upon the completion of this offering.
(D) During the nine months ended September 30, 1996, the Company entered
into an agreement with one of its stockholders which requires the Company to
repurchase such stockholders' common stock of the Company in the event that the
Company does not close an initial public offering of its common stock
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
during 1996. The purchase price for the shares is $1,172, to be paid in the form
of a note providing for 60 equal monthly payments beginning in February 1997.
This obligation is included in redeemable common stock at September 30, 1996. In
addition, in connection with the purchase of the minority interest in a
subsidiary, the Company issued 159,231 shares of Common Stock valued at $1,055.
These stockholders entered into agreements with the Company which provide that
upon death or termination of employment such shareholder is required to sell and
the Company is required to purchase the shares at a formula price, as defined in
the agreement. Such requirement to repurchase these shares expires upon an
initial public offering of the Company's common stock. Accordingly these shares
are included in redeemable common stock.
(E) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of Common
Stock. Such shares, valued at $672 based on an assumed initial public offering
price of $14.50 per share (the midpoint of the range of the estimated initial
public offering price), were recorded as special compensation because the
stockholder had received his shares in the subsidiary for no consideration and
accordingly, was not considered to have made a substantial investment for the
minority shares. The agreement also provides that upon death or termination of
employment the stockholder is required to sell and the Company is required to
purchase the shares. Such requirement to repurchase these shares expires upon an
initial public offering of the Company's common stock. Accordingly these shares
are included in redeemable common stock.
(F) The Company charged management and other fees to affiliates for
services provided of approximately $550, $670, $873, $583, and $557 for the
years ended December 31, 1993, 1994, 1995 and the nine months ended September
30, 1995 and 1996, respectively.
(G) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising for $150,000. In connection with this
acquisition, the Company agreed to provide the agency with certain office and
administrative services which amounted to $685, $725, $547, and $657 in the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1995 and 1996, respectively, in exchange for 50% of the agency's profits, as
defined in the agreement. The Company also entered into three-year employment
and consulting agreements with the two other stockholders of the agency and
granted them the right to convert their agency shares into Company shares after
an initial public offering. That conversion right, as amended, provides that
those two stockholders may convert 25% of the agency's stock into unregistered
common stock of the Company with a total value of $1,000 as of the effective
date of conversion. The conversion cannot be exercised prior to January 2, 1997.
(H) In 1994, the Principal Stockholder gave 374,940 shares of common stock
as compensation to certain employees. These shares were recorded at fair market
value of $55 on the date they were given, as determined by the Company. In 1996
the Company issued 142,740 shares of common stock as compensation to one
employee. These shares were valued at fair market value of $20 on the date they
were issued, as determined by the Company.
(I) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $803. In addition an
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
investee of the Company leases an office, at an annual rental of approximately
$119, from a partnership in which the Principal Stockholder holds a 49%
interest.
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Interest....................................................... $ 7,731 $ 8,809 $ 10,601 $ 5,337 $ 5,770
Income taxes................................................... 119 239 589 287 739
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Fair value of assets acquired, excluding cash............... $ 3,417 $ 16,537 $ 37,260 $ 30,883 $ 50,537
Less: Liabilities assumed and created upon acquisition...... 2,444 10,210 25,936 22,251 33,926
--------- --------- --------- --------- ---------
Net cash paid............................................... $ 973 $ 6,327 $ 11,324 $ 8,632 $ 16,611
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NOTE 17--SUBSEQUENT EVENTS
(a) The Company plans to complete an underwritten Offering of 4,147,437
shares of its common stock.
(b) In November 1996, an action was commenced against Old TMP, WCI and the
Principal Stockholder by a former employee. The complaint alleges, among other
things, that the defendants breached purported contractual obligations pursuant
to which the former employee was entitled to a 40% ownership interest in the
Company's recruitment advertising business, and breached fiduciary obligations
to the former employee arising out of the deprivation of his supposed 40%
interest. The former employee seeks damages in an unspecified amount and
punitive damages in the amount of $10 million for each claim. The Company and
the Principal Stockholder intend to vigorously contest the complaint. There can
be no assurance as to the outcome of the litigation and, in the event of a
decision adverse to the Company, the Company's business, financial condition and
operating results, and the Company's stockholders could be materially adversely
affected. The Principal Stockholder has agreed to indemnify the Company against
any adverse judgment. There can be no assurance, however, that the Principal
Stockholder will have sufficient financial resources to satisfy any
indemnification claims.
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
(c) Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter. The
agreement also provides that the Company will pay the Principal Stockholder his
base salary and mandatory bonuses for the remaining term of the agreement in the
event he is terminated for reasons other than cause.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Neville Jeffress Australia Pty Limited
SCOPE
We have audited the accompanying consolidated balance sheets of Neville
Jeffress Australia Pty Limited (the "Company") as of 30 June 1996 and 30 June
1995, and the related consolidated statements of profit and loss, shareholder's
equity and cash flows for each of the years then ended (the "audit periods").
These special purpose financial statements, which have been prepared in
accordance with accounting principles generally accepted in Australia, are the
responsibility of the Company's management.
Our responsibility is to conduct independent audits of the financial
statements for the audit periods in order to express an opinion on them based on
our audits.
We conducted our audits in accordance with United States 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.
Our audit opinion expressed in this report has been formed on the above
basis.
OPINION
In our opinion, the consolidated financial statements of Neville Jeffress
Australia Pty Limited for the audit periods present fairly, in all material
respects, the financial position of the Company and its subsidiaries at 30 June
1996 and 30 June 1995, and the results of their operations and their cash flows
for each of the years then ended in conformity with accounting principles
generally accepted in Australia, as described in the financial statements.
Dated at Sydney, Australia, this 8th day of November 1996.
BDO NELSON PARKHILL
Chartered Accountants
F-27
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
ASSETS
FIXED ASSETS
Intangible fixed assets......................................................... 1 -- --
Tangible fixed assets: 2
Land and buildings............................................................ 1,658,176 1,706,544
Other fixed assets............................................................ 2,960,241 3,006,192
----------- -----------
Total tangible fixed assets..................................................... 4,618,417 4,712,736
----------- -----------
TOTAL FIXED ASSETS.............................................................. 4,618,417 4,712,736
----------- -----------
OTHER NON-CURRENT ASSETS
Investments..................................................................... 3 549,692 554,457
Future income tax benefit....................................................... 1,443,829 1,462,121
----------- -----------
TOTAL NON-CURRENT ASSETS........................................................ 1,993,521 2,016,578
----------- -----------
CURRENT ASSETS
Inventories..................................................................... 4 178,923 252,946
Cash at bank.................................................................... 1,674,722 1,211,020
Accounts receivable:
Trade debtors................................................................. 26,024,689 24,407,514
Receivables from related entities............................................. 2,355,276 3,619,043
Short-term deposits........................................................... 7,602,468 10,400,791
Other debtors and prepayments................................................. 752,428 799,918
----------- -----------
TOTAL CURRENT ASSETS............................................................ 38,588,506 40,691,232
----------- -----------
TOTAL ASSETS.................................................................... 45,200,444 47,420,546
----------- -----------
----------- -----------
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY............................................................ 3,842,695 5,215,284
----------- -----------
OUTSIDE SHAREHOLDERS' INTEREST.................................................. 5 147,667 210,531
----------- -----------
PROVISIONS: 6
Employee entitlements........................................................... 1,701,448 1,879,280
Deferred taxation............................................................... 86,951 9,393
----------- -----------
1,788,399 1,888,673
----------- -----------
LONG-TERM LIABILITIES
Bank loans...................................................................... 600,000 500,000
Lease liability................................................................. 7 438,678 391,905
Amounts due to related entities................................................. 242,489 --
Other creditors and borrowings.................................................. 38,619 4,425
----------- -----------
1,319,786 896,330
----------- -----------
CURRENT LIABILITIES
Bank loan....................................................................... 3,202,076 2,793,147
Secured loans................................................................... 2,940,000 3,350,000
Unsecured loans................................................................. 1,708,966 41,667
Lease liability................................................................. 7 337,684 292,022
Trade creditors................................................................. 27,185,095 26,884,609
Amounts due to related companies................................................ 228,206 2,574,287
Taxation liabilities............................................................ 910,640 1,055,354
Other liabilities and accrued expenses.......................................... 1,589,230 2,218,642
----------- -----------
38,101,897 39,209,728
----------- -----------
TOTAL EQUITY AND LIABILITIES.................................................... 45,200,444 47,420,546
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-28
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- --------- ---------
Commissions and fees........................................... 21,663,259 32,060,026
<S> <C> <C> <C>
--------- ---------
Operating expenses:
Wages and salaries........................................... 10,449,141 17,216,840
Depreciation of fixed assets................................. 577,807 1,169,472
Abnormal bad debt provision.................................. 2,144,331 --
Other operating expenses..................................... 7,684,587 11,373,602
--------- ---------
Total operating expenses....................................... 20,855,866 29,759,914
--------- ---------
Operating profit............................................... 807,393 2,300,112
--------- ---------
Dividend received.............................................. -- 116,170
Interest income................................................ 440,856 334,306
Interest expense............................................... 329,510 424,430
--------- ---------
Net financial income......................................... 111,346 26,046
--------- ---------
Income before income tax expense............................... 918,739 2,326,158
Income tax expense............................................. 8 65,246 888,459
--------- ---------
Net income..................................................... 853,493 1,437,699
Outside equity interest in net income.......................... 5 22,669 62,864
--------- ---------
Net income attributable to members of Neville Jeffress
Australia Pty Limited........................................ 830,824 1,374,835
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-29
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOREIGN
SHARE CAPITAL CAPITAL CURRENCY ASSET
PAR VALUE $1 RETAINED PROFITS TRANSLATION REVALUATION OTHER
-------------------- EARNINGS RESERVE RESERVE RESERVE RESERVES
SHARES $ $ $ $ $ $
--------- --------- --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 1 July 1994................ 1,220,000 1,220,000 1,685,935 106,621 (6,607) (7,085) 19,759
Net income attributable to
members........................... -- -- 830,824 -- -- --
Adjustment relating to adoption of
new accounting standard........... -- -- (53,900) -- -- -- --
Transfers between reserves.......... -- -- 19,759 -- -- -- (19,759)
Gain on translation of foreign
controlled entities............... -- -- -- -- 47,148 -- --
--------- --------- --------- ----------- ----------- ------ -----------
Balance, 30 June 1995............... 1,220,000 1,220,000 2,482,618 106,621 40,541 (7,085) --
Net income attributable to
members........................... -- -- 1,374,835 -- -- -- --
Loss on translation of foreign
controlled entities............... -- -- -- -- (2,246) -- --
--------- --------- --------- ----------- ----------- ------ -----------
Balance, 30 June 1996............... 1,220,000 1,220,000 3,857,453 106,621 38,295 (7,085) --
--------- --------- --------- ----------- ----------- ------ -----------
--------- --------- --------- ----------- ----------- ------ -----------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
$
-------------
<S> <C>
Balance, 1 July 1994................ 3,018,623
Net income attributable to
members........................... 830,824
Adjustment relating to adoption of
new accounting standard........... (53,900)
Transfers between reserves.......... --
Gain on translation of foreign
controlled entities............... 47,148
-------------
Balance, 30 June 1995............... 3,842,695
Net income attributable to
members........................... 1,374,835
Loss on translation of foreign
controlled entities............... (2,246)
-------------
Balance, 30 June 1996............... 5,215,284
-------------
-------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-30
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to members................................................ 830,824 1,374,835
Add/(deduct) non-cash items:
Depreciation & amortisation....................................................... 577,807 1,169,472
Bad debts write-off............................................................... 1,876,858 --
Profit on sale of property, plant and equipment................................... (12,966) (2,323)
Loss on disposal of controlled entity............................................. 15,289 --
Amortisation of goodwill on acquisition........................................... 56,848 --
Change due to application of new accounting standard.............................. (53,900) --
Increase in outside shareholders' interest........................................ 22,669 62,864
Gain/(loss) on translation of foreign controlled entities......................... 47,148 (2,246)
Other............................................................................. (58,224) (77,558)
Changes in assets and liabilities :
(Increase)/decrease in trade debtors.............................................. (3,960,773) 1,617,175
(Increase)/decrease in inventories................................................ 161,251 (74,023)
(Increase)/decrease in other current assets and prepayments....................... 322,746 (47,490)
(Increase)/decrease in future income tax benefit.................................. (153,113) (18,292)
Increase/ (decrease) in trade creditors........................................... 1,662,980 (300,486)
Increase/ (decrease) in other creditors and accruals.............................. (1,943,907) 595,217
Increase/ (decrease) in tax provision............................................. 142,095 144,714
Increase in employee entitlements................................................. 375,088 177,832
----------- -----------
Net cash flows from/(used in) operating activities................................ (91,280) 4,619,691
----------- -----------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Cash (into)/out of short-term deposit............................................. (5,248,849) (2,798,323)
Acquisition of property, plant and equipment...................................... (980,956) (1,375,265)
Proceeds from sale of property, plant and equipment............................... 78,836 113,297
Net cash flow on disposal of controlled entity.................................... 11 118,096 --
Cash paid for purchase of entity.................................................. (544,604) (4,265)
Net cash inflow/(outflow) on acquisition of controlled entity..................... 11 1,490,459 --
----------- -----------
Net cash from/(used in) investing activities...................................... (5,087,018) (4,064,556)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance lease repayments, net..................................................... 118,857 (92,435)
Repayments of borrowings
-external parties............................................................... -- (1,257,299)
Proceeds of borrowings
-external parties............................................................... 2,231,376 --
-related entities............................................................... 650,491 839,826
----------- -----------
Net cash from/(used in) financing activities...................................... 3,000,724 (509,908)
----------- -----------
NET INCREASE/(DECREASE) IN CASH HELD.............................................. (2,177,574) 45,227
Cash at beginning of the reporting period......................................... 50,220 (2,127,354)
----------- -----------
CASH AT END OF REPORTING PERIOD................................................... (2,127,354) (2,082,127)
----------- -----------
----------- -----------
RECONCILIATION OF CASH
Cash balances comprise:
Cash at bank...................................................................... 1,674,722 1,211,020
Bank loan......................................................................... (3,802,076) (3,293,147)
----------- -----------
(2,127,354) (2,082,127)
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-31
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
These consolidated financial statements are a special purpose financial
report prepared in order to meet the requirements of a registration statement to
be submitted to the Securities and Exchange Commission.
