<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(as filed with the Securities and Exchange Commission on July 9, 1999)
Filed by Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section240.1a-12
LAI WORLDWIDE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value, of LAI Worldwide, Inc.
(2) Aggregate number of securities to which transaction applies:
8,120,427 shares.
(3) Per unit price or other underlying value of transaction computed pur-
suant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
As of June 11, 1999, there were 8,120,427 shares of LAI Common Stock
outstanding which would be converted into approximately 1,100,000
shares of common stock, $.001 par value, of TMP Worldwide Inc. ("TMP
Common Stock"). TMP Common Stock is quoted on the Nasdaq National
Market. As of June 11, 1999, the average of the high and low sale
prices of TMP Common Stock was $55.50. Consequently, shareholders of
LAI would receive TMP Common Stock equal to approximately $61,050,000.
(4) Proposed maximum aggregate value of transaction:
The proposed maximum aggregate value of the transaction is $61,050,000,
the aggregate market value of the securities to be received by
shareholders of LAI.
(5) Total fee paid:
$12,210.
/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$12,210
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(2) Form, Schedule or Registration Statement No.:
Schedule 14A
-----------------------------------------------------------------------
(3) Filing Party:
TMP Worldwide Inc.
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(4) Date Filed:
June 16, 1999
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<PAGE>
LAI WORLDWIDE, INC.
200 PARK AVENUE
NEW YORK, NEW YORK 10166
Annual Meeting of Stockholders
Your Vote Is Very Important
Dear Stockholders:
On behalf of the Board of Directors of LAI Worldwide, Inc., I cordially
invite you to attend our 1999 Annual Meeting of Stockholders.
At the Annual Meeting, stockholders will (1) vote whether to approve a
proposed merger combining LAI and a subsidiary of TMP Worldwide Inc., (2) elect
two directors, each to serve for a three-year term, and (3) vote whether to
ratify the appointment of Arthur Andersen LLP as LAI's firm of independent
certified public accountants for fiscal 2000. The Board asks you to vote in
favor of the merger, in favor of the director nominees proposed by the Board and
in favor of ratification of the appointment of Arthur Andersen LLP.
Your Board of Directors has unanimously approved the merger, but the
approval of our stockholders is required in order to proceed with the completion
of the merger. Pursuant to the merger, each share of LAI stock will be exchanged
for 0.1321 (the "Exchange Ratio") of a share of TMP stock as long as the 20 day
average price of TMP stock before closing is between $42 and $64. If it is below
$42, and TMP elects to go forward with the merger, the Exchange Ratio will be
adjusted to that obtained by dividing $5.55 by TMP's 20 day average stock price
measured prior to closing. If TMP's 20 day average stock price is above $64, the
Exchange Ratio will be adjusted by dividing $8.45 by such stock price. After the
merger, LAI will be a wholly-owned subsidiary of TMP.
Your Board of Directors has determined that the merger is fair to you and is
in your best interests. The Board of Directors therefore unanimously recommends
that you vote to approve and adopt the merger agreement. A vote of the TMP
stockholders is not required to approve and adopt the merger agreement.
At the Annual Meeting, you will be asked to approve and adopt the merger
agreement. LAI stockholders holding at least a majority of the outstanding
shares of LAI Common Stock, voting as a class, are required to vote to approve
and adopt the merger agreement. The merger cannot be completed unless the LAI
stockholders approve it.
We estimate that the shares of TMP Common Stock to be issued to the LAI
stockholders will represent approximately 2.9% of the outstanding TMP Common
Stock, and 1.8% of the voting power of TMP Common Stock, after the merger.
The date, time and place of the Annual Meeting are as follows:
Thursday, August 26, 1999
9:00 a.m.
The Tampa Club
101 East Kennedy Boulevard
4100 Barnett Plaza
Tampa, Florida
Attached to this letter you will find a formal Notice of Annual Meeting and
a related proxy statement/ prospectus. The proxy statement/prospectus provides
detailed information about the Annual Meeting and the matters to be considered
at the Annual Meeting, and especially about the proposed merger, so please read
the entire proxy statement/prospectus carefully. You may also obtain more
information about LAI and TMP from documents filed with the Securities and
Exchange Commission.
The attached notice and proxy statement/prospectus are dated July 12, 1999,
and were first mailed to stockholders on or about July 28, 1999. Those of you
who were holders of record of LAI Common Stock at
<PAGE>
the close of business on July 27, 1999 are entitled to receive notice of and to
vote at the stockholders' meeting. On that day, 8,120,427 shares of LAI Common
Stock were outstanding. Each share entitles the holder to one vote.
This year, we are offering you the option to vote by telephone using a
toll-free number. You may vote by telephone or by using the traditional proxy
card. Telephone voting, as described on your proxy card, is quick, easy and
immediate.
As explained in the attached proxy statement/prospectus, you may withdraw
your proxy at any time before it is actually voted at the meeting. If you plan
to attend the meeting in person, please remember to bring a form of personal
identification with you and, if you are acting as a proxy for another
stockholder, please bring written confirmation from the record owner that you
are acting as a proxy. Beneficial owners of stock held by banks, brokers or
investment plans (i.e., held in "street name") will need proof of ownership to
be admitted to the meeting and will need written authorization from the record
owner in order to vote at the meeting. A recent brokerage statement or letter
from your broker or bank are examples of proof of ownership sufficient for
admittance to the meeting, but a proxy from your broker or bank or similar
document will be required in order for you to vote shares held in street name at
the meeting.
Even if you do not plan to attend the Annual Meeting of LAI stockholders, if
you are a holder of LAI Common Stock, please take the time to vote by telephone
or by completing and mailing the enclosed proxy card to us. YOUR VOTE IS VERY
IMPORTANT.
On behalf of the board of LAI, we urge you to vote "FOR" approval and
adoption of the merger agreement and the other matters to be considered at the
Annual Meeting.
Sincerely,
Robert L. Pearson
Chairman of the Board and CEO
2
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 1999
To the Stockholders of LAI Worldwide, Inc.:
We are hereby notifying you that the Annual Meeting of stockholders of LAI
Worldwide, Inc. will be held on Thursday, August 26, 1999 at The Tampa Club, 101
East Kennedy Boulevard, 4100 Barnett Plaza, Tampa, Florida, commencing at 9:00
a.m., local time, for the following purposes:
1. To consider and vote on the merger agreement among LAI, TMP Worldwide
Inc., and a wholly-owned subsidiary of TMP. The merger agreement provides
that TMP's wholly-owned subsidiary will be merged into LAI. As a result of
the merger, LAI will become a wholly-owned subsidiary of TMP, and you and
each other stockholder of LAI will receive 0.1321 of a share (the "Exchange
Ratio") of TMP Common Stock for each share of LAI Common Stock held by you
if the 20 day average price of TMP Common Stock measured two days prior to
closing is between $42 and $64. The Exchange Ratio will be adjusted to $5.55
divided by the 20 day average of TMP Common Stock measured two days prior to
closing if such average is below $42.00 and the Exchange Ratio will be
adjusted to $8.45 divided by the 20 day average price of TMP Common Stock
measured two days prior to closing if such average is above $64.00;
2. To elect two directors, each to serve for a three-year term;
3. To ratify the appointment of Arthur Andersen LLP as LAI's firm of
independent certified public accountants for the fiscal year ending February
29, 2000; and
4. To transact such other business as may be properly brought before the
meeting, or any adjournments or postponements thereof.
The items of business to be considered at the Annual Meeting are more fully
described in the attached proxy statement/prospectus.
This notice and the accompanying proxy statement/prospectus are dated July
12, 1999, and will be first mailed to stockholders on or about July 28, 1999.
We have attached a copy of the merger agreement as Annex A to the proxy
statement/prospectus which accompanies this notice of meeting.
Those of you who were holders of record of our common stock at the close of
business on July 27, 1999 are entitled to receive this notice and to vote at the
stockholders' meeting. We urge you to attend the meeting in person. However, in
order to make sure that you are represented at the meeting, we also urge you to
vote by telephone or to complete, sign and return the enclosed proxy card as
soon as possible in the enclosed postage-prepaid envelope.
By the order of the Board of Directors
Philip R. Albright, Secretary
July 12, 1999
New York, New York
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE BY TELEPHONE
USING THE TOLL-FREE NUMBER INDICATED ON THE PROXY CARD OR SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THIS IS IMPORTANT BECAUSE A
MAJORITY OF ALL OUTSTANDING SHARES MUST BE REPRESENTED AT THE ANNUAL MEETING,
EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM AND CONDUCT BUSINESS AT THE
ANNUAL MEETING. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE MEETING, YOU
MAY VOTE IN PERSON EVEN IF YOU VOTE BY TELEPHONE OR SEND IN YOUR PROXY CARD NOW.
IN ADDITION, A STOCKHOLDER OF RECORD MAY REVOKE ANY PROXY AT ANY TIME BEFORE IT
IS VOTED. IF VOTING BY TELEPHONE, THE LATEST TELEPHONE VOTING INSTRUCTIONS WILL
SUPERCEDE ANY PREVIOUS TELEPHONE INSTRUCTIONS.
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 26, 1999.
2
<PAGE>
TMP WORLDWIDE INC.
PROXY STATEMENT/PROSPECTUS
------------------------
TMP Worldwide Inc. is offering up to approximately a maximum of 1,300,000 of
its shares of common stock ("TMP Common Stock") to the shareholders of LAI
Worldwide, Inc. pursuant to the terms of an Agreement and Plan of Merger (the
"Agreement"), dated March 11, 1999, by and between TMP, a wholly-owned
subsidiary of TMP and LAI. The Agreement is annexed hereto as Annex A, and you
should read the Agreement in its entirety.
Pursuant to the terms of the Agreement, LAI will become a wholly-owned
subsidiary of TMP and each share of common stock of LAI (the "LAI Common Stock")
will be exchanged for a fraction of a share of TMP Common Stock, such fraction
to be in the following ratio (the "Exchange Ratio"):
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is greater than $64.00, the
ratio will be $8.45 divided by such average stock price;
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is at least $42.00 but not
more than $64.00, the ratio will be 0.1321; and
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is less than $42.00, the ratio
will be $5.55 divided by such average stock price.
The TMP Common Stock is traded on Nasdaq under the symbol "TMPW." On July 8,
1999, the last reported sale price per share of TMP Common Stock on Nasdaq was
$61.25. The LAI Common Stock is also traded on Nasdaq under the symbol "LAIX".
On July 8, 1999, the last reported sale price per share of LAI Common Stock on
Nasdaq was $6.78. Based on the Exchange Ratio of 0.1321, TMP would issue
approximately 1,100,000 shares of TMP Common Stock to LAI shareholders,
providing LAI shareholders with approximately 1.8% of the combined voting power
of all classes of TMP's outstanding capital stock following consummation of the
merger.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT ARE
COMPLEX. SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED.
---------------------
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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 12, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROPOSALS TO BE VOTED UPON AT THE ANNUAL MEETING..................................... vi
WHERE YOU CAN FIND MORE INFORMATION.................................................. ix
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... x
FORWARD-LOOKING STATEMENTS........................................................... xi
SUMMARY.............................................................................. 1
The Companies...................................................................... 1
TMP Worldwide Inc................................................................ 1
LAI Worldwide, Inc............................................................... 2
The annual meeting of LAI stockholders........................................... 2
The Merger......................................................................... 2
Conditions to be satisfied before the merger will occur.......................... 3
Who can terminate the merger agreement........................................... 3
Government approvals necessary for the merger to occur........................... 4
Appraisal rights................................................................. 4
Accounting treatment............................................................. 4
Federal income tax consequences of the merger.................................... 4
The rights of LAI stockholders will change as a result of the merger............. 5
Recommendation of the board of LAI............................................... 5
LAI's reasons for the merger..................................................... 5
Who can vote at the stockholders' meeting........................................ 5
The stockholder votes required at the stockholders' meeting...................... 5
Stock ownership of directors and executive officers of LAI....................... 5
Opinion of LAI's financial advisor............................................... 6
LAI ownership of TMP after the merger............................................ 6
Interest of executive officers of LAI in the merger.............................. 6
Market Price Information........................................................... 7
Selected Financial Data............................................................ 8
TMP Selected Historical Consolidated Financial Information....................... 8
LAI Selected Historical Consolidated Financial Information....................... 10
TMP and LAI Unaudited Selected Pro Forma Combined Financial Information.......... 11
Comparative Per Share Data....................................................... 12
RISK FACTORS......................................................................... 14
Risks relating to the merger....................................................... 14
We may fail to realize benefits from our acquisitions............................ 14
Our costs related to the merger may be significant............................... 14
We may lose LAI clients and personnel............................................ 14
We may not be able to treat the merger as a "pooling of interests" for accounting
purposes........................................................................ 15
</TABLE>
i
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<TABLE>
<S> <C>
We may have to issue more shares than planned.................................... 15
Risks relating to TMP, LAI and the combined company................................ 15
We may not be able to manage our growth.......................................... 15
We face risks associated with our expansive strategy............................. 16
We depend on traditional media................................................... 16
The acceptance and effectiveness of Internet advertising is unproven............. 16
Internet users may not accept our Internet content............................... 16
Our markets are highly competitive............................................... 17
Our operating results fluctuate from quarter to quarter.......................... 17
We face risks relating to developing technology.................................. 17
We depend on our consultants..................................................... 18
Our consultants may depart with existing executive search clients................ 18
We face risks maintaining our professional reputation and brand name............. 18
We face restrictions imposed by blocking arrangements............................ 18
We depend on our key personnel................................................... 19
We are controlled by a principal stockholder..................................... 19
Effects of anti-takeover provisions could inhibit the acquisition of TMP......... 19
We face risks relating to our foreign operations................................. 20
There may be volitility in our stock price....................................... 20
We face risks associated with government regulation.............................. 20
We have never paid dividends..................................................... 20
THE ANNUAL STOCKHOLDERS' MEETING..................................................... 21
When and where the annual stockholders' meeting will be held....................... 21
Matters to be considered at the LAI annual stockholders' meeting................... 21
Recommendation of the LAI board.................................................... 21
Stockholders entitled to vote and vote required.................................... 21
Voting procedures.................................................................. 22
General.......................................................................... 22
Stockholders of record........................................................... 22
Stockholders in street name...................................................... 22
Solicitation of proxies.......................................................... 23
Quorum........................................................................... 23
THE MERGER........................................................................... 24
Background of the merger........................................................... 24
Reasons for the merger............................................................. 27
Opinion of financial advisor to LAI................................................ 29
Analysis of implied LAI merger multiples......................................... 30
Selected publicly traded LAI comparable companies operating performance.......... 31
</TABLE>
ii
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<TABLE>
<S> <C>
Analysis of selected publically traded LAI comparable companies.................. 31
Selected publicly traded TMP comparable companies operating performance.......... 32
Analysis of selected publicly traded TMP comparable companies.................... 33
Analysis of selected comparable acquisition transactions......................... 34
Discounted cash flow analysis--LAI............................................... 35
Discounted cash flow analysis--TMP............................................... 35
Pro forma merger analysis........................................................ 35
Interests of certain persons in the merger......................................... 37
Federal income tax consequences.................................................... 37
Anticipated accounting treatment................................................... 38
Effect on employee equity plans.................................................... 39
Regulatory approvals............................................................... 39
Federal securities law consequences................................................ 40
Stock listing...................................................................... 40
Appraisal rights................................................................... 40
Merger expenses and fees and other costs........................................... 40
THE MERGER AGREEMENT................................................................. 41
Structure of the merger............................................................ 41
Consummation of the merger......................................................... 41
Merger consideration............................................................... 41
Exchange of stock certificates..................................................... 41
Treatment of LAI Common Stock options.............................................. 42
Representations and warranties..................................................... 42
Certain covenants.................................................................. 42
Interim operations of LAI and TMP................................................ 42
LAI stockholders' meeting........................................................ 43
Certain other covenants.......................................................... 43
Affiliate letters................................................................ 44
Conditions to the merger........................................................... 44
Conditions to each party's obligations to effect the merger...................... 44
Conditions to the obligations of TMP............................................. 44
Conditions to the obligations of LAI............................................. 45
Amendments and waivers............................................................. 45
No solicitation.................................................................... 45
Termination of the merger agreement................................................ 45
Termination fees and expenses...................................................... 46
Payment of expenses of the merger generally...................................... 46
When LAI must pay TMP's expenses................................................. 46
</TABLE>
iii
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<TABLE>
<S> <C>
When LAI must pay a termination fee................................................ 46
When TMP must pay LAI's fees and expenses.......................................... 47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION......................... 48
LAI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 54
Overview........................................................................... 54
International operations........................................................... 54
Results of operations.............................................................. 55
Liquidity and capital resources.................................................... 59
Recently issued accounting pronouncements.......................................... 60
Year 2000 compliance............................................................... 60
LAI BUSINESS......................................................................... 61
General............................................................................ 61
Reorganization..................................................................... 61
Executive search industry overview................................................. 61
Business strategy.................................................................. 62
Services........................................................................... 62
Marketing and clients.............................................................. 64
Research and technology............................................................ 65
Professional staff and employees................................................... 66
Competition........................................................................ 66
Properties......................................................................... 66
Legal proceedings.................................................................. 66
Quantitative and qualitative disclosures about market risk......................... 66
MANAGEMENT OF LAI.................................................................... 67
Executive officers................................................................. 67
Directors.......................................................................... 67
Committees of LAI's board of directors............................................. 69
Compensation committee interlocks and insider participation........................ 70
Director compensation.............................................................. 70
Meeting of the board of directors and standing committees.......................... 71
Executive compensation............................................................. 71
Options granted in year ended February 28, 1999.................................... 73
Option exercises and year-end value table.......................................... 74
Incentive and benefit plans........................................................ 74
Executive employment arrangements.................................................. 75
Compliance with Section 16(a) of the Exchange Act.................................. 78
Certain relationships and related transactions..................................... 78
</TABLE>
iv
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<TABLE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................... 79
Compensation committee report...................................................... 81
Role of compensation committee................................................... 81
Compensation philosophy.......................................................... 81
Chief executive officer compensation............................................. 81
Compensation of other named executive officers................................... 82
Option exchange program.......................................................... 83
Internal Revenue Code Section 162(m)............................................. 85
Ten-year option/SAR repricings table............................................... 85
Stock performance graph............................................................ 86
LAI Stockholder proposals for presentation at the 2000 annual meeting.............. 86
Availability of other information.................................................. 87
COMPARISON OF RIGHTS OF HOLDERS OF TMP COMMON STOCK AND LAI COMMON STOCK............. 88
Action by written consent of stockholders.......................................... 88
Class votes of stockholders........................................................ 88
Stockholder voting on merger....................................................... 88
Stockholder approval of certain business combinations.............................. 88
Appraisal rights................................................................... 90
Amendment of bylaws................................................................ 90
Limitation on directors' liability; indemnification of officers and directors...... 91
Classified board of directors...................................................... 92
Cumulative voting for directors.................................................... 93
Removal of directors............................................................... 93
Newly created directorships and vacancies.......................................... 93
Special meetings................................................................... 94
Inspection rights.................................................................. 94
Election of directors.............................................................. 95
Standards of conduct............................................................... 95
EXPERTS.............................................................................. 95
LEGAL MATTERS........................................................................ 95
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS.................................... 96
COMMISSION POSITION ON INDEMNIFICATION............................................... 96
INDEX TO LAI FINANCIAL STATEMENTS.................................................... F-1
ANNEXES
ANNEX A Agreement and Plan of Merger.............................................. A-1
ANNEX B Opinion of Robert W. Baird & Co. Incorporated............................. B-1
</TABLE>
v
<PAGE>
PROPOSALS TO BE VOTED UPON AT THE ANNUAL MEETING
PROPOSAL 1. THE MERGER.
SUMMARY OF PROPOSAL
We propose that LAI merge with TMP. The merger requires the approval of the
holders of a majority of LAI's outstanding Common Stock.
BACKGROUND
LAI has entered into a merger agreement with TMP. As a result of the merger,
LAI will become a wholly-owned subsidiary of TMP, and you and each other
stockholder of LAI will receive 0.1321 of a share of TMP Common Stock for each
share of LAI Common Stock held by you if the 20 day average price of TMP Common
Stock measured two days prior to closing is between $42 and $64. If such average
is below $42.00, the number of shares of TMP Common Stock that LAI stockholders
are entitled to receive will be adjusted to $5.55 divided by the 20 day average
of TMP Common Stock measured two days prior to closing. If such average is above
$64.00 per share, the number of shares of TMP Common Stock that LAI stockholders
are entitled to receive will be adjusted to $8.45 divided by the 20 day average
price of TMP Common Stock measured two days prior to closing.
BOARD RECOMMENDATION
LAI's board of directors believes that the merger is in the best interests
of the LAI stockholders and unanimously recommends that you vote "FOR" approval
of the merger and the adoption of the merger agreement. The affirmative vote of
a majority of all shares of LAI Common Stock outstanding is required in order to
approve the merger agreement and the merger.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: PLEASE DESCRIBE THE MERGER.
A: Pursuant to the proposed merger, LAI will merge with and become a
wholly-owned subsidiary of TMP. The merger requires the approval of the
holders of the majority of LAI's outstanding Common Stock.
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: If the merger is completed, you will receive a fraction of a share of TMP
Common Stock in exchange for each share of LAI Common Stock that you now
own. The fraction you will receive will be determined by the following
ratio, called the Exchange Ratio:
- if the 20 day average of the closing prices of TMP Common Stock
measured two days prior to the closing of the merger is greater than
$64.00, the Exchange Ratio will be $8.45 divided by such average
stock price;
- if the 20 day average of the closing prices of TMP Common Stock
measured two days prior to the closing of the merger is at least
$42.00 but not more than $64.00, the Exchange Ratio will be 0.1321;
and
- if the 20 day average of the closing prices of TMP Common Stock
measured two days prior to the closing of the merger is less than
$42.00, the Exchange Ratio will be $5.55 divided by such average
stock price.
TMP will not issue any fractional shares in the merger. Instead, you will
receive cash for any fraction of a TMP share to which you would otherwise be
entitled.
vi
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Q: WILL I RECOGNIZE GAIN OR LOSS ON THE TRANSACTION?
A: It is anticipated that the exchange of shares by LAI stockholders pursuant to
the merger will be a tax-free event to LAI stockholders for United States
federal income tax purposes, except in instances where an LAI stockholder
receives cash instead of a fractional share of TMP Common Stock. You are
encouraged to consult with your own tax advisor to determine your particular
tax consequences.
Q: WHEN IS THE STOCKHOLDERS' MEETING?
A: The stockholders' meeting will take place on August 26, 1999. At the meeting,
the LAI stockholders will be asked to approve the merger agreement between
LAI and TMP, to elect two directors and to ratify the appointment of Arthur
Andersen LLP as LAI's firm of independent certified public accountants for
fiscal 2000.
TMP stockholders do not need to vote on the merger.
Q: WHAT DO I NEED TO DO TO VOTE MY SHARES?
A: After you have carefully read this proxy statement/prospectus, please vote by
telephone, following the instructions on your proxy card or sign and mail
your proxy card in the enclosed return envelope as soon as possible, in
order to have your shares represented at the stockholders' meeting. In
addition, you may attend the stockholders' meeting in person and vote
whether or not you have voted by telephone or signed and mailed your proxy
card.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Either (1) vote again by telephone, (2) send in a later-dated, signed proxy
card before the stockholders' meeting or (3) attend the meeting in person
and vote. You may revoke any proxy by written notice to the secretary of LAI
prior to the stockholders' meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: In order to have your shares represented at the stockholders' meeting you
must instruct your broker to vote your shares, following the directions
provided by your broker. If you do not instruct your broker to vote your
shares, they will not be voted for or against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger occurs, TMP will mail instructions to all former LAI
stockholders for surrendering their stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger prior to August 31, 1999.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: LAI stockholders should call LAI Investor Relations at (203) 324-4455.
PROPOSAL 2. ELECTION OF DIRECTORS.
BACKGROUND
LAI's board of directors is divided into three classes. Each class of
directors is elected for a three-year term, staggered so that the term of one
class of directors expires each year. In 1999, the terms of service are expiring
for Roderick C. Gow, Richard W. Pogue and John S. Rothschild.
Although the LAI board currently has ten members, the board recently has
determined to reduce its size to eight members. Accordingly, effective with the
stockholders' meeting, the class of directors whose
vii
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term is expiring will be reduced from three members to two members. Two
directors are to be elected at the stockholders' meeting to fill those seats,
with terms expiring in 2002. For these seats, the LAI board of directors has
nominated Mr. Pogue, whose term as a director is expiring, and Mr. John C. Pope,
who now serves as a director with a term expiring in 2001. Assuming Mr. Pope is
elected to the term expiring in 2002, he will then resign his current position
expiring in 2001.
For information regarding Messrs. Pogue and Pope, see "Management of
LAI--Directors."
INFORMATION ON NOMINEES
Messrs. Pogue and Pope have indicated their willingness to be elected as
directors. If, as a result of circumstances not now known or foreseen, either of
them shall become unavailable or unwilling to serve as a director, proxies may
be voted for the election of such other person or persons as the LAI board of
directors may select. The board has no reason to believe that any of the
nominees will be unable or unwilling to serve.
BOARD RECOMMENDATION
LAI's board of directors recommends that stockholders vote "FOR" the
election as directors of Messrs. Pogue and Pope, to serve for terms expiring in
2002. The nominees receiving a plurality of the votes properly cast at the
stockholders' meeting shall be elected to fill the two director seats becoming
vacant. "No" votes, votes against any nominee and withholding authority to vote
for one or more nominees are not considered and will not affect the outcome of
the vote. Unless otherwise directed, the persons named on the enclosed proxy
card will vote all shares for which they are appointed as proxies "FOR" the
election of the board's nominees. See "Voting Procedures."
PROPOSAL 3. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS LAI'S
FIRM OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL
YEAR ENDING FEBRUARY 29, 2000.
Upon the recommendation of the Audit Committee, which is composed entirely
of non-employee directors, the LAI board of directors has appointed Arthur
Andersen LLP as LAI's firm of independent certified public accountants to audit
its consolidated financial statements for fiscal 2000 and to perform
audit-related services and consultation in connection with various accounting
and financial reporting matters. Arthur Andersen LLP has audited the
consolidated financial statements of LAI since 1995. Arthur Andersen LLP also
performs certain non-audit services for LAI. LAI has been advised that Arthur
Andersen LLP expects to have a representative present at the stockholders'
meeting to respond to appropriate questions and, if desired, to make a
statement.
LAI's board of directors has directed that the appointment of Arthur
Andersen LLP be submitted to the stockholders for ratification. The board of
directors recommends that stockholders vote "FOR" the proposal to ratify the
appointment of Arthur Andersen LLP as LAI's firm of independent certified public
accountants for fiscal 2000. Such proposal will be deemed approved by LAI's
stockholders if the number of votes cast for approval is greater than the number
cast against approval. If the stockholders do not ratify the selection of Arthur
Andersen LLP, the Audit Committee and the board will reconsider the appointment.
Unless otherwise directed, the persons named on the enclosed proxy card will
vote all shares for which they are appointed as proxies "FOR" such proposal. See
"Voting Procedures."
OTHER BUSINESS
It is not expected that any other matters are likely to be brought before
the meeting. However, if any other matters are presented, it is the intention of
the persons named in the proxy to vote the proxy in accordance with their best
judgment.
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WHERE YOU CAN FIND MORE INFORMATION
TMP has filed a registration statement on Form S-4 with the SEC. This proxy
statement/prospectus, which is a part of that registration statement, does not
contain all of the information included in the registration statement. You
should refer to the registration statement and its exhibits for this
information. With respect to references made in this document to any contract,
agreement or other document of TMP, such references are not necessarily complete
and you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement or other document. You may review a
copy of the registration statement, including exhibits, at the SEC's public
reference room at:
- Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
- Seven World Trade Center, 13(th) Floor, New York, New York 10048; or
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms.
TMP and LAI also file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information on file at the public reference rooms.
You can also request copies of these documents, for a copying fee, by writing to
the SEC.
TMP's and LAI's SEC filings and the registration statement can also be
reviewed by accessing the SEC's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Some of the information that you may want to consider in deciding how to
vote with respect to the matters in this proxy statement/prospectus is not
included in this proxy statement/prospectus, but is "incorporated by reference"
to documents TMP and LAI have previously filed with the SEC. This means that you
should refer to those documents to read this information. The information
incorporated by reference is an important part of this proxy
statement/prospectus, and information that we file later with the SEC will
automatically update and supersede this information. The following documents
that TMP filed with the SEC are incorporated by reference in this proxy
statement/prospectus:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Proxy Statement dated May 21, 1999 in connection with TMP's Annual Meeting
of Stockholders in 1999;
- Current Reports on Form 8-K dated February 1, 1999, February 12, 1999,
March 5, 1999 and June 10, 1999; and
- The description of TMP's capital stock contained in Item 1 of TMP's
registration statement on Form 8-A dated October 16, 1996.
The following documents that LAI filed with the SEC are incorporated by
reference in this proxy statement/prospectus:
- Annual Report on Form 10-K for the fiscal year ended February 28, 1999;
- Quarterly report on Form 10-Q for the quarter ended May 31, 1999;
- Current Reports on Form 8-K dated November 6, 1998, January 4, 1999 and
March 19, 1999; and
- The description of LAI's capital stock contained in Item 1 of LAI's
registration statement on Form 8-A dated June 3, 1997.
All documents and reports subsequently filed by either TMP or LAI pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement/prospectus and prior to the merger are also incorporated by
reference in this proxy statement/prospectus and will be deemed a part of this
proxy statement/prospectus from the dates of filing of such documents or
reports.
Statements contained in documents incorporated or deemed to be incorporated
by reference will modify statements in any other subsequently filed documents to
the extent the new information differs from the old information. Any statements
modified or superseded will no longer constitute a part of this proxy
statement/prospectus in their original form.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This document and the documents that are incorporated by reference include
certain forward-looking statements about LAI, TMP and the combined company that
are subject to risks and uncertainties. Forward-looking statements include
information concerning projected results of operations of LAI, TMP and the
combined company and the synergistic benefits of the merger set forth under "The
Merger-- Reasons for the merger" and "--Opinion of financial advisor to LAI." To
that extent, TMP and LAI claim the protection of the disclosure liability safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Also, statements including the words "believes,"
"expects," "anticipates," "intends," "estimates," or similar expressions are
forward-looking statements. Many factors, some of which are discussed in this
document and in the documents which LAI and TMP have incorporated by reference,
could affect the future financial results of LAI, TMP and the combined company
and could cause actual results to differ materially from the results anticipated
by these forward-looking statements. TMP and LAI do not undertake any obligation
to publicly update any forward-looking statements to reflect new information or
further events or occurrences.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER, YOU SHOULD
READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED
YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE (IX). WE HAVE INCLUDED
PAGE REFERENCES IN PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF
THE TOPICS PRESENTED IN THIS SUMMARY. AS USED IN THIS DOCUMENT WITH RESPECT TO
TMP, "GROSS BILLINGS" REFERS TO BILLINGS FOR ADVERTISING PLACED IN TELEPHONE
DIRECTORIES, NEWSPAPERS, NEW MEDIA AND OTHER MEDIA, SEARCH AND SELECTION FEES
AND ASSOCIATED FEES FOR RELATED SERVICES. WHILE GROSS BILLINGS ARE NOT INCLUDED
IN TMP'S CONSOLIDATED FINANCIAL STATEMENTS, THE TRENDS IN GROSS BILLINGS
DIRECTLY IMPACT THE COMMISSIONS AND FEES WHICH TMP EARNS. TMP 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,
TMP EARNS FEES FOR THE PLACEMENT OF ADVERTISEMENTS ON THE INTERNET, INCLUDING
TMP'S CAREER WEB SITES. EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND
AMORTIZATION, OR EBITDA, IS PRESENTED TO PROVIDE ADDITIONAL INFORMATION ABOUT
TMP'S ABILITY TO MEET FUTURE DEBT SERVICE, CAPITAL EXPENDITURES AND WORKING
CAPITAL REQUIREMENTS AND IS ONE OF THE MEASURES WHICH DETERMINES TMP'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 OUR
PROFITABILITY OR LIQUIDITY. GROSS BILLINGS WITH RESPECT TO COMPANIES WHICH TMP
ACQUIRES REFERS TO TMP'S ESTIMATE OF THE ACQUIRED COMPANIES' ANNUAL GROSS
BILLINGS. ALL AMOUNTS REFERRED TO BELOW FOR TMP REFLECT THE AMOUNTS DISCLOSED IN
TMP'S SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS IN TMP'S CURRENT REPORT ON
FORM 8-K DATED JUNE 10, 1999 WHICH REFLECT THE MERGERS OF TMP WORLDWIDE INC. AND
SUBSIDIARIES AND INTERQUEST PTY LIMITED ON APRIL 30, 1999, LIDA ADVERTISING,
INC. ON MAY 19, 1999, MAES & LUNAU ON MAY 20, 1999, LEMMING/LEVAN, INC. ON MAY
28, 1999, YELLOW PAGES UNLIMITED, INC. ON MAY 28, 1999, AND IN2, INC. ON MAY 28,
1999, WHICH HAVE BEEN ACCOUNTED FOR AS POOLINGS OF INTERESTS. IN ADDITION, TMP'S
HISTORICAL FINANCIAL STATEMENTS INCLUDED THEREIN REFLECT THE MERGER WITH MORGAN
& BANKS LIMITED AS OF JANUARY 28, 1999, WHICH WAS ACCOUNTED FOR AS A POOLING OF
INTERESTS.
THE COMPANIES
TMP WORLDWIDE INC.
1633 Broadway
New York, New York 10019
(212) 977-4200
TMP is a marketing services, communications, executive search, temporary
contracting and technology company. We provide comprehensive, individually
tailored advertising services including:
- development of creative content;
- media planning;
- production and placement of corporate advertising; and
- market research.