These consolidated financial statements have been prepared in Australian
dollars in accordance with accounting principles generally accepted in
Australia. These include applicable Accounting Standards and other mandatory
professional reporting requirements with the exception of AASB 1024:
Consolidated Accounts (see Principles of Consolidation). At June 30, 1996 the
exchange rate of Australian dollars to US dollars is .7875.
The accounts have also been prepared on an accrual basis. They are based on
historical costs and do not take into account changing money values or, except
where specifically stated, current valuations of non-current assets.
The accounting policies adopted have been consistently applied throughout
the periods presented.
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differs in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for business combinations. Under US GAAP, goodwill arising on acquisitions is
capitalized and amortized over its economic life while under Australian GAAP as
utilized by the Company, this goodwill is charged to operations in the year of
the acquisition. In addition, subsequent utilization of acquired net operating
losses is recorded as a reduction of income tax expense under Australian GAAP
while under US GAAP, it is recorded as an adjustment to assets purchased.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements comprise the fully consolidated
financial information for Neville Jeffress Australia Pty Limited and its group
companies in which the company has majority control, with the exception of the
following companies:
Media Monitors Australia Pty Limited;
National Advertising Services Pty Limited; and
Neville Jeffress Newsagencies Pty Limited.
These companies were not included at the effective date of the acquisition
of Neville Jeffress Australia Pty Limited and subsidiaries by TMP Worldwide Inc
("TMP"). Accordingly they do not form part of the group being acquired by TMP.
The consolidated financial statements comprise the financial statements of
those companies as set out in Note 3 to the consolidated financial statements.
The consolidated financial statements include the information contained in
the financial statements of Neville Jeffress Australia Pty Limited and each of
the entities in the group being acquired by TMP as from the date the company
obtains control until such time as control ceases.
F-32
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The accounts of subsidiaries are prepared for the same reporting period as
the company, using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies which may exist.
All intercompany balances and transactions, between entities consolidated,
including unrealised profits and losses, have been eliminated in consolidation.
INVESTMENTS
The company's interest in subsidiaries not forming part of the group of
companies acquired by TMP was not consolidated (see Principles of Consolidation
above), and has been included with associated entities at cost, and only
dividend income received is taken into earnings. Associated entities are those
in which the company holds a significant shareholding of the issued ordinary
capital and participates in commercial and policy decision making.
INVENTORIES
Inventories, including work-in-progress, are valued at the lower of cost and
net realisable value.
RECOVERABLE AMOUNTS
Assets are not revalued to an amount above their recoverable amount and,
where carrying values exceed this recoverable amount, assets are written down.
In determining the recoverable amount, the expected net cash flows have not been
discounted to their present value.
PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are valued at cost or at independent
valuation. Decrements arising from revaluation have been debited to the profit
and loss account. Acquisitions since the last revaluation have been brought to
account at cost.
Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount where it is expected that a liability for capital gains
tax will arise.
Any gain or loss on the disposal of revalued assets is determined as the
difference between the carrying value of the asset at the time of disposal and
the proceeds from disposal, and is included in the results of the group in the
year of disposal.
DEPRECIATION AND AMORTISATION
Buildings, plant and equipment are depreciated on a straight-line basis so
as to write-off the cost or valuation of each asset over its anticipated useful
life.
Major depreciation periods are:
Freehold buildings - 40 years
Plant and equipment - 3 to 15 years
F-33
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
INCOME TAX
Tax-effect accounting is applied using the liability method whereby income
tax is regarded as an expense and is calculated on the accounting profit after
allowing for permanent differences. To the extent timing differences occur
between the time items are recognised in the accounts and when items are taken
into account in determining taxable income, the net related taxation benefit or
liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not carried forward as
an asset unless the benefit is virtually certain of being realised.
Where the earnings of overseas subsidiaries are subject to taxation under
the Controlled Foreign Companies rules, this tax has been provided for in the
accounts.
FOREIGN CURRENCIES
TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies of entities within the group are
converted to local currency at the rate of exchange ruling at the date of the
transaction.
Amounts payable to and by the entities within the group that are outstanding
at the balance date and are denominated in foreign currencies have been
converted to local currency using rates of exchange ruling at the balance sheet
date.
TRANSLATION OF ACCOUNTS OF OVERSEAS OPERATIONS
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Neville Jeffress Australia Pty Limited. The
accounts of overseas operations are translated using the current rate method and
any exchange differences are taken directly to the foreign currency translation
reserve.
LEASES
Finance leases, which effectively transfer to the group substantially all of
the risks and benefits incidental to ownership of the leased item, are
capitalised at the present value of the minimum lease payments, disclosed as
leased property, plant and equipment, and amortised over the period the group is
expected to benefit from the use of the leased assets.
Operating lease payments, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased items, are included in
the determination of the operating profit in equal instalments over the lease
term.
EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits include
wages and salaries, annual leave, and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, and any
other employee entitlements expected to be settled within twelve months of the
reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of the estimated
future cash outflows to be made in respect of services provided by employees up
to the reporting date. In determining
F-34
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
the present value of future cash outflows, the interest rates attaching to
government guaranteed securities which have terms to maturities approximating
the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
- wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
- other types of employee entitlements,
are charged against profits on a net basis in their respective categories.
Contributions are made by the group to employee defined contribution
superannuation funds. These contributions are charged as expenses when incurred.
REVENUE RECOGNITION
Substantially all revenues are derived from commissions for advertisements
placed in newspapers, plus associated fees for related services. Commissions and
fees are generally recognized upon placement date.
CASH FLOW DEFINITIONS
For the purpose of the Consolidated Statements of Cash Flows, the group
considers cash to include cash on hand and in banks and investments in money
market instruments readily convertible to cash within two working days, net of
outstanding bank overdraft.
GOODWILL
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or share in a subsidiary. It is written off to the profit and loss
account on acquisition.
F-35
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1 INTANGIBLES
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Goodwill.................................................................................. 125,456 125,456
Provision for amortisation................................................................ (125,456) (125,456)
---------- ----------
-- --
---------- ----------
---------- ----------
</TABLE>
2 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND OTHER FIXED
BUILDINGS ASSETS TOTAL
$ $ $
---------- ----------- -----------
<S> <C> <C> <C>
Movements in tangible fixed assets are:
1 July 1994
Cost...................................................................... 1,824,870 3,941,228 5,766,098
Accumulated depreciation.................................................. 144,172 2,243,710 2,387,882
---------- ----------- -----------
Book value................................................................ 1,680,698 1,697,518 3,378,216
---------- ----------- -----------
---------- ----------- -----------
Movements in year ended 30 June 1995
Acquisition of controlled entities
Cost...................................................................... -- 1,266,993 1,266,993
Accumulated depreciation.................................................. -- (364,071) (364,071)
Acquisitions.............................................................. -- 980,956 980,956
Depreciation.............................................................. (22,522) (555,285) (577,807)
Disposals................................................................. -- (119,004) (119,004)
Accumulated depreciation on disposals..................................... -- 53,134 53,134
---------- ----------- -----------
(22,522) 1,262,723 1,240,201
---------- ----------- -----------
Cost...................................................................... 1,824,870 6,070,173 7,895,043
Accumulated depreciation.................................................. 166,694 3,109,932 3,276,626
---------- ----------- -----------
Book value................................................................ 1,658,176 2,960,241 4,618,417
---------- ----------- -----------
---------- ----------- -----------
Movements in year ended 30 June 1996
Acquisitions.............................................................. 71,705 1,303,560 1,375,265
Depreciation.............................................................. (23,337) (1,146,135) (1,169,472)
Disposals................................................................. -- (661,333) (661,333)
Accumulated depreciation on disposals..................................... -- 549,859 549,859
---------- ----------- -----------
48,368 45,951 94,319
---------- ----------- -----------
</TABLE>
F-36
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
2 TANGIBLE FIXED ASSETS (CONTINUED)
<TABLE>
<CAPTION>
LAND AND OTHER FIXED
BUILDINGS ASSETS TOTAL
$ $ $
---------- ----------- -----------
<S> <C> <C> <C>
30 June 1996
Cost...................................................................... 1,896,575 6,712,400 8,608,975
Accumulated depreciation.................................................. 190,031 3,706,208 3,896,239
---------- ----------- -----------
Book value................................................................ 1,706,544 3,006,192 4,712,736
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Land and buildings were collateralized in favour of certain bank loans.
These loans were retired subsequent to the balance sheet date.
Included in other fixed assets are assets subject to finance lease which are
collateralized in favour of the finance lease creditor.
F-37
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 INVESTMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
--------- ---------
<S> <C> <C>
INVESTMENTS COMPRISE:
(i) Investments in subsidiaries not consolidated in these financial statements:
Shares at cost
National Advertising Services Pty Limited................................................. 112,024 112,024
Media Monitors Australia Pty Limited...................................................... 432,580 432,580
Neville Jeffress Newsagencies Pty Limited................................................. 4,853 4,853
--------- ---------
549,457 549,457
--------- ---------
(ii) Associated entities
Shares at cost
Mitchell Armstrong's Consortium Pty Limited............................................... -- 5,000
Print Production Trust.................................................................... 235 --
--------- ---------
235 5,000
--------- ---------
549,692 554,457
--------- ---------
--------- ---------
<CAPTION>
BENEFICIAL INTEREST
--------------------
% %
--------- ---------
<S> <C> <C>
Investments in subsidiaries not consolidated in these financial statements
Neville Jeffress Newsagencies Pty Limited and its controlled entity:
The Cremorne Newsagency................................................................. 100 100
National Advertising Services Pty Limited................................................. 100 100
Media Monitors Australia Pty Limited and its controlled entities:
Media Monitors NSW Pty Limited.......................................................... 45 45
Media Monitors Victoria Pty Limited..................................................... 45 45
Media Monitors ACT Pty Limited.......................................................... 45 45
Media Monitors Queensland Pty Limited................................................... 45 45
News Bank Pty Limited................................................................... 45 45
News Monitor Pty Limited................................................................ 45 45
</TABLE>
F-38
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
--------- ---------
BENEFICIAL INTEREST
--------------------
% %
<S> <C> <C>
Associates
Mitchell Armstrong's Consortium Pty Limited............................................... -- 50
Print Production Trust.................................................................... 45 --
Investments in subsidiaries consolidated in these financial statements
Neville Jeffress--Perth Pty Limited....................................................... 100 100
Neville Jeffress--Darwin Pty Limited...................................................... 100 100
Neville Jeffress--Queensland Pty Limited and its controlled entity:
Neville Jeffress--Queensland Pty Limited................................................ 91 91
Neville Jeffress Brisbane Pty Limited................................................... 91 91
Neville Jeffress--Adelaide Pty Limited.................................................... 100 100
Neville Jeffress--Canberra Pty Limited.................................................... 100 100
Neville Jeffress NSW Pty Limited and its controlled entities:
Neville Jeffress NSW Pty Limited........................................................ 100 100
Neville Jeffress Sydney Pty Limited..................................................... 100 100
Neville Jeffress Pty Limited............................................................ 100 100
Neville Jeffress Parramatta Pty Limited................................................... 100 100
Neville Jeffress Financial Pty Limited.................................................... 90 90
Neville Jeffress Advertising (Tasmania) Pty Limited....................................... 100 100
Neville Jeffress Caldwell Limited......................................................... 70 70
Neville Jeffress Victoria Pty Limited..................................................... 100 100
Neville Jeffress New Zealand Pty Ltd...................................................... 90 90
Armstrong's Australia Pty Limited and its controlled entities:
Armstrong's Australia Pty Limited....................................................... 100 100
Armstrong's--Victoria Pty Limited....................................................... 100 100
Armstrong's--NSW Pty Limited............................................................ 100 100
Armstrong's--Queensland Pty Limited..................................................... 100 100
Armstrong's--W.A. Pty Limited........................................................... 100 100
</TABLE>
4 INVENTORIES
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
--------- ---------
<S> <C> <C>
Work-in-progress............................................................................ 178,923 252,946
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
5 OUTSIDE SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL RESERVES INCOME TOTAL
$ $ $ $
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
MOVEMENTS IN OUTSIDE SHAREHOLDERS' INTERESTS ARE:
Balance, 1 July 1994................................................... 65,377 -- 23,854 89,231
Acquisition of controlled entities..................................... 35,767 -- -- 35,767
Net income attributable to outside shareholders........................ -- -- 22,669 22,669
--
--------- --------- ---------
Balance, 30 June 1995.................................................. 101,144 -- 46,523 147,667
Net income attributable to outside shareholders........................ -- -- 62,864 62,864
--
--------- --------- ---------
Balance, 30 June 1996.................................................. 101,144 -- 109,387 210,531
--
--
--------- --------- ---------
--------- --------- ---------
</TABLE>
6 PROVISIONS
<TABLE>
<CAPTION>
$
----------
<S> <C>
Employee Entitlements
Balance, 1 July 1994............................................................................. 724,757
Charged to profit and loss....................................................................... 417,768
Acquisition of controlled entities............................................................... 505,023
Adjustment to reserves on introduction of new accounting standard................................ 53,900
----------
Balance, 30 June 1995............................................................................ 1,701,448
Charged to profit and loss....................................................................... 177,832
----------
Balance, 30 June 1996............................................................................ 1,879,280
----------
----------
Deferred Taxation
Balance, 1 July 1994............................................................................. 66,738
Charged to profit and loss....................................................................... 20,213
----------
Balance, 30 June 1995............................................................................ 86,951
Charged to profit and loss....................................................................... (77,558)
----------
Balance, 30 June 1996............................................................................ 9,393
----------
----------
</TABLE>
F-40
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 LEASE LIABILITY
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Not later than one year................................................................... 408,423 362,747
Later than one year and not later than two years.......................................... 296,357 222,687
Later than two years and not later than five years........................................ 188,383 204,602
Later than five years..................................................................... -- --
---------- ----------
Minimum lease payments.................................................................... 893,163 790,036
Future finance charges.................................................................... (116,801) (106,109)
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
Current lease liability................................................................... 337,684 292,022
Non-current lease liability............................................................... 438,678 391,905
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
</TABLE>
8 INCOME TAX
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
----------- -----------
<S> <C> <C>
The prima facie tax, using tax rates applicable in the country of operation, on income
before income tax differs from the income tax provided in the accounts and is calculated
as follows:
Prima facie tax on income before income tax............................................... 303,184 837,415
Tax effect of permanent differences....................................................... (18,762) 48,404
Future income tax benefit not previously brought to account............................... (175,944) --
Income tax underprovided in previous year................................................. 61,616 2,640
Net gain from change in income tax rate from 33% to 36%................................... (104,848) --
----------- -----------
Income tax attributable to operating profit............................................... 65,246 888,459
----------- -----------
----------- -----------
Income tax provided comprises:
Provision attributable to future years:
Future income tax benefit............................................................... (855,206) 18,292
Provision for deferred income tax....................................................... 20,213 (77,558)
Underprovision of previous year........................................................... 61,616 2,640
Provision attributable to current period.................................................. 838,623 945,085
----------- -----------
65,246 888,459
----------- -----------
----------- -----------
The amount of future income tax benefit carried forward as an asset in the consolidated
financial statements which is attributable to tax losses is :........................... 252,967 282,382
----------- -----------
----------- -----------
</TABLE>
F-41
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
9 EXPENDITURE COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
Lease commitments
Operating lease commitments not provided for in the accounts:
Not later than one year............................................................... 737,161 885,764
Later than one year and not later than two years...................................... 276,252 630,687
Later than two years and not later than five years.................................... 68,007 1,439,434
Later than five years................................................................. -- --
------------ ------------
1,081,420 2,955,885
------------ ------------
------------ ------------
</TABLE>
10 EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Employee Entitlements:
The aggregate employee entitlement liability is comprised of:
Accrued wages, salaries and oncosts................................................... 14,710 (80,846)
Provisions (current).................................................................. 1,269,914 1,335,529
Provisions (non-current).............................................................. 431,534 433,034
---------- ----------
1,716,158 1,687,717
---------- ----------
---------- ----------
</TABLE>
F-42
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) The company acquired a controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995:
(i) 95.93% in Armstrong's Australia Pty Limited
(ii) 90% of Neville Jeffress New Zealand Pty Limited
(iii) 100% of Neville Jeffress Victoria Pty Limited
<TABLE>
<CAPTION>
30 JUNE
1995
$
-----------
<S> <C>
The acquisition details are:
Cash consideration................................................................................... 2,204,677
Outside equity interest.............................................................................. 35,767
Share of reserves attributable to investment......................................................... 75,463
-----------
2,315,907
-----------
-----------
DETAILS OF NET ASSETS ACQUIRED
Assets
Cash at bank....................................................................................... 3,695,136
Trade debtors...................................................................................... 7,268,424
Inventory.......................................................................................... 137,399
Other debtors and prepayments...................................................................... 568,990
Plant and equipment--at cost....................................................................... 1,266,993
Accumulated depreciation........................................................................... (364,071)
Other assets....................................................................................... 624,854
Liabilities
Trade creditors.................................................................................... (7,688,646)
Taxation........................................................................................... (123,768)
Other.............................................................................................. (3,126,252)
-----------
Fair value of net tangible assets.................................................................... 2,259,059
Goodwill arising on acquisition...................................................................... 56,848
-----------
2,315,907
-----------
-----------
NET CASH EFFECT
Cash consideration................................................................................... (2,204,677)
Cash at bank included in net assets acquired......................................................... 3,695,136
-----------
Cash inflow on purchase of controlled entities as reflected in consolidated accounts................. 1,490,459
-----------
-----------
</TABLE>
F-43
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(b) The Company disposed of its controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995: 100% of Group Communications Pty Limited as
follows:
<TABLE>
<CAPTION>
30 JUNE
1995
$
----------
<S> <C>
Proceeds on sale:
Cash............................................................................ 118,096
Other........................................................................... --
----------
118,096
----------
----------
DETAILS OF NET ASSETS DISPOSED
Assets
Cash at bank.................................................................... --
Trade debtors................................................................... 133,385
Liabilities
Bank overdraft.................................................................. --
----------
Fair value of net tangible assets................................................. 133,385
Loss on disposal.................................................................. (15,289)
----------
118,096
----------
----------
NET CASH EFFECT
Cash proceeds..................................................................... 118,096
Cash at bank included in net assets disposed...................................... --
Bank overdraft included in net assets disposed.................................... --
----------
Cash proceeds from disposal of controlled entities as reflected in consolidated
accounts......................................................................... 118,096
----------
----------
</TABLE>
(C) FINANCING ACTIVITIES
COMMONWEALTH BANK FACILITY
Neville Jeffress Australia Pty Limited has an overdraft facility with the
Commonwealth Bank of Australia. The facility is also with Neville Jeffress
Sydney Pty Limited, Neville Jeffress Canberra Pty Limited, Neville Jeffress
Queensland Pty Limited, Neville Jeffress Adelaide Pty Limited, Neville Jeffress
Darwin Pty Limited and Armstrong's Australia Pty Limited. The conditions of the
facility provide for an aggregate overdraft limit across all of the
aforementioned companies of $100,000. At 30 June 1996, this facility was not in
use.
F-44
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FINANCE FACILITIES IN PLACE AT 30 JUNE 1996
BILLS DISCOUNT FACILITY
Neville Jeffress Queensland Pty Limited had a Bills Discount Facility of
$600,000 with the Commonwealth Bank of Australia, which was subject to annual
review and which was due to expire on 1 December 1999. At 30 June 1996, this
facility was fully utilized.
AGC FACILITY
Neville Jeffress Sydney Pty Limited had a business loan facility of
$3,250,000 with Australian Guarantee Corporation Limited ("AGC"). At 30 June
1996, $3,250,000 (1995: $2,740,000) of the facility was in use. The AGC facility
is subject to annual review.
Armstrong's Australia Pty Limited had a similar facility with AGC to draw up
to $1,000,000. Drawings were secured by the debtors of Armstrong's NSW Pty
Limited and Armstrong's Victoria Pty Limited. At 30 June 1996, this facility was
not in use.
(D) RESTRUCTURE OF FINANCE ACTIVITIES
On 2 July 1996, following the change in ownership of the equity in Neville
Jeffress Australia Pty Limited, the group's financing facilities were
restructured. This restructure involved the exclusion of all Media Monitors
Australia Pty Limited facilities from any linkage to Neville Jeffress Australia
Pty Limited, the retirement of the AGC facility by Neville Jeffress-Sydney Pty
Limited and Armstrong's Australia Pty Limited, and retirement of the Neville
Jeffress Queensland Pty Limited bills discount facility with the Commonwealth
Bank of Australia.
F-45
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS
REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
---------- ----------
<S> <C> <C>
Amounts received or due and receivable by the directors of the economic entity from
corporations of which they are directors or related bodies corporate or entities
controlled by the chief entity........................................................ 2,973,832 3,038,882
---------- ----------
---------- ----------
The directors have availed themselves of ASC Class Order 95/741 in the disclosure of
directors' remunerations and benefits
Amounts received or due and receivable by directors of Neville Jeffress Australia Pty
Limited from that company and related bodies corporate................................ 506,580 460,569
The number of directors of Neville Jeffress Australia Pty Limited whose remuneration
(including superannuation contributions) falls within the following bands:
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
$20,000-$29,000........................................................................ 1 --
$60,000-$69,000........................................................................ 2 --
$70,000-$79,000........................................................................ -- 1
$150,000-$159,000....................................................................... 1 --
$200,000-$209,000....................................................................... -- 1
$210,000-$219,000....................................................................... 1 --
</TABLE>
In the opinion of the directors, remuneration paid to directors is
considered reasonable.
OTHER RELATED PARTY TRANSACTIONS
(a) The directors of Neville Jeffress Australia Pty Limited during the 1996
financial year were:
<TABLE>
<S> <C>
N Jeffress B M Robertson
P G Bush P A Allen
C D Cameron
</TABLE>
(b) Related party transactions which occurred during the financial year
included:
(i) Transactions with related parties of the Neville Jeffress Australia
Group
During the year, the company traded with other companies in the Neville
Jeffress Group at normal commercial rates.
Interest has been paid/(received) on intercompany loans between subsidiaries
of Neville Jeffress Australia Pty Limited under normal commercial terms and
conditions.
F-46
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Interest received on a loan from Neville Jeffress Australia Pty Limited to
Neville Jeffress Holdings Pty Limited under normal commercial terms and
conditions amounted to $304,196 (1995: $104,582).
Loans receivable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... 2,355,276 2,012,022
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- 1,607,021
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- --
------------ ------------
2,355,276 3,619,043
------------ ------------
------------ ------------
</TABLE>
Loans payable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 228,206 2,574,287
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 242,489 --
------------ ------------
470,695 2,574,287
------------ ------------
------------ ------------
</TABLE>
Franchise fees have been received by Neville Jeffress Australia Pty Limited
from subsidiaries under normal commercial terms and conditions, amounting to
$1,611,337 (1995: $1,648,759)
Neville Jeffress Australia Pty Limited provided management, accounting and
computer services to subsidiaries under normal commercial terms and conditions.
Subsidiaries of Neville Jeffress Australia Pty Limited have paid rent on
buildings they occupied that are owned by a company controlled by N. Jeffress
under normal commercial terms and conditions amounting to $702,930 (1995:
$516,142)
F-47
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Armstrong's Victoria Pty Limited provided management and accounting services
to Armstrong's NSW Pty Limited and Armstrong's Queensland Pty Limited under
normal terms and conditions.
The premises occupied by Neville Jeffress - Parramatta Pty Limited were
rented from The Neville Jeffress Advertising Staff Superannuation Fund under
normal commercial terms and conditions.
(ii) Transactions with the directors of Neville Jeffress Australia Pty
Limited and the economic entity
Accounting and taxation services were provided by C.D. Cameron to other
group companies under normal terms and conditions.
Consulting fees were paid to J Griffin Pty Ltd, of which Mr. J Griffin is a
director, at normal commercial rates. J Griffin Pty Ltd has loaned funds to the
company at 9% interest per annum, compounded quarterly and repayable at call. At
30 June 1996, the balance of the loan outstanding was $45,887 (1995: $26,877).
Mr. J. Griffin is a director of Neville Jeffress Perth Pty Limited.
The company has borrowed funds from N. Jeffress, a director. At 30 June
1996, the balance of this unsecured loan amounted to Nil (1995: $170,381).
(iii) Transactions with director-related entities
Travel services were provided by Barrenjoey Travel Pty Limited under normal
commercial terms and conditions. Directors associated with Barrenjoey Travel are
N. Jeffress and C.D. Cameron.
Mrs. L. Griffin, a director-related party, has loaned funds to the company
at 9% interest per annum, compounded quarterly and repayable at call. At 30 June
1996, the balance of the loan outstanding was $26,780 (1995: 24,493).
Media billings revenue under normal commercial terms and conditions
aggregated $1,963. These transactions were undertaken with respect to Bernie
Finance and Leasing of which Mr. B.D. Lewis is a director. Mr. B.D. Lewis is a
director of Neville Jeffress Adelaide Pty Limited.
(c) At 30 June 1995, Neville Jeffress Holdings Pty Limited was the ultimate
controlling entity. (On 2 July 1996, Neville Jeffress Holdings Pty Limited
disposed of its 91% interest in Neville Jeffress Australia Pty Limited. As a
result, at the reporting date, TMP Australia Pty Limited is the ultimate
Australian holding company and its ultimate controlling entity is McKelvey
Enterprises Inc., a company incorporated in the USA).