We provide these services through traditional media, such as newspapers and
yellow page directories, and new media, such as the Internet. We are also a
growing provider of executive and mid-level search services. Our clients include
more than 80 of the Fortune 100 and approximately 400 of the Fortune 500
companies. For the year ended December 31, 1998, our gross billings were $1.7
billion, total revenue was $699.4 million, net income was $14.4 million and
EBITDA was $69.1 million.
We are one of the world's largest recruitment advertising agencies, with
approximately $794.2 million in gross billings for the year ended December 31,
1998. We are the world's largest yellow page advertising agency, with
approximately $506.9 million in gross billings for the same period. With
approximately 30% of the national accounts segment of the U.S. yellow page
advertising market, we are approximately three times larger than our nearest
competitor, based on yellow page gross billings. Our Internet revenue grew
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157.6% to $50.2 million for the same period. A substantial part of our growth
has been achieved through acquisitions. For example, from January 1, 1996
through March 31, 1999, we completed 51 acquisitions. In January 1999, we
completed our largest acquisition to date by acquiring Morgan & Banks Limited,
or M&B, for 5,114,924 shares of our Common Stock. M&B provides permanent
recruitment for mid-level executives through clerks, human resource consulting
and temporary contracting. We believe additional acquisition opportunities exist
and we intend to continue our strategy of making acquisitions which relate to
our core businesses.
We have created innovative solutions to assist our clients in capitalizing
on the growing awareness and acceptance of the Internet. For our recruitment
advertising clients, we have developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
We have several career sites, including Monster.com(SM), Be the Boss(SM) and Job
Hound(SM), which collectively contain approximately 180,000 job listings and
career opportunities.
LAI WORLDWIDE, INC.
200 Park Avenue, Suite 3100
New York, New York 10166-0136
(212) 953-7900
LAI provides executive search consulting services aimed specifically at
solving our clients' leadership needs by identifying, evaluating and
recommending qualified candidates for senior level positions. We principally
serve Fortune 500 and large private companies. We provide executive search
services exclusively on a retained basis, and we charge a fee typically equal to
one-third of the first year cash compensation for the position being filled.
We have developed a knowledge-based search practice organized around five
industry groups and one functional group. The industry groups execute searches
for clients in the following business sectors:
- consumer products and services;
- financial services;
- health care and pharmaceuticals;
- industrial; and
- technology.
The functional group executes searches for specific functional positions,
including board of directors, human resources and legal. These practice groups
enable LAI's consultants to better understand each client's business strategy
and industry and position LAI as a consulting partner to its clients.
THE ANNUAL MEETING OF LAI STOCKHOLDERS (PAGE 21)
The annual meeting will be held at 9:00 a.m. on August 26, 1999 at The Tampa
Club, Tampa, Florida. At the meeting, LAI stockholders will be asked to approve
and adopt the merger agreement, to elect two directors and to ratify the
appointment of LAI's independent certified public accountants for the coming
fiscal year.
THE MERGER (PAGES 24 THROUGH 40)
WHAT LAI STOCKHOLDERS WILL RECEIVE IN THE MERGER. As a result of the
merger, LAI will become a direct, wholly owned subsidiary of TMP. Each LAI
stockholder will receive a fraction of a share of TMP Common Stock in exchange
for each share of LAI Common Stock that they own. The fraction will be
determined by the following ratio, called the Exchange Ratio:
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is greater than $64.00, the
Exchange Ratio will be $8.45 divided by such average stock price;
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<PAGE>
- if the 20 day average of the closing prices of TMP Common Stock measured
prior to the closing of the merger is at least $42.00 but not more than
$64.00, the Exchange Ratio will be 0.1321; and
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is less than $42.00, the
Exchange Ratio will be $5.55 divided by such average stock price.
TMP will not issue any fractional shares in the merger. Instead, LAI
stockholders will receive cash for any fraction of a TMP share to which they
would otherwise be entitled.
WHAT LAI OPTIONHOLDERS WILL RECEIVE IN THE MERGER. Outstanding options to
purchase LAI Common Stock not exercised prior to the merger will be converted
into options to purchase TMP Common Stock at the same Exchange Ratio pursuant to
which LAI Common Stock will be converted into shares of TMP Common Stock. The
exercise price of the options to purchase TMP Common Stock will be the exercise
price of the options to purchase LAI Common Stock divided by the Exchange Ratio.
For example, assuming an Exchange Ratio of 0.1321, an option to purchase 1,000
shares of LAI Common Stock at an exercise price of $10.00 per share will become
an option to purchase 132 shares of TMP Common Stock at an exercise price of
$75.70 per share.
THE DIFFERENCE BETWEEN TMP COMMON STOCK AND CLASS B COMMON STOCK. TMP's
Common Stock has one vote per share. TMP's Class B Common Stock has ten votes
per share. All of the TMP Class B Common Stock is owned by Andrew J. McKelvey.
LAI stockholders will receive TMP Common Stock.
CONDITIONS TO BE SATISFIED BEFORE THE MERGER WILL OCCUR (PAGES 44 THROUGH 45)
Our obligation to complete the merger is subject to the satisfaction or
waiver of several conditions, including the following:
- LAI stockholders must approve and adopt the merger and the merger
agreement;
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, and other similar laws,
must come to an end;
- all relevant governmental authorities must approve the merger;
- the registration statement of which this proxy statement/prospectus is a
part must be declared effective by the SEC and not subject to any stop
order or proceeding by the SEC;
- there must not be any court order which effectively prohibits the merger;
- both TMP's and LAI's independent accountants must concur that the merger
will qualify for pooling of interests accounting treatment;
- the shares of TMP Common Stock to be issued in the merger and to be issued
on the exercise of LAI stock options must be authorized for listing on the
Nasdaq National Market;
- TMP's and LAI's representations and warranties contained in the merger
agreement must be materially true and correct and each company must have
performed all of its material obligations under the merger agreement; and
- there cannot have been an event which shall have had, or could reasonably
be expected to have, a material adverse effect with respect to either
company, as defined in the merger agreement.
WHO CAN TERMINATE THE MERGER AGREEMENT (PAGES 45 THROUGH 46)
LAI and TMP together by mutual consent can terminate the merger agreement
without completing the merger, and either company can terminate the merger
agreement if any of the following occurs:
- the merger is not completed by September 30, 1999;
- a court or other governmental authority permanently prohibits the merger;
- the LAI stockholders do not approve the merger agreement; or
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<PAGE>
- the other company materially breaches the merger agreement and the breach
is not cured within 30 days.
In addition, TMP can terminate the merger agreement without completing the
merger if the LAI board of directors:
- changes its recommendation of the merger;
- does not reconfirm its recommendation of the merger within 10 days after
receipt of a competing bid;
- recommends a competing transaction to LAI stockholders;
- recommends that LAI stockholders accept a tender offer or exchange offer
for 10% or more of LAI's outstanding common stock; or
- fails to call and hold a stockholders' meeting by September 30, 1999.
TMP can also terminate the merger agreement without completing the merger if
TMP's 20 day average closing stock price measured two days prior to closing is
less than $42.
LAI may terminate the merger agreement without completing the merger if the
LAI board of directors withdraws or modifies its recommendation of the merger
because it has accepted a competing transaction that it feels is superior to
TMP's proposal. In this event, LAI must pay TMP's expenses relating to the
transaction.
Under certain circumstances, if the merger agreement is terminated before
the merger takes place, either company may be required to reimburse the other
party for expenses of up to $2 million. In addition, in certain circumstances,
LAI may be required to pay TMP a termination fee of $2 million in addition to
the payment of expenses.
GOVERNMENTAL APPROVALS NECESSARY FOR THE MERGER TO OCCUR (PAGE 39 )
The Hart-Scott-Rodino Antitrust Improvements Act prohibits us from
completing the merger until we furnish certain information to the Antitrust
Division of the United States Department of Justice and the United States
Federal Trade Commission, and the required waiting period has expired or been
terminated. On May 20, 1999, TMP and LAI submitted the required filings to the
United States Department of Justice and the Federal Trade Commission. The
required waiting period was terminated on June 2, 1999.
APPRAISAL RIGHTS (PAGE 40)
Under Florida law, the LAI stockholders do not have appraisal rights with
respect to the merger because the LAI Common Stock is traded on Nasdaq.
ACCOUNTING TREATMENT (PAGE 38)
We expect the merger to qualify as a pooling of interests for accounting and
financial reporting purposes. This means that we will treat our companies as if
they had always been combined for accounting and financial reporting purposes.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 37)
We expect that for United States federal income tax purposes, LAI
stockholders generally will not recognize any gain or loss as a result of the
exchange of shares of LAI Common Stock for TMP Common Stock. LAI stockholders
will, however, recognize income or gain in connection with any cash received
instead of fractional shares of TMP Common Stock. A condition to the closing of
the merger is that LAI receive an opinion of its counsel to this effect. An LAI
stockholder's holding period for the TMP Common Stock received in the merger
generally will include the holding period of the LAI Common Stock exchanged in
the merger. The holding period is important because it determines how any gain
or loss should be treated for federal income tax purposes upon future sales of
TMP Common Stock. Please
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remember that the tax consequences of the merger may be different for you as a
result of your particular tax status. Accordingly, we urge you to consult with
your tax advisor.
THE RIGHTS OF LAI STOCKHOLDERS WILL CHANGE AS A RESULT OF THE MERGER (PAGES 88
THROUGH 95)
Currently, the rights of LAI stockholders are governed by Florida law and
LAI's articles of incorporation and bylaws. The rights of TMP stockholders are
governed by Delaware law and TMP's certificate of incorporation and bylaws.
After the merger, LAI stockholders will become stockholders of TMP, and
therefore, their rights will be governed by Delaware law and TMP's certificate
of incorporation and bylaws. A summary of key differences between the rights of
LAI stockholders and TMP stockholders is described in this proxy
statement/prospectus.
RECOMMENDATION OF THE BOARD OF LAI (PAGE 21)
The board of directors of LAI believes that the merger is in the best
interest of the LAI stockholders and unanimously recommends that you vote "FOR"
approval of the merger and the adoption of the merger agreement.
LAI'S REASONS FOR THE MERGER (PAGES 27 THROUGH 29)
In determing to support the merger, the board of directors of LAI considered
the following:
- the future prospects of LAI as an independent company and possible
alternatives to the proposed merger;
- the depressed LAI stock price;
- the financial terms of the merger;
- competitive synergies to be derived from combining with TMP;
- the current business and financial condition of TMP;
- the compatibility of the businesses and management philosophies of LAI and
TMP;
- the terms of the merger agreement;
- the favorable opinion of its financial advisor; and
- the tax and accounting treatments and the social and economic consequences
of the merger.
WHO CAN VOTE AT THE STOCKHOLDERS' MEETING (PAGE 21)
LAI. The close of business on July 27, 1999 is the record date for the
stockholders' meeting. Only LAI stockholders on the record date are entitled to
notice of and to vote at the stockholders' meeting. On the record date, there
were 8,120,427 shares of LAI Common Stock outstanding. Each share of LAI Common
Stock will be entitled to one vote on each matter to be acted upon at the
stockholders' meeting.
TMP. The TMP stockholders do not need to vote on the merger.
THE STOCKHOLDER VOTE REQUIRED AT THE STOCKHOLDERS' MEETING (PAGES 21 THROUGH 22)
The stockholders' meeting requires a quorum to be present. The presence, in
person or by proxy, of at least a majority of the LAI Common Stock issued and
outstanding and entitled to vote at the stockholders' meeting is necessary to
constitute a quorum. The affirmative vote of a majority of the shares of LAI
Common Stock outstanding is required in order to approve the merger agreement.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF LAI (PAGES 79 THROUGH 80)
As of March 31, 1999, current directors and executive officers of LAI owned
an aggregate of approximately 673,518 shares of LAI Common Stock, representing
8.3% of the shares of LAI Common
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Stock entitled to vote at the LAI special meeting. Directors and executive
officers of LAI who own such shares presently intend to vote all of their shares
in favor of the adoption of the merger agreement.
OPINION OF LAI'S FINANCIAL ADVISOR (PAGES 29 THROUGH 36)
In deciding to approve the merger, the LAI board considered the opinion of
its financial advisor, Robert W. Baird & Co. Incorporated, that as of March 10,
1999, the date on which it delivered its opinion, and based upon and subject to
the various considerations described in the opinion, the Exchange Ratio was
fair, from a financial point of view, to the holders of LAI Common Stock. The
full text of the written opinion of Robert W. Baird & Co. Incorporated is
attached to this proxy statement/prospectus as Annex B and is incorporated by
reference into this proxy statement/prospectus. We urge all LAI stockholders to
read carefully the entire opinion of Robert W. Baird & Co. Incorporated. The
opinion of Robert W. Baird & Co. Incorporated is directed to the board of LAI
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the merger.
LAI OWNERSHIP OF TMP AFTER THE MERGER
Based on the number of outstanding shares of TMP Common Stock and LAI Common
Stock as of the record date, the LAI stockholders immediately prior to the
consummation of the merger are expected to own approximately 2.9% of the
outstanding shares of TMP Common Stock immediately after the closing of the
merger, assuming an Exchange Ratio of 0.1321. These shares of TMP Common Stock
will represent in the aggregate 1.8% of the votes entitled to be cast by TMP
stockholders, including the outstanding shares of Class B Common Stock.
INTEREST OF EXECUTIVE OFFICERS OF LAI IN THE MERGER (PAGE 37)
It is contemplated that TMP will assume the obligations under the LAI
employment agreements and not enter into new agreements with LAI's executives.
In addition, LAI stockholders should be aware that certain members of LAI's
management and of the LAI board have interests in the merger that are in
addition to the interests of LAI stockholders generally.
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MARKET PRICE INFORMATION
The TMP Common Stock is listed on the Nasdaq National Market under the
symbol "TMPW." The LAI Common Stock is also listed on the Nasdaq National
Market, under the symbol "LAIX."
The tables below set forth, for the fiscal quarters indicated, the reported
high and low per share closing sales prices of the TMP Common Stock and the LAI
Common Stock on the Nasdaq National Market.
TMP COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1999
First Quarter.................................................................................. $ 69.88 $ 39.00
Second Quarter (through July 8, 1999).......................................................... $ 89.38 $ 43.00
YEAR ENDED DECEMBER 31, 1998
First Quarter.................................................................................. $ 32.62 $ 21.62
Second Quarter................................................................................. $ 34.88 $ 24.75
Third Quarter.................................................................................. $ 39.19 $ 27.88
Fourth Quarter................................................................................. $ 42.00 $ 20.50
YEAR ENDED DECEMBER 31, 1997
First Quarter.................................................................................. $ 22.00 $ 12.88
Second Quarter................................................................................. $ 24.25 $ 17.00
Third Quarter.................................................................................. $ 25.63 $ 19.00
Fourth Quarter................................................................................. $ 28.75 $ 15.00
</TABLE>
On July 8, 1999, the number of record holders of TMP Common Stock was
approximately 1,500. On July 8, 1999, the last reported sales price of the TMP
Common Stock as reported by the Nasdaq National Market was $61.25.
TMP has never paid any cash dividends on the TMP Common Stock and does not
intend to pay any cash dividends on the TMP Common Stock or Class B Common Stock
in the foreseeable future. TMP currently intends to retain future earnings, if
any, to fund the development and growth of its business. In addition, the
payment of cash dividends is restricted by TMP's financing agreement.
LAI COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING FEBRUARY 28, 2000
First Quarter.................................................................................. $ 10.00 $ 5.72
Second Quarter (through July 8, 1999).......................................................... $ 6.78 $ 5.66
YEAR ENDED FEBRUARY 28, 1999
First Quarter.................................................................................. $ 23.25 $ 18.75
Second Quarter................................................................................. $ 19.81 $ 5.94
Third Quarter.................................................................................. $ 8.94 $ 4.88
Fourth Quarter................................................................................. $ 8.19 $ 5.72
YEAR ENDED FEBRUARY 28, 1998
Second Quarter (commencing July 2, 1997)....................................................... $ 21.25 $ 15.88
Third Quarter.................................................................................. $ 22.88 $ 17.75
Fourth Quarter................................................................................. $ 21.25 $ 16.38
</TABLE>
On July 8, 1999, the number of record holders of LAI Common Stock was
approximately 160. On July 8, 1999, the last reported sales price of the LAI
Common Stock as reported by the Nasdaq National Market was $6.78.
LAI has never paid any cash dividends on the LAI Common Stock and does not
intend to pay any cash dividends on the LAI Common Stock in the foreseeable
future. LAI currently intends to retain future earnings, if any, to fund the
development and growth of its business.
7
<PAGE>
SELECTED FINANCIAL DATA
TMP SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial data set forth below as of
December 31, 1994, 1995 and 1996 and for the two years ended December 31, 1995
have been derived from TMP's audited supplemental consolidated financial
statements not included or incorporated by reference into this proxy statement/
prospectus. The selected historical consolidated financial data set forth below
as of December 31, 1997 and 1998 and for the three years ended December 31, 1998
have been derived from our supplemental consolidated financial statements which
are incorporated by reference in this proxy statement/prospectus. These
supplemental consolidated financial statements have been audited by BDO Seidman,
LLP, independent public accountants, whose report on these supplemental
consolidated financial statements is also incorporated by reference in this
proxy statement/prospectus. The selected consolidated financial data as of March
31, 1999 and for the three months ended March 31, 1998 and 1999 have been
derived from TMP's unaudited supplemental consolidated condensed financial
statements, and in the opinion of TMP's management, have been prepared on the
same basis as the audited supplemental consolidated financial statements and
include all normal recurring adjustments necessary for a fair presentation of
the financial information. The results for the three months ended March 31,
1999, are not necessarily indicative of future results. The following financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," TMP's supplemental
consolidated financial statements and related notes thereto and TMP's
supplemental consolidated condensed financial statements and related notes
thereto provided in TMP's Current Report on Form 8-K filed on June 10, 1999,
incorporated by reference in this proxy statement/prospectus. "Other Data"
provided below has not been audited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Commissions and fees........ $ 185,030 $ 239,520 $ 299,415 $ 403,408 $ 488,340 $ 114,260 $ 128,237
Temporary contracting....... 41,999 75,984 132,110 186,458 211,089 46,532 60,648
Total revenue................. 227,029 315,504 431,525 589,866 699,429 160,792 188,885
Operating expense:
Salaries and related
costs..................... 116,389 137,508 177,840 246,601 294,883 65,797 79,804
Temporary contracting
costs..................... 34,254 61,676 110,408 155,133 175,133 43,355 50,609
Office and general.......... 52,344 77,653 100,242 131,564 155,359 37,904 41,233
Amortization of
intangibles............... 3,294 3,356 4,732 6,842 9,401 2,243 2,634
Special compensation and CEO
bonus(1).................. -- -- 52,019 1,500 1,250 375 --
Merger costs................ -- -- -- -- 22,412 -- 4,687
Total operating expenses...... 206,281 280,193 445,241 541,640 658,438 149,674 178,967
Operating income (loss)....... 20,748 35,311 (13,716) 48,226 40,991 11,118 9,918
Other income (expense):
Interest expense, net(2):... (8,572) (10,376) (14,126) (8,891) (10,607) (2,466) (2,730)
Other, net.................. (1,211) (999) (479) 632 (1,730) (97) (43)
Income (loss) before provision
(benefit) for income taxes,
minority interests and
equity in earnings (losses)
of affiliates............... 10,965 23,936 (28,321) 39,967 28,654 8,555 7,145
Provision for income taxes.... 3,314 9,275 9,733 15,770 13,821 3,416 3,056
Net income (loss) applicable
to common and Class B common
stockholders................ 7,119 13,411 (39,167) 23,745 14,409 5,036 3,890
Net income (loss) per common
and Class B common share:
Basic....................... 0.31 0.47 (1.37) 0.70 0.40 0.14 0.11
Diluted..................... 0.30 0.46 (1.37) 0.69 0.39 0.14 0.10
Weighted average shares
outstanding:
Basic....................... 23,317 28,263 28,679 33,846 35,882 35,795 36,381
Diluted..................... 23,706 28,878 28,679 34,487 36,808 37,129 37,972
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
OTHER DATA:
Gross Billings:
Recruitment advertising..... $ 78,142 $ 435,283 $ 342,379 $ 604,420 $ 794,234 $ 206,618 $ 195,297
Yellow page advertising..... 378,386 208,904 459,348 488,236 506,907 112,048 117,054
Search & Selection.......... 95,637 111,945 130,378 155,714 168,149 39,998 42,667
Internet(3)................. -- 392 6,939 20,553 56,666 8,932 23,091
Temporary contracting....... 41,999 75,984 132,110 186,458 211,089 46,532 60,648
--------- --------- --------- --------- --------- --------- ---------
Total Gross Billings.......... $ 594,164 $ 832,508 $1,071,154 $1,455,381 $1,737,045 $ 414,128 $ 438,757
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
EBITDA........................ $ 28,677 $ 42,610 $ (2,212) $ 68,300 $ 69,133 $ 16,956 $ 18,159
Total operating expenses as a
percentage of total
revenue..................... 90.9% 88.8% 103.2% 91.8% 94.1% 93.1% 94.8%
Number of employees........... 1,999 2,445 3,449 5,088 5,422 5,182 5,441
Number of offices............. 78 101 134 182 210 189 220
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED
----------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets......................... $ 185,828 $ 243,218 $ 290,851 $ 373,202 $ 394,261 $ 413,450
Current liabilities.................... 189,253 240,721 294,351 361,628 401,994 402,082
Total assets........................... 259,744 336,857 433,893 608,379 673,700 708,586
Long-term liabilities.................. 74,108 91,242 77,703 125,109 127,464 139,594
Minority interests..................... 3,310 3,608 3,705 431 509 601
Redeemable preferred stock............. 2,000 2,000 2,000 -- -- --
Total stockholders' equity (deficit)... (8,927) (714) 56,134 121,211 143,733 166,309
</TABLE>
- ------------------------------
(1) Special compensation consists of a non-cash, non-recurring charge of
approximately $52.0 million for special management compensation in 1996
resulting from the issuance of approximately 3.6 million shares of TMP
Common Stock to stockholders of predecessor companies of TMP 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 of TMP and, accordingly, were not
considered to have made substantive investments for their minority shares.
The CEO bonus for the year ended December 31, 1997 and the year ended
December 31, 1998 consists of a mandatory bonus of $375,000 per quarter
payable to Andrew J. McKelvey, TMP's CEO and principal stockholder, as
provided for in his then existing employment agreement. Receipt of these
bonus amounts was permanently waived by Mr. McKelvey, and accordingly, since
they were not paid, are also accounted for as a contribution to Additional
Paid-in Capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The year ended December 31, 1997
compared to the year ended December 31, 1996" and Note 14(B) to TMP's
Supplemental Consolidated Financial Statements incorporated by reference
herein.
(2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring
charge to reflect the exercise of a warrant issued in connection with TMP's
financing agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The year ended December 31, 1997
compared to the year ended December 31, 1996" and Note 8 to TMP's
Supplemental Consolidated Financial Statements incorporated by reference
herein.
(3) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet and employee searches sourced through
the Internet.
9
<PAGE>
LAI SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected financial data set forth below as of February 28 or 29, 1995
and 1996 have been derived from LAI's audited consolidated financial statements
not included in this proxy statement/prospectus. The selected financial data set
forth below as of February 28, 1997, 1998 and 1999 have been derived from LAI's
financial statements which are included in this proxy statement/prospectus.
These financial statements have been audited by Arthur Andersen LLP, independent
accountants, whose report on these financial statements is also included in this
proxy statement/prospectus. The selected financial data as of May 31, 1999 and
for the three-month periods ended May 31, 1998 and 1999 have been derived from
LAI's unaudited condensed consolidated financial statements, and in the opinion
of LAI's management, have been prepared on the same basis as audited
consolidated financial statements and include all normal recurring adjustments
necessary for a fair presentation of the financial information. The results for
the three-month period ended May 31, 1999 are not necessarily indicative of
future results. The following financial information should be read in
conjunction with "LAI Management's Discussion and Analysis of Financial
Condition and Results of Operations," and LAI's financial statements included in
this proxy statement/prospectus. "Other Data" provided below has not been
audited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED FEBRUARY 28 OR 29, MAY 31,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
STATEMENT OF OPERATIONS DATA:
Fee revenue, net......................... $ 28,262 $ 35,088 $ 46,437 $ 61,803 $ 86,811 $ 23,494 $ 18,964
Operating Expenses:
Compensation and benefits.............. 23,991 30,693 39,928 46,513 66,897 17,317 16,520
General and administrative expenses.... 2,333 4,467 6,685 8,663 21,628 3,718 12,978
Goodwill amortization.................. -- -- -- 17 776 206 194
Restructuring charges.................. -- -- -- -- 3,543 -- 2,789
Total operating expenses................. 26,324 35,160 46,613 55,193 92,844 21,241 32,481
Operating income (loss).................. 1,938 (72) (176) 6,610 (6,033) 2,253 (13,517)
Other income (expense)................... (6) (40) (376) 197 248 (118) 259
Income (loss) before income taxes........ 1,932 (112) (552) 6,807 (5,785) 2,135 (13,258)
Income tax expense (benefit)............. 671 90 15 2,927 (1,547) 938 (5,436)
Net income (loss)........................ 1,261 (202) (567) 3,880 (4,238) 1,197 (7,822)
Diluted net income (loss) per common and
common equivalent share................ $ (0.18) $ 0.82 $ (0.58) $ .20 $ (.97)
Diluted weighted average common and
common equivalent shares outstanding... 3,199 4,751 7,346 6,005 8,046
OTHER DATA:
Number of consultants employed as of the
end of the period...................... 46 54 62 111 119 115 116
Average fee revenue per consultant
employed during the entire fiscal
period................................. $ 689,000 $ 706,000 $ 740,000 $ 989,000 $ 782,000 $ 221,000 $ 169,000
Average cash compensation of positions
filled(1).............................. $ 180,000 $ 196,000 $ 226,000 $ 226,000 $ 210,000 $ 201,000 $ 228,000
</TABLE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28 OR 29,
----------------------------------------------------- AS OF MAY 31,
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)...................... $ 1,439 $ (485) $ 617 $ 10,301 $ 41,133 $ 30,232
Total assets................................... 12,193 18,300 25,561 88,916 103,823 93,675
Total long-term debt........................... 143 63 2,037 9,125 5,907 4,296
Total stockholders' equity..................... 2,325 2,510 2,627 35,471 73,560 65,713
</TABLE>
- ------------------------------
(1) Represents the average first year cash compensation of positions for which
LAI conducted searches during the fiscal year.
10
<PAGE>
TMP AND LAI UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED SELECTED FINANCIAL INFORMATION
The following tables present summary unaudited pro forma combined financial
information after giving effect to the merger under the pooling of interests
method of accounting. The tables have been derived from, or prepared on a basis
consistent with, the unaudited pro forma combined information included in this
proxy statement/prospectus. The selected pro forma combined financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the unaudited pro forma condensed combined financial statements
and the notes thereto. See "Unaudited Pro Forma Condensed Combined Financial
Information." The following data are presented for illustrative purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred or that will occur after consummation of the
merger.
The Pro Forma Condensed Combined Balance Sheet gives effect to the merger as
if it had occurred on March 31, 1999, combining the balance sheet of TMP as of
March 31, 1999 with those of LAI as of February 28, 1999. The Pro Forma
Condensed Combined Statements of Operations give effect to the merger as if it
had occurred at the beginning of the earliest period presented, combining the
results of TMP for the three months ended March 31, 1999 and each year in the
three-year period ended December 31, 1998 with those of LAI for the three months
ended February 28, 1999 and each year in the three-year period ended February
28, 1999, respectively. Consequently, the results of LAI for the three months
ended February 28, 1999 are included in the Pro Forma Condensed Combined
Statement of Operations for both the year ended December 31, 1998 and the three
months ended March 31, 1999. Revenue was approximately $15.8 million and net
loss was approximately $6.6 million for LAI for the three months ended February
28, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA,
EMPLOYEES AND OFFICES)
STATEMENT OF OPERATIONS DATA:
Revenue:
Commissions and fees.................................. $ 345,852 $ 465,211 $ 575,151 $ 144,064
Temporary contracting................................. 132,110 186,458 211,089 60,648
Total revenue........................................... 477,962 651,669 786,240 204,712
Operating expenses:
Salaries and related costs............................ 217,768 293,114 361,780 95,550
Temporary contracting costs........................... 110,408 155,133 175,133 50,609
Office and general.................................... 106,927 140,227 176,987 48,941
Amortization of intangibles........................... 4,732 6,859 10,177 2,828
Special compensation and CEO bonus(1)................. 52,019 1,500 1,250 --
Merger costs.......................................... -- -- 22,412 4,687
Restructuring charges................................. -- -- 3,543 3,543
Total operating expenses................................ 491,854 596,833 751,282 206,158
Operating income (loss)................................. (12,892) 54,836 34,958 (1,446)
Other income (expense):
Interest expense, net(2).............................. (14,502) (8,694) (9,989) (2,559)
Other income (expense), net........................... (419) 632 (2,100) (324)
Income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings of
affiliates............................................ (28,873) 46,774 22,869 (4,329)
Provision (benefit) for income taxes.................... 9,748 18,697 12,274 (1,800)
Net income (loss) applicable to common and Class B
common stockholders................................... (39,734) 27,625 10,171 (2,728)
Net income (loss) per common and Class B common share:
Basic................................................. $ (1.37) $ 0.80 $ 0.28 $ (0.07)
Diluted............................................... $ (1.37) $ 0.79 $ 0.27 $ (0.07)
Weighted average shares outstanding:(3)
Basic................................................. 29,101 34,450 36,853 37,454
Diluted............................................... 29,101 35,114 37,779 37,454
</TABLE>
11
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------- MARCH 31,
1996 1997 1998 1999
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA,
EMPLOYEES AND OFFICES)
OTHER DATA:
Total operating expenses as a percentage of total revenue......... 102.9% 91.6% 95.6% 100.7%
Number of employees............................................... 3,663 5,351 5,887 5,921
Number of offices................................................. 142 191 231 241
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets.................................................. $ 472,425
Current liabilities............................................. 421,968
Total assets.................................................... 812,409
Long-term liabilities........................................... 152,015
Minority interests.............................................. 601
Total stockholders' equity...................................... 237,825
</TABLE>
- --------------------------
(1) Special compensation consists of a non-cash, non-recurring charge of
approximately $52.0 million for special management compensation in 1996
resulting from the issuance of approximately 3.6 million shares of Common
Stock of TMP to stockholders of predecessor companies of TMP 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 of TMP and, accordingly, were not
considered to have made substantive investments for their minority shares.
The CEO bonus for the years ended December 31, 1998 consists of a mandatory
bonus of $375,000 per quarter payable to Andrew J. McKelvey, TMP's CEO and
Principal Stockholder, as provided for in his then existing employment
agreement. Receipt of these bonus amounts was permanently waived by the
Principal Stockholder, and accordingly, since they were not paid, are also
accounted for as a contribution to Additional Paid-In Capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The year ended December 31, 1997 compared to the year ended
December 31, 1996" and "--The year ended December 31, 1996 compared to the
year ended December 31, 1995" and Note 14(B) to TMP's Supplemental
Consolidated Financial Statements included in TMP's Current Report on Form
8-K, dated June 10, 1999, incorporated herein by reference.
(2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring
charge to reflect the exercise of a warrant issued in connection with TMP's
financing agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The year ended December 31, 1997
compared to the year ended December 31, 1996" and Note 8 to TMP's
Supplemental Consolidated Financial Statements included in TMP's Current
Report on Form 8-K, dated June 10, 1999, incorporated herein by reference.
(3) Gives effect to the additional shares and options expected to be issued in
connection with the merger based on the Exchange Ratio of 0.1321.
COMPARATIVE PER SHARE DATA
The Pro Forma Condensed Combined Balance Sheets give effect to the merger as
if it had occurred on March 31, 1999, combining the balance sheets of TMP at
December 31, 1998 and March 31, 1999 with that of LAI as of February 28, 1999.
The Pro Forma Condensed Combined Statements of Operations give effect to the
merger as if it had occurred at the beginning of the earliest period presented,
combining the results of TMP for the three months ended March 31, 1999 and each
year in the three-year period ended December 31, 1998 with those of LAI for the
three months ended February 28, 1999 and each year in the three-year period
ended February 28, 1999, respectively. Consequently, the results of LAI for the
three months ended February 28, 1999 are included in the Pro Forma Condensed
Combined Statement of Operations for both the year ended December 31, 1998 and
the three months ended March 31, 1999. Revenue was approximately $15.8 million
and net loss was approximately $6.6 million for LAI for the three months ended
February 28, 1999.
The table summarizes the following information:
- unaudited historical per share data of TMP and LAI;
- unaudited pro forma combined per share data for each share of TMP Common
Stock held immediately after the merger, giving effect to the merger under
the pooling of interests method of
12
<PAGE>
accounting as if the merger had been consummated as of the beginning of
the periods presented; and
- unaudited equivalent pro forma combined per share data for each share of
LAI Common Stock held immediately prior to the merger. This information
has been calculated by multiplying the pro forma combined per share data
of TMP Common Stock by the Exchange Ratio of 0.1321.
You should read this table with the selected financial information and the
pro forma financial statements included in this proxy statement/prospectus. You
should also read the historical financial statements of TMP and LAI, which are
included in this proxy statement/prospectus, in the case of LAI, or which we
have incorporated by reference into this proxy statement/prospectus in the case
of TMP. This pro forma data is not necessarily indicative of what our results of
operations or financial position would have been if the merger had actually been
consummated as of the beginning of the periods presented. It is also not
necessarily indicative of the future operating results or financial position of
the combined company. Neither LAI nor TMP has paid cash dividends on its common
stock.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31, AS OF AND FOR
------------------------------- THE THREE MONTHS
1996 1997 1998 ENDED MARCH 31, 1999
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Net income per share--basic
Historical--TMP................................................ $ (1.37) $ .70 $ .40 $ .11
Pro Forma Combined............................................. (1.37) .80 .28 (.07)
Historical--LAI................................................ (.18) .85 (.58) (.82)
Equivalent Pro Forma Combined per LAI Share(1)................. (.18) .11 .04 (.01)
Net income per share--diluted
Historical--TMP................................................ (1.37) .69 .39 .10
Pro Forma Combined............................................. (1.37) .79 .27 (.07)
Historical--LAI................................................ (.18) .82 (.58) (.82)
Equivalent Pro Forma Combined per LAI Share(1)................. (.18) .10 .04 (.01)
Book value per common share
Historical--TMP(2)............................................. 3.99 4.53
Pro Forma Combined(2).......................................... 5.75 6.30
Historical--LAI(2)............................................. 9.10 9.10
Equivalent Pro Forma Combined per LAI Share(1)................. 0.77 0.83
Tangible book value per common share
Historical--TMP(2)............................................. (1.57) (1.40)
Pro Forma Combined(2).......................................... (.15) (.06)
Historical--LAI(1)............................................. 6.32 6.32
Equivalent Pro Forma Combined per LAI Share(1)................. (.02) (.01)
</TABLE>
- --------------------------
(1) The equivalent LAI pro forma combined per share amounts are calculated by
multiplying the pro forma combined per share amounts by an assumed Exchange
Ratio of 0.1321.
(2) The historical and tangible book value per common share is computed by
dividing total stockholders' equity (excluding intangibles for tangible book
value amounts) by the number of shares of common stock outstanding at the
end of the period. The pro forma combined book value per share is computed
by dividing pro forma stockholders' equity (excluding intangibles for
tangible book value amounts) by the pro forma number of shares of Common
Stock outstanding at the end of the respective periods.
TMP has never paid any cash dividends on its Common Stock and currently
intends to retain future earnings, if any, to fund the development and growth of
its businesses. Accordingly, subsequent to the completion of the merger, TMP
does not anticipate paying cash dividends on the Common Stock in the foreseeable
future.
LAI has not paid dividends since the beginning of fiscal 1997 and does not
intend to pay any cash dividends for the foreseeable future but instead intends
to retain earnings, if any, for the future operation and expansion of LAI's
business. Any determination to pay dividends in the future will be at the
discretion of LAI's board of directors and will be dependent upon LAI's results
of operations, financial condition, contractual restrictions, restrictions
imposed by applicable law and other factors deemed relevant by the board of
directors. Moreover, LAI's credit facilities prohibit payment of dividends
without the consent of the lender.
13
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN TMP COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROXY STATEMENT/PROSPECTUS BEFORE YOU DECIDE TO VOTE YES ON THE MERGER PROPOSAL.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
UNLESS THE CONTEXT INDICATES OTHERWISE, "WE," "US," AND "OUR," WHEN USED IN THIS
PROXY STATEMENT/PROSPECTUS, REFER TO TMP.
RISK RELATING TO THE MERGER
WE MAY FAIL TO REALIZE BENEFITS FROM OUR ACQUISITIONS. We believe that an
important benefit from the merger will be the integration of the management,
strategy, and operations of TMP and LAI. Some of the anticipated benefits of the
merger may not be achieved unless the integration is successful and achieved in
a timely manner. We cannot assure you that we will successfully integrate the
operations of LAI with ours without encountering difficulties or losing key LAI
personnel. In addition, we cannot assure you that the benefits that we expect
from this integration will be realized.
We recently acquired Morgan & Banks Limited, an executive search and
selection firm located in Australia, and this acquisition could make the
integration of LAI more time consuming and difficult. The transition process may
divert the attention of our management. Difficulties in the transition process,
including the interruption of, or a loss of momentum in, LAI activities,
problems associated with integration of management, information and reporting
systems, and delays in implementation of consolidation plans, could also have an
adverse impact on our ability to realize anticipated benefits of the merger.
OUR COSTS RELATED TO THE MERGER MAY BE SIGNIFICANT. We expect to incur
merger-related expenses of approximately $3.0 million in the quarter ending
September 30, 1999, the quarter in which the merger is expected to close. In
addition, compensation expense of approximately $1.7 million will be recognized
upon consummation of the merger relating to the acceleration of the vesting of
stock, granted by LAI, associated with the unamortized stock-based
compensation.These expenses include costs for legal and accounting fees, costs
of financial printing, listing fees and other related costs. This estimate does
not include any costs associated with restructuring, integrating or
consolidating the operations of the two companies. This amount is only an
estimate and may change. In addition, we may incur unanticipated expenses in
integrating LAI's business with ours. We expect that the savings from the
elimination of duplicative expenses and the realization of other efficiencies
related to the integration of the business of LAI may offset any additional
expenses in the future. However, we cannot assure you that a net benefit will be
achieved in the near future, or at all. We also cannot assure you that combining
our business with the business of LAI, even if achieved in an efficient and
effective manner, will result in combined results of operations and financial
condition better than what would have been achieved by us or LAI independently.
The issuance of TMP Common Stock in the merger may reduce our net income per
share from expected levels. This could reduce the market price of the TMP Common
Stock unless we can achieve revenue growth, cost savings or other business
synergies that will offset the effect of the issuance.
WE MAY LOSE LAI CLIENTS AND PERSONNEL. The executive search industry is
relationship-driven. Consequently, due to the merger, it is possible that
certain clients of LAI may terminate their relationship with LAI. In addition,
although we do not anticipate any material personnel changes at LAI, to the
extent LAI loses material personnel, which in turn causes LAI to lose material
clients, we could be materially adversely affected.
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WE MAY NOT BE ABLE TO TREAT THE MERGER AS A "POOLING OF INTERESTS" FOR
ACCOUNTING PURPOSES. We intend for the merger to qualify as a "pooling of
interests" for accounting and financial reporting purposes. Under this method of
accounting, the assets and liabilities of TMP and LAI will be carried forward to
the combined company at the amounts recorded on each company's balance sheet.
Income from the combined company will include income from TMP and LAI for the
entire fiscal period in which the combination occurs. Reported income of the
separate companies for prior periods will be combined and restated as the
results of operations of the combined company. It is a condition to the
consummation of the merger that the merger will qualify for pooling of interests
accounting treatment.
Under the pooling of interests rules, none of the executive officers,
directors or affiliates of either TMP or LAI may sell any shares of either TMP
or LAI until the combined company releases financial results covering at least
30 days of combined operations of TMP and LAI. Therefore, pooling of interests
accounting treatment for the merger may not be available if these stockholders
sell any shares before the combined company releases its financial results. We
cannot assure you that an executive officer, director or affiliate of either
company will not sell shares of TMP or LAI or that we will meet all of the
requirements to qualify for pooling of interests treatment. If the requirements
are not met before the closing of the merger, then TMP is not required to
consummate the merger. However, if TMP elects to consummate the merger despite
the fact that the conditions have not been met, the merger would be accounted
for under the purchase method of accounting. This would mean that LAI's assets
would be recognized at their fair value and that any excess of the purchase
price over such fair value, other than amounts charged to in-process research
and development costs, if any, would be recognized as goodwill on TMP's balance
sheet. The goodwill would be amortized as an expense over its anticipated useful
life.
The impact of purchase accounting treatment could materially adversely
affect the combined company's results of operations throughout the amortization
period. We would also have to account for the merger using the purchase method
of accounting if, among other things, any affiliate of either company sells
shares in TMP after the closing of the merger and before we release financial
results covering at least 30 days of combined operations. Each of the current
executive officers, directors and other affiliates of TMP and each of the
current executive officers, directors and other affiliates of LAI has entered
into an affiliate agreement agreeing to comply with the above described
restrictions on selling shares of TMP and LAI.
WE MAY HAVE TO ISSUE MORE SHARES THAN PLANNED. The Exchange Ratio of LAI
Common Stock for TMP Common Stock is fixed at 0.1321, provided that the 20 day
average of the closing prices of TMP Common Stock measured two days prior to the
closing of the merger is between $42.00 and $64.00. At this Exchange Ratio, TMP
would issue approximately 1,100,000 shares of TMP Common Stock for the LAI
Common Stock. If such average price of TMP Common Stock falls below $42.00, and
TMP elects to complete the merger, TMP will issue more of its shares. If we
issue more shares of TMP Common Stock, our net income per share would be
adversely affected.
RISKS RELATING TO TMP, LAI AND THE COMBINED COMPANY
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH. Our business has grown rapidly in
recent periods. As an example, we completed the acquisition of four executive
search companies since April 1998. We believe that the acquisition of LAI will
make us one of the largest executive search firms in the world. This growth of
our business has placed a significant strain on our management and operations.
Our expansion has resulted, and is expected in the future to result, in
substantial growth in the number of our employees. In addition, this growth is
expected to result in increased responsibility for both existing and new
management personnel and incremental strain on our existing operations,
financial and management information systems. Our success depends to a
significant extent on the ability of our executive officers and other members of
senior management to operate effectively both independently and as a group. If
we are not able to manage existing or anticipated growth, our business,
financial condition and operating results would be materially adversely
affected.
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WE FACE RISKS ASSOCIATED WITH OUR EXPANSION STRATEGY. We expect that we
will continue to grow, in part, by acquiring businesses. The success of this
strategy depends upon several factors, including:
- the continued availability of financing;
- our ability to identify and acquire businesses on a cost-effective basis;
- our ability to integrate acquired personnel, operations, products and
technologies into our organization effectively; and
- our ability to retain and motivate key personnel and to retain the clients
of acquired firms.
We cannot assure you that financing for acquisitions will be available on
terms we find acceptable, or that we will be able to identify or consummate new
acquisitions, or manage and integrate our recent or future expansions
successfully. Any inability to do so would materially adversely affect our
business, financial condition and operating results. We also cannot assure you
that we will be able to sustain the rates of growth that we have experienced in
the past.
WE DEPEND ON TRADITIONAL MEDIA. A substantial portion of our total revenue
comes from designing and placing recruitment advertisements in traditional media
such as newspapers and trade publications. This business constituted
approximately 23.9% of our total revenue for the year ended December 31, 1998.
This percentage would be 21.3% after giving pro forma effect to the merger with
LAI. We also receive a substantial portion of our revenue from placing
advertising in yellow page directories. This business constituted approximately
14.8% of total revenue for the year ended December 31, 1998. This percentage
would be 13.2% after giving pro forma effect to the acquisition of LAI. We
cannot assure you that the total revenue we receive in the future will be equal
to the total revenue which we have received in the past.
In addition, new media, like the Internet, may cause yellow page directories
and other forms of traditional media to be less desirable forms of advertising
media. If we are not able to generate fees from advertising on the Internet to
offset any decrease in commissions from traditional media, our business,
financial condition and operating results will be materially adversely affected.
THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN. Use
of the Internet by consumers is at an early stage of development, and market
acceptance of the Internet as a medium for information, entertainment, commerce
and advertising remains subject to a high level of uncertainty. Most of our
clients have only limited experience with the Internet as an advertising medium.
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
our 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. 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 our advertisers and advertising agencies, our business,
financial condition and operating results, including our expected rate of
commissions and fees growth, would be materially adversely affected. Although we
generated Internet revenue of $50.2 million for the year ended December 31,
1998, we cannot assure you that we will continue to generate substantial
Internet-based revenue in the future.
INTERNET USERS MAY NOT ACCEPT OUR INTERNET CONTENT. Our future growth
depends in part on our ability to attract Internet users who are valuable to our
advertising clients. This in turn depends on our ability to deliver original and
compelling services to these Internet users. We cannot assure you that our
content will be attractive to enough Internet users to generate material
advertising revenues. We also cannot assure you that we will be able to
anticipate, monitor and successfully respond to rapidly changing consumer tastes
and preferences to continue to attract a sufficient number of Internet users to
our Web sites.
Internet users can freely navigate and instantly switch among a large number
of Web sites, many of which offer original content. It is difficult for us to
distinguish our content and attract users. In addition,
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many other Web sites offer very specific, highly targeted content. This could
have greater appeal than our sites to particular groups within our target
audience.
OUR MARKETS ARE HIGHLY COMPETITIVE. The markets for our services are highly
competitive. They are characterized by pressures to:
- reduce prices;
- incorporate new capabilities and technologies; and
- accelerate job completion schedules.
We face competition from a number of sources. These sources include:
- national and regional advertising agencies;
- specialized and integrated marketing communication firms;
- traditional media companies;
- executive search firms; and
- search and selection firms.
In addition, many advertising agencies and publications have started either
to internally develop or acquire new media, including Internet, capabilities. We
are also competing with established companies that provide integrated
specialized services like Web advertising services or Web site design and are
technologically proficient. Many of our competitors or potential competitors
have long operating histories, and some may have greater financial, management,
technological development, sales, marketing and other resources than we do. In
addition, our ability to maintain our existing clients and attract new clients
depends to a large degree on the quality of our services and our reputation
among our clients and potential clients.
We have no significant proprietary technology that would preclude or inhibit
competitors from entering the yellow page advertising, recruitment advertising,
executive search or on-line advertising markets. We cannot assure you that
existing or future competitors will not develop or offer services and products
that provide significant performance, price, creative or other advantages over
our services. This could have a material adverse effect on our business,
financial condition and operating results.
OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER. Our quarterly
operating results have fluctuated in the past and may fluctuate in the future.
These fluctuations are 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 additional commissions, if earned, from yellow page
publishers for achieving a specified volume of advertising, which
commissions are typically reported in the fourth quarter.
Our quarterly commissions and fees earned from recruitment advertising are
typically highest in the first quarter and lowest in the fourth quarter.
Recruitment advertising commissions and fees tend to be more cyclical than
yellow page commissions and fees. To the extent that a significant percentage of
our commissions and fees are derived from recruitment advertising, our operating
results may be subject to increased cyclicality.
WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY. 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 we continually improve the performance, features and reliability of our
Internet content, particularly
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in response to competitive offerings. We cannot assure you that we 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 us to make substantial expenditures to modify or
adapt our Web sites and services. This could affect our financial condition or
operating results. New Internet services or enhancements which we have offered
or may offer in the future may contain design flaws or other defects that could
require expensive modifications or result in a loss of client confidence. Any
disruption in Internet access or in the Internet generally could affect our
financial condition or operating results.
WE DEPEND ON OUR CONSULTANTS. The success of our executive search business,
including that of LAI, giving effect to the merger, depends upon our ability to
attract and retain consultants who possess the skills and experience necessary
to fulfill our clients' executive search needs. Competition for qualified
consultants is intense. TMP and LAI believe they have been able to attract and
retain highly qualified, effective consultants as a result of their respective
reputations and their performance-based compensation systems. Consultants have
the potential to earn substantial bonuses based on the amount of revenue
generated by:
- obtaining executive search assignments;
- executing search assignments; and
- assisting other consultants to obtain or complete executive search
assignments.
Bonuses represent a significant proportion of consultants' total
compensation. Any diminution of TMP's or LAI's reputation could impair their
ability to retain existing or attract additional qualified consultants. Our
inability to attract and retain qualified consultants could have a material
adverse effect on our executive search business, results of operations and
financial condition.
OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH CLIENTS. The
success of TMP's and LAI's executive search business depends upon the ability of
our consultants to develop and maintain strong, long-term relationships with
clients. Usually, one or two consultants have primary responsibility for a
client relationship. When a consultant leaves one executive search firm and
joins another, clients that have established relationships with the departing
consultant may move their business to the consultant's new employer. The loss of
one or more clients is more likely to occur if the departing consultant enjoys
widespread name recognition or has developed a reputation as a specialist in
executing searches in a specific industry or management function. Historically,
neither TMP nor LAI has experienced significant problems in this area. However,
a failure to retain our most effective consultants or maintain the quality of
service to which our clients are accustomed could have a material adverse effect
on our business. Also, the ability of a departing consultant to move business to
his or her new employer could have a material adverse effect on our executive
search business, results of operations and financial condition.
WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND NAME. TMP's
and LAI's ability to secure new executive search engagements and hire qualified
professionals is highly dependent upon their overall reputation and brand name
recognition as well as the individual reputations of our professionals. We
obtain a majority of our new engagements from existing clients or from referrals
by existing clients. Therefore, the dissatisfaction of any client could have a
disproportionate, adverse impact on our ability to secure new engagements. Any
factor that diminishes the reputation of TMP or LAI or any of its personnel
could make it more difficult for us to compete successfully for both new
engagements and qualified consultants. This could have an adverse effect on
TMP's and LAI's executive search business, results of operations and financial
condition.
WE FACE RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS. Either by agreement
with clients or for marketing or client relationship purposes, executive search
firms frequently refrain, for a specified period of time, from recruiting
certain employees of a client, and possibly other entities affiliated with such
client, when conducting executive searches on behalf of other clients. This is
known as a "blocking" arrangement.
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Blocking arrangements generally remain in effect for one or two years following
completion of an assignment. The actual duration and scope of any blocking
arrangement, including whether it covers all operations of a client and its
affiliates or only certain divisions of a client, generally depends on such
factors as:
- the length of the client relationship;
- the frequency with which the executive search firm has been engaged to
perform executive searches for the client; and
- the number of assignments the executive search firm has generated or
expects to generate from the client.
Some of TMP's and LAI's executive search clients are recognized as industry
leaders and/or employ a significant number of qualified executives who are
potential candidates for other companies in that client's industry. Blocking
arrangements with a client of this nature, or the awareness by a client's
competitors of such an arrangement, may make it difficult for TMP or LAI to
obtain executive search assignments from, or to fulfill executive search
assignments for, competitors while employees of that client may not be
solicited. As our client base grows, particularly in our targeted business
sectors, blocking arrangements increasingly may impede our growth or ability to
attract and serve new clients. This could have an adverse effect on our
executive search business, results of operations and financial condition.
WE DEPEND ON OUR KEY PERSONNEL. Our continued success will depend to a
significant extent on our senior management, including Andrew J. McKelvey, our
Chairman of the Board and CEO. The loss of the services of Mr. McKelvey or of
one or more key employees could have a material adverse effect on our 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 on our
business, financial condition or operating results. If we were to lose a key
employee, we cannot assure you that we would be able to prevent the unauthorized
disclosure or use of our procedures, practices, new product development or
client lists.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER. As of June 1, 1999, Andrew J.
McKelvey beneficially owned all of the outstanding TMP Class B Common Stock and
10,945,000 shares of TMP Common Stock, which together represent approximately
59.5% of the combined voting power of all classes of our voting stock. These
shares represent 58.4% of our combined voting power assuming an exchange ratio
of 0.1321 and giving effect to the merger. Mr. McKelvey can direct the election
of all of the members of our board. He can also exercise a controlling influence
over our business and affairs. This includes any determinations with respect to
mergers or other business combinations, the acquisition or disposition of our
assets, whether or not we incur indebtedness, the issuance of any additional TMP
Common Stock or other equity securities and the payment of dividends with
respect to TMP Common Stock. Similarly, Mr. McKelvey may determine matters
submitted to a vote of TMP's stockholders without the consent of TMP's other
stockholders and he has the power to prevent a change of control.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF
TMP. Some of the provisions of our certificate of incorporation, bylaws and
Delaware law could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
In particular, our board of directors may issue up to 800,000 shares of
preferred stock with rights and privileges that might be senior to our common
stock, without the consent of the holders of the common stock. Our certificate
of incorporation and bylaws provide, among other things, for advance notice of
stockholder proposals and director nominations.
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WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS. We conduct operations in
various foreign countries, including Australia, Belgium, Canada, France,
Germany, Japan, the Netherlands, New Zealand, Singapore, Spain and the United
Kingdom. In 1998, approximately 62.5% of our total revenue was earned outside of
the United States. Such revenue is collected in the local currency. In addition,
we generally pay operating expenses with the corresponding local currency.
Therefore, we are at risk for exchange rate fluctuations between such local
currencies and the dollar. We do not conduct any significant hedging activities.
We are also subject to taxation in foreign jurisdictions. In addition,
transactions between us and our foreign subsidiaries may be subject to United
States and foreign withholding taxes. Applicable tax rates in foreign
jurisdictions differ from those of the United States, and change periodically.
The extent, if any, to which we will receive credit in the United States for
taxes we pay in foreign jurisdictions will depend upon the application of
limitations set forth in the Internal Revenue Code of 1986, as amended (the
"Code"), as well as the provisions of any tax treaties which may exist between
the United States and such foreign jurisdictions.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE. The market for TMP Common Stock
has, from time to time, experienced extreme price and volume fluctuations.
Factors such as announcements by TMP of variations in our quarterly financial
results and fluctuations in advertising commissions and fees, including the
percentage of our commissions and fees derived from Internet-based services and
products could cause the market price of TMP's Common Stock to fluctuate
significantly. Further, due to the volatility of the stock market generally, the
price of TMP's Common Stock could fluctuate for reasons unrelated to our
operating performance.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION. As an advertising
agency which creates and places print and Internet advertisements, we are
subject to Sections 5 and 12 of the U.S. Federal Trade Commission Act. These
sections 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 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 like 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 that we have created is found to be false,
deceptive or misleading, the FTC Act could potentially subject us 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 us.
In addition, we cannot assure you that other current or new government laws
and regulations, or the application of existing laws and regulations will not:
- subject us to significant liabilities;
- significantly dampen growth in Internet usage;
- prevent us from offering certain Internet content or services; or
- otherwise have a material adverse effect on our business, financial
condition or operating results.
WE HAVE NEVER PAID DIVIDENDS. We currently intend to retain earnings, if
any, to support our growth strategy. We do not anticipate paying dividends on
TMP's Common Stock and TMP's Class B Common Stock in the foreseeable future. In
addition, payment of dividends on TMP's Common Stock and TMP's Class B Common
Stock is restricted by our financing agreement.
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THE ANNUAL STOCKHOLDERS' MEETING
WHEN AND WHERE THE ANNUAL STOCKHOLDERS' MEETING WILL BE HELD
This proxy statement/prospectus solicits, on behalf of the LAI board,
proxies to be voted at the LAI annual stockholders' meeting to be held as
follows:
Thursday, August 26, 1999
9:00 a.m.
The Tampa Club
101 East Kennedy Boulevard
4100 Barnett Plaza
Tampa, Florida
Proxies solicited will also be voted at any adjournment of the stockholders'
meeting. We first mailed this proxy statement/prospectus, the cover letter to
LAI stockholders, the notice of annual meeting and the form of proxy to LAI
stockholders on or about July 28, 1999.
MATTERS TO BE CONSIDERED AT THE LAI ANNUAL STOCKHOLDERS' MEETING
At the annual stockholders' meeting, LAI stockholders will consider and vote
on:
- approval and adoption of the merger agreement;
- the election of two directors;
- the ratification of the appointment of Arthur Andersen LLP as LAI's
independent certified public accountants for the fiscal year ending
February 29, 2000; and
- any other matters that may properly be brought before the LAI
stockholders' meeting or at any adjournment or postponement of the
stockholders' meeting.
RECOMMENDATION OF THE LAI BOARD
LAI's board of directors has unanimously approved the merger agreement and
recommends a vote "FOR" approval and adoption of the merger agreement. See "The
Merger--Reasons for the Merger."
LAI's board of directors also recommends that LAI stockholders vote "FOR"
the election of the two nominees for director and "FOR" the ratification of the
appointment of Arthur Andersen LLP as LAI's independent certified public
accountants for fiscal 2000.
STOCKHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
The merger cannot be completed without LAI stockholder approval.
The LAI board has set July 27, 1999 as the record date to determine which
LAI stockholders will be entitled to vote at the stockholders' meeting. Only LAI
stockholders of record on the record date will be entitled to receive notice of
and to vote at the stockholders' meeting. On the record date, there were
8,120,427 shares of LAI Common Stock outstanding and entitled to vote at the
stockholders' meeting. These shares were held by approximately 158 stockholders.
Each share of LAI Common Stock will have one vote for each matter properly
submitted at the stockholders' meeting. The affirmative vote, either in person
or by proxy, of a majority of the shares of LAI Common Stock outstanding is
required in order to approve the merger agreement. These shares may be
represented either in person or by proxy. If you abstain from voting or if you
do not vote by telephone or submit a proxy card and do not vote in person at the
stockholders' meeting, your non-action will have the effect of a vote against
the merger. Also, any broker non-vote will have the effect of a vote against the
merger.
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As of the close of business on the record date, the directors and executive
officers of LAI as a group beneficially owned 678,518 shares of LAI Common
Stock, or approximately 8.5% of the issued and outstanding shares of LAI Common
Stock. These figures are calculated without counting shares which could be
acquired be exercising stock options because the shares underlying those options
cannot be voted at the stockholders' meeting. Certain directors and executive
officers of LAI, representing a total of 8.5% of the outstanding shares of LAI
Common Stock presently intend to vote all the shares they beneficially own "FOR"
the approval and adoption of the merger agreement.
VOTING PROCEDURES
GENERAL
Your vote is important. Because many stockholders cannot personally attend
the stockholders' meeting, it is necessary that a large number be represented by
proxy. If a stockholder of record does not submit a proxy or vote in person at
the stockholders' meeting, his or her shares will not be voted and the
stockholder will not be counted as present for determining the existence of a
quorum. Abstentions and broker non-votes will be included in determining the
number of shares present at the stockholders' meeting, but will not be counted
in the tabulation of votes on any matter.
We encourage you to vote and to vote promptly. Voting promptly may save LAI
the expense of a second mailing.
STOCKHOLDERS OF RECORD
If you are a stockholder of record, meaning that your shares and your stock
certificate(s) are registered in your name with LAI and its transfer agent, you
may vote (1) by attending the stockholders' meeting, (2) by telephone in
accordance with the instructions set forth on the enclosed proxy card or (3) by
marking, signing, dating and mailing the enclosed proxy card in the postage-paid
envelope provided. You may change or revoke your proxy at any time before it is
actually voted at the stockholders' meeting by (1) delivering a written notice
of revocation to the Secretary of LAI, (2) submitting a later-dated proxy, (3)
phoning in a later set of telephone instructions or (4) attending the
stockholders' meeting and withdrawing the proxy. You may also be represented by
another person present at the meeting by executing a proxy designating such
person to act on your behalf. If you sign, date and mail your proxy card without
indicating how you want to vote, your vote will be counted as a vote in favor of
the LAI board's nominees and in favor of the proposals to be presented at the
stockholders' meeting.
STOCKHOLDERS IN STREET NAME
Different procedures may apply to shares held in the name of a broker or
other intermediary, also referred to as being held in "street name", rather than
in the stockholder's own name. A stockholder whose shares are held in street
name through an intermediary is referred to as the "beneficial owner" of the
shares, while the intermediary or stockholder of record is referred to as the
"record owner" of the shares. Shares held in street name are voted by the record
owner rather than the beneficial owner. However, the record owner usually is
required to provide a means for the beneficial owner to direct how the record
owner is to vote the shares. This may include providing a proxy card or
instructions that may differ from the materials provided by LAI to its
stockholders of record.
If your shares are held in street name, you should follow whatever
instructions are provided by the record owner of your shares. The broker or
other intermediary serving as record owner of your shares, in its discretion,
may choose to provide a means for you to direct the voting of your shares by
telephone or over the Internet. If so, appropriate instructions may be set forth
on the enclosed proxy card, or the broker or other intermediary may choose to
provide separate instructions.
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If your shares are held in street name, your broker or other intermediary
may be permitted to vote your shares in its discretion, particularly if you do
not vote or give specific voting instructions prior to the stockholders'
meeting. If you wish to vote such shares by attending the stockholders' meeting
in person, you will need to obtain a proxy from the broker or other intermediary
who is the stockholder of record having the legal authority to vote your shares.
Please note that, once a beneficial or street name owner has submitted voting
instructions, such instructions may be changed or revoked only in accordance
with the procedures of the broker or other record owner of such shares, and then
only in accordance with the procedures applicable to stockholders of record as
described above. If your shares are held in street name, then to change or
revoke your voting instructions you must contact the broker or other
intermediary who is the stockholder of record having the legal authority to vote
your shares.
LAI's board of directors is not aware of any matters that will come before
the stockholders' meeting other than the vote on the merger, the election of two
directors and the ratification of the appointment of Arthur Andersen LLP as
LAI's independent certified public accountants for fiscal 2000. If any other
matters come before the stockholders' meeting, the persons named on the enclosed
proxy card will have the discretion to vote on those matters using their best
judgment, unless you specifically withhold that authorization when you complete
your proxy card.
Votes cast by proxy or in person at the stockholders' meeting will be
counted by the election inspector appointed for the stockholders' meeting. The
election inspector will determine if a quorum is present. Where proxies are
marked as abstentions, where stockholders appear in person but abstain from
voting or where a broker indicates on a proxy that it does not have
discretionary authority regarding certain shares, those abstentions and "broker
non-votes" will be treated as shares that are present and entitled to vote for
purposes of determining if a quorum is present at the stockholders' meeting.
LAI STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SOLICITATION OF PROXIES
In addition to using the mails, the directors, officers and employees of LAI
may solicit proxies for the stockholders' meeting from stockholders in person or
by telephone. These directors, officers and employees will not be specifically
compensated for their services. LAI will also make arrangements with brokerage
firms and other custodians, nominees and fiduciaries to send proxy materials to
their principals and will reimburse these parties for their expenses in doing
so. LAI will pay all costs of soliciting proxies for the stockholders' meeting.
In addition, LAI has retained ChaseMellon Consulting Services for assistance
with the solicitation of proxies. For its services, ChaseMellon Consulting
Services will receive a fee estimated at $7,500 plus reimbursement for
reasonable and customary out-of-pocket expenses.
QUORUM
The presence, in person or by proxy, of a majority of the issued and
outstanding LAI Common Stock entitled to vote at the stockholders' meeting is
necessary to constitute a quorum.
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THE MERGER
BACKGROUND OF THE MERGER
On August 19, 1998, LAI announced anticipated results of operations for its
second quarter ending August 31, 1998 which were significantly below research
analysts' published estimates. During the summer of 1998, LAI's stock price
declined from $18.50 in early July 1998 to $8.313 after the August 19th
announcement. During this period, there was also growing uncertainty regarding
LAI's recently opened London office, its first effort at establishing a
company-owned international office. At the same time, the trend of consolidation
within the professional services and executive search industries continued and
more firms were developing and enhancing their global delivery capabilities.
As a result of these developments, LAI's senior management became concerned
about LAI's future. Management began to explore the various strategic
alternatives available to LAI to more effectively execute its growth strategy
and enhance stockholder value. In the fall of 1998, Robert L. Pearson, Chairman
and Chief Executive Officer of LAI, had informal discussions with
representatives of several companies in related industries, including TMP.
In late November 1998, LAI announced its anticipated results of operations
for its third quarter ending November 30, 1998, which again were significantly
below research analysts' published estimates. LAI's stock closed at $6.00 on
December 1, 1998. In early January 1999, LAI announced operating results for its
third quarter that were generally in line with those estimated in the November
release. However, LAI also reported substantial operating losses from its London
operations. LAI announced that it was reducing its professional and support
employees in the London office and that it anticipated recording a fourth
quarter charge against earnings as a result. LAI's stock closed at $6.375 on
January 8, 1999.
In January 1999, Mr. Pearson and Andrew McKelvey, Chairman of the Board and
CEO of TMP, had an informal meeting at which they discussed their respective
businesses, as well as trends in the executive search industry. They agreed to
schedule a meeting following the closing of TMP's acquisition of Morgan & Banks
to discuss ways in which TMP and LAI might work together in the future. During
January, Mr. Pearson discussed the possibility of merging LAI with a larger
company informally with several LAI directors.
The LAI board met on February 1, 1999 to consider management's concerns
about LAI's future and review strategic alternatives. LAI's outside counsel,
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional
Association, and LAI's financial advisor, Robert W. Baird & Co. Incorporated,
were present at the meeting. Trenam Kemker and Baird advised the LAI board
during this meeting and from time to time over the next several weeks as events
progressed.
During the meeting, the board had extensive discussions about the current
state of LAI's business and its future prospects, particularly the challenges
and risks associated with continuing as an independent company. These
discussions focused on (1) recent trends in the professional services and
executive search industries, (2) continuing problems with LAI's London office,
(3) LAI's reduction in fourth quarter domestic revenues, (4) LAI's recent
disappointing financial results and prospects for improved results in the
future, (5) the adverse impact that LAI's depressed stock price had on
previously issued stock options as incentives to retain qualified search
consultants and (6) higher than normal turnover in search consultants. Among the
challenges and risks discussed in this context were that (1) LAI might
experience increasing difficulty in attracting and retaining qualified search
consultants, (2) a significant number of search consultants might choose to
leave LAI's employ and (3) there were internal uncertainties regarding LAI's
leadership and succession plans.
Baird distributed and reviewed with the directors information about recent
merger and acquisition activity and current conditions in the equity markets,
recent developments in the executive search and professional services
industries, and LAI management's projected operating results for fiscal 1999 and
2000, which took into account the adverse impact of LAI's London operations and
weaker than anticipated domestic results. In addition, Baird distributed and
reviewed with the directors introductory information
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<PAGE>
about TMP, including an overview of TMP's business, recent operating results and
historical stock price performance and trading history.
The LAI board discussed in general terms the advantages and disadvantages of
effecting a sale of LAI. The LAI board also discussed the advantages and
disadvantages of a possible sale to TMP or several alternative acquisition
partners, including the companies with which Mr. Pearson had previously spoken
and/or met and several other companies in the professional services and
executive search industries. The LAI board also discussed the future prospects
of and strategic alternatives available to LAI if it chose to remain an
independent company. Among the alternatives discussed were (1) continuing to
execute LAI's international and domestic expansion strategy by continuing to
support the London operation, completing the previously announced proposed
acquisition of Futura Beteiligungs GmbH, the parent of the European search and
assessment firm of Neumann Holding, A.G., and continuing to aggressively pursue
attractive domestic acquisitions and new hires or (2) curtailing international
expansion altogether, significantly reducing efforts to pursue domestic
acquisitions and, instead, focusing on stabilizing and improving LAI's core
domestic operations. Although no formal action was taken, the LAI board reacted
favorably to starting discussions with TMP.