(d) Interests in the shares of entities within the economic entity held by
directors of the company and their director-related entities as of 30 June 1996.
Mr. N. Jeffress had an indirect interest in 91% of the shares of Neville
Jeffress Australia Pty Limited through his controlling interest in Neville
Jeffress Holdings Pty Limited.
Messrs. C.D. Cameron and P.G. Bush had an indirect interest in the shares of
Neville Jeffress Australia Pty Limited through their interest in Petzow Holdings
Pty Limited which owned 9% of the shares of Neville Jeffress Australia Pty
Limited.
There were no movements in directors' shareholdings in the twelve months
ended 30 June 1996. However, the indirect interests of Messsrs N. Jeffress, P.
G. Bush and C. D. Cameron in Neville Jeffress
F-48
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Australia Pty Limited were disposed of on 2 July 1996, with the sale of 100%
ownership to TMP Australia Pty Limited as detailed above.
13 CONTINGENT LIABILITIES
Neville Jeffress Australia Pty Limited has agreed to support the valuation
of The Neville Jeffress Advertising Staff Superannuation Fund investment
property at 12 Palmer Street, North Parramatta, of which Neville
Jeffress--Parramatta Pty Limited is the sole tenant. Based on a company
valuation at 30 June 1996, a contingent liability of $111,000 exists.
A liability may exist in relation to the contract of employment of a senior
executive of the Company. Notice has been served on the company under the
contract and the company is proceeding to establish its contractual liability.
The maximum exposure of the liability is estimated at $500,000.
14 SUBSEQUENT EVENTS
All of the issued share capital of the company was acquired by a subsidiary
of McKelvey Enterprises, Inc. with effect from 1 July 1996. In accordance with
the terms of the purchase of shares agreement prior to 30 June 1996, the
following transactions occurred:
(1) NJA disposed of its investments in:
-- Media Monitors Australia Pty Limited and its controlled entities;
-- National Advertising Services Pty Limited; and
-- Neville Jeffress Newsagencies Pty Limited.
(2) Certain controlled entities of NJA, which owned certain properties,
disposed of those properties.
(3) The company declared and paid to its previous shareholders a
dividend amounting to $4,714,183.
(4) The company acquired the minority interests in certain controlled
entities.
The financial effect of the above transactions in the year to 30 June 1996
would have been to:
-- Increase net income attributable to members by $332,020; and
-- Increase the dividends paid by $4,714,183; and
-- Decrease the consolidated net assets by $4,599,820.
The Australian Competition and Consumer Commission handed down its decision
on 26 July 1996, confirming that the Media Accreditation System, in place since
1978 and under which the company derives the majority of its income, is to be
revoked, effective 3 February 1997. Sections of the media with which the company
deals, have already indicated a continuance of similar conditions under a
revised system. The directors foresee a continuance of operations in the
deregulated environment, although its is difficult to fully predict the impact
of the ACCC decision.
F-49
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
15 SEGMENT INFORMATION
(a)Industry Segments
The group operates in only one segment of business, namely the
advertising industry.
(b) Geographical Segments
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
SEGMENT Commissions and Fees
Australia 21,243,271 31,040,003
United Kingdom 409,548 629,285
New Zealand 10,440 390,738
------------ ------------
21,663,259 32,060,026
------------ ------------
------------ ------------
<CAPTION>
SEGMENT Total Assets
<S> <C> <C>
Australia 44,095,416 45,931,219
United Kingdom 878,820 1,018,818
New Zealand 226,208 470,509
------------ ------------
45,200,444 47,420,546
------------ ------------
------------ ------------
<CAPTION>
Income Before
SEGMENT Income Tax Expense
<S> <C> <C>
Australia 1,178,883 2,344,871
United Kingdom (56,225) 30,508
New Zealand (203,919) (49,221)
------------ ------------
918,739 2,326,158
------------ ------------
------------ ------------
</TABLE>
16 FOREIGN CURRENCIES
Net Australian dollar equivalents of assets/(liabilities) outstanding in
foreign currencies not effectively hedged:
<TABLE>
<S> <C> <C>
New Zealand dollars 173,439 111,942
English pound (91,868) (51,330)
</TABLE>
F-50
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the statements of operations and cash flows of Rogers &
Associates Advertising, Inc. for the year ended March 31, 1994 and the nine
months ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon 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 results of operations and cash flows for the year
ended March 31, 1994 and the nine months ended December 31, 1994 of Rogers &
Associates Advertising, Inc., in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
San Francisco, California
July 25, 1996
F-51
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1994 DECEMBER 31, 1994
--------------- -----------------
<S> <C> <C>
Commissions and fees.......................................................... $ 5,128,820 $ 6,576,309
--------------- -----------------
Operating expenses:
Salaries and related costs.................................................. 2,573,656 2,276,553
Office and general.......................................................... 1,935,314 2,044,810
--------------- -----------------
Total operating expenses................................................ 4,508,970 4,321,363
--------------- -----------------
Operating income........................................................ 619,850 2,254,946
Other income (expense):
Finance charges and interest income......................................... 49,000 63,992
Interest expense............................................................ (3,154) (885)
Other, net.................................................................. 48,022 (12,110)
--------------- -----------------
Income before provision for income taxes...................................... 713,718 2,305,943
Provision for income taxes.................................................... 2,374 3,227
--------------- -----------------
Net income.................................................................... $ 711,344 $ 2,302,716
--------------- -----------------
--------------- -----------------
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1994 DECEMBER 31, 1994
-------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 711,344 $ 2,302,716
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 107,067 91,573
Allowance for doubtful accounts........................................... 10,000 22,880
Gain on sale of marketable securities..................................... -- (2,275)
Loss on disposition of furniture and equipment............................ -- 14,385
Changes in assets and liabilities:
Increase in accounts receivable......................................... (1,547,267) (1,590,437)
(Increase) decrease in other receivables................................ 21,694 (27,296)
Increase in prepaid expenses............................................ (2,172) (68,800)
(Increase) decrease in deposits......................................... (7,728) 2,356
Increase in accounts payable............................................ 918,375 568,890
Increase (decrease) in accrued expenses................................. (33,889) 54,670
Increase (decrease) in deferred revenue................................. (35,189) 330,222
Increase (decrease) in income taxes payable............................. (35,198) 1,627
-------------- ------------------
Net cash provided by operating activities............................. 107,037 1,700,511
-------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (174,436) (145,298)
Proceeds from sale of marketable securities................................. -- 13,875
Purchase of marketable securities........................................... -- (15,475)
Notes receivable--shareholders.............................................. (38,003) (154,460)
Notes receivable--employees................................................. (32,894) 6,809
-------------- ------------------
Net cash used in investing activities................................. (245,333) (294,549)
-------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit.................................................. (20,000) (300,000)
Distributions to shareholders............................................... (151,923) (300,000)
Bank overdraft.............................................................. 139,701 (139,701)
-------------- ------------------
Net cash used in financing activities................................. (32,222) (739,701)
-------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (170,518) 666,261
CASH AND CASH EQUIVALENTS, beginning of period................................ 170,518 --
-------------- ------------------
CASH AND CASH EQUIVALENTS, end of period...................................... $ -- $ 666,261
-------------- ------------------
-------------- ------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................................. $ 3,154 $ 885
Income taxes.............................................................. 2,857 800
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
Rogers & Associates Advertising, Inc. (the "Company") has elected S
Corporation status for both federal and California income tax reporting
purposes. Under S Corporation status, income and expense flow directly to the
Company's shareholders and the Company generally has no federal income tax
liability for federal income tax reporting purposes. Under current California
laws, S Corporations are treated the same as for federal purposes, but are
liable for a nominal income tax rate at the corporation level.
Pursuant to Internal Revenue Code Section 7519, S Corporations that maintain
fiscal year-ends are required to make deposits with the Internal Revenue
Service. These deposits represent deferred tax, calculated based on personal
income tax rates, on revenue earned during the deferral period that will be
passed through to the Company's shareholders.
REVENUE RECOGNITION
Revenues are derived from commissions for advertisements placed in
newspapers and other media, plus associated fees for related services.
Commissions and fees are recognized upon placement date of the related
advertisement.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with original maturities of three months or less to be
cash equivalents.
NATURE OF BUSINESS
The Company was incorporated in the State of California in March 1981. The
Company provides recruitment and other advertising services through branch
offices in California, Texas, Florida and Illinois.
NOTE 2 -- COMMITMENTS
The Company leases all of its branch facilities under long-term operating
leases which expire at various times through November 1999. The lease agreement
calls for the Company to pay for insurance and property taxes associated with
some of the facilities. Rent expense for the year ended March 31, 1994
F-54
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- COMMITMENTS (CONTINUED)
and the nine months ended December 31, 1994 was $363,368 and $258,278. The
future minimum lease payments required under noncancelable operating leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................................... $ 275,396
1996............................................................... 247,983
1997............................................................... 222,775
1998............................................................... 223,879
1999............................................................... 112,229
---------
$1,082,262
---------
---------
</TABLE>
NOTE 3 -- EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing plan under Section 401(k) of the
Internal Revenue Code ("IRC"). Under the plan, employees may elect to defer up
to fifteen percent of their salary, subject to Internal Revenue Service limits.
In addition, the plan allows for the Company to make discretionary contributions
based upon participants' salaries. The Company made approximately $12,700 and
$13,500 in contributions to the plan for the year ended March 31, 1994 and the
nine months ended December 31, 1994, respectively. In addition, the Company
maintains an employee benefit plan pursuant to Section 125 of the IRC, whereby
employees may elect to withhold pre-tax dollars to pay for certain health
insurance and/or other employee benefits.
NOTE 4 -- CREDIT RISK AND ECONOMIC DEPENDENCE
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. The Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any particular
industry or geographic area.
A material part of the Company's business is performed for one customer.
Revenue earned from this customer represents approximately 20% of the Company's
total revenue and $460,880 of the Company's accounts receivable balance as of
December 31, 1994.
At December 31, 1994, the Company has deposits with a financial institution
in excess of $100,000, the federally-insured limit.
NOTE 5 -- SUBSEQUENT EVENT
On January 3, 1995, the Company sold substantially all of its assets for
$10,755,000 plus accounts payable and new equity (estimated at approximately
$3,000,000) to be paid over a period of three years.
Prior to December 31, 1994, the Company received $300,000 related to an
option payment received from the purchaser, which will be recorded as revenue in
1995.
F-55
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE INTERNATIONAL]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER 20, 1996
4,800,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 960,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 3,840,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA
BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 4,147,437 SHARES ARE
BEING OFFERED BY TMP WORLDWIDE INC. ("TMP" OR THE "COMPANY") AND 652,563
SHARES ARE BEING OFFERED BY CERTAIN STOCKHOLDERS OF THE COMPANY (THE
"SELLING STOCKHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE COMMON STOCK BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET
FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $13.50 AND $15.50 PER
SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TMPW," SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE.
------------------------
AFTER GIVING EFFECT TO THIS OFFERING (ASSUMING THE OVER-ALLOTMENT OPTION IS NOT
EXERCISED), THE COMPANY WILL HAVE OUTSTANDING 8,602,492 SHARES OF COMMON STOCK
WITH ONE VOTE PER SHARE (REPRESENTING 5.5% OF THE COMBINED VOTING POWER
OF THE COMPANY) AND 14,787,541 SHARES OF CLASS B COMMON STOCK WITH TEN
VOTES PER SHARE (REPRESENTING 94.5% OF THE COMBINED VOTING POWER OF
THE COMPANY). CLASS B COMMON STOCK IS CONVERTIBLE, ON A
SHARE-FOR-SHARE BASIS, INTO COMMON STOCK. OTHER THAN VOTING
AND CONVERSION RIGHTS, THE TERMS OF THE COMMON STOCK AND
CLASS B COMMON STOCK ARE SUBSTANTIALLY SIMILAR.
SEE "DESCRIPTION OF CAPITAL STOCK."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
PRICE $ A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE..................... $ $ $ $
TOTAL(3)...................... $ $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED AT $1,800,000.
(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 720,000
ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO SELLING
STOCKHOLDERS WILL BE $ , $ AND $ , RESPECTIVELY.
SEE "UNDERWRITERS."
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996 AT THE OFFICES OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREOF IN
SAME DAY FUNDS.
-------------------
MORGAN STANLEY & CO.
INTERNATIONAL
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC filing fee................................................ $ 29,503.49
NASD filing fee............................................... $ 9,056.00
Nasdaq National Market Listing Fee............................ $ 50,000.00
Printing expenses............................................. $ 200,000.00
Legal fees and expenses....................................... $ 500,000.00
Accounting fees and expenses.................................. $ 975,000.00
Blue sky expenses and counsel fees............................ $ 20,000.00
Transfer agent and registrar fees............................. $ 10,000.00
Miscellaneous................................................. $ 6,440.51
------------
Total....................................................... $1,800,000.00
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may 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 (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under standards similar to those discussed above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
Court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities
II-1
<PAGE>
under such Section 145. The Company's directors and officers are insured against
losses arising from any claim against them as such for wrongful acts or
omissions, subject to certain limitations.
The Company's Bylaws provide that the Company shall indemnify certain
persons, including officers, directors and controlling persons, to the fullest
extent permitted by the General Corporation Law of the State of Delaware. The
Company has also entered into indemnification agreements with its current
directors and executive officers. Reference is made to the Bylaws and Form of
Indemnification Agreement filed as Exhibits 3.2 and 10.2.