Senior management of LAI and TMP met on February 2, 1999. Among the matters
discussed at this meeting were the general structure of a possible acquisition,
the synergies likely to be available to the combined enterprises after an
acquisition and some of the principal terms of a possible acquisition. Shortly
thereafter, teams from both of our companies commenced due diligence
investigations.
TMP directed its outside counsel to prepare an initial draft of the
Agreement and Plan of Merger, which was sent to LAI on February 19, 1999. The
merger agreement was distributed to the directors prior to the next LAI board
meeting, which was held on February 22, 1999. Prior to that meeting, to assist
LAI's non-employee directors in their consideration of the proposed transaction,
the law firm of Jones, Day, Reavis & Pogue was engaged as special counsel. Jones
Day advised the LAI board during this meeting and from time to time over the
next several weeks as events progressed. Representatives of Baird, Trenam Kemker
and Jones Day were present at the February 22nd meeting. After Mr. Pearson
updated the directors on developments since the February 1st meeting, Baird
distributed and reviewed in detail with the directors: materials regarding the
proposed structure of the transaction described in the merger agreement; updated
financial information about LAI, including information reflecting LAI
management's estimates for the results of operations for the fourth quarter of
fiscal 1999 (which estimates were substantially below published research
analysts' estimates); and Baird's views regarding the hypothetical type and
value of consideration that other potential acquisition partners might offer to
LAI. The LAI board also reviewed additional information about TMP, including
TMP's business segments, stock price history, trading statistics and the results
obtained by applying various valuation methodologies to TMP. The LAI board again
discussed in detail the advantages and disadvantages of merging with TMP as
opposed to other potential buyers, as well as the advantages and disadvantages
of remaining independent. No formal action was taken.
On February 24 and 25, 1999, LAI' s senior management, along with Baird and
Trenam Kemker, met with representatives of TMP and their legal advisors in New
York City to negotiate the principal business terms and conditions of a
potential merger. At those meetings, LAI disclosed to TMP for the first time
LAI's projected results of operations for the fourth quarter of fiscal 1999. At
the end of two days of negotiations, LAI and TMP, subject to TMP's completion of
its due diligence review, reached a preliminary understanding with respect to a
merger of the two companies, involving a merger exchange ratio of 0.2445 shares
of TMP Common Stock for each share of LAI Common Stock if the 20 day average of
the closing prices of TMP Common Stock measured two days prior to the closing of
the merger is at least $42.00 per share but not more than $64.00 per share; a
fixed valuation at $64 per share if the price of TMP Common Stock exceeded $64
per share; and a fixed valuation at $42 per share if the price of TMP Common
Stock was less than $42 per share but not less than $35 per share, with TMP
having a "walk away" right if the price of its common stock was below $35 per
share.
25
<PAGE>
On February 26, 1999, at a telephone meeting, the LAI board was updated
regarding the status of the negotiations. No formal action was taken.
Negotiations continued with TMP on various provisions of the merger agreement
during the following week. The directors scheduled their next meeting for March
5, 1999.
Just prior to the March 5th LAI board meeting, TMP informed LAI that it was
unwilling to proceed with a transaction based upon an exchange ratio of 0.2445
TMP shares for each share of LAI Common Stock. TMP stated that the highest
merger exchange ratio TMP was prepared to offer was 0.2255 TMP shares per LAI
share. At the March 5th meeting, the LAI board was informed that TMP had offered
this lower merger exchange ratio. Baird, Jones Day and Trenam Kemker were
present at the meeting. The LAI board reviewed and analyzed the implications of
this lower merger exchange ratio. The LAI board also reviewed the most recent
draft of the merger agreement. Baird distributed and reviewed in detail with the
directors updated information regarding TMP, including TMP's projected operating
results and information regarding the recent trading activity in LAI's Common
Stock. The directors discussed extensively the information regarding TMP, the
advantages and disadvantages of continuing to pursue the proposed transaction
with TMP based upon the revised merger exchange ratio and possible alternative
acquisition partners. Although no formal action was taken, after lengthy
deliberations, it was the general view of the LAI board that, given the
circumstances, the TMP transaction with a reduced merger exchange ratio still
appeared to offer the best means of maximizing stockholder value. In arriving at
this view, the board considered the weak near-term prospects for LAI's
operations as an independent company and the absence of a viable potential
alternative acquisition partner. Accordingly, the LAI board requested that Baird
deliver its opinion at the next LAI board meeting as to whether the proposed
merger exchange ratio of 0.2255 TMP shares per share of LAI Common Stock was
fair from a financial point of view to LAI's stockholders.
The LAI board's next meeting was held on the morning of March 8, 1999, via
telephone. Baird, Jones Day and Trenam Kemker were present at the meeting. At
the start of the meeting, Mr. Pearson updated the directors regarding
discussions with TMP that took place after the March 5th board meeting and over
the weekend. Baird delivered and reviewed extensively with the board materials
regarding the proposed transaction; LAI's current business and financial
condition; valuation methodologies regarding the proposed transaction with TMP;
an overview of TMP's business and related valuation analyses and certain pro
forma combined enterprise information. The LAI board had a thorough discussion
and carefully considered the factors set forth in "Reasons for the Merger"
below. Baird then delivered an oral opinion that, on the date of its opinion and
based upon and subject to the various considerations set forth in its opinion,
the merger exchange ratio of 0.2255 was fair from a financial point of view to
LAI's stockholders. At the conclusion of the LAI board's deliberations, the LAI
board unanimously (1) determined that the merger was in the best interests of
LAI's stockholders, (2) subject to TMP's approval, approved the merger and the
merger agreement and (3) approved recommending that LAI's stockholders vote to
approve the merger. The board also authorized LAI senior management to conclude
negotiation of and execute a definitive form of merger agreement. Later that
day, however, TMP management delayed the previously anticipated signing of the
merger agreement.
On March 9, 1999, after it completed additional financial due diligence, TMP
informed LAI that it no longer wished to enter into the merger. In response to a
subsequent inquiry by LAI as to whether TMP would enter into the merger under
any circumstances, TMP indicated that it would be interested in pursuing the
transaction at a revised merger exchange ratio of 0.1321 shares of TMP Common
Stock for each share of LAI Common Stock with the same floating ratio if TMP's
stock price averaged above $64 per share or below $42 per share. At a telephone
meeting held the afternoon of March 9th, the LAI board considered the new
exchange ratio in light of the matters discussed at previous board meetings.
Baird, Jones Day and Trenam Kemker were present at the meeting. Among the
matters discussed were the challenges and risks of continuing to operate as an
independent company and the other alternatives available to LAI. Although no
formal action was taken, the sense of the LAI board was that, taking into
account all of LAI's current circumstances, the proposed transaction with TMP
even with the significantly
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<PAGE>
lower merger exchange ratio continued to offer the best opportunity to maximize
stockholder value. The board directed LAI management to provide Baird with
revised, updated financial estimates for fiscal 1999 through 2004 and asked
Baird to review these revised estimates and deliver its opinion as to whether
the revised merger exchange ratio of 0.1321 was fair, from a financial point of
view, to LAI's stockholders.
Starting on the evening of March 9th, after the conclusion of the LAI board
meeting and continuing until the next LAI board meeting on the evening of March
10th, with the assistance and input of LAI management, Baird worked diligently
to determine the impact of LAI's revised estimates for fiscal 1999 through 2004
on its previous valuation of LAI. These estimates reflected substantially
reduced revenues and considerably less favorable operating results than the
estimates previously provided to Baird.
On the evening of March 10, 1999, the LAI board held a meeting via
telephone, at which Baird delivered and reviewed with the directors extensive
written materials regarding LAI management's revised and updated estimates for
anticipated fiscal 1999 results of operations and revised, updated projections
for LAI's operations for the fiscal years 2000 through 2004 and information
regarding the impact of these revised and updated estimates on its prior
valuation of LAI. Baird also delivered and reviewed information regarding TMP's
business, TMP's actual and anticipated results of operations, and the valuation
of TMP and certain pro forma information regarding the combined companies'
operations. Baird also delivered its oral opinion that, on the date of its
opinion and based upon and subject to the various considerations set forth in
its opinion, the merger exchange ratio as set forth in the merger agreement was
fair from a financial point of view to LAI's stockholders. In issuing its
opinion, Baird pointed out to the LAI board that Baird's valuation of LAI had
declined significantly since it had delivered its initial opinion to the LAI
board on March 8, 1999. Baird noted that the updated information provided by
LAI's management regarding LAI's anticipated fiscal 1999 results of operations
and updated projections for LAI's fiscal years 2000 through 2004 were the
principal reasons for the decline. Baird also reported on a follow-up discussion
with a party with which LAI management had met in the fall of 1998 to discuss a
possible acquisition but which had not indicated an interest in offering a high
enough purchase price at that time. Baird reported to the board that in its most
recent discussions that party had indicated that it was not interested in
pursuing a transaction with LAI. In connection with considering the possibility
of receiving offers from other potential acquisition partners after the signing
of the merger agreement, Trenam Kemker reviewed with directors the "fiduciary
out" and termination fee provisions of the merger agreement. At the conclusion
of the board's deliberations, the LAI board unanimously (1) determined that the
merger was in the best interests of the LAI's stockholders, (2) subject to TMP's
approval, approved the merger and the merger agreement and (3) approved
recommending that LAI's stockholders vote to approve the merger. The LAI board
also authorized LAI senior management to conclude negotiation of and execute a
definitive merger agreement.
Management of TMP and LAI, together with their counsel, finalized the merger
agreement which was signed on March 11, 1999, and announced before the opening
of markets on March 11, 1999.
REASONS FOR THE MERGER
LAI'S REASONS FOR THE MERGER AND RECOMMENDATION OF THE LAI BOARD. In
evaluating and determining to approve the merger agreement, the LAI board
considered a variety of factors and based its opinion as to the fairness of the
transactions contemplated by the merger agreement primarily on the following
factors:
(1) The future prospects of LAI and possible alternatives to the
proposed merger, including the prospects for and challenges and risks
associated with continuing as an independent company. In this regard, the
LAI board considered the amount and range of acquisition consideration most
likely to be offered by other prospective acquisition partners, the
likelihood of realizing those values, and the view of LAI's management that
the merger represented the best strategic alternative available to LAI under
the circumstances. The LAI board also considered the risks of proceeding
independently, including LAI's prospects for continuing to attract and
retain qualified search consultants, the timing of the merger, and the
prospects of receiving a better financial offer from another potential
buyer;
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<PAGE>
(2) The fact that LAI's stock price had declined substantially in the
late summer and fall of 1998 and had remained depressed in early 1999 and
the view of the LAI board and management that, in light of anticipated
fiscal 1999 results and the current outlook for future operations, it would
take a long time for LAI's stock price to exceed the implied value of the
TMP stock in the proposed transaction. In addition, the LAI board believed
that having a favorable stock price was important to benefit not only LAI
stockholders directly but also to provide an effective incentive to attract
and retain qualified consultants;
(3) The financial terms of the merger, including the value of the
consideration offered and the valuation of LAI and TMP;
(4) LAI's knowledge and analysis of the executive search industry,
including increasing competition in the industry and the need to anticipate,
and best position LAI in light of, industry trends, including the increasing
difficulty of attracting and retaining qualified consultants;
(5) LAI's belief that a merger with TMP would enable LAI to continue to
compete effectively with other executive search firms, particularly in view
of TMP's global delivery capability and the need to be able to establish
successful global operations in order to be able to compete effectively,
combined with LAI's recent unsuccessful attempts to establish start up
operations in London and Hong Kong;
(6) The current business and financial condition of TMP, TMP's business
and financial prospects, the potential for increases in the price of TMP
common stock, and the competence and experience of TMP and its management;
(7) The fact that the merger would afford LAI stockholders the
opportunity to exchange their shares for an ownership interest in a combined
enterprise which is larger and has greater financial resources than LAI;
(8) The compatibility of the respective businesses and the management
philosophies of LAI and TMP, including the desires of LAI and TMP to expand
their executive search consulting businesses;
(9) The opinion of Baird to the effect that, on the date of its opinion
and based upon and subject to the various considerations set forth in its
opinion, the exchange ratio set forth in the merger agreement was fair, from
a financial point of view, to LAI's stockholders. This opinion was delivered
to the LAI board orally on March 10, 1999, and was subsequently confirmed on
that same date in writing. Baird's delivery of its opinion was accompanied
by extensive written materials and a thorough oral presentation described
above;
(10) The expected treatment of the merger as a tax-free reorganization
to LAI stockholders and the expected treatment of the merger as a pooling of
interests for financial reporting and accounting purposes; and
(11) The social and economic effects of the merger on LAI and its
employees and clients. The LAI board considered the terms of the TMP
compensation structure and benefits to be received by LAI's consultants and
other employees, and the commitment to quality and value that TMP would
provide to LAI's clients.
The LAI board also considered certain countervailing factors in its
deliberations concerning the merger, including:
(1) The potential disruption of LAI's business that might result from
the announcement of the merger;
(2) The possible difficulties of integrating the management and
corporate cultures of LAI and TMP;
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<PAGE>
(3) The uncertainty regarding stockholders, customers and employees'
perceptions of the merger;
(4) The volatility of TMP's stock price; and
(5) The possibility that the merger might not be completed.
In the view of the LAI board, however, these considerations were not
sufficient, individually or in the aggregate, to outweigh the advantages of the
merger.
Accordingly, based on all of the foregoing factors, the LAI board
unanimously approved and adopted the merger agreement and the merger. The LAI
board did not quantify or attempt to assign relative weights to the specific
factors considered in reaching its determination and, further, individual
directors may have given differing weights to differing factors.
THE LAI BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, LAI AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT LAI STOCKHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO LAI
LAI retained Baird to act as its financial advisor in connection with the
merger and to render Baird's opinion as to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of LAI Common Stock. On March 10,
1999, Baird rendered its opinion to the LAI board of directors to the effect
that, as of March 10, 1999 and based upon and subject to the various
considerations described in the opinion, the Exchange Ratio set forth in the
merger agreement was fair, from a financial point of view, to the holders of LAI
Common Stock (other than TMP and its affiliates).
THE FULL TEXT OF BAIRD'S OPINION, DATED MARCH 10, 1999, WHICH DESCRIBES THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS OPINION,
IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED IN
THIS DOCUMENT BY REFERENCE. BAIRD'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, AS
OF THE DATE OF THE OPINION AND FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE
RATIO TO THE HOLDERS OF LAI COMMON STOCK. SUCH OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY LAI STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD VOTE
WITH RESPECT TO THE MERGER AGREEMENT. THE SUMMARY OF BAIRD'S OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
LAI STOCKHOLDERS ARE URGED TO READ THE ENTIRE OPINION CAREFULLY.
In conducting its investigation and analysis and in arriving at its opinion,
Baird reviewed information and took into account financial and economic factors
it deemed relevant under the circumstances. In that regard, Baird, among other
things:
- reviewed certain internal information, primarily financial in nature,
including projections, concerning the business and operations of LAI and
TMP furnished to Baird for purposes of its analysis;
- reviewed publicly available information, including, but not limited to,
LAI's and TMP's recent filings with the SEC and equity analyst research
reports prepared by various investment banking firms including Baird;
- reviewed the draft merger agreement in the form presented to the LAI board
of directors;
- compared the historical market prices and trading activity of LAI Common
Stock and TMP Common Stock with those of certain other publicly traded
companies Baird deemed relevant;
- compared the financial position and operating results of LAI and TMP with
those of certain other publicly traded companies Baird deemed relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other business combinations Baird deemed relevant; and
- reviewed certain potential pro forma effects of the merger.
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Baird held discussions with members of LAI's and TMP's respective senior
managements concerning LAI's and TMP's historical and current financial
condition and operating results, as well as the future prospects of LAI and TMP.
Baird also considered other information, financial studies, analysis and
investigations and financial, economic and market criteria which Baird deemed
relevant for the preparation of its opinion. LAI and TMP determined the Exchange
Ratio in arms-length negotiations. LAI did not place any limitation upon Baird
with respect to the procedures followed or factors considered by Baird in
rendering its opinion.
In arriving at its opinion, Baird assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to Baird by or on behalf of LAI and TMP. Baird was not
engaged to independently verify any of this information. Baird assumed, with
LAI's consent, that:
- all material assets and liabilities, contingent or otherwise, known or
unknown, of LAI and TMP are as set forth in their respective financial
statements;
- the merger will be accounted for as a pooling of interests under generally
accepted accounting principles;
- the merger will qualify as a tax-free reorganization under the provisions
of Section 368(a) of the Code; and
- the merger will be consummated in accordance with the terms of the draft
merger agreement in the form presented to the LAI board of directors on
March 10, 1999, without any amendment thereto and without waiver by LAI or
TMP of any of the conditions to each of their obligations under the merger
agreement.
Baird also assumed that the estimates regarding LAI's results for the fiscal
year ended February 28, 1999 and the projections examined by it were reasonably
prepared on bases reflecting the best available estimates and good faith
judgments of (1) LAI's senior management as to LAI's financial results for the
fiscal year ended February 28, 1999, (2) LAI's senior management as to the
future performance of LAI and (3) TMP's senior management as to the future
performance of TMP. At the direction of LAI, Baird did not include any expense
increases, cost savings, operating synergies or other projected combined
benefits that might result from the merger in its analyses. In conducting its
review, Baird did not undertake or obtain an independent evaluation or appraisal
of any of the assets or liabilities, contingent or otherwise, of LAI or TMP.
Baird also did not make a physical inspection of the properties or facilities of
LAI or TMP. Baird's opinion necessarily was based upon economic, monetary and
market conditions as they existed and could be evaluated on the date of its
opinion. The opinion did not predict or take into account any changes which may
occur, or information which may become available, after the date of such
opinion. Furthermore, Baird expressed no opinion as to the price or trading
range at which any of LAI's or TMP's securities, including, but not limited to,
LAI Common Stock and TMP Common Stock, will trade following the date of Baird's
opinion.
The following is a summary of the material financial analyses performed by
Baird in connection with rendering its opinion.
ANALYSIS OF IMPLIED LAI MERGER MULTIPLES. Baird calculated the "Implied
Equity Value Per Share" reflected by the terms of the merger to be $8.37 for
each share of LAI Common Stock. The Implied Equity Value Per Share was obtained
by multiplying the Exchange Ratio of 0.1321 by the closing price per share of
TMP Common Stock of $63.38 on March 9, 1999.
Baird calculated the "Implied Total Equity Value" of LAI as a result of the
merger to be $68.6 million and the "Implied Enterprise Value" of LAI as a result
of the merger to be $44.6 million. The Implied Total Equity Value was obtained
by multiplying the Implied Equity Value Per Share by the total number of
outstanding shares of LAI Common Stock as of February 28, 1999, plus shares
issuable upon exercise of
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stock options as of February 28, 1999, less net proceeds from the exercise of
those stock options. The Implied Enterprise Value was obtained by adding LAI's
outstanding total debt to, and subtracting LAI's cash and cash equivalents
balances as of February 28, 1999, the last day of LAI's most recently completed
fiscal year, as estimated by LAI senior management, from the Implied Total
Equity Value.
In performing its analysis, Baird used, among other items, estimated
operating statistics for LAI's latest twelve months, or LTM, ended February 28,
1999, as provided by LAI's senior management and exclusive of non-recurring
items. Baird calculated multiples of the Implied Total Equity Value to LAI's
estimated LTM net income exclusive of non-recurring items and projected net
income for calendar years 1999 and 2000, based on LAI's senior management
estimates and exclusive of non-recurring items. Baird also calculated multiples
of LAI's Implied Enterprise Value to its LTM net revenue, LTM earnings before
interest, taxes, depreciation, amortization and non-recurring items, or EBITDA,
and LTM earnings before interest, taxes and non-recurring items, or EBIT. These
calculations resulted in multiples of the Implied Total Equity Value to net
income, or P/E Ratios, of a multiple that was:
- not meaningful for the LTM period due to negative operating results;
- 27.3x based on projected calendar 1999 results; and
- 15.7x based on projected calendar 2000 results.
The ratio of Implied Enterprise Value to LAI's LTM net revenue was 0.5x. The
ratio of Implied Enterprise Value to LAI's LTM EBITDA was 19.9x. The ratio of
Implied Enterprise Value to LAI's LTM EBIT was a ratio that is not meaningful
due to negative operating results.
SELECTED PUBLICLY TRADED LAI COMPARABLE COMPANIES OPERATING
PERFORMANCE. Baird reviewed certain publicly available financial information as
of the most recently reported period and stock market information as of March 9,
1999, for nine publicly traded companies that Baird deemed relevant. These "LAI
comparable companies" consisted of the following search and selection, temporary
staffing and career management consulting companies:
- ASI Solutions, Incorporated
- Interim Services Inc.
- Korn/Ferry International
- Norrell Corporation
- OutSource International, Inc.
- Personnel Group of America, Inc.
- Right Management Consultants, Inc.
- Romac International, Inc.
- Select Appointments (Holdings) plc
Baird compared the estimated LTM operating performance of LAI to the LAI
comparable companies with respect to gross margins, EBITDA margins, EBIT margins
and net income margins; in each case for the latest twelve month period
available. The table below summarizes the results of this analysis.
<TABLE>
<CAPTION>
LAI
LAI COMPARABLE COMPANIES
STATISTICS STATISTICS RANGE
------------- ---------------------
<S> <C> <C>
LTM Gross Margin....................................... 24.3% 15.1% to 51.8%
LTM EBITDA Margin...................................... 2.5% 3.5% to 18.7%
LTM EBIT Margin........................................ (0.9%) 2.3% to 14.7%
LTM Net Income Margin.................................. (1.1%) 0.7% to 8.6%
</TABLE>
ANALYSIS OF SELECTED PUBLICLY TRADED LAI COMPARABLE COMPANIES. For each of
the LAI comparable companies, Baird calculated multiples as of March 9, 1999 of
Enterprise Value to LTM net revenue, LTM EBITDA and LTM EBIT. Enterprise Value
is defined as the total number of outstanding shares of common stock on a
diluted basis, multiplied by the market price of the common stock, plus
outstanding
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<PAGE>
debt and minus cash, cash equivalents and net proceeds from the exercise of
outstanding options. Baird then compared these multiples to the relevant LAI
multiples based on the Implied Equity Value Per Share. An analysis of the
multiples of Enterprise Value to LTM net revenue yielded 0.5x, to LTM EBITDA
yielded 19.9x and to LTM EBIT yielded a multiple that is not meaningful due to
negative operating results for LAI. This compares to ranges of 0.1x to 1.1x with
respect to LTM net revenue, 4.0x to 14.2x with respect to LTM EBITDA and 5.4x to
17.1x with respect to LTM EBIT, for the LAI comparable companies.
For LAI and each of the LAI comparable companies, Baird also calculated P/E
Ratios based on (1) the Implied Total Equity Value for LAI and closing stock
prices as of March 9, 1999 for the LAI comparable companies, and (2) net income
statistics for LTM and for projected calendar year 1999 and 2000 based on LAI
senior management's estimates and exclusive of non-recurring charges for LAI,
and on First Call consensus estimates for the LAI comparable companies. An
analysis of the P/E Ratios based on LAI's net income for LTM yielded a multiple
that is not meaningful due to negative operating results. For projected calendar
year 1999, the same analysis yielded a multiple that is 27.3x, and for projected
calendar year 2000 such analysis yielded a multiple that is 15.7x. This compares
to ranges of 8.0x to 29.4x for LTM, 7.3x to 22.3x for projected calendar year
1999 and 5.9x to 18.8x for projected calendar year 2000, for the LAI comparable
companies. The table below summarizes the results of this analysis and is
qualified in its entirety by reference to the other disclosure contained in this
section of this proxy statement/prospectus.
<TABLE>
<CAPTION>
LAI
LAI IMPLIED COMPARABLE COMPANIES
MERGER MULTIPLES MULTIPLES RANGE
----------------- ---------------------
<S> <C> <C>
Enterprise Value to LTM Net Revenue................ 0.5x 0.1x to 1.1x
Enterprise Value to LTM EBITDA..................... 19.9x 4.0x to 14.2x
Enterprise Value to LTM EBIT....................... not meaningful 5.4x to 17.1x
LTM P/E Ratio...................................... not meaningful 8.0x to 29.4x
Calendar Year 1999 P/E Ratio....................... 27.3x 7.3x to 22.3x
Calendar Year 2000 P/E Ratio....................... 15.7x 5.9x to 18.8x
</TABLE>
SELECTED PUBLICLY TRADED TMP COMPARABLE COMPANIES OPERATING PERFORMANCE. In
order to assess the relative public market valuation of TMP Common Stock to be
issued by TMP in exchange for LAI Common Stock, Baird reviewed the operating
results for TMP's three separate business segments, as defined by TMP, including
its "Internet Segment," "Yellow Pages and Recruitment Advertising Segment" and
"Search and Selection Segment." Baird also reviewed certain publicly available
financial information for three separate publicly traded comparable company
groups that corresponded to TMP's three separate business segments and that
Baird deemed relevant. The "Internet comparable companies," "Yellow Pages and
Recruitment Advertising comparable companies" and "Search and Selection
comparable companies" consisted of the following companies:
INTERNET
- Amazon.com, Inc.
- America Online, Inc.
- CNET, Inc.
- eBay Inc.
- Infoseek Corporation
- Preview Travel, Inc.
- Yahoo! Inc.
YELLOW PAGES AND RECRUITMENT ADVERTISING
- - The Interpublic Group of Companies, Inc.
- - Omnicom Group Inc.
- - True North Communications Inc.
- - WPP Group plc
SEARCH AND SELECTION
- - Interim Services Inc.
- - Korn/Ferry International
- - Romac International, Inc.
- - Select Appointments (Holdings) plc
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<PAGE>
Baird compared the estimated and projected revenue growth for TMP's Internet
Segment with the estimated and projected revenue growth of the Internet
comparable companies for estimated calendar year 1998 and projected calendar
year 1999 and 2000. The estimated and projected revenue growth rates for the
Internet comparable companies were provided by publicly available equity
research. The estimated and projected revenue growth for TMP's Internet Segment
were within the ranges computed for the Internet comparable companies. Baird
also compared the EBIT margins of TMP's Yellow Pages and Recruitment Advertising
Segment and Search and Selection Segment for the LTM period ended September 30,
1998, on a pro forma basis as if the acquisition of Morgan and Banks Limited had
occurred on October 1, 1997 and exclusive of non-recurring items, with both the
Yellow Pages and Recruitment Advertising comparable companies and the Search and
Selection comparable companies. The table below summarizes the results of this
analysis on an historical basis.
<TABLE>
<CAPTION>
TMP
TMP COMPARABLE COMPANIES
BUSINESS SEGMENT OPERATING STATISTIC STATISTICS STATISTICS RANGE
- --------------------------------------------------- -------------------------- ----------- ---------------------
<S> <C> <C> <C>
Internet........................................... 1998 Revenue Growth 160.8% 2.9% to 731.6%
Yellow Pages and Recruitment Advertising........... LTM EBIT Margin 14.8% 5.6% to 15.8%
Search and Selection............................... LTM EBIT Margin 4.9% 6.1% to 11.1%
</TABLE>
ANALYSIS OF SELECTED PUBLICLY TRADED TMP COMPARABLE COMPANIES. Baird
calculated a range of values for TMP by separately valuing its Internet Segment,
Yellow Pages and Recruitment Advertising Segment and Search and Selection
Segment and aggregating the values calculated for all three. Baird used a public
market analysis in valuing these business segments, in which it assessed each
business segment's operating performance and outlook relative to a group of
publicly traded comparable companies to calculate an implied business segment
value. Baird noted that no company used in the public market analyses described
below is identical to the comparable business segment of TMP. Accordingly, an
examination of the results of analyses described below necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the TMP business segments and other facts that
could affect the business segment value of the companies to which they are being
compared.
INTERNET SEGMENT
For each of the Internet comparable companies, Baird calculated multiples as
of March 9, 1999 of Enterprise Value to estimated calendar 1998 and projected
calendar 1999 and 2000 revenue. An analysis of these multiples yielded ranges of
18.8x to 454.8x with a median of 37.3x for estimated calendar year 1998 revenue;
9.4x to 173.3x with a median of 23.2x for projected calendar year 1999 revenue
and 5.2x to 119.6x with a median of 16.8x for projected calendar year 2000
revenue. Baird then applied the median revenue multiples for each period to the
revenue statistics of TMP's Internet Segment for the appropriate period, which
resulted in an implied business segment valuation range of approximately $1.8
billion to $2.0 billion.
YELLOW PAGES AND RECRUITMENT ADVERTISING SEGMENT
For each of the Yellow Pages and Recruitment Advertising comparable
companies, Baird calculated multiples as of March 9, 1999 of Enterprise Value to
LTM revenue and LTM EBIT. An analysis of these multiples yielded ranges of 1.1x
to 3.4x with a median of 3.2x for LTM revenue and 19.2x to 26.5x with a median
of 22.4x for LTM EBIT. Baird then applied the median LTM revenue and LTM EBIT
multiples of the Yellow Pages and Recruitment Advertising comparable companies
to each of the LTM revenue and LTM EBIT statistics of TMP's Yellow Pages and
Recruitment Advertising Segment exclusive of non-recurring items, which resulted
in an implied business segment valuation range of approximately $864 million to
$898 million.
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<PAGE>
SEARCH AND SELECTION SEGMENT
For each of the Search and Selection comparable companies, Baird calculated
multiples as of March 9, 1999 of Enterprise Value to LTM revenue and LTM EBIT.
An analysis of these multiples yielded ranges of 0.4x to 1.0x with a median of
0.8x for LTM revenue and 5.4x to 9.8x with a median of 8.7x for LTM EBIT. Baird
then applied the median LTM revenue and LTM EBIT multiples of the Search and
Selection comparable companies to both the LTM revenue and LTM EBIT statistics
of TMP's Search and Selection Segment exclusive of non-recurring items, which
resulted in an implied business segment valuation range of approximately $142
million to $265 million.
TOTAL TMP PUBLIC MARKET IMPLIED VALUATION
By combining the stand-alone business segment valuations for the Internet
Segment, Yellow Pages and Recruitment Advertising Segment and Search and
Selection Segment, as described above, and making certain adjustments for debt,
cash, cash equivalents and net proceeds from the exercise of outstanding
options, Baird calculated a valuation range for TMP's aggregate equity of
approximately $2.7 billion to $3.0 billion, or $71.05 to $79.60 per share based
on the number of diluted shares of TMP provided by TMP senior management.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Baird reviewed 14
completed acquisition transactions that Baird deemed relevant. These
transactions were chosen based on a review of acquired companies that possessed
general business, operating and financial characteristics representative of
companies which provide search and selection services. The fourteen comparable
transactions reviewed were:
ACQUIROR/ACQUIRED COMPANY
- TMP Worldwide Inc./Morgan & Banks Limited
- StaffMark, Inc./Robert Walters plc
- Randstad Holdings NV/Strategix Solutions, Inc.
- Linsalata Capital Partners/Personnel Management, Inc.
- TMP Worldwide Inc./TASA Holding AG
- Corporate Services Group plc/COREStaff Services
- TMP Worldwide Inc./Johnson, Smith & Knisely Inc.
- LAI Worldwide, Inc./Ward Howell International, Inc.
- COMFORCE Corporation/Uniforce Services Inc.
- Adecco SA/TAD Resources International
- Interim Services Inc./Michael Page Group plc
- Adia SA/Ecco SA
- Sun Healthcare Group, Inc./CareerStaff Unlimited, Inc.
- Select Appointments (Holdings) plc/New Boston Companies
Baird noted that none of the comparable transactions were identical to the
merger. Accordingly, Baird noted that the analysis of comparable transactions
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of LAI and other factors that would
affect the acquisition value of comparable transactions including, among others,
the general market conditions prevailing in the equity capital markets at the
time of that transaction. For each of the
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<PAGE>
comparable transactions, Baird calculated multiples of Enterprise Value to LTM
revenue, LTM EBITDA and LTM EBIT; calculated P/E Ratios based on LTM net income;
and calculated the premiums paid for the equity in these transactions over the
public market value of the equity at various times prior to the announcement of
these transactions. Baird then compared those multiples and premiums to the
relevant LAI multiples and premiums. These calculations yielded multiples of
Enterprise Value to LTM revenue of 0.5x, LTM EBITDA of 19.9x and LTM EBIT of a
multiple that is not meaningful due to negative operating results for LAI. This
compares to ranges of 0.4x to 2.3x for Enterprise Value to LTM revenue, 5.3x to
14.0x for LTM EBITDA and 5.5x to 18.4x for LTM EBIT, for the comparable
transactions. An analysis of the P/E Ratios based on LTM net income yielded a
ratio that is not meaningful due to negative operating results for LAI, compared
to a range of 10.1x to 27.6x for the comparable transactions. The table below
summarizes the results of this analysis and is qualified in its entirety by
reference to the other disclosure contained in this section of this proxy
statement/prospectus.
<TABLE>
<CAPTION>
LAI IMPLIED COMPARABLE TRANSACTIONS
MERGER MULTIPLES MULTIPLES RANGE
----------------- -----------------------
<S> <C> <C>
Enterprise Value to LTM Revenue....................................... 0.5x 0.4x to 2.3x
Enterprise Value to LTM EBITDA........................................ 19.9x 5.3x to 14.0x
Enterprise Value to LTM EBIT.......................................... not meaningful 5.5x to 18.4x
LTM P/E Ratios........................................................ not meaningful 10.1x to 27.6x
</TABLE>
An analysis of the Implied Equity Value Per Share of $8.37 to the closing
price of LAI Common Stock on March 9th and 30 days and 90 days prior to March 9,
1999, compared to the prices paid for the equity in the comparable transactions
involving publicly traded acquired companies relative to the market value of
equity one day, 30 days and 90 days prior to the announcement date of those
transactions, yielded a one-day premium of 28.8%, a 30-day premium of 41.0% and
a 90-day premium of 28.8% for LAI. This compares to premium ranges of (1.9%) to
54.2% for one-day premiums, (0.5%) to 56.8% for 30-day premiums and (13.6%) to
104.2% for 90-day premiums, for the comparable transactions involving publicly
traded acquired companies. The table below summarizes the results of this
analysis and is qualified in its entirety by reference to the other disclosure
contained in this section of this proxy statement/prospectus.
<TABLE>
<CAPTION>
LAI IMPLIED COMPARABLE TRANSACTIONS
MERGER PREMIUMS PREMIUMS RANGE
----------------- -----------------------
<S> <C> <C>
One-Day Premium....................................................... 28.8% (1.9%) to 54.2%
30-Day Premium........................................................ 41.0% (0.5%) to 56.8%
90-Day Premium........................................................ 28.8% (13.6%) to 104.2%
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS--LAI. Baird performed a discounted cash flow
analysis of LAI, on a stand-alone basis, using projections for the fiscal years
ending February 28, 2000 through 2004 as provided by LAI senior management. In
that analysis, Baird assumed terminal value multiples of 5.0x to 8.0x EBIT in
fiscal year 2004 and discount rates of 12.75% to 20.75%, which represent the
estimated weighted average cost of capital for LAI. That analysis produced
implied per share values of LAI Common Stock ranging from $7.29 to $11.28.
DISCOUNTED CASH FLOW ANALYSIS--TMP. In order to assess the relative public
market valuation of TMP Common Stock to be issued by TMP in exchange for LAI
Common Stock, Baird performed a discounted cash flow analysis of TMP, on a
stand-alone basis, using projections for calendar year 1999 through 2003 as
provided by TMP senior management. In that analysis, Baird assumed terminal
value multiples of 22.0x to 26.0x EBIT in calendar year 2003 and discount rates
of 11.0% to 14.0%, which represent the estimated weighted average cost of
capital for TMP. That analysis produced implied per share values of TMP Common
Stock ranging from $55.66 to $74.07.
PRO FORMA MERGER ANALYSIS. Baird prepared a pro forma analysis of the
financial impact of the merger. In conducting its analysis, Baird assumed, among
other things:
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<PAGE>
- pooling of interests accounting treatment;
- an Exchange Ratio of 0.1321; and
- projected earnings estimates for LAI and TMP, as provided by senior
management of each of LAI and TMP.
Baird compared the earnings per share of TMP Common Stock, on a stand-alone
basis, to the earnings per share of the common stock of the combined company on
a calendar pro forma basis. The results of the pro forma merger analysis
suggested that the merger would be dilutive to TMP on an earnings per share
basis in calendar year 1998 and accretive in calendar years 1999 and 2000. The
results of the pro forma merger analysis are not necessarily indicative of
future operating results or financial position. The actual results achieved by
the combined company may vary from projected results and the variations may be
material.
The foregoing summary does not purport to be a complete description of the
analyses performed by Baird. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analyses or summary description. Baird
believes that its analyses must be considered as a whole, and that selecting
portions of those analyses without considering all analyses and factors, would
create an incomplete view of the processes underlying its opinion. Baird did not
attempt to assign specific weights to particular analyses. Any estimates
contained in Baird's analyses are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth in Baird's
analysis. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because these estimates are inherently subject to uncertainty, Baird does not
assume responsibility for their accuracy.
Baird, as part of its investment banking business, is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. LAI retained Baird because
of its experience and expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions. In the ordinary course
of business, Baird may from time to time trade equity securities of LAI and TMP
for its own account and for accounts of its customers and, accordingly, may at
any time hold a long or short position in these securities.
Pursuant to an engagement letter between LAI and Baird dated February 8,
1999, as supplemented, LAI agreed to pay Baird a fee of $500,000, payable upon
delivery of its opinion on March 8, 1999 and its subsequent opinion with respect
to the revised exchange ratio proposed by TMP on March 9, 1999. The opinion was
delivered by Baird on March 10, 1999. See "Background of the Merger." LAI agreed
to pay this fee to Baird regardless of the conclusions reached by Baird in its
opinions. In addition, LAI has agreed to pay to Baird a transaction fee, payable
upon consummation of the merger, equal to 1.25% of the total consideration paid
in the merger to holders of LAI Common Stock, including holders of options to
purchase LAI Common Stock. In the engagement letter, which was negotiated
between LAI and Baird, LAI has also agreed to reimburse Baird for its reasonable
out-of-pocket expenses. LAI has also agreed to indemnify Baird, its affiliates
and their respective directors, officers, partners, employees, agents and
controlling persons against certain liabilities relating to or arising out of
its engagement, including liabilities under the federal securities laws. In the
past, Baird has provided financial advisory services to LAI, including acting as
financial advisor to LAI in connection with its acquisition of Ward Howell
International, Inc. and serving as managing underwriter in both its initial
public offering of LAI Common Stock in July 1997 and its secondary offering of
LAI Common Stock in June 1998.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the LAI board for approval of the
merger, LAI stockholders should be aware that certain members of LAI's
management and of the LAI board have interests in the merger that are in
addition to the interests of the LAI stockholders generally.
EMPLOYMENT AGREEMENTS
Certain executive officers and directors of LAI have entered into employment
agreements with LAI which could result in their receiving certain severance
benefits following a change of control if their employment is terminated by LAI
without good cause or by them. These arrangements are described under
"Management of LAI--Executive employment arrangements." The merger will
constitute a change of control of LAI pursuant to those agreements. It is
contemplated that TMP will assume the obligations under the LAI employment
agreements and not enter into new agreements with LAI's executives.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The merger agreement provides that, after the closing of the merger, TMP
shall assume all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the merger in favor of any officers
and directors of LAI and all indemnification agreements or arrangements of LAI
in favor of such persons, and that such arrangements shall survive the merger
for a period of six years. In addition, TMP has agreed that for six years after
the closing of the merger, it shall maintain in effect LAI's current directors'
and officers' liability insurance coverage on terms and in amounts no less
favorable than prior to the merger.
STOCK OPTIONS; RESTRICTED STOCK
Substantially all LAI stock options and restricted stock outstanding as of
the closing of the merger shall immediately become fully vested at the closing
of the merger, which will be, for this purpose, a change in control of LAI.
Accordingly, substantially all stock options and all restricted stock owned by
the directors and executive officers of LAI shall, upon the closing of the
merger, become immediately fully vested.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the merger to people who hold shares of LAI Common Stock. This
does not purport to be a complete analysis or listing of all potential tax
effects relevant to the merger. The discussion does not reflect the individual
tax position of any LAI stockholder. It also does not address the tax
consequences that may be relevant to LAI stockholders with special tax status,
including:
- financial institutions;
- dealers in securities;
- holders that are not citizens or residents of the United States;
- tax-exempt entities; and
- holders that acquired shares of LAI Common Stock upon the exercise of
employee stock options or otherwise as compensation.
In addition, the discussion does not address any consequences arising under the
laws of any state, or other locality or foreign jurisdiction.
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<PAGE>
The discussion is based on the Code, Treasury Regulations and administrative
rulings and court decisions in effect as of the date of this proxy
statement/prospectus. All of the foregoing are subject to change and any change
could affect the continuing validity of this discussion. LAI stockholders are
urged to consult with their own tax advisors regarding the tax consequences of
the merger to them, including the effects of federal, state, local, foreign and
other tax laws.
We intend the merger to qualify as a reorganization under Section 368(a) of
the Code. It is a condition to the obligation of LAI to complete the merger that
LAI shall have received an opinion from Trenam Kemker, counsel to LAI, to the
effect that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. We believe that
the merger will have the following federal income tax consequences:
- no gain or loss will be recognized by LAI or TMP as a result of the
merger;
- no gain or loss will be recognized by a stockholder of LAI whose shares of
LAI Common Stock are exchanged solely for TMP Common Stock pursuant to the
merger, except with respect to cash received by a holder of LAI Common
Stock instead of a fractional share of TMP Common Stock;
- the tax basis of TMP Common Stock received in the merger by an LAI
stockholder will be the same as the tax basis of the shares of LAI Common
Stock surrendered in exchange, minus any amount of basis which may be
allocable to any fractional share interest in TMP Common Stock for which
cash is received; and
- the holding period of the shares of TMP Common Stock received in the
merger will include the period during which the shares of LAI Common Stock
surrendered in exchange for shares of TMP Common Stock were held, provided
that such shares of LAI Common Stock were held as capital assets at the
effective time of the merger.
Trenam Kemker may rely upon certain assumptions, representations and
warranties of TMP made on its own behalf and on behalf of its wholly-owned
subsidiary, LAI and others in giving its opinion. Trenam Kemker's opinion does
not bind the IRS. It also does not preclude the IRS from adopting a different
position. An opinion of counsel only represents such counsel's best legal
judgment and has no binding effect or official status of any kind. We cannot
assure you that the IRS or a court considering these issues will not take a
contrary position.
We will not request and the merger is not conditioned upon a ruling from the
IRS in connection with any of the federal income tax consequences of the merger.
A holder of LAI Common Stock who receives cash instead of a fractional share
of TMP Common Stock will be treated for federal income tax purposes as receiving
a fractional share and then redeeming it for cash. A holder entitled to receive
a fractional share will recognize gain or loss as of the effective time of the
merger. The gain or loss will be equal to the difference between the amount of
cash received and the portion of the tax basis of the share of LAI Common Stock
allocable to the fractional share. This gain or loss will be capital gain or
loss if such share of LAI Common Stock was held as a capital asset at the
effective time of the merger. The gain or loss will be treated as a long-term
capital gain or loss if such share of LAI Common Stock has been held for more
than one year.
ANTICIPATED ACCOUNTING TREATMENT
We intend that the merger qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the assets
and liabilities of TMP and LAI will be carried forward to the combined company
at their recorded amounts. Income from the combined company will include income
from TMP and LAI for the entire fiscal period in which the combination occurs.
The reported income of the separate companies for fiscal periods prior to the
date of the merger will be
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<PAGE>
combined and restated as the results of operations of the combined company. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
Under the pooling of interests accounting rules, none of the executive
officers, directors or affiliates of either of the combining companies may sell
any shares of either of the combining companies within the period beginning 30
days prior to consummation of the merger and ending when the combined company
releases financial results covering at least 30 days of combined operations of
TMP and LAI. Therefore, if sales by these stockholders occur subsequent to the
merger and prior to the publication of financial results covering at least 30
days of combined operations, pooling of interests accounting treatment for the
merger may not be available in spite of such treatment being appropriate as of
the consummation of the merger. If this accounting treatment is not available,
the merger would be accounted for under the purchase method of accounting, which
would have the effects discussed below. Prior to the closing of the merger, each
of the current executive officers and directors of LAI will enter into an
agreement requiring them to comply with this restriction. See "The Merger
Agreement--Conditions to the merger."
We cannot assure you that an executive officer, director or affiliate of
either company will not sell shares of TMP Common Stock or shares of LAI Common
Stock during this prohibited period or that all of the requirements necessary to
qualify for pooling of interests will be met. If the requirements necessary to
qualify for pooling of interests are not met prior to consummation of the
merger, then TMP does not have to consummate the merger. However, if TMP decides
to consummate the merger even though this condition is not met, the merger would
be accounted for under the purchase method of accounting. This would mean that
the assets of LAI would be recognized at their fair value. Any excess of the
purchase price over the fair value, other than amounts charged to in-process
research and development costs, if any, would be recognized as goodwill on TMP's
balance sheet. The goodwill would be amortized as an expense over its
anticipated useful life. This could have a material adverse effect on the
combined company's results of operations.
EFFECT ON EMPLOYEE EQUITY PLANS
STOCK OPTION PLANS. Under the terms of the merger agreement, each stock
option outstanding under LAI's employee stock option plan will be assumed by TMP
and converted into an option to acquire the number of shares of TMP Common Stock
equal to the number of shares of LAI Common Stock subject to the option
immediately prior to the merger multiplied by the Exchange Ratio, rounded down
to the nearest whole share. The exercise price of each LAI stock option will be
adjusted by dividing the per share exercise price by the Exchange Ratio and
rounding up to the nearest cent. These options will all have the same terms and
conditions as they had prior to the merger.
As of July 27, 1999, options to acquire 1,507,238 shares of LAI Common Stock
were outstanding under LAI's employee stock option plans.
As soon as practicable after the closing date of the merger, TMP will
deliver to each holder of an outstanding LAI stock option a notice setting forth
such holder's rights under the option and the stock option shall, except as
described above, continue in effect on the same terms and conditions, including
antidilution provisions, as immediately prior to the closing date.
REGULATORY APPROVALS
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, also known as the HSR Act, we were required to notify and provide
certain information to the FTC and the Antitrust Division of the United States
Department of Justice.
We have filed the required notification and report forms with the FTC and
the Antitrust Division. Pursuant to the HSR Act, the FTC terminated the waiting
period on June 2, 1999. The FTC and the Antitrust Division have the authority to
challenge the merger on antitrust grounds before or after the
39
<PAGE>
merger is completed. Each state in which TMP or LAI have operations may also
challenge the merger under state or federal antitrust laws.
FEDERAL SECURITIES LAW CONSEQUENCES
The TMP Common Stock issued in connection with the merger will be freely
transferable subject to some restrictions. Any TMP Common Stock received by
persons who are deemed to be "affiliates" of LAI prior to the merger may be sold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act of 1933. Any TMP Common Stock received by persons who
are deemed to be "affiliates" of TMP prior to or because of the merger may be
sold by them only in transactions permitted by the resale provisions of Rule 144
under the Securities Act, or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of LAI or TMP generally include
individuals or entities that control, are controlled by, or are under common
control with, such corporation and may include certain officers and directors of
such corporation as well as principal stockholders of each corporation.
Affiliates of LAI or TMP may not sell their shares of TMP Common Stock
acquired in connection with the merger except pursuant to an effective
registration statement under the Securities Act covering such shares or pursuant
to Rule 144 or Rule 145. Rule 145 provides that for one year following the
closing of the merger, an affiliate and certain persons related to the affiliate
can only sell shares of TMP Common Stock acquired in connection with the merger
through unsolicited "brokers' transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 145. Rule 145 also restricts
the number of shares to be sold by an affiliate within any three-month period to
the greater of 1% of the outstanding shares of TMP Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 will only remain available, however, to affiliates if TMP
remains current with its informational filings under the Securities Exchange Act
of 1934, referred to as the Exchange Act. One year after the closing of the
merger, an affiliate will be able to sell his or her TMP Common Stock without
such manner of sale or volume limitations provided that TMP is then current with
its Exchange Act informational filings and such affiliate is not then an
affiliate of TMP. Two years after the closing of the merger, an affiliate will
be able to sell his or her TMP Common Stock without any restrictions as long the
affiliate has not been an affiliate of TMP for at least three months prior to
such sale.
STOCK LISTING
It is a condition to TMP's obligation to consummate the merger that the
shares of TMP Common Stock to be issued to the LAI stockholders in the merger be
approved for quotation and trading on the Nasdaq National Market System, subject
to official notice of issuance. An application has been filed for listing and
quotation of the shares of TMP Common Stock with the Nasdaq National Market.
APPRAISAL RIGHTS
LAI stockholders do not have appraisal rights under Florida law because the
LAI Common Stock is traded on NASDAQ.
MERGER EXPENSES AND FEES AND OTHER COSTS
Each of TMP and LAI will pay its own expenses in connection with the merger
except for certain fees payable if the merger agreement is terminated prior to
the closing of the merger.
40
<PAGE>
THE MERGER AGREEMENT
STRUCTURE OF THE MERGER
The merger agreement provides that a wholly-owned subsidiary of TMP shall be
merged with and into LAI. LAI will be the surviving corporation and will become
a wholly-owned subsidiary of TMP. However, the LAI stockholders must approve the
merger agreement and all conditions to the merger must be satisfied before this
will occur.
CONSUMMATION OF THE MERGER
It is expected that the closing contemplated by the merger agreement will
take place after all the conditions to the merger have been satisfied or waived,
which is expected to be prior to August 31, 1999.
MERGER CONSIDERATION
At the closing of the merger, each share of LAI Common Stock which is issued
and outstanding immediately prior to the closing of the merger will be converted
into the right to receive a fraction of a share of TMP Common Stock. The
fraction will be determined by the following ratio, called the Exchange Ratio:
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is greater than $64.00, the
Exchange Ratio will be $8.45 divided by such average stock price;
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to the closing of the merger is at least $42.00 but not
more than $64.00, the Exchange Ratio will be 0.1321; and
- if the 20 day average of the closing prices of TMP Common Stock measured
two days prior to closing is less than $42.00, the Exchange Ratio will be
$5.55 divided by such average stock price.
The exchange will occur by operation of law without any action on the part
of any LAI stockholder. Treasury shares held by LAI or shares held by TMP will
not be converted. The Exchange Ratio was agreed to as the result of arm's length
negotiations between representatives of LAI and TMP. During these negotiations,
LAI was advised by the investment banking firm of Robert W. Baird & Co.
Incorporated.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the closing, we will cause an exchange agent to
deliver transmittal forms to each holder of record of LAI Common Stock. These
transmittal forms will be used in surrendering shares of LAI Common Stock in
exchange for TMP Common Stock. No fractional shares of TMP Common Stock will be
issued. Each holder of LAI Common Stock who would otherwise get a fractional
share of TMP Common Stock will instead receive an amount in cash, without
interest, equal to such fraction multiplied by the average of the closing prices
for the TMP Common Stock for the twenty consecutive trading days ending on the
second trading day immediately prior to the closing date of the merger.
After receipt of the transmittal form, LAI stockholders should surrender
their certificates to the exchange agent. Each holder surrendering his or her
certificate will then receive a certificate representing the number of whole
shares of TMP Common Stock to which the holder is entitled and a check for the
cash payable in lieu of any fraction of a share. We will send instructions
specifying other details of the exchange with the transmittal forms.
LAI STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
41
<PAGE>
After the closing and until it is exchanged, each certificate representing
shares of LAI Common Stock will be deemed for all purposes to evidence the right
to receive the number of shares of TMP Common Stock into which the shares of LAI
Common Stock evidenced by such certificate have been converted and the right to
receive a cash payment, if any, in lieu of any fraction of a share.
TREATMENT OF LAI COMMON STOCK OPTIONS
At the closing, each outstanding and unexercised option to purchase LAI
Common Stock will be assumed by TMP. Each of these options will have the same
terms and conditions as the original option to purchase LAI Common Stock except
that the option will be or will become exercisable for shares of TMP Common
Stock. The number of shares of TMP Common Stock that each option will be
converted into will be the number of shares of LAI Common Stock subject to the
option multiplied by the Exchange Ratio. The exercise price of the option will
be adjusted by dividing the exercise price by the Exchange Ratio.
REPRESENTATIONS AND WARRANTIES
LAI and TMP have each made customary representations and warranties to the
other in the merger agreement relating to, among other things:
- their organization, the organization of their subsidiaries and similar
corporate matters;
- their capital structure;
- the authorization, execution and delivery and performance of the merger
agreement;
- the absence of conflicts, violations or defaults under their respective
organizational documents of conflicts with or violations of any laws as a
result of executing the merger agreement;
- governmental consents and filings;
- financial statements;
- the absence of undisclosed liabilities and material adverse events;
- the filing of tax returns and the payment of taxes;
- disclosure of material agreements and commitments;
- disclosure of litigation;
- the absence of actions which would prevent the merger from being accounted
for as a pooling of interests or constituting a tax-free reorganization;
and
- compliance with Year 2000 requirements.
LAI has made certain additional representations and warranties regarding its
title to properties, compliance with governmental regulations concerning
employee benefit plans and labor matters. Also, LAI has represented and
warranted that it has received a fairness opinion of its financial advisor and
that it has taken all actions so that no "fair price," "business combination,"
"control share acquisition" or other similar statute will apply to the merger.
CERTAIN COVENANTS
INTERIM OPERATIONS OF LAI AND TMP
From the date of the merger agreement until the closing, LAI and TMP have
agreed to carry on their businesses in the ordinary course consistent with past
practice. They have each also agreed to use all reasonable efforts consistent
with past practices and policies to:
- preserve their present business organizations;
42
<PAGE>
- keep available the services of their present officers and key employees;
and
- preserve their relationships with customers, suppliers and others having
business dealings with them.
During the period before the closing, LAI will not, without the consent of
TMP, do or agree to do any of the following:
- declare or pay any dividends on or make any distributions with respect to
its capital stock or split, combine or reclassify any of its capital
stock;
- accelerate, amend or change the period of exercisability of options or
restricted stock;
- issue or authorize the issuance of any shares of its capital stock,
options or warrants to purchase any shares of its capital stock except for
the grant of options consistent with past practices to existing or new
employees representing up to 200,000 shares of LAI Common Stock or the
issuance of shares of LAI Common Stock on the exercise of outstanding
options and warrants;
- acquire another business;
- sell, lease, license, mortgage or dispose of any material assets except in
the ordinary course of its business;
- increase the compensation payable to its officers or employees, grant
additional severance or termination pay, enter into any collective
bargaining agreement, adopt any bonus or benefit plan for the benefit of
its employees except for bonuses based on the performance of LAI and its
employees during the fiscal year ended February 29, 1999 and consistent
with the prior year and bonuses paid under existing contracts;
- amend its charter or bylaws;
- incur any additional debt;
- initiate or settle any material litigation or arbitration proceeding;
- amend any material contract, except in the ordinary course of business;
- incur any capital expense other than those expenses contemplated by its
current budget; or
- make any cash disbursement exceeding $250,000 except as is consistent with
its current budget.
During the period before closing, TMP has agreed that it will not, among
other things:
- accelerate, amend or change the period of exercisability of options or
restricted stock; or
- amend its charter or bylaws.
LAI STOCKHOLDERS' MEETING
LAI has agreed to cause a meeting of its stockholders to be held as promptly
as practical after the signing of the merger agreement. The LAI board has agreed
to recommend approval of the merger agreement by its stockholders and to take
all reasonable and lawful action to solicit and obtain such approval.
CERTAIN OTHER COVENANTS
The merger agreement contains mutual covenants of the parties, including
covenants relating to public announcements; taxation of the transaction;
treatment of the transaction as a pooling of interests for accounting purposes,
and obtaining consents and approvals.
43
<PAGE>
TMP has agreed to use its best efforts to cause the shares of TMP Common
Stock to be issued in the merger to be listed on the Nasdaq National Market.
AFFILIATE LETTERS
LAI has agreed to provide TMP with a list of people and entities who may be
deemed to be affiliates of LAI within the meaning of Rule 145 under the
Securities Act. LAI has also agreed to cause these individuals to deliver
agreements providing that they will not sell, transfer or otherwise dispose of
or reduce the risk of ownership of any shares of TMP or LAI Common Stock owned
by them. This restriction commences 30 days prior to the closing of the merger
and ends when financial results covering at least 30 days of combined results of
TMP and LAI have been published after the closing of the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of LAI and TMP to complete the merger are subject
to the satisfaction of certain conditions, including the following:
- the expiration of the waiting period under the Hart-Scott-Rodino Act shall
have expired or been terminated and all other necessary governmental
approvals shall have been obtained;
- approval of the merger agreement and the merger by the LAI stockholders;
- the registration statement of which this proxy statement/prospectus is a
part shall have been declared effective by the SEC and shall not be
subject to any stop order or proceeding by the SEC;
- TMP and LAI shall have received letters from BDO Seidman, LLP and Arthur
Andersen LLP, respectively, regarding the concurrence of such accountants
with TMP's and LAI's managements' conclusions as to the appropriateness of
the pooling of interests accounting;
- approval for listing on the Nasdaq National Market of the shares of TMP
Common Stock issuable to the LAI stockholders in the merger;
- there must not be any court order which effectively prohibits the merger;
and
- there cannot have been an event which shall have had, or could be
reasonably expected to have, a material adverse effect with respect to
either company, as defined in the merger agreement.
CONDITIONS TO THE OBLIGATIONS OF TMP
The obligations of TMP to complete the merger are subject to the
satisfaction of the following additional conditions:
- the representations and warranties of LAI contained in the merger
agreement shall be true and correct;
- LAI shall have performed in all material respects all of its obligations
under the merger agreement;
- LAI shall have obtained all material permits, licenses and other
governmental authorizations needed for LAI to continue to conduct its
business after the merger;
- the shares of LAI held by dissenting stockholders shall not exceed 10% of
the shares of LAI Common Stock issued and outstanding on the closing date
of the merger; and
- LAI shall have taken all action necessary so that the signing of the
merger agreement and the completion of the merger will not cause any
rights under the shareholder rights agreement between LAI and ChaseMellon
Shareholder Services, LLC to become exercisable.
44
<PAGE>
CONDITIONS TO THE OBLIGATIONS OF LAI
The obligations of LAI to complete the merger are subject to the
satisfaction of the following additional conditions:
- the representations and warranties of TMP contained in the merger
agreement shall be true and correct;
- TMP shall have performed in all material respects all of its obligations
under the merger agreement; and
- LAI shall have received an opinion of counsel stating that the merger will
be treated for federal income tax purposes as a reorganization for
purposes of Section 368(a) of the Code.
AMENDMENTS AND WAIVERS
The merger agreement may be amended by a written amendment executed by both
TMP and LAI. After the LAI stockholders have approved the merger, TMP and LAI
may not amend the merger agreement in a way which would require stockholder
approval without getting such approval.
NO SOLICITATION
LAI has agreed not to solicit, initiate or encourage any inquiries or
proposals relating to the possible acquisition of LAI by any party other than
TMP. However, LAI may give information to and negotiate with a person who has
made an unsolicited proposal if that proposal is more favorable to LAI than the
merger. In order to do so, the LAI board must make the determination that any
proposal is superior to the merger in good faith. It may consider such a
proposal if, on the basis of the advice of outside counsel, the LAI board
determines that failure to consider a proposal would be reasonably likely to be
a breach of the board's fiduciary duties to LAI stockholders under applicable
law. LAI has agreed to notify TMP if it receives this type of acquisition
proposal or any inquiry from a person considering such a proposal.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time, whether before or after the approval of the LAI stockholders, by:
- mutual consent of LAI and TMP;
- either LAI or TMP if:
- the merger has not been completed by September 30, 1999, except that
neither party may terminate the merger agreement if the merger has not
been completed because it is in breach of the agreement;
- a court or a governmental entity has taken final action to restrain or
prohibit the merger;
- the LAI stockholders do not approve the merger agreement, except that
TMP and LAI may not terminate the merger agreement if the merger has
not been completed because they are in breach of the agreement; or
- there has been a breach of any representation, warranty, covenant or
agreement by the other party which has not been cured within 30 days
that the breaching party receives notice that it is in breach.
- by TMP if:
- the LAI board withdraws or modifies its recommendation of the merger
agreement or the merger;
45
<PAGE>
- LAI receives an alternative acquisition proposal, TMP requests that the
LAI board reconfirm its recommendation and the LAI board does not
reconfirm its recommendation of the merger and the merger agreement
within 10 days of being asked to do so;
- the LAI board recommends an alternative acquisition proposal to its
stockholders;
- the LAI board recommends a tender offer or exchange offer for 10% or
more of LAI's outstanding common stock to its stockholders;
- LAI fails for any reason to call and hold the stockholders' meeting by
September 30, 1999; or
- the average closing price of TMP's Common Stock for a period of twenty
consecutive trading days ending on the second trading day prior to the
closing of the merger is less than $42.00 per share as reported by the
Nasdaq National Market.
- by LAI if the LAI board of directors withdraws or modifies its
recommendation of the merger because it has accepted a competing
transaction that it feels is superior to TMP's proposal. In this event,
LAI must pay TMP's expenses relating to the transaction.
If the merger agreement is validly terminated, the merger agreement becomes
void. The only provisions which survive are those relating to confidentiality
and payment of expenses. Neither TMP nor LAI shall have any liability to the
other unless they are in willful breach of the agreement.
TERMINATION FEES AND EXPENSES
PAYMENT OF EXPENSES OF THE MERGER GENERALLY
In general, TMP and LAI will each pay their own fees and expenses incurred
in connection with the merger.
WHEN LAI MUST PAY TMP'S EXPENSES
LAI will pay TMP up to $2 million to cover TMP's expenses actually incurred
relating to the merger if:
- the LAI board withdraws or modifies its recommendation of the merger
agreement or the merger;
- LAI receives an alternative acquisition proposal, TMP requests that the
LAI board reconfirm its recommendation, and the LAI board does not
reconfirm its recommendation of the merger and the merger agreement within
10 days of being asked to do so;
- the LAI board recommends an alternative acquisition proposal to its
stockholders;
- the LAI board recommends a tender offer or exchange offer for 10% or more
of LAI's outstanding common stock to its stockholders; or
- LAI fails for any reason to call and hold the stockholders' meeting by
September 30, 1999.
WHEN LAI MUST PAY A TERMINATION FEE
In addition to the reimbursement for expenses actually incurred discussed
above, LAI must pay TMP a termination fee of $2 million if TMP terminates the
merger agreement for any of the reasons set forth above or because:
- LAI has willfully breached the merger agreement and, at the time of such
breach, LAI has received another acquisition proposal;
46
<PAGE>
- the LAI stockholders have not approved the merger agreement and at the
time of the stockholders' meeting, LAI has received another acquisition
proposal which has not been unconditionally withdrawn and abandoned; or
- if LAI terminates the merger agreement because LAI's board has withdrawn
its support for the merger and accepted a superior proposal.
WHEN TMP MUST PAY LAI'S FEES AND EXPENSES
TMP will pay LAI up to $2 million to cover LAI's expenses actually incurred
relating to the merger if:
- the merger has not been completed by September 30, 1999 because TMP
breached its representations and warranties under the merger agreement or
has not confirmed that its representations and warranties are true and
correct as of the closing date;
- TMP is in breach of its representations and warranties under the merger
agreement; or
- TMP terminates the merger agreement because the average closing price of
TMP's Common Stock for a period of twenty consecutive trading days ending
on the second trading day prior to the closing of the merger is less than
$42.00 per share.
47
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Information reflects
financial information which gives effect to TMP's probable acquisition of all
the outstanding stock of LAI and the assumed replacement of all options to
acquire LAI Common Stock with options to purchase TMP Common Stock in exchange
for the issuance of approximately 1,100,000 shares of the TMP's Common Stock and
approximately 200,000 options to purchase shares of TMP Common Stock. The share
amounts and option amounts were calculated using an exchange ratio of 0.1321 and
assuming 8,120,427 LAI shares and 1,507,238 LAI options were outstanding at July
8, 1999. The Pro Forma Condensed Combined Financial Information included herein
reflects the anticipated use of the pooling of interests method of accounting,
after giving effect to the pro forma adjustments discussed in the accompanying
notes. Such financial information has been prepared from, and should be read in
conjunction with, the supplemental consolidated financial statements and notes
thereto of TMP included in TMP's current report on Form 8-K filed on June 10,
1999, incorporated herein by reference and the LAI historical consolidated
financial statements and notes thereto included elsewhere in this proxy
statement/prospectus.
The Pro Forma Condensed Combined Balance Sheet gives effect to the merger as
if it had occurred on March 31, 1999, combining the balance sheet of TMP as of
March 31, 1999 with that of LAI as of February 28, 1999. The Pro Forma Condensed
Combined Statements of Operations give effect to the merger as if it had
occurred at the beginning of the earliest period presented, combining the
results of TMP for the three months ended March 31, 1999 and each year in the
three-year period ended December 31, 1998 with those of LAI for the three months
ended February 28, 1999 and each year in the three-year period ended February
28, 1999, respectively. The results of LAI for the three months ended February
28, 1999 are included in the Pro Forma Condensed Combined Statement of
Operations for both the year ended December 31, 1998 and the three months ended
March 31, 1999. Revenue was approximately $15.8 million and the net loss was
approximately $6.6 million for LAI for the three months ended February 28, 1999.
The Pro Forma Condensed Combined Statements of Operations presented do not
include any potential cost savings. TMP believes that it may be able to reduce
salaries and related costs and office and general expenses as it eliminates
duplication of overhead. However, there can be no assurance that TMP will be
successful in effecting any such cost savings.
The Pro Forma Condensed Combined Financial Information is unaudited and is
not necessarily indicative of the consolidated results which actually would have
occurred if the above transactions had been consummated at the beginning of the
periods presented, nor does its purport to present the future financial position
and results of operations for future periods.