Under Section 9 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Immediately prior to the effectiveness of this Registration Statement, the
Company will issue 5,943,506 shares of Common Stock, 14,787,540 shares of Class
B Common Stock and 200,000 shares of 10.5% Cumulative Preferred Stock to the
stockholders of McKelvey Enterprises, Inc. ("MEI") pursuant to the merger of MEI
with and into the Company and the exercise of certain warrants and options. On
August 30, 1996, the Company had issued one share of Class B Common to Andrew J.
McKelvey at a purchase price of $15.00. Prior to the foregoing issuances of
stock, the Company had not issued any securities.
The securities to be issued by the Company as described above will not be
registered under the Securities Act in reliance upon exemptions contained in
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.*
3.2 Bylaws.*
4.1 Form of Common Stock Certificate*
5.1 Opinion of Fulbright & Jaworski L.L.P.
10.1 Form of Employee Confidentiality and Non-Solicitation Agreement.*
10.2 Form of Indemnification Agreement.*
10.3 1996 Stock Option Plan.*
10.4 Form of Stock Option Agreement under 1996 Stock Option Plan.*
10.5 1996 Stock Option Plan for Non-Employee Directors.*
10.6 Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.*
10.7 Lease, dated as of October 31, 1978, between Telephone Marketing Programs Inc. and PDC Realty Inc. as
agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June 20, 1991.*
10.8 Share Sale and Purchase Agreement, dated July 2, 1996, relating to the entire issued share capital of
Neville Jeffress Australia Pty Limited, between Neville Jeffress Holding Pty Limited, Petzow Holdings Pty
Ltd, TMP Australia Pty Limited and Neville Jeffress Australia Pty Ltd.*
10.9 Asset Purchase Agreement, dated as of January 3, 1995, by and among Rogers Acquisition Corp., Rogers &
Associates Advertising, Inc., Curtis Rogers, Steven Schmidt and Ronni Rogers.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.10 Amended and Restated Accounts Receivable Management and Security Agreement, dated as of June 27, 1996,
between TMP Worldwide Inc. and BNY Financial Corporation, as amended by Amendment No. 1 to Amended and
Restated Accounts Receivable Management and Security Agreement, dated as of August 29, 1996.*
10.11 Form of Agreement and Plan of Merger of TMP Worldwide Inc., Worldwide Classified Inc., McKelvey
Enterprises, Inc. and Telephone Marketing Programs Incorporated.*
10.12 Stock Purchase Agreement, dated May 26, 1977, among Telephone Marketing Programs, Inc. Andrew J. McKelvey,
Timothy P. Hanley and Bard Publishing Company, as amended on June 15, 1977.*
10.13 Agreement, dated as of January 3, 1995, among Andrew J. McKelvey, Aeronautic Media, Inc. and McKelvey
Enterprises, Inc., relating to a yacht.*
10.14 Stock Purchase Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Volando, Inc.*
10.15 Contribution Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey Enterprises,
Inc., relating to the common stock of EPI Aviation, Inc.*
10.16 Lease Agreement, dated as of June 1, 1996, by and between TPH & AJM, a partnership, and Telephone
Directory Advertising, Inc.*
10.17 Contribution Agreement, dated as of July 16, 1996, between Andrew J. McKelvey and McKelvey Enterprises,
Inc., relating to the common stock of General Directory Advertising Services, Inc.*
10.18 Stock Purchase Agreement, dated as of August 15, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of National Media Holding Company, Inc.*
10.19 Stock Purchase Agreement, dated as of September 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Telephone Directory Advertising, Inc.*
10.20 Stock Purchase Agreement, dated as of September 4, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of S.M.E.T. Servizio Marketing Elenchi Telefonici s.r.l.*
10.21 Agreement, dated as of March 17, 1996, between TMP Worldwide Inc. and George Eisele, as amended by
Amendment 1 to Agreement, dated as of September 5, 1996.*
10.22 Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C. Ltd.*
10.23 Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide Inc., as
amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.*
10.24 Indenture, dated April 29, 1988, between International Drive, L.P. and Telephone Marketing Programs, Inc.*
10.25 Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive Inc.
and Jeffrey C. Taylor.*
10.26 Employment Agreement, dated November 18, 1996, between TMP Worldwide Inc. and James J. Treacy.
10.27 Employment Agreement, dated November 15, 1996, between TMP Worldwide Inc. and Andrew J. McKelvey.
11 Statement regarding computation of earnings per share.
21 Subsidiaries of the Company.
23.1 Consent of BDO Seidman, LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of BDO Nelson Parkhill.
23.3 Consent of Fulbright & Jaworski L.L.P. (to be filed as part of Exhibit 5.1).
24 Power of Attorney.*
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules. The following financial statement
schedules are filed herewith:
Schedule II-Valuation of Qualifying Accounts.
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
A. 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 provisions described above in Item 14, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 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 against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
B. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
C. 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)
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 the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 November 20, 1996.
By: /s/ ANDREW J. MCKELVEY
--------------------------------------
Name: Andrew J. McKelvey
Title: Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ANDREW J. MCKELVEY Chairman of the Board, November 20, 1996
- ------------------------------ President and Director
Andrew J. McKelvey (principal executive
officer)
* Vice Chairman November 20, 1996
- ------------------------------ (principal financial
Thomas G. Collison officer)
/s/ ROXANE PREVITY Chief Financial Officer November 20, 1996
- ------------------------------ (principal accounting
Roxane Previty officer)
* Director November 20, 1996
- ------------------------------
George R. Eisele
* Director November 20, 1996
- ------------------------------
John R. Gaulding
* Director November 20, 1996
- ------------------------------
Graeme K. Howard, Jr.
Director November 20, 1996
- ------------------------------
Jean-Louis Pallu
* Director November 20, 1996
- ------------------------------
John Swann
*By /s/ ANDREW J. MCKELVEY November 20, 1996
---------------------------
Andrew J. McKelvey
as Attorney-in-Fact
II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
[THE FOLLOWING IS THE FORM OF THE OPINION THAT BDO SEIDMAN, LLP WILL BE IN A
POSITION TO ISSUE UPON CONSUMMATION OF THE MERGERS DISCUSSED IN NOTE 1 AND THE
STOCK ISSUANCE DISCUSSED IN NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS.]
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated March 15, 1996, except for Note 7
which is as of August 29, 1996 and Notes 1 and 2 which are as of November ,
1996, relating to the consolidated financial statements of TMP Worldwide Inc.
and Subsidiaries, which is included in the Prospectus constituting a part of
this Registration Statement included the audit of financial statement Schedule
II, Valuation and Qualifying Accounts. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
New York, New York
March 15, 1996
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-----------
COLUMN B ADD COLUMN E
----------- ----------- -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- ---------------------------------------------------------------- BEGINNING COSTS AND ----------- END OF
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ---------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts................................ $ 1,117 $ 1,744 $ 1,207 $ 1,654
Year ended December 31, 1994
Allowance for doubtful accounts................................ $ 1,654 $ 793 $ 429 $ 2,018
Year ended December 31, 1995
Allowance for doubtful accounts................................ $ 2,018 $ 2,850 $ 1,003 $ 3,865
Nine months September 30, 1996
Allowance for doubtful accounts................................ $ 3,865 $ 3,123 $ 2,075 $ 4,913
</TABLE>
<PAGE>
REGISTRATION NO. 333-12471
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TMP WORLDWIDE INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
- --------- --------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Form of Underwriting Agreement.....................................................................
3.1 Certificate of Incorporation.*.....................................................................
3.2 Bylaws.*...........................................................................................
4.1 Form of Common Stock Certificate...................................................................
5.1 Opinion of Fulbright & Jaworski L.L.P..............................................................
10.1 Form of Employee Confidentiality and Non-Solicitation Agreement.*..................................
10.2 Form of Indemnification Agreement.*................................................................
10.3 1996 Stock Option Plan.*...........................................................................
10.4 Form of Stock Option Agreement under 1996 Stock Option Plan.*......................................
10.5 1996 Stock Option Plan for Non-Employee Directors.*................................................
10.6 Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.*...........
10.7 Lease, dated as of October 31, 1978, between Telephone Marketing Programs Inc. and PDC Realty Inc.
as agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June
20, 1991.*.........................................................................................
10.8 Share Sale and Purchase Agreement, dated July 2, 1996, relating to the entire issued share capital
of Neville Jeffress Australia Pty Limited, between Neville Jeffress Holding Pty Limited, Petzow
Holdings Pty Ltd, TMP Australia Pty Limited and Neville Jeffress Australia Pty Ltd.*...............
10.9 Asset Purchase Agreement, dated as of January 3, 1995, by and among Rogers Acquisition Corp.,
Rogers & Associates Advertising, Inc., Curtis Rogers, Steven Schmidt and Ronni Rogers.*............
10.10 Amended and Restated Accounts Receivable Management and Security Agreement, dated as of June 27,
1996, between TMP Worldwide Inc. and BNY Financial Corporation, as amended by Amendment No. 1 to
Amended and Restated Accounts Receivable Management and Security Agreement, dated as of August 29,
1996.*.............................................................................................
10.11 Agreement and Plan of Merger of TMP Worldwide Inc., Worldwide Classified Inc., McKelvey
Enterprises, Inc. and Telephone Marketing Programs Incorporated.*..................................
10.12 Stock Purchase Agreement, dated May 26, 1977, among Telephone Marketing Programs, Inc. Andrew J.
McKelvey, Timothy P. Hanley and Bard Publishing Company, as amended on June 15, 1977.*.............
10.13 Agreement, dated as of January 3, 1995, among Andrew J. McKelvey, Aeronautic Media, Inc. and
McKelvey Enterprises, Inc., relating to a yacht.*..................................................
10.14 Stock Purchase Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Volando, Inc.*..................................
10.15 Contribution Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of EPI Aviation, Inc.*.............................
10.16 Lease Agreement, dated as of June 1, 1996, by and between TPH & AJM, a partnership, and Telephone
Directory Advertising, Inc.*.......................................................................
10.17 Contribution Agreement, dated as of July 16, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of General Directory Advertising Services, Inc.*...
10.18 Stock Purchase Agreement, dated as of August 15, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of National Media Holding Company, Inc.*...........
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
- --------- --------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
10.19 Stock Purchase Agreement, dated as of September 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Telephone Directory Advertising, Inc.*..........
10.20 Stock Purchase Agreement, dated as of September 4, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of S.M.E.T. Servizio Marketing Elenchi Telefonici
s.r.l.*............................................................................................
10.21 Agreement, dated as of March 17, 1996, between TMP Worldwide Inc. and George Eisele, as amended by
Amendment 1 to Agreement, dated as of September 5, 1996.*..........................................
10.22 Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C.
Ltd.*..............................................................................................
10.23 Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide
Inc., as amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.*.......................
10.24 Indenture, dated April 29, 1988, between International Drive, L.P. and Telephone Marketing
Programs, Inc.*....................................................................................
10.25 Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive
Inc. and Jeffery C. Taylor*........................................................................
10.26 Employment Agreement, dated November 18, 1996, between TMP Worldwide Inc. and James J. Treacy......
10.27 Employment Agreement, dated November 15, 1996, between TMP Worldwide Inc. and Andrew J.
McKelvey...........................................................................................
11 Statement regarding computation of earnings per share..............................................
21 Subsidiaries of the Company........................................................................
23.1 Consent of BDO Seidman, LLP........................................................................
23.2 Consent of BDO Nelson Parkhill.....................................................................
23.3 Consent of Fulbright & Jaworski L.L.P. (to be filed as part of Exhibit 5.1)........................
24 Power of Attorney (included on signature page).....................................................
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
4,800,000 Shares
TMP WORLDWIDE INC.
COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
December __, 1996
<PAGE>
December __, 1996
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Ladenburg Thalmann & Co. Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Ladenburg Thalmann & Co. Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
TMP Worldwide Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the several Underwriters (as defined below) and certain
shareholders of the Company (the "Selling Shareholders") named in Schedule I
hereto severally propose to sell to the several Underwriters, an aggregate of
4,800,000 shares of the common stock (par value $.001 per share) of the Company
(the "Firm Shares"), of which 4,147,437 shares are to be issued and sold by the
Company and 652,563 shares are to be sold by the Selling Shareholders, each
Selling Shareholder selling the amount set forth opposite such Selling
Shareholder's name in Schedule I hereto.
The Company (formerly known as Telephone Marketing Programs Inc.) is a
recently organized Delaware corporation which succeeded by mergers (the
"Mergers") to the businesses conducted by TMP Worldwide Inc. ("Old TMP"),
Worldwide Classified Inc. and McKelvey Enterprises Inc. (collectively, the
"Predecessor Companies") pursuant to the terms and conditions of the Agreement
and Plan of Merger of Old TMP, Worldwide Classified Inc., McKelvey Enterprises
Inc. Inc. and Telephone Marketing Programs
1
<PAGE>
Inc. (the "Merger Agreement"). The Mergers occurred prior to the effectiveness
of the Registration Statement (as defined below).
It is understood that, subject to the conditions hereinafter stated,
3,840,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. Underwriters and International Underwriters of even date
herewith), and 960,000 Firm Shares (the "International Shares") will be sold to
the several International Underwriters named in Schedule III hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co.
Inc. shall act as representatives (the "U.S. Representatives") of the several
U.S. Underwriters, and Morgan Stanley & Co. International Limited, Donaldson,
Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co. Inc. shall
act as representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 720,000 shares of the common stock (par
value $.001 per share) of the Company (the "Additional Shares") if and to the
extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such shares of common
stock granted to the U.S. Underwriters in Section 3 hereof. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares."
The shares of common stock (par value $.001 per share) of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock." The Company and the Selling Shareholders are
hereinafter sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement contains two prospectuses to be used in
connection with the offering and sale of the Shares: the U.S. prospectus, to be
used in connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international prospectus,
to be used in connection with the
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offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front cover page. The
registration statement as amended at the time it becomes effective, including
the information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as
amended (the "Securities Act"), is hereinafter referred to as the "Registration
Statement"; the U.S. Prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares is hereinafter
collectively referred to as the "Prospectus." If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to and agrees with each of the
Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph 1(b) do not apply to statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
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(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Mergers have been duly consummated in accordance with the
terms of the Merger Agreement.
(g) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by
the Selling Shareholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.
(i) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
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(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal,
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state and local laws and regulations relating to the protection of human
health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(q) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(r) The Company and each other person or entity that, together with
the Company, is treated as a single employer under Section 414 of the
Internal Revenue Code of 1986, as amended (the "Code") (each such person or
entity being an "ERISA Affiliate"), complies, in all material respects with
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and, to the extent applicable, the Code with respect to each pension plan
(as defined in Section 3(2) of ERISA) maintained by the Company or such
ERISA Affiliate, and neither the Company nor any of its ERISA Affiliates
has incurred any material liability to any pension plan or to the Pension
Benefit Guaranty Corporation that has not been fully paid or reserved for
as reflected on the financial statements set forth in the Registration
Statement and Prospectus as of the date hereof.
(s) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local
or foreign regulatory authorities necessary to conduct their respective
businesses as described in the Prospectus, except where failure to
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possess such certificates, authorizations or permits would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or any other modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) Except as described in or contemplated by the Prospectus, the
Company and its subsidiaries own or possess all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade names
and other intellectual property rights ("Intellectual Property") currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
the Intellectual Property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
of the Selling Shareholders represents and warrants to and agrees with each of
the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Shareholder and the
Company, as Custodian, relating to the deposit of the Shares to be sold by
such Selling Shareholder (the "Custody Agreement") and the Power of
Attorney appointing certain individuals as such Selling Shareholder's
attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney") will not contravene any provision of applicable law,
or the certificate of incorporation or by-laws of such Selling Shareholder
(if such Selling Shareholder is a corporation), or any agreement or other
instrument binding upon such Selling Shareholder or
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any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Shareholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such Selling
Shareholder of its obligations under this Agreement or the Custody
Agreement or Power of Attorney of such Selling Shareholder, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date (as defined
below) will have, valid title to the Shares to be sold by such Selling
Shareholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Custody
Agreement and the Power of Attorney and to sell, transfer and deliver the
Shares to be sold by such Selling Shareholder.
(d) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Shareholder and are
valid and binding agreements of such Selling Shareholder.
(e) Delivery of the Shares to be sold by such Selling Shareholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(f) All information furnished by or on behalf of such Selling
Shareholder for use in the Registration Statement and the Prospectus is,
and on the Closing Date will be, true, correct and complete, and does not,
and on the Closing Date will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S.$______ a share (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedule II and III hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
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On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 720,000
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
but not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section
5 hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the U.S. Representatives may determine) that bears the same
proportion to the total number of Additional Shares to be purchased as the
number of U.S. Firm Shares set forth in Schedule II hereto opposite the name of
such U.S. Underwriter bears to the total number of U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (provided that such shares or securities are
either now owned by such Seller or are hereafter acquired prior to or in
connection with the offering of Common Stock described herein) or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder or (B)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing. In addition, each
Selling Shareholder, agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on
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behalf of the Underwriters, it will not, during the period ending 180 days after
the date of the Prospectus, make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$______ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$_____ a share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 A.M., New York City
time, on December __ 1996, or at such other time on the same or such other date,
not later than December __, 1996, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several U.S.
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than January __, 1997, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the
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Shares to the Underwriters duly paid, against payment of the Purchase Price
therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 4:00 P.M. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
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The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Fulbright & Jaworski L.L.P., outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) each Significant Subsidiary (as such term is defined in
Regulation S-X of the Act) of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or to be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be sold
by the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in
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accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Mergers have been duly consummated in accordance with
the terms of the Merger Agreement;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the captions
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" (but only
with respect to the fifth paragraph thereof), "Business - Government
Regulation," "Management - Employment Agreement," "Management - Stock
Options," "Description of Capital Stock," "Certain Transactions" and
"Underwriters" and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
any of its
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subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement;
(xii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(xiii) the Company and each other person or entity that, together
with the Company, is treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code") (each such
person or entity being an "ERISA Affiliate"), complies, in all
material respects with the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and, to the extent applicable, the Code
with respect to each pension plan (as defined in Section 3(2) of
ERISA) maintained by the Company or such ERISA Affiliate, and neither
the Company nor any of its ERISA Affiliates has incurred any material
liability to any pension plan or to the Pension Benefit Guaranty
Corporation that has not been fully paid or reserved for as reflected
on the financial statements set forth in the Registration Statement
and Prospectus as of the date hereof;
(xiv) Neither the Company nor any if its subsidiaries, to such
counsel's knowledge after due inquiry, has received any notice of
proceedings relating to the revocation or any other modification of
any certificate, authorization or permit issued by federal, state,
local or foreign regulatory authorities necessary to conduct their
respective businesses as
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described in the Prospectus, which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its subsidiaries, taken as
a whole;
(xv) except as described in or contemplated by the Prospectus, to
such counsel's knowledge after due inquiry, the Company and its
subsidiaries own or possess all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names and other intellectual property rights ("Intellectual Property")
currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries
has received, to such counsel's knowledge after due inquiry, any
notice of infringement of or conflict with asserted rights of others
with respect to the Intellectual Property which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and
(xvi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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(d) The Underwriters shall have received on the Closing Date an
opinion of Myron F. Olesnyckyj, Esq., Vice President-General Counsel of the
Company, dated the Closing Date, to the effect that:
(i) the Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state,
local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the Prospectus, except where
failure to possess such certificates, authorizations or permits would
not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(e) The Underwriters shall have received on the Closing Date an
opinion of Fulbright & Jaworski L.L.P.(1), counsel for the Selling
Shareholders, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders;
(ii) the execution and delivery by each Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement and the Custody Agreement and Powers of Attorney
of such Selling Shareholder will not contravene any provision of
applicable law, or the certificate of incorporation or by-laws of such
Selling Shareholder (if such Selling Shareholder is a corporation),
or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon such Selling Shareholder or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Shareholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by such Selling Shareholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
such Selling Shareholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
offer and sale of the Shares;
- -----------------------
(1) F&J will give an opinion for all Selling Shareholders who are natural
persons. Counsel for other Selling Shareholders will be added when identified.
16
<PAGE>
(iii) each of the Selling Shareholders has the legal right and
power, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and Power of Attorney of
such Selling Shareholder and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder; notwithstanding the foregoing,
the opinion as to due authority to execute the Custody Agreement shall
be based on the representations contained therein;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Shareholder have been duly authorized, executed and delivered
by such Selling Shareholder and are valid and binding agreements of
such Selling Shareholder; and
(v) upon delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement, and payment therefor as
contemplated herein, and assuming that the Underwriters purchased such
Shares in good faith and without notice of an adverse claim within the
meaning of the New York Uniform Commercial Code (the "UCC"), the
Underwriters will acquire title to the Shares free and clear of any
adverse claim (within the meaning of Section 8-302 of the UCC).
(f) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (v), (vi),
(ix) (but only as to the statements in the Prospectus under "Underwriters")
and (xvi) of paragraph (c) above.
With respect to subparagraph (xvi) of paragraph (c) above, Fulbright &
Jaworski L.L.P. and Davis Polk & Wardwell may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified. With respect to
paragraphs (c) and (e) above, Fulbright & Jaworski L.L.P. may rely, with
respect to factual matters and to the extent such counsel deems
appropriate, upon certificates of officers of the Company. With respect to
paragraph (e) above, Fulbright & Jaworski L.L.P. may rely upon an opinion
or opinions of counsel for any Selling Shareholders and, with respect to
factual matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Shareholder contained herein and in the
Custody Agreement and Power of
17
<PAGE>
Attorney of such Selling Shareholder and in other documents and
instruments; PROVIDED that (A) each such counsel for the Selling
Shareholders is satisfactory to your counsel, (B) a copy of each opinion so
relied upon is delivered to you and is in form and substance satisfactory
to your counsel, (C) copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel and
(D) Fulbright & Jaworski L.L.P. shall state in their opinion that they are
justified in relying on each such other opinion.
The opinions of Fulbright & Jaworski L.L.P. described in paragraphs
(c) and (e) above (and any opinions of counsel for any Selling Shareholder
referred to in the immediately preceding paragraph) shall be rendered to
the Underwriters at the request of the Company or one or more of the
Selling Shareholders, as the case may be, and shall so state therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from BDO Seidman LLP, independent public accountants, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
(i) The Shares shall have been approved for inclusion on the Nasdaq
National Market.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of
18
<PAGE>
the Additional Shares and other matters related to the issuance of the
Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein
contained, the Company covenants with each Underwriter as follows:
(a) To furnish to you, without charge, 4 signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 A.M. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so
19
<PAGE>
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending _____________ that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Predecessor Companies' and the Company's counsel, the
Predecessor Companies' and the Company's accountants and counsel for the Selling
Shareholders in connection with the registration and delivery of the Shares
under the Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
7(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with any Blue Sky memorandum, (iv) all filing fees and disbursements
of counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any
20
<PAGE>
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all expenses in connection with any offer
and sale of Shares outside the United States in connection with the Company's
Directed Share Program, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters (including foreign local counsel)
in connection therewith, and (x) all other costs and expenses incident to the
performance of the obligations of the Sellers and the Predecessor Companies
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 9 entitled
"Indemnity and Contribution", and the last paragraph of Section 11 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any of
the Shares by them and any advertising expenses connected with any offers they
may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers and the Predecessor Companies may otherwise have
for the allocation of such expenses among themselves.
9. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
21
<PAGE>
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, the Company's officers
who sign the Registration Statement, each Underwriter and each person, if any,
who controls the Company or any Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Selling Shareholder furnished in writing by or on behalf of
such Selling Shareholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a), (b) or (c) of this Section 9, such person (the
"indemnified
22
<PAGE>
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, the Company's officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section and (iii) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Selling Shareholders and all persons, if
any, who control any Selling Shareholder within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such separate firm for
the Company, and such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company. In the case of any
such separate firm for the Selling Shareholders and such control persons of any
Selling Shareholders, such firm shall be designated in writing by the persons
named as attorneys-in-fact for the Selling Shareholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time
23
<PAGE>
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in paragraph (a),
(b) or (c) of this Section 9 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
24
<PAGE>
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (e) of this Section 9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder or the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or
25
<PAGE>
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of any of
the Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event, singly or together with any other such
event, makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II and III
bears to the aggregate number of Firm Shares set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Shareholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any
such case either you or the relevant Sellers shall have the right
26
<PAGE>
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. If,
on the Option Closing Date, any U.S. Underwriter or U.S. Underwriters shall fail
or refuse to purchase Additional Shares and the aggregate number of Additional
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Additional Shares to be purchased, the non-defaulting U.S.
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting U.S. Underwriters would have been
obligated to purchase in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting U.S. Underwriter from liability
in respect of any default of such U.S. Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
27
<PAGE>
Very truly yours,
TMP WORLDWIDE INC.
By_____________________________
Name:
Title:
The Selling Shareholders
named in Schedule I hereto,
acting severally
By_____________________________
Attorney-in-Fact
28
<PAGE>
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Ladenburg Thalmann & Co. Inc.
Acting severally on behalf
of themselves and the
several U.S. Underwriters named
in Schedule II hereto.
By Morgan Stanley & Co.
Incorporated
By___________________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By ____________________________
Name:
Title:
29
<PAGE>
SCHEDULE I
Number of
Firm Shares
Selling Shareholder To Be Sold
[NAMES OF SELLING SHAREHOLDERS]
_________
Total........ 652,563
<PAGE>
SCHEDULE II
U.S. UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Ladenburg Thalmann & Co. Inc.
[OTHER U.S. UNDERWRITERS]
_________
Total ........ 3,840,000
<PAGE>
SCHEDULE III
INTERNATIONAL UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Ladenburg Thalmann & Co. Inc.
[OTHER INTERNATIONAL UNDERWRITERS]
_________
Total International Firm Shares ...... 960,000
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER
____________, 1996
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Ladenburg Thalmann & Co. Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with TMP Worldwide Inc., a Delaware corporation (the
"Company"), and certain stockholders of the Company (the "Selling Stockholders")
providing for the public offering (the "Public Offering") by the several
Underwriters, including Morgan Stanley (the "Underwriters"), of up to _________
shares (the "Shares") of the Common Stock ($.001 par value per share) of the
Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date of the final prospectus relating to the Public Offering (the
"Prospectus") and ending 180 days thereafter, (1) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
(provided that such shares or securities are either now owned by the undersigned
or are hereafter acquired prior to or in connection with the Public Offering),
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any
<PAGE>
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement. In addition, the undersigned agrees
that, without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date of the
Prospectus and ending 180 days thereafter, make any demand for or exercise any
right with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation among the Company, the Selling Stockholders and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
November 19, 1996
TMP Worldwide Inc.