48
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP PRO FORMA
WORLDWIDE INC. LAI WORLDWIDE INC. ADJUSTMENTS COMBINED
-------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 27,149 $ 29,899 $ -- $ 57,048
Accounts receivable, net....................... 339,207 22,419 -- 361,626
Work-in-process................................ 21,264 -- -- 21,264
Prepaid and other.............................. 25,830 6,657 -- 32,487
-------------- -------- ----------- -----------
Total current assets....................... 413,450 58,975 -- 472,425
Property and equipment, net...................... 63,133 9,521 -- 72,654
Deferred income taxes............................ 6,684 4,927 -- 11,611
Intangibles, net................................. 217,524 22,492 -- 240,016
Other assets..................................... 7,795 7,908 -- 15,703
-------------- -------- ----------- -----------
$ 708,586 $ 103,823 $ -- $ 812,409
-------------- -------- ----------- -----------
-------------- -------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 262,252 $ 6,027 $ -- $ 268,279
Accrued expenses and other liabilities......... 92,820 8,234 3,000(a) 104,054
Accrued restructuring costs.................... 14,312 577 -- 14,889
Deferred revenue............................... 16,111 -- -- 16,111
Deferred income taxes.......................... 4,808 -- (956)(e) 3,852
Current portion of long-term debt.............. 11,779 3,004 -- 14,783
-------------- -------- ----------- -----------
Total current liabilities.................. 402,082 17,842 2,044 421,968
Long-term debt, less current portion............. 130,776 2,903 -- 133,679
Other liabilities................................ 8,818 9,518 -- 18,336
Minority interests............................... 601 -- -- 601
STOCKHOLDERS' EQUITY
Common stock................................... 34 1(b) 35
Class B common stock........................... 2 -- -- 2
Common stock of LAI Worldwide Inc.............. 82 (82)(c) --
Additional paid-in capital..................... 200,531 78,065 (115) ,d) 278,481
Unamortized stock-based compensation........... -- (2,732) 2,732(e) --
Other comprehensive gain (loss)................ (920) 37 -- (883)
Accumulated deficit............................ (33,338) (1,696) (4,776) ,e) (39,810)
Treasury stock................................. -- (196) 196(d) --
-------------- -------- ----------- -----------
Total stockholders' equity................. 166,309 73,560 (2,044) 237,825
-------------- -------- ----------- -----------
$ 708,586 $ 103,823 $ -- $ 812,409
-------------- -------- ----------- -----------
-------------- -------- ----------- -----------
</TABLE>
- ------------------------
(a) To accrue for costs to be incurred in connection with the merger.
(b) Represents par value of the 1,073 shares to be issued in connection with the
merger, based on the number of outstanding shares of LAI Common Stock as of
the balance sheet date.
(c) Par value of the shares of LAI Common Stock is reclassified as additional
paid-in capital net of the par value of the newly issued TMP Common Stock.
(d) LAI's treasury stock has been reclassified as a reduction to additional
paid-in capital.
(e) Represents compensation expense, net of a 35% tax benefit, to be recognized
upon the consummation of the merger as a result of the acceleration of the
vesting of the stock associated with the unamortized stock-based
compensation.
49
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
LAI
TMP WORLDWIDE, PRO FORMA
WORLDWIDE INC. INC. COMBINED
-------------- -------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees............................................... $ 128,237 $ 15,827 $ 144,064
Temporary contracting.............................................. 60,648 -- 60,648
-------------- ------- -----------
Total revenue.................................................... 188,885 15,827 204,712
-------------- ------- -----------
Operating expenses:
Salaries and related costs......................................... 79,804 15,746 95,550
Temporary contracting costs........................................ 50,609 -- 50,609
Office and general................................................. 41,233 7,708 48,941
Amortization of intangibles........................................ 2,634 194 2,828
Restructuring charges.............................................. -- 3,543 3,543
Merger costs....................................................... 4,687 -- 4,687
-------------- ------- -----------
Total operating expenses......................................... 178,967 27,191 206,158
-------------- ------- -----------
Operating income (loss).............................................. 9,918 (11,364) (1,446)
Interest income (expense), net....................................... (2,730) 171 (2,559)
Other expense, net................................................... (43) (281) (324)
-------------- ------- -----------
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in losses of affiliates....................... 7,145 (11,474) (4,329)
Provision (benefit) for income taxes................................. 3,056 (4,856) (1,800)
Minority interests................................................... 99 -- 99
Equity in losses of affiliates....................................... (100) -- (100)
-------------- ------- -----------
Net income (loss) applicable to common and Class B common
stockholders....................................................... $ 3,890 $ (6,618) $ (2,728)
-------------- ------- -----------
-------------- ------- -----------
Net income (loss) per common and Class B common share:
Basic.............................................................. $ 0.11 $ (0.07)(a)
Diluted............................................................ $ 0.10 $ (0.07)(a)
Weighted average shares outstanding:
Basic.............................................................. 36,381 37,454(a)
Diluted............................................................ 37,972 37,454(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the merger, including LAI's weighted average basic and
diluted shares outstanding for the period, which were 8,120 and 8,120,
respectively, multiplied by the assumed Exchange Ratio of 0.1321.
50
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP LAI WORLDWIDE, PRO FORMA
WORLDWIDE INC. INC. COMBINED
-------------- ------------------ -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees........................................... $ 488,340 $ 86,811 $ 575,151
Temporary contracting.......................................... 211,089 -- 211,089
-------------- ------- -----------
Total revenue.............................................. 699,429 86,811 786,240
-------------- ------- -----------
Operating expenses:
Salaries and related costs..................................... 294,883 66,897 361,780
Temporary contracting costs.................................... 175,133 -- 175,133
Office and general............................................. 155,359 21,628 176,987
Amortization of intangibles.................................... 9,401 776 10,177
Restructuring charges.......................................... -- 3,543 3,543
CEO bonus...................................................... 1,250 -- 1,250
Merger costs................................................... 22,412 -- 22,412
-------------- ------- -----------
Total operating expenses................................... 658,438 92,844 751,282
-------------- ------- -----------
Operating income (loss).......................................... 40,991 (6,033) 34,958
Interest income (expense), net................................... (10,607) 618 (9,989)
Other expense, net............................................... (1,730) (370) (2,100)
-------------- ------- -----------
Income (loss) before provision (benefit) for income taxes,
minority interest and equity in earnings of affiliates.......... 28,654 (5,785) 22,869
Provision (benefit) for income taxes............................. 13,821 (1,547) 12,274
Minority interests............................................... 28 -- 28
Equity in losses of affiliates................................... (396) -- (396)
-------------- ------- -----------
Net income (loss) applicable to common and Class B common
stockholders.................................................... $ 14,409 $ (4,238) $ 10,171
-------------- ------- -----------
-------------- ------- -----------
Net income per common and Class B common share:
Basic.......................................................... $ 0.40 $ 0.28(a)
Diluted........................................................ $ 0.39 $ 0.27(a)
Weighted average shares outstanding:
Basic.......................................................... 35,882 36,853(a)
Diluted........................................................ 36,808 37,779(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the merger, including LAI's weighted average basic and
diluted shares outstanding for the period, which were 7,346 and 7,346,
respectively, multiplied by the assumed Exchange Ratio of 0.1321.
51
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP LAI
WORLDWIDE, WORLDWIDE PRO FORMA
INC. INC. COMBINED
-------------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.................................................... $ 403,408 $ 61,803 $ 465,211
Temporary contracting................................................... 186,458 -- 186,458
-------------- ----------- -----------
Total revenue....................................................... 589,866 61,803 651,669
-------------- ----------- -----------
Operating expenses:
Salaries and related costs.............................................. 246,601 46,513 293,114
Temporary contracting costs............................................. 155,133 -- 155,133
Office and general...................................................... 131,564 8,663 140,227
Amortization of intangibles............................................. 6,842 17 6,859
CEO bonus............................................................... 1,500 -- 1,500
-------------- ----------- -----------
Total operating expenses............................................ 541,640 55,193 596,833
-------------- ----------- -----------
Operating income.......................................................... 48,226 6,610 54,836
Interest income (expense), net............................................ (8,891) 197 (8,694)
Other income, net......................................................... 632 -- 632
-------------- ----------- -----------
Income before provision for income taxes, minority interests and equity in
losses of affiliates..................................................... 39,967 6,807 46,774
Provision for income taxes................................................ 15,770 2,927 18,697
Minority interests........................................................ 296 -- 296
Equity in losses of affiliates............................................ (33) -- (33)
-------------- ----------- -----------
Net income................................................................ 23,868 3,880 27,748
Preferred stock dividends................................................. (123) -- (123)
-------------- ----------- -----------
Net income applicable to common and Class B common stockholders........... $ 23,745 $ 3,880 $ 27,625
-------------- ----------- -----------
-------------- ----------- -----------
Net income per common and Class B common share:
Basic................................................................... $ 0.70 $ 0.80(a)
Diluted................................................................. $ 0.69 $ 0.79(a)
Weighted average shares outstanding:
Basic................................................................... 33,846 34,450(a)
Diluted................................................................. 34,487 35,114(a)
</TABLE>
- --------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the merger, including LAI's weighted average basic and
diluted shares outstanding for the period, which were 4,573 and 4,751,
respectively, multiplied by the assumed Exchange Ratio of 0.1321.
52
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP LAI PRO FORMA
WORLDWIDE INC. WORLDWIDE INC. COMBINED
-------------- -------------- -----------
<S> <C> <C> <C>
Revenue
Commissions and fees................................................ $ 299,415 $ 46,437 $ 345,852
Temporary contracting............................................... 132,110 -- 132,110
-------------- ------- -----------
Total revenue..................................................... 431,525 46,437 477,962
-------------- ------- -----------
Operating expenses
Salaries and related costs.......................................... 177,840 39,928 217,768
Temporary contracting costs......................................... 110,408 -- 110,408
Office and general.................................................. 100,242 6,685 106,927
Amortization of intangibles......................................... 4,732 -- 4,732
Special compensation................................................ 52,019 -- 52,019
-------------- ------- -----------
Total operating expenses.......................................... 445,241 46,613 491,854
-------------- ------- -----------
Operating loss........................................................ (13,716) (176) (13,892)
Interest expense, net................................................. (14,126) (376) (14,502)
Other expense, net.................................................... (479) -- (479)
-------------- ------- -----------
Loss before provision for income taxes, minority interests and equity
in losses of affiliates............................................. (28,321) (552) (28,873)
Provision for income taxes............................................ 9,733 15 9,748
Minority interests.................................................... 1,017 -- 1,017
Equity in earnings of affiliates...................................... 114 -- 114
-------------- ------- -----------
Net loss.............................................................. (38,957) (567) (39,524)
Preferred stock dividends............................................. (210) -- (210)
-------------- ------- -----------
Net loss applicable to common and Class B common stockholders......... $ (39,167) $ (567) $ (39,734)
-------------- ------- -----------
-------------- ------- -----------
Net loss per common and Class B common share:
Basic............................................................... $ (1.37) $ (1.37)(a)
Diluted............................................................. $ (1.37) $ (1.37)(a)
Weighted average shares outstanding:
Basic............................................................... 28,679 29,101(a)
Diluted............................................................. 28,679 29,101(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the merger, including LAI's weighted average basic and
diluted shares outstanding for the period, which were 3,199 and 3,199
respectively, multiplied by the assumed Exchange ratio of 0.1321.
53
<PAGE>
LAI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presentation of management's discussion and analysis of LAI's
financial condition and results of operations should be read in conjunction with
LAI's consolidated financial statements, the notes thereto and other financial
information included herein.
OVERVIEW
LAI derives substantially all of its revenue from fees for professional
services which are billed exclusively on a retained basis. LAI's fees typically
equal one-third of the anticipated first year cash compensation for the position
being filled. If the actual compensation package for a successfully placed
candidate varies from the amount anticipated at the time of the engagement, an
appropriate adjustment may be made to LAI's search fee. LAI recognizes fee
revenue as clients are billed, generally over a 60 to 90 day period following
the acceptance of a search assignment. In addition, clients usually are required
to reimburse LAI for out-of-pocket expenses incurred and other service charges
related to its search process.
LAI's fee revenue has grown from $28.2 million in fiscal 1995 to $86.8
million in fiscal 1999, representing a compound annual growth rate of
approximately 32%. In the two fiscal years ended February 28, 1998, the increase
was principally the result of hiring new consultants. In fiscal 1999, the
increase was principally the result of consultants added in connection with two
acquisitions completed in the fourth quarter of fiscal 1998.
The largest component of LAI's operating expenses consists of compensation
and benefits paid to its executive search consultants, executive officers and
administrative and support personnel. General and administrative expenses
consist of occupancy expense associated with LAI's leased premises, costs
associated with LAI's investments in information technology and marketing and
other general office expenses.
INTERNATIONAL OPERATIONS
During the first and second quarters of fiscal 1999, LAI focused its growth
strategy on international expansion, opening offices in London, England and
Wanchai, Hong Kong. This expansion involved the hiring of 15 executive search
consultants and 47 support staff, principally in London. LAI also signed
exclusivity and confidentiality letter agreements in December 1998 with Futura
Beteiligungs GmbH ("Futura"), the majority owner of Neumann Holding AG, one of
Europe's largest executive search and assessment consulting firms. The parties
entered into preliminary talks about the possibility of LAI acquiring Futura.
These talks were terminated in March 1999 when LAI signed the merger agreement
with TMP.
Due to economic conditions and the inherent difficulties in establishing
start-up operations, revenues for the London and Hong Kong offices were less
than projected resulting in substantial losses from LAI's international business
segment. See note 10 to LAI's consolidated financial statements for the year
ended February 28, 1999 included herein. As a result, in December 1998, LAI
decided to significantly reduce the size and scope of the London office. In
connection with this downsizing, a restructuring charge of approximately $3.5
million was recorded in fiscal 1999. This charge included write-downs of
abandoned assets, severance benefits payable to international employees whose
positions were eliminated, and legal and other costs directly related to the
restructuring. See note 2 to the consolidated financial statements of LAI for
the year ended February 28, 1999 included herein.
In March 1999, LAI completed a second review of its international operations
and assessed the impact of the actions taken as a result of the decisions made
in December 1998. LAI determined that projections for revenues from
international operations were not being met. Consistent with its previously
stated intentions to prevent further operating losses from international
operations in fiscal 2000, LAI immediately enacted a plan of closure for its two
international offices. In accordance with this plan, both the
54
<PAGE>
London and Hong Kong offices were closed during the first quarter of fiscal
2000. The office closures resulted in a further restructuring charge of $2.8
million during the first quarter of fiscal 2000. See note 4 to LAI's condensed
consolidated financial statements for the three months ended May 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of fee revenue:
<TABLE>
<CAPTION>
PERCENTAGE OF FEE REVENUE
---------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED MAY 31,
FEBRUARY 28, --------------------
1997 1998 1999 1998 1999
--------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fee revenue, net.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Compensation and benefits..................... 86.0 75.3 77.1 73.7 87.1
General and administrative expenses........... 14.4 14.0 24.9 15.8 68.4
Goodwill amortization......................... -- -- 0.9 0.9 1.0
Restructuring charges......................... -- -- 4.1 -- 14.8
--------- ----- --------- --------- ---------
Operating income (loss)....................... (0.4) 10.7 (7.0) 9.6 (71.3)
Other income (expense)........................ (0.8) 0.3 0.3 (0.5) 1.4
--------- ----- --------- --------- ---------
Income (loss) before income taxes............. (1.2) 11.0 (6.7) 9.1 (69.9)
Income tax expense (benefit).................. -- 4.7 (1.8) 4.0 (28.7)
--------- ----- --------- --------- ---------
Net income (loss)............................. (1.2)% 6.3% (4.9)% 5.1% (41.2)%
--------- ----- --------- --------- ---------
--------- ----- --------- --------- ---------
</TABLE>
THREE-MONTH PERIOD ENDED MAY 31, 1999 COMPARED TO THREE-MONTH PERIOD ENDED MAY
31, 1998
FEE REVENUE. LAI's fee revenue decreased $4.5 million, or 19.3%, to $19.0
million for the three-month period ended May 31, 1999, from $23.5 million for
the same period in fiscal 1999.
LAI's domestic revenue decreased $4.7 million, or 19.8%, to $18.8 million
for the three-month period ended May 31, 1999, from $23.5 million for the same
period in fiscal 1999. This decrease is attributable to a 23.5% decrease in the
average revenue per consultant employed for a full year to $169,000 for the
three-month period ended May 31, 1999, from $221,000 for the same period in
fiscal 1999. The average first-year cash compensation of positions for which LAI
conducted searches increased 13.4% to $228,000 for the three-month period ended
May 31, 1999, from $201,000 for the same period in fiscal 1999. As of May 31,
1999, LAI employed 116 consultants domestically, compared to 115 domestic
consultants employed as of May 31, 1999.
LAI's selection services, LAIcompass.com ("Compass"), launched during the
first quarter of fiscal 2000, accounted for 1.0% of LAI's domestic revenue for
the three-month period ended May 31, 1999.
Revenues from international operations, which commenced in May 1998, and
ended in March 1999, accounted for less than 1.0% of total LAI revenue for the
three-month period ended May 31, 1999.
COMPENSATION AND BENEFITS. Compensation and benefits decreased $797,000, or
4.6%, to $16.5 million for the three-month period ended May 31, 1999, from $17.3
million for the same period in fiscal 1999. As a percentage of fee revenue,
compensation and benefits increased to 87.1% for the three-month period ended
May 31, 1999, compared to 73.7%, for the same period in fiscal 1999.
Domestic compensation and benefits decreased $762,000, or 4.4%, to $16.4
million for the three-month period ended May 31, 1999, from $17.2 million for
the same period in fiscal 1999. As a percentage of domestic fee revenue,
domestic compensation and benefits increased to 87.1% for the three-month
55
<PAGE>
period ended May 31, 1999, compared to 73.1% for the same period in fiscal 1999.
This increase was primarily due to spreading compensation and benefits for LAI's
administrative and support staff, which are primarily fixed, over a smaller fee
revenue base.
Compass accounted for 1.8% of LAI's domestic compensation and benefits
expense for the three-month period ended May 31, 1999.
International compensation and benefits accounted for less than 1.0% of
total LAI compensation and benefits expense for the three-month period ended May
31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $9.3 million to $13.0 million for the three-month period ended May 31,
1999, from $3.7 million for the same period in fiscal 1999. As a percentage of
fee revenue, general and administrative expenses increased to 68.4% for the
three-month period ended May 31, 1999, compared to 15.8% for the same period in
fiscal 1999.
Domestic general and administrative expenses increased $9.1 million to $12.6
million for the three-month period ended May 31, 1999, from $3.5 million for the
same period in fiscal 1999. As a percentage of domestic fee revenue, domestic
general and administrative expenses increased to 66.8% for the three-month
period ended May 31, 1999, compared to 15.1% for the same period in fiscal 1999.
This increase was primarily due to television advertising costs of $7.6 million
incurred in May 1999. LAI entered into a four-year co-operative advertising
arrangement with TMP in May 1999, under which LAI agreed to provide $10 million
in television and print advertising in May and June 1999. The television
advertising campaign was designed to promote LAI's relationship with TMP's
Monster.com internet site and the availability of the link to LAIcompass.com
from Monster.com. LAI also recorded a charge of $870,000 related to excess
capacity in three of its offices and approximately $650,000 of expenses related
to the proposed merger with TMP.
International general and administrative expenses accounted for 3.0% of
total LAI general and administrative expenses for the three-month period ended
May 31, 1999.
GOODWILL AMORTIZATION. Goodwill amortization was $194,000 for the
three-month period ended May 31, 1999, compared to $206,000 for the same period
in fiscal 1999.
OPERATING INCOME (LOSS). For the three-month period ended May 31, 1999, LAI
experienced an operating loss of $13.5 million compared to operating income of
$2.3 million for the same period in fiscal 1999. This decrease was primarily due
to increased general and administrative expenses as a percentage of revenues as
previously discussed.
RESTRUCTURING CHARGES. Restructuring charges were $2.8 million for the
three-month period ended May 31, 1999, and related to the closure of LAI's two
international offices. See Note 4 to LAI's Condensed Consolidated Financial
Statements.
OTHER INCOME,(EXPENSE) NET. For the three-month period ended May 31, 1999,
LAI generated other income of $259,000 compared to other expense of $118,000 for
the same period in fiscal 1999.
INCOME TAX EXPENSE (BENEFIT). The effective income tax rate for the
three-month period ended May 31, 1999, of 41.0% varied from the statutory rate
of 34% due to state and foreign income tax effects net of the non-deductibility
of certain expenses, including goodwill amortization, premiums on key person
life insurance policies, and a portion of meals and entertainment. LAI's United
Kingdom subsidiary was treated as a branch operation for tax purposes.
FISCAL 1999 COMPARED WITH FISCAL 1998
FEE REVENUE, NET. LAI's fee revenue increased $25.0 million, or 40.5%, to
$86.8 million for fiscal 1999 from $61.8 million for fiscal 1998.
56
<PAGE>
LAI's domestic revenue increased $21.6 million, or 35.0%, to $83.4 million
for fiscal 1999 from $61.8 million for fiscal 1998. This increase is
attributable to an increase in the number of consultants. During fiscal 1999,
LAI employed an average of 116 consultants domestically as compared to an
average of 78 consultants during fiscal 1998. This increase was primarily due to
the net addition of 34 consultants in connection with acquisitions in the fourth
quarter of fiscal 1998.
As of the end of fiscal 1999, LAI employed a total of 110 consultants
domestically. During fiscal 1999, LAI experienced turnover of approximately 17%,
which was higher than LAI has typically experienced. LAI is uncertain whether
this trend will continue.
The average revenue per consultant employed for a full year decreased 20.9%,
to $782,000, for fiscal 1999 from $989,000 for fiscal 1998. The average
first-year cash compensation of positions for which LAI conducted searches
decreased 7.1% to $210,000 for fiscal 1999 from $226,000 for fiscal 1998.
LAI commenced international operations in May 1998, with the opening of its
London, England office. For fiscal 1999, international operations accounted for
3.9% of total revenue.
COMPENSATION AND BENEFITS. Compensation and benefits increased $20.4
million, or 43.8%, to $66.9 million for fiscal 1999 from $46.5 million for
fiscal 1998. As a percentage of fee revenue, compensation and benefits increased
to 77.1% for fiscal 1999 from 75.3% for fiscal 1998.
Domestic compensation and benefits increased $12.9 million, or 27.7%, to
$59.4 million for fiscal 1999 from $46.5 million for fiscal 1998. As a
percentage of domestic fee revenue, domestic compensation and benefits decreased
to 71.2% for fiscal 1999 from 75.3% for fiscal 1998. This decrease was due to
lower discretionary compensation and a decrease in cash compensation paid to
consultants in connection with LAI's adoption of a revised compensation plan for
consultants effective December 1, 1998.
International compensation and benefits accounted for 11.2% of total
compensation and benefits expense for fiscal 1999. In order to attract qualified
executive search consultants, and consistent with industry practice, LAI
generally provides for new consultants to be paid under a compensation system
with much higher fixed salaries for a specified transitional period. After the
end of the transitional period, consultants are generally paid based on a
formula applied to their productivity. The higher fixed salaries resulted in
compensation and benefits as a percentage of revenue for international
operations being higher than LAI typically experiences domestically.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $12.9 million to $21.6 million for fiscal 1999 from $8.7 million for
fiscal 1998. As a percentage of fee revenue, general and administrative expenses
increased to 24.9% for fiscal 1999 from 14.0% for fiscal 1998.
Domestic general and administrative expenses increased $8.1 million, or
93.6%, to $16.8 million for fiscal 1999 from $8.7 million for fiscal 1998. As a
percentage of domestic fee revenue, domestic general and administrative expenses
increased to 20.1% for fiscal 1999 from 14.0% for fiscal 1998. This change was
primarily due to increases in the following areas: travel and meeting expenses,
legal and consulting fees, occupancy expenses, and IT costs. The increase in
travel and meeting expenses related to conferences designed to focus marketing
efforts within practice group areas, provide post-acquisition cultural
integration, and train new consultants. These expenses were higher than LAI has
typically experienced due to the significant number of new employees hired in
connection with acquisitions in the fourth quarter of fiscal 1998. Legal and
consulting fees increased due to LAI's merger and acquisition activities and the
holding company reorganization. See "LAI Business--Reorganization." Occupancy
costs and IT expenses increased primarily as a result of the eight offices and
110 employees added since 1998.
International general and administrative expenses accounted for 22.5% of
total general and administrative expenses for fiscal 1999. General and
administrative expenses as a percentage of revenues was substantially higher
than initially anticipated for international operations due to revenues being
generated at levels less than originally planned.
57
<PAGE>
GOODWILL AMORTIZATION. Goodwill amortization was $776,000 for fiscal 1999
as compared to $17,000 for fiscal 1998. This change was a result of goodwill
acquired in connection with two acquisitions during the fourth quarter of fiscal
1998.
RESTRUCTURING CHARGES. Restructuring charges were $3.5 million in fiscal
1999 and relate to the significant reduction of LAI's international operations
undertaken during the fourth quarter of fiscal 1999. See note 2 to the
consolidated financial statements of LAI included herein.
OPERATING INCOME (LOSS). LAI experienced an operating loss of $6.0 million
in fiscal 1999 as compared to operating income of $6.6 million in fiscal 1998.
This decrease was primarily due to operating losses experienced in connection
with LAI's international operations.
OTHER INCOME (EXPENSE). Other income increased $51,000, or 25.9%, to
$248,000 for fiscal 1999 from $197,000 for fiscal 1998. This increase was the
result of earnings associated with investment of the net proceeds from the
secondary public offering in June 1998. These earnings were partially offset by
an increase in interest expense related to notes payable issued in connection
with acquisitions completed during the fourth quarter of fiscal 1998 and foreign
currency transaction losses associated with LAI's international operations.
INCOME TAX EXPENSE (BENEFIT). The effective income tax rate for fiscal 1999
of 26.7% varied from the statutory rate of 34.0% due to state and foreign income
tax effects and the non-deductibility of certain expenses, including goodwill
amortization, premiums on key person life insurance policies, and a portion of
meals and entertainment. LAI's United Kingdom subsidiary was treated as a branch
operation for tax purposes.
FISCAL 1998 COMPARED WITH FISCAL 1997
FEE REVENUE, NET. Fee revenue increased $15.4 million, or 33.1%, to $61.8
million for fiscal 1998 from $46.4 million for fiscal 1997. The increase in fee
revenue was primarily a result of an increase in the number of consultants and
an increase in the average fee revenue per consultant. At the end of fiscal
1998, LAI employed a total of 111 consultants, which represents a net increase
of 49 consultants since the beginning of fiscal 1998 and reflects the 37
consultants added in connection with acquisitions completed during the fourth
quarter of fiscal 1998. The average fee revenue per consultant employed for a
full year increased 33.6% to $989,000 for fiscal 1998 from $740,000 for fiscal
1997.
COMPENSATION AND BENEFITS. Compensation and benefits increased $6.6
million, or 16.5%, to $46.5 million for fiscal 1998 from $39.9 million for
fiscal 1997. The increase was primarily due to compensation and benefits
associated with the growth in the number of consultants and the increase in fee
revenue per consultant. As a percentage of fee revenue, compensation and
benefits decreased to 75.3% for fiscal 1998 from 86.0% for fiscal 1997 primarily
due to a decrease in cash compensation paid to consultants in connection with
LAI's adoption of a revised compensation plan for consultants effective March 1,
1997. The decrease in compensation and benefits as a percentage of fee revenue
also was due to spreading compensation and benefits for LAI's administrative and
support staff, which are primarily fixed, over a greater fee revenue base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.0 million, or 29.8%, to $8.7 million for fiscal 1998 from $6.7
million for fiscal 1997. These changes were the result of additional
infrastructure costs related to business expansion, including increased
occupancy and IT expenses. As a percentage of fee revenue, general and
administrative expenses decreased to 14.0% for fiscal 1998 from 14.4% for fiscal
1997.
GOODWILL AMORTIZATION. Goodwill amortization was $17,000 for fiscal 1998
compared to no amortization for fiscal 1997. This change was the result of
goodwill acquired in connection with two acquisitions during the fourth quarter
of fiscal 1998.
58
<PAGE>
OPERATING INCOME (LOSS). Operating income was $6.6 million for fiscal 1998,
as compared to a loss of $176,000 for fiscal 1997. This change was primarily the
result of an increase in fee revenue and decreases in compensation and benefits
and general and administrative expenses as a percentage of fee revenue.
OTHER INCOME (EXPENSE). LAI received net interest income of $197,000 for
fiscal 1998, as compared to net interest expense incurred of $376,000 for fiscal
1997. This change was a result of LAI repaying all outstanding indebtedness
under its credit facilities with proceeds from the issuance of LAI Common Stock
during its initial public offering, as well as investment earnings from the
remaining net proceeds.
INCOME TAX EXPENSE (BENEFIT). The effective tax rate for fiscal 1998 of
43.0% varied from the statutory rate of 34.0% due to state income taxes and the
non-deductibility of certain expenses, including a portion of meals,
entertainment and dues expense and premiums on keyperson life insurance
policies.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information of LAI for fiscal 1998 and fiscal 1999 and the first quarter of
fiscal 2000. This information has been prepared on the same basis as the audited
consolidated financial statements of LAI included in this prospectus and, in the
opinion of management, includes all adjustments, consisting solely of normal and
recurring adjustments, necessary for the fair presentation of the information
for the periods presented. The financial data shown below should be read in
conjunction with the consolidated financial statements and notes thereto.
Results for any previous fiscal quarter are not necessarily indicative of
results for the full year or for any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1997 1997 1997 1998 1998 1998 1998 1999
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue,
net......... $ 13,725 $ 16,773 $ 15,349 $ 15,956 $ 23,494 $ 24,179 $ 23,311 $ 15,827
Operating
income
(loss)...... 1,377 1,745 1,701 1,787 2,253 2,298 780 (11,364)
Net income
(loss)...... 702 1,016 1,056 1,106 1,197 1,172 11 (6,618)
<CAPTION>
MAY 31,
1999
---------
<S> <C>
Fee revenue,
net......... $ 18,964
Operating
income
(loss)...... (13,517)
Net income
(loss)...... (7,822)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
LAI relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During the
three-month period ended May 31, 1999, cash used in operations was approximately
$6.4 million. During fiscal 1997, 1998 and 1999, cash flows provided by (used
in) operations were $(653,000), $2.9 million and $(15.8) million, respectively.
In fiscal 1999, cash used in operations included a decrease in accrued
compensation of approximately $12.3 million not anticipated to recur in fiscal
2000. To provide additional liquidity, LAI maintains a line of credit which
provides for maximum borrowings of $25.0 million bearing interest at various
rates based on either a LIBOR index or the bank's prime lending rate, as
determined at the Company's option. See note 5 to the consolidated financial
statements of LAI for the year ended February 28, 1999 included in this
prospectus.
Capital expenditures totaled approximately $1.4 million for the three-month
period ended May 31, 1999. These expenditures consisted primarily of upgrades to
information systems. Capital expenditures totaled approximately $1.8 million,
$2.2 million and $6.9 million for fiscal 1997, 1998 and 1999, respectively.
These expenditures consisted primarily of purchases of office equipment,
upgrades to information systems and leasehold improvements. Investments in whole
life insurance policies intended to fund LAI's deferred compensation plan were
$1.0 million, $2.1 and $2.0 million in fiscal 1997, 1998 and 1999, respectively.
59
<PAGE>
Cash used in financing activities for the three-month period ended May 31,
1999 was approximately $1.6 million and reflects the repayment of debt. Cash
provided by financing activities was approximately $38.3 million during fiscal
1999, including $41.4 million from the sale of LAI Common Stock in LAI's
secondary offering. Cash provided by financing activities was approximately
$23.6 million during fiscal 1998, including $25.4 million from the sale of LAI
Common Stock in LAI's initial public offering. During fiscal 1998 LAI issued
$8.8 million of subordinated debt in connection with the acquisitions completed
in 1998. Cash provided by financing activities was approximately $2.7 million
during fiscal 1997, which included $1.7 million of net borrowings under a term
loan and $926,000 in proceeds from sales of LAI Common Stock (net of LAI Common
Stock repurchases) to newly hired and promoted consultants as part of LAI's
strategy to increase the breadth of stock ownership among its consultants.
LAI believes that funds from operations, its credit facilities and the net
proceeds from its 1999 secondary public offering will be sufficient to meet its
anticipated working capital, capital expenditure and general corporate
requirements for the foreseeable future.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS No. 130 "Reporting
Comprehensive Income". SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. LAI has implemented SFAS 130 for the year ended
February 28, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 establishes standards for the
way companies report information about operating segments including the related
disclosures about the different economic environments in which it operates. LAI
has implemented SFAS 131 for the year ended February 28, 1999. See note 10 to
the consolidated financial statements of LAI included herein.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This provides guidance for capitalizing
and expensing the costs of computer software developed or obtained for internal
use. It is effective for financial statements for fiscal years beginning after
December 15, 1998. LAI has implemented this statement for the year ended
February 28, 1999.
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. Management believes the
effect of adopting SFAS 133 would not have a material impact on the accompanying
consolidated financial statements.
YEAR 2000 COMPLIANCE
LAI has completed its assessment of its internal systems and believes that
the cost to ensure all internal systems are Year 2000 compliant and to make
necessary enhancements will not be material. LAI has also completed its
assessment of issues related to its third-party vendors' states of Year 2000
readiness and the potential impact, if any, of any lack of readiness on LAI's
operations. Based on its assessment, LAI does not expect to be materially
affected by any non-compliant third-party vendors. Nevertheless, LAI has
identified alternate vendors during its assessment. LAI believes that costs
associated with Year 2000 compliance will not have a material impact on LAI's
financial statements.
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LAI BUSINESS
GENERAL
LAI provides executive search consulting services aimed specifically at
solving our clients' leadership needs by identifying, evaluating and
recommending qualified candidates for senior level positions. We principally
serve Fortune 500 and large private companies. LAI provides executive search
services exclusively on a retained basis, and charges a fee typically equal to
one-third of the first year cash compensation for the position being filled.
LAI has developed a knowledge-based search practice organized around five
industry groups and one functional group. The industry groups execute searches
for clients in the following business sectors:
- consumer products and services;
- financial services;
- health care and pharmaceuticals;
- industrial; and
- technology.