1633 Broadway, 33rd Floor
New York, New York 10019
Re: TMP Worldwide Inc.
REGISTRATION STATEMENT ON FORM S-1
Dear Sirs:
In connection with the Registration Statement on Form S-1 (the
"Registration Statement") filed by Telephone Marketing Programs Incorporated, a
Delaware corporation (the "Company"), under the Securities Act of 1933, as
amended (Commission File No. 333-12471), relating to the public offering of up
to an aggregate of 5,520,000 shares (the "Shares") of Common Stock, par value
$.001 per share, of the Company, including 720,000 shares which may be purchased
by the underwriters if they exercise the option granted to them by the Company
to cover over-allotments, we, as counsel for the Company, have examined such
corporate records, other documents and questions of law as we have deemed
necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that in our opinion the
Shares have been duly and validly authorized; 656,563 of such Shares that will
be sold by certain selling stockholders, which, when issued upon the
consummation of the merger of various entities with and into the Company and/or
upon the exercise of options or warrants (in accordance with the terms of the
merger agreement or such option and warrants), will be legally issued, fully
paid and non-assessable, and the remainder of the Shares, when sold in the
manner contemplated by the Underwriting Agreement filed as an exhibit to the
Registration Statement, upon receipt by the Company of payment therefor as
provided in such agreement, will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus contained therein and elsewhere in the Registration Statement and
Prospectus. This consent is not to be construed as an admission that we are a
party whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act of 1933.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE>
EMPLOYMENT AGREEMENT
TMP WORLDWIDE INC. ("TMPW") and JAMES J. TREACY ("Treacy") enter into
this agreement as follows:
1. TMPW shall employ Treacy and Treacy agrees to serve as Executive
Vice President - Finance and Strategy of TMPW. Treacy's employment shall
commence on the date hereof. Treacy shall use his best efforts and devote all
of his professional time to the business and affairs of TMPW and its affiliates.
Employment shall be for an indefinite term on an at-will basis. Either party
may terminate this employment relationship at any time, for any reason, with or
without cause. In the event that the employment relationship is terminated, the
terms and conditions of Treacy's entitlements (if any) are as set forth in
Section 9 below.
2. Treacy will report to the President of TMPW and shall perform
such duties and responsibilities with respect to TMPW and its affiliates as
shall from time to time be reasonably directed by the President or TMPW's Board
of Directors.
3. TMPW shall pay Treacy, as compensation for services performed, an
annual salary at the rate of $200,000 and, in addition, an annual minimum bonus
of at least $35,000 payable at the end of each calendar year, pro-rated for
periods of less than a full year. The annual salary and minimum annual bonus
payable to Treacy may, from time to time, be increased by TMPW in writing in its
sole discretion and, if and when increased, TMPW shall be obligated to pay
Treacy such sum in accordance with the terms of this agreement.
4. Treacy will receive those health and other employee fringe
benefits that all other senior executives of TMPW receive. Such benefits and
benefit plans are subject to change at any time in the sole discretion of TMPW.
Treacy will also be entitled to participate in the TMPW 401(k) plan in the same
fashion as other senior executives of TMPW.
5. Treacy agrees that during his employment and at all times
thereafter, he will not use or disclose any confidential information, trade
secret or other proprietary information relating to TMPW or its affiliates that
is acquired by him during the course of his employment (whether before or after
the date of this agreement) and which is not generally know to others in the
industry. Upon his termination, Treacy agrees to return to TMPW all records and
documents whether written, printed or electronically or magnetically recorded,
and all copies thereof, containing any information relating to TMPW or its
affiliates.
6. If Treacy's employment terminates for any reason, whether
voluntarily or involuntarily, he agrees that for a period of twelve months
following his termination, he will not solicit any active accounts of TMPW or
its affiliates or any prospective accounts that, during the twelve months
preceding termination, were, or were in the process of being, solicited by TMPW
or any of its affiliates.
7. Subject always to the right of TMPW to terminate the employment
of Treacy at will, Treacy's employment may terminate for any one of the five
categories of termination events set forth below:
<PAGE>
(a) Termination for "cause." "Cause" shall mean (i) a material and
intentional act of fraud, dishonesty, theft, or other form of moral
turpitude involving TMPW or any of its affiliates and having the probable
tendency to materially or adversely affect TMPW or any of its affiliates;
(ii) a material and intentional failure or refusal to act in accordance
with a reasonable, proper and lawful direction from the President or Board
of Directors of TMPW, where such refusal to act continues for a period of
three business days after actual receipt of written notice of such failure
or refusal; (iii) indictment for a crime involving the property, business
relationship or employees of TMPW or any of its affiliates; or (iv) a
material and intentional breach of Treacy's duty of care or duty of loyalty
to TMPW or any of its affiliates.
(b) Termination by reason of death.
(c) Termination by reason of disability. "Disability" shall mean a
physical or mental disability that prevents Treacy from performing the
essential functions of Treacy's position for 180 calendar days in any
nine-month period.
(d) Voluntary resignation.
(e) Termination for "other reasons." "Other reasons" shall mean any
reason other than "cause," death, "disability" or voluntary resignation.
8. Each party agrees to provide the other with reasonable notice of
termination, consistent with common business and professional customs to be
determined in the sole and unreviewable discretion of the party providing
notice.
9. Treacy shall have the following entitlements upon termination of
employment:
(a) In the event Treacy is terminated for "cause" or his voluntary
resignation, he shall not be entitled to receive any further salary, bonus
(or pro-rata bonus), or benefits from TMPW following the effective date of
his termination of employment.
(b) In the event Treacy's employment is terminated by reason of his
death, TMPW shall pay to his estate (i) a pro-rata portion of his minimum
annual bonus payable as of his date of death; (ii) his then current salary
for twelve months following his death; and (iii) his minimum annual bonus
for the twelve-month period following his death. The foregoing payments
and entitlements shall be paid at such times as they would have been paid
had he remained employed.
(c) In the event Treacy's employment is terminated by reason of his
"disability" of for "other reasons," he shall be entitled to receive: (i) a
pro-rata portion of his minimum annual bonus, calculated as of the
effective date of the termination of his employment; (ii) his then current
salary for twelve months following the effective date of the termination of
his employment; (iii) his minimum annual bonus for the
-2-
<PAGE>
twelve-month period following the effective date of termination of his
employment; and (iv) the benefits set forth in Section 4 for a period of
twelve months following the effective date of termination of his
employment, to the extent such benefits continue to be provided to other
managerial employees of TMPW. The foregoing payments, benefits and
entitlements shall be paid at such times as they would have been paid had
he remained employed. Treacy's entitlement to items (ii), (iii) and (iv)
of this subsection are subject to the provisions of subsection (d) and (e)
below.
(d) In the event Treacy's employment is terminated by reason of
"disability" or for "other reasons" Treacy is obligated, during the period
when he is entitled to receive his then current salary and minimum annual
bonus from TMPW, to use his best efforts to obtain alternative income
directly or indirectly from the performance of personal services in a
position consistent with his qualifications, experience and position with
TMPW or prior position immediately preceding his employment by TMPW. Any
such payment made to Treacy of his then current salary and minimum annual
bonus shall be reduced by the amount of income earned by him directly or
indirectly from the performance of personal services during the period when
he is entitled to receive his then current salary and minimum annual bonus
from TMPW following termination, whether paid during that period or
subsequently. Treacy is obligated to advise TMPW in writing as to all such
amounts of income (including but not limited to salary and bonus) earned by
him during the period (and whether or not paid during that period or
subsequently) each time he receives a payment of his then current salary or
minimum bonus.
(e) TMPW shall have no obligation to provide Treacy with any employee
benefits under subsection (c) above during any period of time when
comparable benefits are made available to him by another employer. In the
event he is required to contribute money for any such comparable benefits
available through another employer (or under the provisions of COBRA), TMPW
may, at its option, either pay him the amount of any such contributions or
provide him with TMPW-provided benefits at its cost. As a condition of
receipt of employee benefits from TMPW following termination of employment,
Treacy is obligated to provide TMPW with written notice of the terms,
conditions, and costs to him (if any) of all employee benefits made
available to him by another employer during any period of time when he is
entitled to receive such benefits from TMPW.
10. Treacy shall receive four weeks of annual paid vacation
calculated as of his date of hire and employment anniversary date. Any unused
pro-rata portion of his annual paid vacation shall be paid to Treacy upon
termination of his employment for any reason. Treacy shall not be entitled to
any carryover of unused vacation from year to year unless authorized at the time
in writing by the President or Board of Directors of TMPW.
11. All notices, demands or other communications to be given or
delivered under by reason of this agreement shall be in writing and shall be
deemed to have been properly served if delivered personally, by courier, or by
certified or registered mail, return receipt requested and first class postage
prepaid, in the case of notices to the Company to it at 1633
-3-
<PAGE>
Broadway, 33rd Floor, New York, NY 10019, to the attention of Andrew McKelvey
and Thomas Collison, and in the case of notices to Treacy to him at 76 Concord
Avenue, Glen Rock, NJ 07452, or such other addresses as the recipient party has
specified by prior written notice to the sending party. All such notices,
demands and communications shall be deemed received upon the actual delivery
thereof in accordance with the foregoing.
12. This agreement (i) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any previous
arrangements relating thereto, including but not limited to the Employment
Agreement between the parties executed on June 3, 1994, (ii) may be signed in
counterparts, (iii) shall be governed by the laws of the state of New York
(other than the conflicts of laws provisions thereof) and (iv) may not be
amended, terminated or waived orally.
13. This agreement shall be binding upon and shall inure to the
benefit of TMPW and its successors and assigns.
Executed on November 18, 1996 at New York, New York.
TMP Worldwide Inc.
By: /s/ ANDREW J. MCKELVEY
------------------------------
Andrew J. McKelvey
President
/s/ JAMES J. TREACY
----------------------------------
James J. Treacy
-4-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of November 15, 1996,
by and between TMP WORLDWIDE INC., a Delaware corporation (the "Company"), and
ANDREW J. MCKELVEY ("Employee").
PRELIMINARY RECITALS
The Company desires that Employee be employed to serve in a senior
executive capacity with the Company, and Employee desires to be so employed by
the Company, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. EMPLOYMENT.
1.1 ENGAGEMENT OF EMPLOYEE. The Company agrees to employ
Employee and Employee agrees to accept employment as Chairman of the Board and
President of the Company, all in accordance with the terms and conditions of
this Agreement.
1.2 DUTIES AND POWERS. During the Employment Period (as defined
below), Employee will serve as Chairman of the Board and President of the
Company and will have such responsibilities, duties and authorities, and will
render such services of an executive and administrative character and act in
such other executive capacity for the Company and its affiliates (as defined
below) as shall from time to time be reasonably directed by the Company's
board of directors (the "Board"). Employee shall devote Employee's best
efforts, energies and abilities and substantially all of Employee's business
time, skill and attention to the business and affairs of the Company. The
Company shall nominate Employee for election as a director of the Company for
all periods of Employee's employment hereunder. Notwithstanding anything
herein to the contrary, Employee may engage in other activities so long as
such activities do not unreasonably interfere with Employee's performance of
his duties hereunder.
1.3 EMPLOYMENT PERIOD. Employee's employment under this
Agreement shall begin on the date hereof and shall continue through and until
November 14, 2001 (the "Initial Employment Period"). Thereafter, the term of
this Agreement shall automatically be renewed for successive one year terms
(each, a "Renewal Period") unless either party shall give the other notice of
nonrenewal at least ninety (90) days prior to the expiration of the then current
Initial Employment Period or Renewal Period, as the case may be.
Notwithstanding anything to the contrary contained herein, the Initial
Employment Period and each Renewal Period are subject to termination pursuant to
SECTIONS 1.4, 1.5 and 1.6 below. The Initial Employment Period and all Renewal
Periods are sometimes collectively referred to herein as the "Employment
Period".
1.4 TERMINATION BY THE COMPANY. In addition to the nonrenewal
rights of the Company set forth in SECTION 1.3 hereof, the Company has the right
to terminate the Employment Period (and, consequently, Employee's employment
under this Agreement), by notice
<PAGE>
to Employee in writing at any time, (i) for "Cause" or (ii) without Cause for
any or no reason, subject to the provisions of SECTION 2.2. Any such
termination shall be effective upon the date of service of such notice pursuant
to SECTION 4.6.
"Cause" as used herein means the occurrence of any of the
following events:
(a) any repeated willful failure or refusal of Employee to
perform Employee's duties that continues or shall not have ceased within 30
days after the Board has given written notice to Employee specifying in
reasonable detail the manner in which Employee has failed to perform such
duties or comply with such directions; or
(b) conviction (which, through lapse of time or otherwise, is
not subject to appeal) of (i) a felony or (ii) any crime involving moral
turpitude.