The functional group executes searches for specific functional positions,
including board of directors, human resources and legal. These practice groups
enable LAI's consultants to better understand each client's business strategy
and industry, and position LAI as a consulting partner to its clients.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie Associates,
Inc., a Florida corporation, reorganized into a holding company structure and
began doing business under the name of the new holding company, LAI Worldwide,
Inc. The reorganization was intended to provide greater flexibility for
international and domestic expansion, broaden the alternatives available for
future financing and generally provide for greater administrative and
operational flexibility. In some aspects, LAI is the successor to Lamalie, which
became a wholly owned subsidiary of LAI in the reorganization. In the
reorganization, each share of Lamalie common stock outstanding immediately prior
to the reorganization was converted into one share of LAI's common stock. As a
result, persons who were Lamalie stockholders before the reorganization now hold
common stock of LAI. Before the reorganization, Lamalie's common stock traded on
the Nasdaq Stock Market under the ticker symbol "LAIX." After the
reorganization, the new holding company's common stock continues to trade on the
Nasdaq Stock Market under the same ticker symbol "LAIX." Unless the context
otherwise requires, references to "LAI" herein are intended to refer to Lamalie
and its consolidated subsidiaries with respect to events occurring prior to
December 31, 1998 and to the new holding company, LAI Worldwide, Inc., and its
consolidated subsidiaries with respect to events occurring from and after
December 31, 1998. See note 1 to the consolidated financial statements of LAI
included herein.
EXECUTIVE SEARCH INDUSTRY OVERVIEW
Executive search is generally separated into two broad fee-based categories:
retained search firms and contingency search firms. Retained search firms
fulfill their clients' senior leadership needs by identifying, evaluating,
assessing and recommending qualified candidates for senior level positions,
typically with annual cash compensation of $100,000 and above. Contingency
search firms, on the other hand, focus primarily on mid-level positions with
annual cash compensation of less than $150,000. Both types of firms normally are
paid a fee for their services equal to approximately one-third of the guaranteed
first year cash compensation for the position being filled.
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Retained search firms currently serve the majority of the Fortune 500
companies as well as numerous other organizations, including government
agencies, professional organizations and fast-growing entrepreneurial companies.
Retained search firms are compensated for an assignment whether or not they are
successful in placing a recommended candidate. Contingency search firms also
serve large corporations; however, their primary focus is on small and medium
sized companies. Unlike retained search firms, contingency search firms are not
compensated for an assignment unless they successfully complete a search and
place a recommended candidate.
According to KENNEDY INFORMATION, a leading industry publication, revenue in
the executive search industry historically has been divided almost evenly
between retained and contingency search firms. However, retained search firms
are estimated to employ only one-third of the consultants in the industry. Thus,
the average fee revenue per consultant for retained firms is substantially
higher than for contingency firms. Moreover, the predictable revenue stream
associated with a retained search enables a retained firm, such as LAI, to
devote more personnel and greater resources to an assignment than a contingency
search firm whose revenue is not assured. LAI believes this difference in
payment structure enables retained search firms to provide clients with more
value-added consulting services than contingency search firms.
BUSINESS STRATEGY
LAI's objective is to be a leader in providing comprehensive consulting
services aimed specifically at solving its clients' senior leadership needs. The
key elements of LAI's business strategy include:
ATTRACT, MOTIVATE AND RETAIN HIGH QUALITY SEARCH CONSULTANTS. LAI seeks to
attract, motivate and retain highly productive executive search consultants.
LAI's compensation system is based primarily on consultant performance.
Consultant performance is measured by the amount of fee revenue each consultant
generates.
BUILD ON KNOWLEDGE-BASED PRACTICE GROUPS. LAI believes a thorough
understanding of both its clients and the industries in which they operate are
among the most significant factors in obtaining and completing search
assignments. Accordingly, LAI has developed a knowledge-based search practice
organized around five industry groups and one functional group. The industry
groups execute searches for clients in the following business sectors: (1)
consumer products and services; (2) financial services; (3) healthcare and
pharmaceuticals; (4) industrial; and (5) technology. The functional group
executes searches for specific functional positions, including board of
directors, human resources and legal. Each practice group is coordinated under
the direction of a practice group leader who establishes the marketing and
search strategies for that practice group.
BUILD LONG-TERM, CONSULTATIVE RELATIONSHIPS. LAI strives to develop
long-term relationships by becoming a consulting partner with its clients. To
position itself as a consulting partner, LAI works closely with clients to gain
an in-depth understanding of their unique organizational structure, history,
operations, culture, strategic objectives and leadership needs. In addition,
LAI's focus on knowledge-based practice groups enables its consultants to
provide more specialized and efficient service to LAI's clients.
CAPITALIZE ON RESEARCH AND TECHNOLOGY. LAI believes that its industrial
specialization and technological capabilities enable it to perform comprehensive
research and, ultimately, deliver high quality search results to its clients.
SERVICES
EXECUTIVE SEARCH SERVICES. LAI provides executive search services
exclusively on a retained basis principally for Fortune 500 and large private
companies. Clients typically retain LAI to identify candidates to fill such
clients' senior leadership positions. These positions range from brand managers
and controllers to chief operating and chief executive officers. The average
first year cash compensation of positions for which LAI conducted searches in
fiscal 1999 was approximately $210,000.
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LAI serves its clients in a consultative capacity by:
- assessing the client's existing management capabilities, corporate culture
and business strategies;
- evaluating the client's industry position and major competition;
- determining the relevant business experience, skills and personal
characteristics that a qualified candidate should possess;
- identifying, contacting and interviewing potential candidates;
- developing detailed candidate reports and making recommendations to the
client regarding the most qualified candidates;
- advising the client with respect to appropriate compensation and benefits;
and,
- monitoring the quality of its search procedures with client surveys and
other client feedback mechanisms.
LAI uses a team-oriented approach rather than relying on the reputation of a
few key consultants to provide its executive search services. Each of LAI's
consultants is expected to develop and maintain an expertise in one or two
industries and build long-term relationships with a limited number of clients.
To maintain a high level of quality on a consistent basis, consultants employ
LAI's standard executive search process for each new search assignment,
regardless of how similar the parameters of the new search may be to other
search assignments previously conducted by LAI. At the start of each search
assignment, LAI and its client jointly develop detailed candidate and job
specifications. They then establish a search strategy that targets specific
industries and companies that are expected to produce the most appropriate
candidates. Next, LAI's consultants and research staff contact potential
candidates, distribute job specifications and client promotional materials,
conduct extensive telephone and personal interviews, and check references of
those candidates who appear most qualified for the position. Because most
candidates are successfully employed and not seeking to change jobs, initial
contact must be conducted discreetly.
After meeting with job candidates, LAI submits to the client confidential
candidate reports regarding those candidates who LAI believes are the most
qualified. Each report contains a detailed business history of the candidate,
results of LAI's preliminary reference checks and LAI's assessment of the
candidate's relevant business experience, qualifications, personal
characteristics and suitability. LAI then assists in the introduction of
selected candidates to the client and administers the interview process. When
the client is ready to extend an employment offer, LAI facilitates the
negotiation of employment terms and the transition by the candidate to the
employ of the client.
SELECTION SERVICES. In early fiscal 2000, LAI launched a new service
offering, known as "selection services," to complement its core executive search
practice. Termed LAIcompass.com, or Compass, this business focuses on searches
for mid-level executives with cash compensation in the $70,000 to $140,000
range, and specializes in completing multiple positions under a single search
engagement.
LAI's approach to selection services is similar to its other executive
searches, in that search consultants profile the needs of each client and
develop job specifications and desired candidate attributes. Compass uses
several methods to identify candidates. These include print and Internet
advertising, research, data mining and LAI's extensive professional network.
Compass uses an Internet based registration site allowing candidates to provide
relevant biographical and employment histories and complete an assessment
profile. This profile is considered against the predetermined job profiles. This
process, coupled with follow-up interviews conducted by Compass consultants,
optimizes the resulting "fit" with a prospective employer. With the exception of
the personal interview, the entire process is intended to be conducted on-line,
allowing for maximum efficiency in completing assignments regardless of the
number of positions the employer desires to fill. Compass is a particularly
effective recruiting solution for companies launching
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new service offerings, expanding existing operations, or for start-up companies
needing to get their sales force and other critical resources in place quickly.
Compass's fee for selection services is based on a percentage of the first
year cash compensation for each position filled, in addition to the overall
volume and complexity of the positions being filled. Compass's lower cost
structure and overall efficiencies gained through technology allow for a profit
margin consistent with LAI despite the lower salary level positions which are
being filled. In addition, selection services allow LAI's consultants to address
a much broader range of human resource needs for both new and existing clients.
To date, revenues from selection services has not been significant.
Effective May 7, 1999, LAI entered into a four-year co-operative advertising
arrangement with TMP. The arrangement is documented in two letter agreements
providing for:
- a direct link from TMP's Monster.com home page to LAIcompass.com;
- TMP's appointment of LAIcompass.com as the exclusive provider of TMP's
online candidate assessment activities for mid-level managerial positions;
- LAI's listing on Monster.com of LAI's search assignments for mid-level
positions paying annual base salaries between $70,000 and $140,000; and,
- LAI providing for $10 million in television and print advertising in May
and June 1999 to promote its relationship with Monster.com and the
availability of the link to LAIcompass.com at Monster.com.
After an initial five-month period, either party may terminate the arrangement.
If the arrangement is terminated, TMP is required to reimburse LAI for
substantially all of the advertising expenses incurred under the terms of the
agreement. TMP's obligations are secured by an irrevocable standby letter of
credit.
MARKETING AND CLIENTS
KNOWLEDGE-BASED PRACTICE GROUPS. Each of LAI's five practice groups is
coordinated by a practice group leader. The practice group leader is responsible
for developing new business and maintaining a high standard of service in that
practice group. To achieve these objectives, each practice group leader:
- establishes the marketing and search strategies for the particular
practice group;
- identifies focused accounts and targets clients within that practice
group's business sector; and,
- facilitates and assists the marketing activities of other consultants in
the practice group.
Each practice group leader has substantial industry expertise, frequently having
held one or more executive positions in the practice group's business sector
prior to becoming a search consultant. Additionally, LAI's practice group
leaders have an average of approximately 14 years of experience in the executive
search industry.
LAI's practice groups enable its consultants to better understand each
client's business strategy and industry and position LAI as a consulting partner
to its clients. LAI emphasizes long-term relationships with clients, rather than
one-time projects or assignments. Each of LAI's 30 largest clients, based on
LAI's fiscal 1999 fee revenue, had been a client for an average of approximately
nine years as of February 28, 1999. In addition, approximately 60% of LAI's
fiscal 1999 fee revenue was attributable to companies for which LAI conducted
one or more searches during the last two fiscal years.
OFFICES. To complement its knowledge-based practice groups, LAI has
established offices in cities that are key business centers for one or more of
LAI's practice groups. Each major office is run by a managing partner who has
complete fiscal responsibility for that office. The managing partner's principal
responsibilities include:
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- overseeing day-to-day operational and administrative matters at the local
office level,
- providing assistance to consultants in that office, assuring quality
control in business development and search execution; and
- hiring and supervising office personnel.
While compensation for other consultants is based primarily on individual
performance, managing partners are generally paid a base salary plus bonus.
Bonuses are based on the profitability of their respective local office, as well
as on their ability to successfully recruit highly qualified consultants to LAI.
Because consultants have greater opportunities to develop relationships with
clients and prospective clients in close geographic proximity, they normally
focus on, but do not limit their efforts to, clients in the region served by
their particular office. Over time, consultants seek to establish deep roots in
the community and develop strong links with local business, government and
cultural leaders.
BLOCKING ARRANGEMENTS. Either by agreement with clients or for marketing or
client relations purposes, executive search firms frequently refrain from
recruiting employees of a client, and possibly other entities affiliated with
that client, for a specified period of time, known as a "blocking" arrangement.
LAI actively manages its blocking arrangements and seeks to mitigate any adverse
effects of blocking by strengthening its long-term relationships with focused
accounts, shortening the length of the off-limits period and by resisting
requests for blocking arrangements with clients who do not engage LAI for
multiple assignments. Additionally, in recent years market conditions and
industry practices have resulted in blocking arrangements that are becoming
narrower in scope and shorter in duration.
RESEARCH AND TECHNOLOGY
LAI believes that its industry specialization and technological capabilities
enable it to perform comprehensive research and, ultimately, deliver high
quality search results to its clients. Search consultants must understand a
client's industry, competitors and business strategies and be able to readily
identify the universe of most qualified executive candidates. LAI employs 133
associates, researchers and IT professionals. These employees support LAI's
consultants by, among other things, gathering and analyzing information obtained
from numerous electronic databases, trade journals and directories, the Internet
and other sources. LAI also maintains a proprietary database containing
professional information on more than 100,000 executive candidates. Consultants
can consult this database on a variety of attributes, including demographic
information, work experience, compensation and personal interview results. LAI's
computer network provides remote document sharing and data search capabilities,
groupware features and real-time updates on ongoing search engagements. LAI is
committed to continually upgrading its proprietary database and other
information sources to enable LAI's consultants to retrieve relevant information
quickly and efficiently.
In the search process, the principal function of LAI's research department
is to support consultants by gathering and analyzing information on the
industries and companies expected to produce the most qualified candidates.
LAI's research professionals also support LAI's business development activities
by providing target lists, data on past LAI searches and information on
companies and executives in target industries. LAI's researchers typically have
had professional research or library training and experience prior to joining
LAI, and many have undergraduate and graduate degrees in such fields as library
science. LAI's research staff is organized by practice group, with most
researchers specializing in one or two specific industries. LAI believes its
focused approach facilitates the development of specialized expertise, promotes
a consistent culture and cooperation across the firm and standardizes
communication and training.
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PROFESSIONAL STAFF AND EMPLOYEES
At February 28, 1999, LAI had 408 full time employees, of which 119 were
executive search consultants, 133 were associates, researchers or IT
professionals and 156 were administrative and support staff. LAI has never been
a party to any collective bargaining agreement and considers relations with its
employees to be good.
LAI's search professionals are categorized either as consultants, consisting
of partners and principals, or as associates. Associates are junior search
professionals who generally do not directly execute search assignments, but
assist partners and principals by performing research and other functions. After
several years of experience and satisfactory performance, an associate will be
considered for promotion to the position of principal. If a principal continues
to develop and generate revenue, the principal will be offered the opportunity
to advance to the position of partner. Promotions depend on a variety of
factors, including productivity and business development. As a matter of
corporate philosophy, LAI strives to hire as associates only those individuals
it believes have the potential to become productive consultants.
COMPETITION
The executive search industry is highly competitive. It is estimated that
there are more than 4,000 executive search firms worldwide. There are relatively
few barriers to entry and new competitors frequently enter the market. While LAI
faces competition to some degree from all firms in the industry, LAI believes
its most direct competition comes from other large firms in the industry. To a
lesser extent, LAI also faces competition from smaller boutique or specialty
firms that may compete in certain regional or functional markets and from
in-house human resource departments of clients and prospective clients. Some of
LAI's competitors possess greater resources and name recognition than LAI. Each
firm with which LAI competes is also a competitor in seeking to attract the most
productive search consultants. In LAI's experience, the executive search
business is more quality-sensitive than price-sensitive. As a result, LAI
competes on the level of service it offers, reflected by its knowledge-based
practice groups and individual client focus, and, ultimately, the quality of its
search results.
PROPERTIES
LAI leases all of its office locations. As of February 28, 1999, LAI leased
an aggregate of approximately 193,000 square feet of office space under leases
calling for future minimum lease payments, net of sublease income, of
approximately $41.9 million and with remaining terms up to 15 years, exclusive
of renewal options exercisable by LAI. LAI believes that its facilities are
adequate for its current needs.
LEGAL PROCEEDINGS
From time to time LAI has been involved in litigation incidental to its
business. LAI currently is not a party to any litigation the adverse resolution
of which, in management's opinion, would be likely to have a material adverse
effect on LAI's business, financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LAI does not have any material exposure associated with activities in
derivative financial instruments, other financial instruments or derivative
commodity instruments.
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MANAGEMENT OF LAI
EXECUTIVE OFFICERS
The following table sets forth certain information regarding LAI's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert L. Pearson.................................... 60 Chairman of the Board of Directors and Chief
Executive Officer
Patrick J. McDonnell................................. 55 President and Chief Operating Officer, Director
Philip R. Albright................................... 29 Vice President and Chief Financial Officer
Richard L. Baird..................................... 42 Corporate Vice President and President LAI Compass,
Inc.
</TABLE>
DIRECTORS
The following table sets forth certain information regarding LAI's
directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert L. Pearson (2)................................ 60 Chairman of the Board of Directors and Chief
Executive Officer
Patrick J. McDonnell (3)............................. 55 President and Chief Operating Officer, Director
Joe D. Goodwin (3)................................... 53 Executive Vice President, Director
Roderick C. Gow (1).................................. 51 Executive Vice President, Director
John F. Johnson (2).................................. 57 Senior Chairman of the Board of Directors
Neal L. Maslan (3)................................... 58 Senior Partner, Director
John S. Rothschild (1)............................... 46 Executive Vice President, Director
Ray J. Groves (2).................................... 63 Director
Richard W. Pogue (1)................................. 71 Director
John C. Pope (3)..................................... 50 Director
</TABLE>
- ------------------------
(1) Term expires in 1999.
(2) Term expires in 2000.
(3) Term expires in 2001.
LAI's directors are divided into three classes elected for three-year terms,
which are staggered so that the term of one class of directors expires each
year.
ROBERT L. PEARSON joined LAI in 1984 and was named Chairman of the Board of
Directors in 1998 in addition to his duties as Chief Executive Officer. Mr.
Pearson served as President and Chief Executive Officer and as a Director of LAI
from 1995 until 1998. Prior to joining LAI, Mr. Pearson served as Executive
Director with Russell Reynolds Associates, Inc. from 1982 until 1984. He owned
and was President of Pearson, Inc., an equipment manufacturing company, from
1971 until 1982; was Vice President, Corporate Finance, of R. J. Financial
Corporation, a financial services holding company, from 1968 until 1970; and was
an engagement manager and management consultant with McKinsey & Company, Inc.
from 1964 until 1968. Mr. Pearson holds an M.S. in Industrial Management from
Massachusetts Institute of Technology and a B.S.E.E. from Michigan State
University. Mr. Pearson's employment agreement requires LAI to use its good
faith efforts, during the term of such agreement, to nominate Mr. Pearson to the
Board of Directors.
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PATRICK J. MCDONNELL joined LAI in 1998 as President and Chief Operating
Officer. Previously, Mr. McDonnell was the Global Assurance Leader at
PricewaterhouseCoopers since it was created through the merger of Price
Waterhouse and Coopers & Lybrand in 1997. Before that he had spent nearly three
decades with Coopers & Lybrand where, since 1993, he was Vice Chairman, Business
Assurance. Previous positions with Coopers & Lybrand included Vice Chairman for
the firm's Midwest region, Vice Chairman for client service and relationship
management, Chairman of the firm's international accounting and audit board,
Managing Partner for the firm's Hartford, CT and Chicago, IL offices, and
Worldwide Engagement Partner for a variety of major clients. Mr. McDonnell holds
a Master's Degree in Business Administration from the University of Michigan and
a Bachelor's Degree in Business from the University of Notre Dame.
PHILIP R. ALBRIGHT joined LAI as Controller in 1997 and was appointed Chief
Financial Officer in 1999. Mr. Albright was named LAI's Vice President-Finance
and Chief Accounting Officer in 1998. Mr. Albright, a certified public
accountant, was employed by Arthur Andersen LLP from 1992 until 1997. He holds a
M.Acc. and a B.S.Acc. from the University of Florida.
RICHARD L. BAIRD joined LAI in 1998 as corporate Vice President and
President of LAI Compass, Inc., a wholly owned subsidiary of LAI Worldwide.
Prior to joining LAI, Mr. Baird was Operations Leader-- Americas, for Audit and
Business Advisory Services at PricewaterhouseCoopers. Before that, he spent 17
years with Coopers & Lybrand where, since 1993, he was Human Resources Partner,
National Business Assurance, responsible for providing human resources and
operational support. Mr. Baird received his Bachelor of Arts degree from Albion
College.
JOE D. GOODWIN joined LAI in 1991, and was named Executive Vice President
and Regional Managing Partner of LAI's Southeast Region in 1998. Mr. Goodwin has
been a Director since July 1997 and served as Managing Partner of LAI's Atlanta
and Tampa offices from 1992 until 1998. Mr. Goodwin held various positions,
including Partner and Managing Director, with Spencer Stuart & Associates from
1982 until 1991. Mr. Goodwin also held various executive positions with McKinnis
& Goodwin, an executive search firm, from 1979 until 1982; with Burger King
Corporation from 1978 until 1979; and with Xerox Corporation from 1969 until
1978. Mr. Goodwin holds a B.S. in Commerce and Business Administration from the
University of Alabama.
RODERICK C. GOW joined LAI in 1995, and was named Executive Vice President
and Regional Managing Partner of LAI's Northeast Region in 1998. Mr. Gow has
been a Director since July 1997 and served as Managing Partner of LAI's New York
office from 1995 until 1998. Mr. Gow held various positions, including Managing
Director, with Russell Reynolds Associates, Inc., an executive search firm, from
1983 until 1991 and then again from 1994 until 1995. Mr. Gow was Chief Executive
Officer of GKR Group, an executive search firm based in the United Kingdom, from
1991 until 1994; was Vice President with Barclays Bank Plc from 1978 until 1983;
and prior to that time served with the British Army. Mr. Gow holds an M.A. and a
B.A. from Trinity College, Cambridge University.
JOHN F. JOHNSON joined LAI in 1976 and was named Senior Chairman of the
Board of Directors in 1998. Mr. Johnson served as Chairman of the Board from
1995 until 1998. He previously served as Executive Vice President and President
and Chief Executive Officer of LAI, as well as Chairman of Amrop International.
Mr. Johnson held various positions, including Manager of Organization and
Manpower, with General Electric Company from 1967 until 1976; and Industrial
Relations Analyst with Ford Motor Company from 1964 until 1967. Mr. Johnson
holds an M.B.A. from Columbia University and a B.A. in Economics from Tufts
University.
NEAL L. MASLAN joined LAI in February 1998 in connection with the
acquisition by LAI of Ward Howell International, Inc., or WHI. Mr. Maslan was
elected a Director of LAI in September 1998 and has served as a Senior Partner
and Leader of the Health Care and Pharmaceuticals Practice Group since joining
LAI. Mr. Maslan was an executive search consultant with WHI specializing in
senior-level health care search from 1988 until 1998. Previously, Mr. Maslan was
Vice President of Paul R. Ray & Company: Senior Vice President of American
Medical International, Inc.; Executive Vice President of Hyatt
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Corporation and Executive Vice President of Cenco Hospital and Convalescent
Homes Corporation. Mr. Maslan earned a Master's degree from Yale University and
a Bachelor's degree from the University of Virginia.
JOHN S. ROTHSCHILD joined LAI in 1996, and was named Executive Vice
President and Leader of the Technology Practice Group in 1998. Mr. Rothschild
has been a Director since July 1997 and Managing Partner of LAI's Chicago office
since 1996. Mr. Rothschild held various positions, including Partner and
Director, with Heidrick & Struggles, Inc., an executive search firm, from 1989
until 1996. Mr. Rothschild held positions, including National Director, Human
Resources and Director, Human Resources Consulting Practice, with Grant Thornton
from 1981 until 1989. He served in various executive positions with American
Hospital Supply Corporation from 1978 until 1981; and with GATX Corporation from
1975 until 1978. Mr. Rothschild holds an M.S. in Industrial Relations from
Loyola University and a B.A. in Political Science from Lake Forest College.
RAY J. GROVES has been a Director since July 1997. Mr. Groves served as
Chairman and Chief Executive Officer of Ernst & Young, an international
accounting and financial consulting firm, for 17 years prior to his retirement
in 1994. Mr. Groves also serves as Chairman of Legg Mason Merchant Banking,
Inc., and as a Director of Allegheny Teledyne, Incorporated, American Water
Works Company, Inc., Consolidated Natural Gas Company, Electronic Data Systems
Corporation, Marsh & McLennan Companies, Inc. and RJR Nabisco, Inc. Mr. Groves
holds a B.S. from The Ohio State University.
RICHARD W. POGUE served as an advisor to LAI's Board of Directors from 1995
until he became a Director in July 1997. Mr. Pogue has served as Senior Advisor
to Dix & Eaton, a public relations firm, since 1994. Mr. Pogue held various
positions with the law firm of Jones, Day, Reavis & Pogue, from 1957 until
retiring from his position as Senior Partner in 1994. Mr. Pogue also serves as a
Director of Derlan Industries Ltd., Continental Airlines, Inc., IT Group, M.A.
Hanna Company, Rotek Incorporated, KeyCorp and TRW Inc. Mr. Pogue holds a Law
degree from the University of Michigan and a Bachelor's degree from Cornell
University.
JOHN C. POPE served as an advisor to LAI's Board of Directors from 1995
until he became a Director in July 1997. Mr. Pope held various positions,
including President and Chief Operating Officer, of UAL Corporation, owner of
United Airlines, from 1988 until his retirement in 1994. Prior to that time Mr.
Pope spent 11 years with AMR Corporation in various financial capacities,
including Chief Financial Officer. Mr. Pope also serves as Chairman of the Board
of Directors of MotivePower Industries, Incorporated and as a Director of
Federal Mogul Corporation, Medaphis Corporation, Wallace Computer Services,
Inc., Waste Management, Inc. and Dollar Thrifty Automotive Group, Inc. He holds
an M.B.A from Harvard Business School and a Bachelor's degree from Yale
University.
COMMITTEES OF LAI'S BOARD OF DIRECTORS
LAI's board of directors has the following standing committees:
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The compensation and
management development committee is responsible for establishing and
recommending to the board of directors LAI's compensation philosophy, including
general compensation, severance and change in control arrangements for
consultants, managing partners, practice group leaders and executive officers.
This committee also establishes and recommends to the board of directors LAI's
stock option philosophy, including granting of awards under all equity-based
incentive plans and recommendations for adoption of new plans. This committee
sets executive officer compensation, including annual reviews, and negotiates
and approves all executive officer employment agreements. It also reviews all
existing compensation plans and programs and all amendments thereto, and
recommends the adoption of any new plans. In addition, this committee reviews
and coordinates with the full board of directors LAI's senior leadership
structure and helps to identify personnel for the next generation of LAI's
leadership. The committee's three members are
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Messrs. Groves, Pogue and Pope (Chairman), all of whom are "non-employee
directors," as defined under the Securities Exchange Act of 1934.
AUDIT COMMITTEE. The audit committee is responsible for reviewing with
management the financial controls, accounting and audit and reporting activities
of LAI. The audit committee annually recommends to the board of directors LAI's
independent auditors, meets with the independent auditors before and after the
annual audit to review the results of the audit and the performance of
management in implementing the auditors' recommendations, reviews significant
changes in accounting practices and LAI's implementation of new accounting rules
and evaluates annual audit fees. In addition, the audit committee reviews each
Annual Report on Form 10-K, including a review of LAI's financial statements and
the related management's discussion and analysis of financial condition and
results of operations. The audit committee's three members are Messrs. Groves
(Chairman), Pogue and Pope, all of whom are non-employee directors.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The nominating and corporate
governance committee is responsible for recommending to the board of directors
management's nominees for election to the board of directors. This committee
establishes criteria for qualification and selection of directors, establishes
board committees by function, size and responsibilities and recommends the same
to the board of directors for adoption and membership determination, and
coordinates responses to stockholder proposals in conjunction with management
and counsel. The nominating and corporate governance committee's four members
are Messrs. Johnson, Pearson, Pogue and Pope. The nominating and corporate
governance committee will consider nominees recommended by stockholders in
accordance with procedures described under "Stockholder Proposals for
Presentation at the 2000 Annual Meeting."
EXECUTIVE COMMITTEE. The executive committee has been granted authority,
subject to the limitations specified in the Florida Business Corporation Act, to
act in the place and stead of the full board of directors, including when it is
inconvenient or impossible to convene a meeting of the full board or when
specific tasks have been assigned to the executive committee. The executive
committee's four members are Messrs. Johnson, Pearson, Pogue and Pope.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to LAI's initial public offering, the board of directors did not have
a compensation committee and the functions of the compensation committee
previously had been performed by the entire board of directors. Since completion
of the initial public offering in July 1997, the compensation committee's three
members have been Messrs. Groves, Pogue and Pope (Chairman), all of whom are
non-employee directors.
DIRECTOR COMPENSATION
Non-employee directors receive $1,000 for each meeting of the board of
directors attended and $1,000 for each meeting of a committee of the board of
directors attended. Non-employee directors who serve as chairman of a committee
of the board of directors receive an additional $500 for each meeting chaired.
In addition, non-employee directors receive an annual retainer fee of $12,000,
paid quarterly. Non-employee Directors may make an annual election to defer
receipt of all or a portion of the retainer and meeting fees and to have such
deferral credited in the form of either cash or "units," the value of which is
based on the value of LAI's Common Stock, in accordance with LAI's Directors'
Deferral Plan. Directors who opt for the stock unit alternative receive a 25%
premium in initial value. Fees deferred under the cash deferral alternative earn
interest as determined under the Directors' Deferral Plan. Directors also are
reimbursed for reasonable travel expenses to and from meetings of the board of
directors and committees. Directors who are employees of LAI do not receive
compensation for serving as directors.
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<PAGE>
LAI grants to each Non-employee director, upon initial appointment to the
board of directors, a stock option to purchase 5,000 shares of LAI Common Stock
pursuant to LAI's Non-Employee Directors' Stock Plan. In addition, as of the
date of each annual meeting of LAI's stockholders, LAI grants to each
Non-employee director who is then reelected or who is continuing as a member of
the board of directors a stock option to purchase 5,000 shares of LAI Common
Stock. The exercise price of LAI each such stock option is equal to the closing
price of LAI Common Stock on the date the stock option is granted. Stock options
issued under the Directors' Stock Plan generally vest fully on the first
anniversary of the date of grant and expire after ten years. Stock options to
purchase an aggregate of up to 30,000 shares of LAI Common Stock are outstanding
under the Directors' Stock Plan, and an aggregate of 80,000 shares of LAI Common
Stock (including the shares covered by such outstanding stock options) are
reserved for issuance under the Directors' Stock Plan.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
During fiscal 1999, LAI's board of directors held 14 meetings, the
Compensation Committee held 11 meetings, the Audit Committee held 3 meetings and
the Executive Committee and Nominating and Corporate Governance Committee held 5
meetings. Each incumbent director attended more than 75% of the meetings of the
board and those committees of the board of which the director was then serving
as a member.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for fiscal 1997, fiscal 1998 and fiscal 1999 of LAI's executive
officers during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
------------------------
SHARES OF
ANNUAL COMPENSATION COMMON
----------------------------------------- RESTRICTED STOCK
FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS($) OPTIONS($) COMPENSATION(3)
- ------------------------------- ----------- --------- ----------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Pearson.............. 1999 1998 $ 525,000 $ -- $ 9,235 $ -- 67,900(4) $ --
Chief Executive Officer 1997 525,000 420,240 8,526 364,189(5) 97,000(6) 12,800
250,000 902,238 8,465 -- -- 22,500
Patrick J. McDonnell........... 1999 208,333 535,417(7) -- -- 200,000 --
President and Chief Operating
Officer
Philip R. Albright............. 1999 138,077 35,000 2,840 -- 42,000(8) --
Chief Financial Officer
Richard L. Baird............... 1999 93,461 100,000(9) -- -- 100,000 --
President of LAI Compass,
Inc.
John S. Rothschild(10)......... 1999 150,000 496,000 24,383 -- 17,500(11) --
Executive Vice President
Joe D. Goodwin(10)............. 1999 150,000 411,360 26,262 -- 24,500(11) --
Executive Vice President
</TABLE>
- ------------------------
(1) Consists of performance-based bonuses based upon individual achievement and
LAI financial performance for the indicated fiscal years.
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<PAGE>
(2) Consists of above-market interest on deferred compensation, fees for
professional tax services, payments for participation in certain management
team meetings, payments for unused sick time and life insurance premiums.
(3) Consists of contributions made by LAI to its Profit Sharing Plan. See
"--Incentive and Benefit Plans."
(4) These options were issued pursuant to LAI's Option Exchange Program approved
by the compensation committee of the board of directors on October 8, 1998.
Mr. Pearson exchanged all of his eligible outstanding options for new
options at an exercise price exceeding the market price on the date of grant
at a ratio of 70 new shares for every 100 shares exchanged. Of the new
options granted, 10,500 are subject to a new three-year cliff vesting
schedule. The remaining 57,400 options retain the original six year vesting
schedule or price performance criteria. See note 8 to the consolidated
financial statements of LAI included herein for more information on the
Option Exchange Program.
(5) On April 15, 1998, LAI granted Mr. Pearson 16,939 shares of restricted LAI
Common Stock in lieu of a portion of the compensation he earned in fiscal
1998. Such shares vest 25% over the four years after the grant date and may
be subject to forfeiture upon termination of his employment under certain
circumstances.
(6) These options were exchanged pursuant to the Option Exchange Program. See
footnote 4.
(7) Consists of sign on bonus of $525,000 and pro rata installments of a $25,000
bonus paid pursuant
to the terms of Mr. McDonnell's employment agreement. See "--Executive
Employment Arrangements."
(8) Of this amount, 7,000 options were issued pursuant to LAI's Option Exchange
Program. Mr. Albright exchanged his eligible outstanding options which had
been granted originally in April 1998 for new options at an exercise price
exceeding the market price on the date of grant at a ratio of 70 new shares
for every 100 shares exchanged and subject to a new three year cliff vesting
schedule. See note 8 to the consolidated financial statements of LAI for
more information on the Option Exchange Program.
(9) Consists of sign on benefit paid pursuant to the terms of Mr. Baird's
employment agreement. See "--Executive Employment Arrangements."
(10) Currently and at February 28, 1999, LAI's executive officers (within the
meaning of SEC Regulation 401(b) of Regulation S-K) consisted of Messrs.
Pearson, McDonnell, Albright and Baird. Messrs. Rothschild and Goodwin were
not executive officers at February 28, 1999. Information regarding
compensation of Messrs. Rothschild and Goodwin is included as required by
Section 402(a)(3)(iii) of SEC Regulation S-K.