1.5 TERMINATION BY EMPLOYEE. In addition to the nonrenewal
rights of Employee set forth in SECTION 1.3 hereof, Employee has the right to
terminate the Employment Period (and, consequently, Employee's employment under
this Agreement) by ninety (90) days prior written notice to the Company for any
or no reason (a "Voluntary Termination"). Notwithstanding anything to the
contrary contained herein, the Company may accelerate the effective date of a
Voluntary Termination to any date including, but not limited to, the date on
which notice is received by the Company. Following a notice of Voluntary
Termination, Employee agrees to fulfill Employee's duties hereunder and shall
cooperate fully in completion and turnover of all matters involving Employee
until such termination becomes effective, unless otherwise consented to by the
Company.
1.6 ADDITIONAL TERMINATION. The Employment Period shall
automatically terminate upon Employee's death or upon thirty days' written
notice from the Board in the event of Disability. Employee shall be deemed to
have a "Disability" for purposes of this Agreement if Employee is unable to
perform, by reason of physical or mental incapacity, Employee's duties or
obligations under this Agreement, for a total period of 270 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of Employee has occurred. Such determination
shall be made by the Board in the exercise of reasonable discretion.
2. COMPENSATION AND BENEFITS.
2.1 SALARY. In consideration of Employee performing Employee's
duties under this Agreement, during the Employment Period, the Company will pay
Employee a base salary at a rate of one million five hundred thousand dollars
($1,500,000) per annum (the "Base Salary"), payable in accordance with the
Company's regular payroll policy for salaried employees. If the Employment
Period is terminated pursuant to SECTION 1.4, SECTION 1.5 or SECTION 1.6 above,
then the Base Salary for any partial year will be prorated based on the number
of days elapsed in such year during which services were actually performed by
Employee, subject to the provisions of SECTION 2.2 below.
-2-
<PAGE>
2.2 COMPENSATION AFTER TERMINATION.
(a) If the Employment Period or this Agreement is terminated (i)
by the Company for Cause, (ii) by Employee pursuant to a Voluntary
Termination, or (iii) through expiration or nonrenewal of the Employment
Period, then the Company shall have no further obligations hereunder or
otherwise with respect to Employee's employment from and after the
termination date (except payment of Employee's Base Salary and benefits
described in SECTION 2.3 hereof, including but not limited to mandatory
bonuses, in each case which have accrued through the date of termination or
expiration), and the Company shall continue to have all other rights
available hereunder. If the Employment Period or this Agreement is
terminated by virtue of Employee's death or Disability, then the Company
shall have no further obligations hereunder or otherwise with respect to
Employee's employment from and after the termination date (except payment
of Employee's Base Salary and benefits described in SECTION 2.3 hereof,
including but not limited to mandatory bonuses, through the date which is
one hundred eighty (180) days after such termination) and the Company shall
continue to have all other rights available hereunder.
(b) If the Employment Period is terminated by the Company
without Cause, Employee shall be entitled to receive as severance pay (i)
Employee's Base Salary hereunder, and (ii) the benefits described in
SECTION 2.3 hereof, including but not limited to mandatory bonuses, in each
case for the period of time which would have been remaining in the Initial
Employment Period or the Renewal Period, as the case may be, in absence of
such termination, payable at such times and in such manner as would have
been the case had Employee remained employed hereunder.
2.3 OTHER BENEFITS.
(a) VACATION AND EMPLOYEE BENEFITS. During the Employment
Period, Employee shall be entitled to such vacations and to participate in
and receive any other fringe benefits customarily provided by the Company
to its senior management personnel, including but not limited to
hospitalization and health and disability insurance to the extent offered
by the Company.
(b) BUSINESS EXPENSES. During the Employment Period, the
Company will reimburse Employee in accordance with Company policy for
Employee's normal out-of-pocket expenses incurred in the course of
performing Employee's duties hereunder. Employee shall provide the Company
with all receipts and documentation supporting such expenses as may
reasonably be requested by the Company.
(c) MANDATORY BONUSES. With respect to each three month period
of the Employment Period, Employee shall be entitled to and shall be paid a
mandatory non-discretionary bonus of three hundred seventy-five thousand
dollars ($375,000), payable no later than the last day of the three month
period to which it relates.
-3-
<PAGE>
2.4 TAXES, ETC. All compensation payable to Employee hereunder
is stated in gross amount and shall be subject to all applicable withholding
taxes, other normal payroll deductions and any other amounts required by law to
be withheld.
3. CONFIDENTIAL INFORMATION. During the term of this Agreement and
thereafter, Employee shall keep secret and retain in strictest confidence, and
shall not, without the prior consent of the Board, furnish, make available or
disclose to any third party or use for the benefit of Employee or any third
party, any Confidential Information. As used in this SECTION 3, "Confidential
Information" shall mean any trade secret, proprietary or confidential
information relating to the business or affairs of the Company, the Business,
any Other Business, or the Company's affiliates, including but not limited to
information relating to financial statements, customer identities, potential
customers, employees, suppliers, servicing methods, equipment, programs,
strategies and information, analyses, profit margins or other trade secret,
proprietary or confidential information used by the Company or its affiliates,
including, without limitation, computer, software, hardware and related
information; provided, however, that Confidential Information shall not include
any information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company and/or its affiliates. As used in this Agreement, the term
"affiliate" shall have the meaning ascribed to that term in Rule 405 of the
Securities Act of 1933, as amended, and shall include each past and present
affiliate of such person or entity. If this Agreement or the Employment Period
expires or is terminated for any reason, then, notwithstanding such termination,
the provisions contained in this SECTION 3 shall remain in full force and
effect. Employee acknowledges and agrees that the covenants set forth in this
SECTION 3 are reasonable and necessary for the protection of the business
interests of the Company and its affiliates, that irreparable injury will result
to the Company and its affiliates if Employee breaches any of the terms hereof
and that in the event of Employee's actual or threatened breach of any such
terms, the Company and its affiliates may have no adequate remedy at law.
Employee accordingly agrees that in the event of any actual or threatened breach
by Employee of any of the terms of this SECTION 3, the Company and its
affiliates shall be entitled to injunctive relief, specific performance and
other equitable relief, without bond and without the necessity of showing actual
monetary damages, subject to hearing as soon thereafter as possible. Nothing
contained herein shall be construed as prohibiting the Company and its
affiliates from pursuing any other remedies available to them for such breach or
threatened breach, including but not limited to the recovery of damages.
4. MISCELLANEOUS.
4.1 ASSIGNMENT. All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective legal representatives, heirs, successors and
assigns of the parties hereto, whether so expressed or not.
4.2 ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, and supersedes and preempts all prior oral
or written understandings and agreements with respect to the subject matter
hereof.
-4-
<PAGE>
4.3 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
4.4 AMENDMENT; MODIFICATION. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought.
No waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or default, either of a similar or different nature, unless
expressly so stated in writing.
4.5 GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Agreement shall be governed by,
the laws of the State of New York without giving effect to provisions thereof
regarding conflict of laws.
4.6 NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been properly served if (a) delivered
personally, (b) delivered by courier, or (c) delivered by certified or
registered mail, return receipt requested and first class postage prepaid, in
each case to the parties at their addresses set forth below or such other
addresses as the recipient party has specified by prior written notice to the
sending party. All such notices and communications shall be deemed received
upon the actual delivery thereof in accordance with the foregoing.
(a) If to Employee:
c/o TMP Worldwide Inc.
1633 Broadway, 33rd Floor
New York, NY 10019
(b) If to the Company:
TMP Worldwide Inc.
1633 Broadway, 33rd Floor
New York, NY 10019
Attention: Board of Directors
-5-
<PAGE>
4.7 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
4.8 DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation. The Preliminary Recitals set forth
above are incorporated by reference into this Agreement.
4.9 NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual interest, and no rule of strict construction will be applied against any
party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
TMP WORLDWIDE INC.
By: /s/ THOMAS G. COLLISON
--------------------------
Name: Thomas G. Collison
Title: Senior Vice President
EMPLOYEE:
/s/ ANDREW J. MCKELVEY
-----------------------------
Andrew J. McKelvey
-6-
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- --------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Net income (loss)......... $( 4,626) $( 2,467) $ 3,229 $ 873 $(539)
Preferred stock dividends. (210) (210) (210) (158) (158)
------- ------ ----- ----- ----
Net income (loss)
applicable to common
and Class B common stock.$( 4,836) $( 2,677) $ 3,019 $ 715 $(697)
-------- ------- ------ ------- -----
-------- ------- ------ ------- -----
Pro Forma:
Historical Net Loss $(697)
Pro Forma Adjustments:
Special Compensation 672
------
Pro Forma Net Loss $ (25)
------
------
Weighted average number
of common, Class B common
and common equivalent
shares outstanding
(includes effect of
options granted
within one year
of offering)............. 17,776 19,230 19,518 19,518 19,281
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Primary and fully
diluted net income
(loss) per share......... $( 0.27) $( 0.14) $ 0.15 $ 0.04
-------- ------- ------ ------
-------- ------- ------ ------
Primary and Fully
diluted
Pro Forma Net Income
(Loss) Per Shares $ .00
------
------
<PAGE>
SUBSIDIARIES
JURISDICTION OF
ORGANIZATION
SUBSIDIARY OR INCORPORATION
---------- ----------------
144164 Canada Ltd. Canada
158743 Canada Inc. Canada
3055078 Canada Inc. Canada
Aeronautic Media, Inc. Delaware
Armstrong's - NSW Pty Ltd New South Wales, Australia
Armstrong's - Queensland Pty Ltd Queensland, Australia
Armstrong's - Australia Pty Ltd Victoria, Australia
Armstrong's - Victoria Pty Ltd Victoria, Australia
Armstrong's - WA Pty Ltd Western Australia, Australia
BBL Acquisition Corp. Delaware
BMS Acquisition Corp. Delaware
BTD Acquisition, Inc. New York
Cala H.R.C. Ltd. Canada
Chalam Advertising, Inc. New York
CPC Acquisition Corp. New York
Deutsch Shea & Evans, Inc. Delaware
Directory Services International Corporation Michigan
EPI Aviation, Inc. Delaware
General Directory Advertising Services, Inc. Delaware
HGI Acquisition Corp. Delaware
Interdirect, Inc. New Jersey
M.S.I. - Market Support International, Inc. New Jersey
National Media Holding Company, Inc. Colorado
National Media Services, Inc. Georgia
Neville Jeffress - Parramatta Pty Ltd New South Wales, Australia
Neville Jeffress - Canberra Pty Ltd Australian Capital Territory,
Australia
<PAGE>
JURISDICTION OF
ORGANIZATION
SUBSIDIARY OR INCORPORATION
---------- ----------------
Neville Jeffress Advertising (Tasmania) Pty Ltd Tasmania, Australia
Neville Jeffress - Sydney Pty Ltd New South Wales, Australia
Neville Jeffress Pty Ltd New South Wales, Australia
Neville Jeffress - Financial Pty Ltd New South Wales, Australia
Neville Jeffress (NSW) Pty Ltd New South Wales, Australia
Neville Jeffress - Brisbane Pty Ltd Queensland, Australia
Neville Jeffress Caldwell Ltd United Kingdom
Neville Jeffress - New Zealand Ltd New Zealand
Neville Jeffress - Queensland Pty Ltd Queensland, Australia
Neville Jeffress (Darwin) Pty Ltd Northern Territory, Australia
Neville Jeffress - Adelaide Pty Ltd South Australia, Australia
Neville Jeffress Australia Pty Ltd New South Wales, Australia
Neville Jeffress Perth Pty Ltd Western Australia, Australia
Neville Jeffress - Victoria Pty Ltd Victoria, Australia
Online Career Center Management, Inc. Delaware
Parapluie Pty Ltd Victoria, Australia
Parraween Productions Pty Ltd New South Wales, Australia
Rogers Acquisition Corp. Delaware
Sanderson Advertising & Design Group Limited United Kingdom
Target Acquisition Corp. Delaware
The Mitchell Armstrong's Consortium Pty Ltd Victoria, Australia
The Monsterboard Limited United Kingdom
TMP Telephone Marketing Programs Limited United Kingdom
TMP Worldwide Co., Ltd Japan
TMP Worldwide Ltd. Ontario, Canada
TMP Worldwide Holdings Limited United Kingdom
-2-
<PAGE>
JURISDICTION OF
ORGANIZATION
SUBSIDIARY OR INCORPORATION
---------- ----------------
TMP Australia Pty Ltd New South Wales, Australia
TMP Belgium NV Ghent, Belgium
TMP Worldwide Limited United Kingdom
TMP Interactive Inc. Delaware
TMP Medical Listings, Inc. Georgia
Volando, Inc. Delaware
Woodward, Inc. Illinois
Woodward Direct, Inc. Delaware
YPMS Acquisition, Inc. Delaware
-3-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 15, 1996, except for Note 7
which is as of August 29, 1996 and Notes 1 and 2 which are as of November ,
1996, relating to the consolidated financial statements of TMP Worldwide Inc.
and Subsidiaries, our report dated July 25, 1996 relating to the financial
statements of Rogers & Associates Advertising, Inc., which are contained in that
Prospectus, and of our report dated March 15, 1996, relating to the schedule
which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
New York, New York
November 20, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
TMP Worldwide Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated November 8, 1996, relating to the
consolidated financial statements of Neville Jeffress Australia Pty Limited and
Subsidiaries, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO NELSON PARKHILL
Sydney, Australia
Novemeber 20, 1996