(11) These options were issued pursuant to LAI's Option Exchange Program. The
individuals exchanged all their eligible outstanding options, including
options which had been granted originally in July 1998, for new options at
an exercise price exceeding the market price on the date of grant at a ratio
of 70 new shares for every 100 shares exchanged and subject to a new three
year cliff vesting schedule. See note 8 to the consolidated financial
statements of LAI for more information on the Option Exchange Program.
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<PAGE>
OPTION GRANTS IN YEAR ENDED FEBRUARY 28, 1999
The following table shows information concerning outstanding stock options
granted during fiscal 1999 for the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED YEAR(1) ($/SH) DATE 5%($) 10%($)
- ---------------------------------- ----------- ------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Pearson................. 10,500(2) 0.92% $ 10.00 10/8/2008 $ 10,448 $ 78,831
57,400(2) 5.06% 10.00 7/29/2007 57,115 430,946
Patrick J. McDonnell.............. 200,000 17.62% 5.63 10/7/2008 707,506 1,792,960
Philip R. Albright(3)............. 5,000 0.44% 5.63 10/7/2008 17,688 44,824
7,000(2) 0.62% 10.00 10/8/2008 6,965 52,554
30,000 2.64% 6.25 2/1/2009 117,918 298,827
Richard L. Baird.................. 100,000 8.81% 8.94 11/9/2008 562,106 1,424,487
John S. Rothschild(4)............. 17,500(2) 1.54% 10.00 10/8/2008 17,413 131,386
Joe D. Goodwin(4)................. 24,500(2) 2.16% 10.00 10/8/2008 24,378 183,940
</TABLE>
- ------------------------
(1) Options originally granted in fiscal 1999 which were exchanged pursuant to
LAI's Option Exchange Program during fiscal 1999 are excluded from the total
options granted to employees for purposes of this calculation.
(2) These options were issued pursuant to LAI's Option Exchange Program approved
by the Compensation Committee of the board of directors on October 8, 1998.
The individuals exchanged all or a portion of eligible outstanding options
for new options at an exercise price exceeding the market price on date of
grant at a ratio of 70 new shares for every 100 shares exchanged. See
footnotes 4, 7 and 10 to "Summary Compensation Table" above and note 8 to
the accompanying Consolidated Financial Statements for more information on
the Option Exchange Program.
(3) Excludes 10,000 options granted on April 15, 1998, at an exercise price of
$21.50 which were exchanged pursuant to the Option Exchange Program on
October 8, 1998.
(4) Excludes 25,000 options granted on July 7, 1998, at an exercise price of
$18.25 which were exchanged pursuant to the Option Exchange Program on
October 8, 1998.
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<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
No stock options were exercised by any of LAI's directors or executive
officers during fiscal 1999. The following table shows information concerning
values as of the end of fiscal 1999 of stock options to purchase shares of LAI
Common Stock held by each named executive officer.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
OPTIONS IN-THE-MONEY
EXERCISABLE/ OPTIONS EXERCISABLE/
NAME UNEXERCISABLE (#) UNEXERCISABLE ($)(1)
- ----------------------------------------------------------------------- ------------------- --------------------
<S> <C> <C>
Robert L. Pearson...................................................... -0-/ 67,900 -0-/$ -0-
Patrick J. McDonnell................................................... -0-/200,000 -0-/350,000
Philip R. Albright..................................................... 2,500/ 49,500 -0-/ 42,500
Richard L. Baird....................................................... -0-/100,000 -0-/ -0-
John S. Rothschild..................................................... -0-/ 17,500 -0-/ -0-
Joe D. Goodwin......................................................... -0-/ 24,500 -0-/ -0-
</TABLE>
- ------------------------
(1) No value has been ascribed to exercisable or unexercisable options
outstanding for which the exercise price exceeds the closing price of LAI's
stock on February 26, 1999.
INCENTIVE AND BENEFIT PLANS
1997 AND 1998 OMNIBUS STOCK AND INCENTIVE PLANS. LAI has two stock option
and incentive plans, the 1997 Omnibus Stock and Incentive Plan and the 1998
Omnibus Stock and Incentive Plan. Under these Employee Stock Plans, incentive
stock options, nonqualified stock options, stock appreciation rights,
performance units, performance shares, restricted stock, restricted stock units
and stock not subject to restrictions may be granted from time to time upon
hiring of new personnel, as incentive compensation or to reward employees for
outstanding performance; however, such incentives are not routinely granted as
part of annual consultant compensation, which continues to be predominantly
cash-based. The compensation committee administers the Employee Stock Plans and
determines all awards granted thereunder. The exercise price of a stock option
granted may be less than the market price of LAI Common Stock on the date of
grant. Generally, incentive stock options, nonqualified stock options,
restricted stock and restricted stock units vest each year beginning on the
first anniversary of the date of grant at 20-25% per year and expire after 10
years. The compensation committee may condition awards upon satisfaction of
performance targets. Up to 950,000 shares of LAI Common Stock may be issued
under the 1997 Employee Stock Plan, including, as of April 30, 1999, up to
666,215 shares upon exercise of stock options already granted and outstanding
under the 1997 Employee Stock Plan. Up to 1,500,000 shares of LAI Common Stock
may be issued under the 1998 Employee Stock Plan, including, as of April 30,
1999, 160,173 shares of common stock already issued and outstanding as
restricted stock awards and up to 872,673 additional shares upon exercise of
stock options already granted and outstanding under the 1998 Employee Stock
Plan.
PROFIT SHARING PLAN. LAI maintains a profit sharing plan, a defined
contribution plan established pursuant to and under Section 401(a) of the
Internal Revenue Code. Each year, the board of directors determines the amount
that LAI will contribute to the Profit Sharing Plan for that plan year. Such
contributions are allocated to participants' accounts in proportion to their
total compensation, subject to limitations imposed by the Internal Revenue Code.
During the second quarter of fiscal 1999, the Profit Sharing Plan was amended to
include a cash or deferred arrangement feature that qualifies for deferred tax
treatment under Section 401(k) of the Internal Revenue Code, pursuant to which
participants may make elective contributions of up to 15% of their compensation,
as defined in the Profit Sharing Plan. Each year, the board of directors will
determine the amount that LAI will contribute to the Profit Sharing Plan as a
matching contribution on participants' elective contributions. Participants'
elective contributions will be 100% vested at all times, while LAI's
contributions will vest 25% per year after completion of one year of service.
Participants may elect among several investment vehicles selected by the plan
administrator as to how their accounts under the Profit Sharing Plan will be
invested, including LAI's Common Stock.
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<PAGE>
DEFERRED COMPENSATION PLAN. LAI maintains a deferred compensation plan for
its executive employees. The board of directors or a committee appointed by the
board determines the persons eligible to participate in the Deferred
Compensation Plan, although historically all consultants have been eligible to
participate. Under the terms of the Deferred Compensation Plan, eligible
participants may elect, on a calendar year basis, to defer a specified amount or
percentage of their compensation for payment at a specified future date or upon
termination of employment with or retirement from LAI, as directed by each
participant. Effective January 1, 1999, the Deferred Compensation Plan was
amended to prohibit further deferrals of compensation. LAI pays interest on
amounts deferred under the Deferred Compensation Plan at a rate, currently 6.25%
per annum, established each year by the board of directors in its discretion.
Participants are fully vested in their accounts. LAI does not match employee
contributions to the Deferred Compensation Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN. LAI maintains the 1997 Employee Stock
Purchase Plan. Under the ESPP, which is intended to qualify under the provisions
of Section 423 of the Internal Revenue Code, eligible employees are given the
right to purchase shares of LAI Common Stock generally two times a year. The per
share purchase price under the ESPP is 85% of the market price of the LAI Common
Stock immediately prior to the first day of each exercise period or, during the
first exercise period, 85% of the lesser of the market price immediately prior
to the first day of such exercise period or the market price at the close of
such period. During each exercise period, an eligible employee will be entitled
to purchase up to that number of shares of LAI Common Stock the aggregate
purchase price of which under the ESPP does not exceed 3% of the employee's
annual compensation. As of February 28, 1999, an aggregate of 200,000 shares of
LAI Common Stock has been reserved for issuance under the ESPP, of which 42,586
shares have been issued. Shares issued under the ESPP may be newly issued shares
or shares purchased by LAI in the open market. The second purchase window for
calendar year 1999 will be suspended due to the merger agreement with TMP.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
LAI has entered into employment agreements with each of the persons
currently serving as executive officers, Messrs. Pearson, McDonnell, Albright
and Baird.
ROBERT L. PEARSON. LAI and Mr. Pearson entered into his employment
agreement in 1997, engaging Mr. Pearson to act as LAI's Chief Executive Officer.
The current term of Mr. Pearson's agreement expires February 28, 2002; however,
the agreement provides that, on the last day of each February, the term of Mr.
Pearson's employment shall be extended for an additional one year period. This
has the effect of restoring the remaining term of the agreement annually to
three years, unless either LAI or Mr. Pearson gives notice not less than 90 days
prior to any extension date of an intention not to extend. Under his employment
agreement, Mr. Pearson is entitled to receive an annual base salary of not less
than $525,000, and is eligible to earn annual incentive bonuses based upon such
plans and criteria as may be established from time to time by the compensation
committee. Under the plan currently in effect, Mr. Pearson is eligible to earn a
target bonus equal to 80% of his base salary and a maximum bonus equal to 160%
of his base salary.
Mr. Pearson may terminate his employment agreement upon 90 days prior
written notice. Mr. Pearson is entitled to receive certain severance benefits if
his employment is terminated by LAI "without good cause" or by Mr. Pearson
following a "change of control" each as defined in the employment agreement. In
the event of termination without good cause, Mr. Pearson will receive his base
salary for the remainder of the unexpired term of the employment agreement, not
to exceed 36 months, or 24 months, whichever is greater. He will also receive an
amount equal to at least the target bonus for the year of termination multiplied
by the number of years and fractions thereof in the unexpired term of the
agreement. If the remaining term is less than two years, the target bonus shall
be multiplied by two. Mr. Pearson may terminate the agreement during the 60 day
period commencing six months after a change of control. In this event, he would
be entitled to receive a lump sum payment equal to three times his annual base
salary
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<PAGE>
plus an amount not less than three times the target bonus for the year of
termination. The agreement requires LAI to use its good faith efforts, during
the term, to nominate Mr. Pearson to LAI's board of directors. Mr. Pearson has
agreed to not compete with LAI during the term of his employment and, if his
employment is terminated by LAI without good cause or following a change of
control, for so long as he continues to receive payments under the agreement.
In addition, upon any termination of Mr. Pearson's employment without good
cause or following a change of control, all vesting or performance requirements
with respect to any stock options or other similar equity-based compensation
awards shall be deemed to have been satisfied. With respect to any payments
under his employment agreement upon death, disability, or termination without
good cause or following a change of control, Mr. Pearson would receive
additional cash payments in an amount necessary to pay any federal excise taxes.
Mr. Pearson's employment agreement is also subject to voluntary termination by
Mr. Pearson or termination by LAI for cause.
PATRICK J. MCDONNELL. LAI and Mr. McDonnell entered into his employment
agreement in September 1998, engaging Mr. McDonnell as LAI's Chief Operating
Officer. The current term of Mr. McDonnell's agreement expires September 14,
2001, however, the agreement provides that, on September 15, 2001, and each
succeeding September 15(th), the term of Mr. McDonnell's employment shall be
extended for an additional one year period. This has the effect of making the
remaining term of the agreement two years, unless either LAI or Mr. McDonnell
gives notice not less than 90 days prior to any extension date of an intention
not to extend. Under his employment agreement, Mr. McDonnell is entitled to
receive an annual base salary of not less than $500,000, and is eligible to earn
annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the compensation committee. Under the plan
currently in effect, Mr. McDonnell is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary. The
agreement requires LAI to pay a $25,000 bonus to Mr. McDonnell in equal pro rata
installments during the first year of his employment.
Mr. McDonnell may terminate his employment agreement upon 90 days prior
written notice. Mr. McDonnell is entitled to receive certain severance benefits
if his employment is terminated by LAI "without good cause" or by Mr. McDonnell
following a "change of control," each as defined in the employment agreement. In
the event of termination without good cause, Mr. McDonnell will receive his base
salary for two years after termination and an amount payable over the two years
equal to two times the target bonus for the year of termination. Mr. McDonnell
may terminate the agreement during the 60 day period commencing six months after
a change of control. In this event he, would be entitled to receive a lump sum
payment equal to two times his annual base salary plus an amount not less than
two times the target bonus for the year of termination. Mr. McDonnell has agreed
to not compete with LAI during the term of his employment and, if his employment
is terminated by LAI without good cause or following a change of control, for so
long as he continues to receive payments under the agreement.
In connection with the negotiation of his employment agreement, the
compensation committee awarded Mr. McDonnell stock options to purchase 200,000
shares of LAI Common Stock with an initial exercise price of $5.625 per share.
LAI also paid Mr. McDonnell a cash sign on bonus of $525,000. If before
September 15, 2001 Mr. McDonnell voluntarily terminates his employment or LAI
terminates his employment for "good cause," Mr. McDonnell must repay part or all
of the sign on bonus, as follows: (1) if termination is between September 15,
1998 and September 14, 1999, 100% of the sign on bonus; (2) if termination is
between September 15, 1999 and September 15, 2000, 66 2/3% of the sign on bonus
and (3) if termination is between September 15, 2000 and September 14, 2001,
33 1/3% of the sign on bonus. In addition, under the employment agreement, LAI
is required to provide Mr. McDonnell with a $1 million life insurance policy.
In addition, upon any termination of Mr. McDonnell's employment without good
cause or following a change of control, all vesting or performance requirements
with respect to any stock options or other
76
<PAGE>
similar equity-based compensation awards shall be deemed to have been satisfied.
With respect to any payments under his employment agreement upon death,
disability, or termination without good cause or following a change of control,
Mr. McDonnell would receive additional cash payments in an amount necessary to
pay any federal excise taxes. Mr. McDonnell's employment agreement is also
subject to voluntary termination by Mr. McDonnell or termination by LAI "for
cause."
PHILIP R. ALBRIGHT. LAI and Mr. Albright entered into his employment
agreement effective February 1, 1999, engaging Mr. Albright as LAI's Chief
Financial Officer. The agreement provides for an at will employment
relationship. Under his employment agreement, Mr. Albright is entitled to
receive an annual base salary of not less than $175,000, and is eligible to earn
annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the compensation committee. Under the plan
currently in effect, Mr. Albright is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary. The
agreement required LAI to pay a $30,000 bonus to Mr. Albright upon execution.
In connection with the negotiation of his employment agreement, the
compensation committee awarded Mr. Albright stock options to purchase 30,000
shares of LAI Common Stock with an initial exercise price of $6.25 per share. In
addition, under his employment agreement, LAI is required to provide Mr.
Albright with a $1 million life insurance policy. During fiscal 1999, the
compensation committee also awarded Mr. Albright stock options to purchase 7,000
shares of LAI Common Stock with an exercise price of $10.00 per share (after
giving effect to participation in the Option Exchange Program). Such options are
subject to a three-year cliff vesting schedule.
Mr. Albright is entitled to receive certain severance benefits if his
employment is terminated by LAI for any reason other than "good cause" or by Mr.
Albright following a "change of control" each as defined in the employment
agreement. In the event of termination by LAI other than for good cause, Mr.
Albright will receive a cash payment equal to the sum of one year's base salary
and the target bonus for the year of termination.
In addition, upon any termination of Mr. Albright's employment "without good
cause" or following a change of control, all vesting or performance requirements
with respect to any stock options or other similar equity-based compensation
awards shall be deemed to have been satisfied. With respect to any payments
under his employment agreement upon death, disability, or termination without
good cause or following a change of control, Mr. Albright would receive
additional cash payments in an amount necessary to pay any federal excise taxes.
RICHARD L. BAIRD. LAI and Mr. Baird entered into his employment agreement
effective November 9, 1998, engaging Mr. Baird as an LAI Executive Vice
President and as President of LAI Compass, Inc., the selection services
subsidiary. The current term of Mr. Baird's agreement expires November 8, 2000;
however, the agreement provides that, on November 9, 2000, and each succeeding
November 9th, the term of Mr. Baird's employment shall be extended for an
additional one year period, unless either LAI or Mr. Baird gives notice not less
than 90 days prior to any extension date of an intention not to extend. Under
his employment agreement, Mr. Baird is entitled to receive an annual base salary
of not less than $300,000, and is eligible to earn annual incentive bonuses
based upon such plans and criteria as may be established from time to time by
the compensation committee. Under the plan currently in effect, Mr. Baird is
eligible to earn a target bonus equal to 60% of his base salary and a maximum
bonus equal to 120% of his base salary. For LAI's 2000 fiscal year, the
agreement requires LAI to pay a $100,000 minimum bonus to Mr. Baird.
Mr. Baird may terminate his employment agreement upon 90 days prior written
notice. Mr. Baird is entitled to receive certain severance benefits if his
employment is terminated by LAI "without good cause" as defined in the
employment agreement. In the event of termination without good cause, Mr. Baird
will receive his base salary for one year after termination and an amount
payable over the one year equal to the target bonus for the year of termination.
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<PAGE>
In connection with the negotiation of his employment agreement, the
compensation committee awarded Mr. Baird stock options to purchase 100,000
shares of LAI Common Stock with an initial exercise price of $8.939 per share.
LAI also loaned Mr. Baird $100,000 as a sign on benefit. LAI forgave the loan
and accrued interest on February 28, 1999. If before November 8, 2000, Mr. Baird
voluntarily terminates his employment or LAI terminates his employment for "good
cause," Mr. Baird must pay to LAI as liquidated damages cash equal to part or
all of the sign on bonus, as follows: (1) if termination is between November 9,
1998 and November 8, 1999, $100,000 and (2) if termination is between November
9, 1999 and November 8, 2000, $50,000.
In addition, upon any termination of Mr. Baird's employment without good
cause or following a "change of control," all vesting or performance
requirements with respect to any stock options or other similar equity-based
compensation awards shall be deemed to have been satisfied. With respect to any
payments under his employment agreement upon death, disability, or termination
without good cause or following a change of control, Mr. Baird would receive
additional cash payments in an amount necessary to pay any federal excise taxes.
Mr. Baird's employment agreement is also subject to voluntary termination by Mr.
Baird or termination by LAI "for cause."
JOE D. GOODWIN. LAI has also entered into an agreement with Mr. Goodwin,
who is not currently serving as an executive officer, on January 28, 1999.
Pursuant to that agreement, Mr. Goodwin is guaranteed annual compensation at the
rate of $500,000 for a one year period. In addition, if Mr. Goodwin leaves LAI
after April 30, 1999, he is entitled to three months of his base salary as
severance pay, plus medical and dental insurance benefits for the remainder of
the one year term of the agreement.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Several option grants and other transactions, exclusively pursuant to LAI's
previously disclosed stock-based incentive and benefit arrangement and not
involving any market transactions, were not timely reported as required under
Section 16(a) of the Securities Exchange Act, including one form by each of the
following directors and officers relating to the indicated number of
'transactions: Messrs. Baird, Maslan and McDonnell, one transaction, and also
Mr. Baird's initial report upon becoming an officer; Messrs. Groves, Pogue and
Pope, two transactions; Messrs. Goodwin, Gow, Johnson, Pearson and Rothschild,
three transactions; Mr. Albright, four transactions. See "Executive Compensation
- -- Summary Compensation Table," "Executive Compensation -- Option Grants Table"
and Director Compensation."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1997, LAI made a non-interest bearing loan of $105,000 to John S.
Rothschild, the proceeds of which were used to pay certain initiation fees for a
country club joined by Mr. Rothschild in connection with his employment
responsibilities. So long as Mr. Rothschild does not voluntarily terminate his
employment with LAI, 20% of the principal amount of the loan will be forgiven on
July 1 of each year, commencing July 1, 1998. LAI also has agreed to pay Mr.
Rothschild the amount of any tax on income that may be imputed to him as a
result of such forgiveness.
LAI's Bylaws provide that LAI shall have the power, but generally not the
obligation, to indemnify directors and officers to the fullest extent permitted
by the laws of the State of Florida. LAI has entered into indemnification
agreements with all of its executive officers and directors creating certain
indemnification obligations on LAI's part in favor of its directors and
executive officers. These indemnification agreements clarify and expand the
circumstances under which a director or executive officer will be indemnified.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, the number of shares
of LAI's Common Stock beneficially owned by (i) each person known to LAI as
having beneficial ownership of more than 5% of LAI's Common Stock together with
such person's address, (ii) each of its directors and nominees to become a
director, (iii) each named executive officer and (iv) all directors and
executive officers as a group. Unless indicated otherwise, the address of the
beneficial owners is: c/o LAI Worldwide Inc., 200 Park Avenue, New York, New
York 10166.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NAME OF BENEFICIAL OWNER (1) OF CLASS
- -------------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Robert L. Pearson (2)........................................................... 175,210 2.18%
Patrick J. McDonnell............................................................ 15,000 *
Philip R. Albright (3).......................................................... 3,752 *
Richard L. Baird (4)............................................................ 12,139 *
Joe D. Goodwin (5).............................................................. 83,457 1.04
Roderick C. Gow (6)............................................................. 97,780 1.22
John F. Johnson (7)............................................................. 166,124 2.07
Neal L. Maslan (8).............................................................. 23,633 *
John S. Rothschild (9).......................................................... 82,423 1.03
Ray J. Groves (10)(13).......................................................... 5,000 *
Richard W. Pogue (11)(13)....................................................... 13,000 *
John C. Pope (12)(13)........................................................... 13,000 *
All directors and executive officers as a group (12 persons).................... 678,518 8.46
Wellington Management Company, LLP (14)......................................... 768,000 9.57
Heartland Advisors, Inc. (15)................................................... 610,000 7.60
FMR Corp. (16).................................................................. 496,500 6.19
Cannell Capital Management (17)................................................. 414,100 5.16
Bricoleur Capital Management LLC (18)........................................... 410,800 5.12
</TABLE>
- ------------------------
(*) Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with applicable
Securities and Exchange Commission rules, includes shares as to which a
person has or shares sole voting power and/or investment power.
(2) Includes 7,026 shares of Common Stock held in the Profit Sharing Plan;
6,408 shares held as trustee for the benefit of certain family members,
which Mr. Pearson is deemed to beneficially own; and 16,939 restricted
shares subject to a risk of forfeiture.
(3) Includes 252 shares of LAI Common Stock held in the Profit Sharing Plan and
2,500 shares underlying currently exercisable stock options deemed
beneficially owned.
(4) Includes 139 shares of LAI Common Stock held in the Profit Sharing Plan.
(5) Includes 1,364 shares of LAI Common Stock held in the Profit Sharing Plan,
and 2,093 restricted shares subject to a risk of forfeiture.
(6) Includes 435 shares of LAI Common Stock held in the Profit Sharing Plan,
and 20,930 restricted shares subject to a risk of forfeiture.
(7) Includes 16,702 shares of LAI Common Stock held in the Profit Sharing Plan,
5,682 restricted shares subject to a risk of forfeiture, 5,000 shares held
by Mr. Johnson's wife, which Mr. Johnson may be deemed to beneficially own,
and 200 shares held by Mr. Johnson's children, which Mr. Johnson may
79
<PAGE>
be deemed to beneficially own. Does not include 100 shares held by Mr.
Johnson's brother, as to which Mr. Johnson disclaims beneficial ownership.
(8) Includes 1,099 restricted shares subject to a risk of forfeiture and 5,500
shares underlying currently exercisable stock options deemed beneficially
owned.
(9) Includes 2,000 shares of LAI Common Stock held by two of Mr. Rothschild's
children, which Mr. Rothschild is deemed to beneficially own, 3,000 shares
held by Mr. Rothschild's spouse, which Mr. Rothschild may be deemed to
beneficially own, and 5,581 restricted shares subject to a risk of
forfeiture.
(10) Includes 5,000 shares underlying currently exercisable stock options deemed
beneficially owned.
(11) Includes 8,000 shares of LAI Common Stock held by a revocable trust which
Mr. Pogue, as trustee, is deemed to beneficially own and 5,000 shares
underlying currently exercisable stock options deemed beneficially owned.
(12) Includes 5,000 shares underlying currently exercisable stock options deemed
beneficially owned.
(13) Each of Messrs. Groves, Pogue and Pope has elected to defer certain
retainer and meeting fees and to have such deferral credited in the form of
stock deferral "units" pursuant to the Directors' Deferral Plan. The number
of units credited is determined December 31(st) of each year based on
average month-end stock values during the year. Using the actual 1998
average month-end stock values and the month-end stock values for the first
three months of calendar 1999, Messrs. Groves, Pogue and Pope would be
credited with 6,825 units, 4,837 units and 7,982 units, respectively. Each
unit is equal in value to one share of Common Stock.
(14) This information is derived from a Schedule 13G dated February 9, 1999,
filed with the Securities and Exchange Securities and Exchange Commission
by Wellington Management Company, LLP. Wellington possesses shared
dispositive power with respect to all 768,000 shares and shared voting
power with respect to 425,000 shares. Wellington's address is 75 State
Street, Boston, Massachusetts 02109.
(15) This information is derived from a Schedule 13G dated February 9, 1999,
filed with the Securities and Exchange Commission by Heartland Advisors,
Inc. Heartland possesses sole dispositive power with respect to all 610,000
shares and no voting power with respect to these shares. Heartland's
address is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202.
(16) This information is derived from a Schedule 13G dated February 18, 1999,
filed with the Securities and Exchange Commission by FMR Corp. FMR
possesses sole dispositive power with respect to all 496,500 shares and no
voting power with respect to these shares. FMR's address is 82 Devonshire
Street, Boston, Massachusetts 02109.
(17) This information is derived from a Schedule 13G dated January 29, 1999,
filed with the Commission by J. Carlo Cannell D/B/A Cannell Capital
Management, Tonga Partners, LP, Pleiades Investment Partners, LP, Goldman
Sachs Performance Partners (Offshore) LP, and Goldman Sachs Performance
Partners (Partners), LP. Cannell possesses shared voting and dispositive
power with respect to all 414,100 shares. Tonga, Pliaes Offshore and
Partners possess sole voting and dispositive power with respect to 183,700,
89,000, 61,000 and 80,400 shares, respectively. Cannell's address is 600
California Street, Floor 14, San Francisco, California 94108.
(18) This information is derived from a Schedule 13G dated February 2, 1999,
filed with the Securities and Exchange Commission by Bricoleur Capital
Management LLC, Bricoleur Partners I, LP, Daniel P. Wimsatt, and Robert M.
Poole. Bricoleur Capital has sole voting and dispositive power with respect
to all 410,800 shares. Bricoleur Partners, Wimsatt and Poole have shared
voting and dispositive power with respect to all 410,800 shares.
Bricoleur's address is 8910 University Center Lane, Suite 570, San Diego,
California 92122.
80
<PAGE>
COMPENSATION COMMITTEE REPORT
Pursuant to rules adopted by the SEC, LAI's Compensation Committee has
furnished the following report on executive compensation.
ROLE OF COMPENSATION COMMITTEE
The Compensation Committee consists of three members, each of whom is an
independent, non-employee director of LAI. The Compensation Committee is
responsible for developing and recommending to the full board for adoption LAI's
cash compensation philosophy, including general compensation and severance and
change in control arrangements for key employees, consultants, managing
partners, practice leaders and executive officers. The Compensation Committee
also develops and recommends to the full board for adoption LAI's philosophy for
granting of stock options and other awards under all equity-based incentive
plans and recommendations for adoption of new plans. The Compensation Committee
sets executive officer compensation, including annual reviews, and negotiates
and approves all executive officer employment agreements. The Compensation
Committee reviews all existing compensation plans and programs and all
amendments thereto, and recommends the adoption of any new plans. In addition,
the Compensation Committee reviews and coordinates with the full board the
senior leadership structure and helps to identify personnel for the development
of the next generation of LAI's leadership.
COMPENSATION PHILOSOPHY
LAI's policies on executive officer compensation are designed to (1) provide
compensation to its executive officers at levels which are competitive in the
industry and therefore will enable LAI to attract and retain high caliber
executive officers, (2) compensate executive officers in a manner designed to
recognize individual and Company performance, and (3) seek to align the
interests of the executive officers with the interests of LAI's stockholders.
Generally, there are three components to executive officer compensation: (1)
base salary, (2) annual incentive bonus, and (3) long-term incentive
compensation, consisting of options or other awards under LAI's Employee Stock
Plans.
LAI has entered into written employment agreements with each of the persons
currently serving as executive officers, Messrs. Pearson, McDonnell, Albright
and Baird. As noted below, in certain respects, the terms of these agreements
dictated how these executive officers were compensated in fiscal 1999. After
taking into account the results of operations for fiscal 1999 and such other
factors as the Compensation Committee deemed relevant, the Committee decided
that no incentive bonuses would be paid for fiscal 1999 to persons serving as
executive officers, other than those which LAI was contractually obligated to
pay under employment agreements with its executive officers. Accordingly, the
Compensation Committee declared no discretionary incentive bonuses for fiscal
1999. For additional information regarding the terms of these employment
agreements, see "Executive Compensation--Executive Employment Arrangements."
CHIEF EXECUTIVE OFFICER COMPENSATION
Robert L. Pearson, LAI's Chairman and Chief Executive Officer, receives
compensation in accordance with his employment agreement. For fiscal 1999, the
employment agreement provided for an annual base salary of not less than
$525,000 and the possibility of earning an annual incentive bonus equal to up to
160% of his base salary. The bonus is based upon such annual incentive plans and
criteria as are established from time to time by the Compensation Committee. For
the reasons described above, Mr. Pearson received no incentive bonus in respect
of services rendered in fiscal 1999.
81
<PAGE>
COMPENSATION OF OTHER NAMED EXECUTIVE OFFICERS
PATRICK J. MCDONNELL. Patrick J. McDonnell, LAI's President and Chief
Operating Officer, receives compensation in accordance with his employment
agreement. During the time Mr. McDonnell was employed by LAI during fiscal 1999,
his employment agreement provided for an annual base salary of not less than
$500,000, and the possibility of earning an annual incentive bonus equal to up
to 120% of his base salary. The bonus is based upon such annual incentive plans
and criteria as are established from time to time by the Compensation Committee.
During fiscal 1999, LAI paid Mr. McDonnell approximately $208,000 in base
salary. Mr. McDonnell's employment agreement also required LAI to pay a $25,000
bonus to Mr. McDonnell in equal pro rata installments during the first year of
his employment. For the reasons described above, Mr. McDonnell received no
incentive bonus in respect of services rendered in fiscal 1999, other than the
portion of the $25,000 bonus (approximately $10,000 in fiscal 1999) LAI was
obligated to pay under the employment agreement during fiscal 1999.
In connection with the negotiation of Mr. McDonnell's employment agreement,
the Compensation Committee awarded Mr. McDonnell stock options to purchase
200,000 shares of LAI Common Stock with an initial exercise price of $5.625 per
share. Such options vest ratably over four years. LAI also paid Mr. McDonnell a
cash sign on bonus of $525,000. If before September 15, 2001, Mr. McDonnell
voluntarily terminates his employment or LAI terminates his employment for "good
cause," Mr. McDonnell must repay part or all of the sign on bonus, as follows:
(1) if termination is between September 15, 1998 and September 14, 1999, 100% of
the sign on bonus; (2) if termination is between September 15, 1999 and
September 14, 2000, 66 2/3% of the sign on bonus and (3) if termination is
between September 15, 2000 and September 15, 2001, 33 1/3% of the sign on bonus.
In addition, under the employment agreement, LAI is required to provide Mr.
McDonnell with a $1 million life insurance policy.
RICHARD L. BAIRD. Mr. Baird, an Executive Vice President of LAI and
President of LAI Compass, Inc., receives compensation pursuant to his employment
agreement. During the time Mr. Baird was employed by LAI during fiscal 1999, his
employment agreement provided for an annual base salary of not less than
$300,000, and the possibility of earning an annual incentive bonus equal to up
to 120% of his base salary. The bonus is based upon such annual incentive plans
and criteria as are established from time to time by the Compensation Committee.
During fiscal 1999, LAI paid Mr. Baird approximately $93,000 in basic salary.
For the reasons described above, Mr. Baird received no incentive bonus in
respect of services rendered in fiscal 1999. For LAI's 2000 fiscal year, the
agreement requires LAI to pay a $100,000 minimum bonus to Mr. Baird.
In connection with the negotiation of Mr. Baird's employment agreement, the
Compensation Committee awarded Mr. Baird stock options to purchase 100,000
shares of LAI Common Stock, with an initial exercise price of $8.939 per share.
Such options vest ratably over four years. LAI also loaned Mr. Baird $100,000 as
a sign on benefit. LAI forgave the loan and accrued interest on February 28,
1999. If before November 8, 2000, Mr. Baird voluntarily terminates his
employment or LAI terminates his employment for "good cause," Mr. Baird must pay
to LAI as liquidated damages cash equal to part or all of the sign on benefit,
as follows: (1) if termination is between November 8, 1998 and November 8, 1999,
$100,000 and (2) if termination is between November 9, 1999 and November 8,
2000, $50,000.
PHILIP R. ALBRIGHT. During fiscal 1999, Philip R. Albright served in
several executive officer positions, including Vice President-Finance and Chief
Accounting Officer; interim Chief Financial Officer (effective October 1, 1998)
and, since February 1, 1999, Chief Financial Officer. Since he began serving as
interim Chief Financial Officer, Mr. Albright's compensation has been made in
accordance with written employment letter agreements. Mr. Albright received
approximately $138,000 as base salary in respect of services rendered in fiscal
1999. Under the terms of Mr. Albright's current employment letter agreement, he
is entitled to receive an annual base salary of not less than $175,000, and is
eligible to earn an annual incentive bonus based upon such plans and criteria as
are established from time to time by the Compensation Committee. Under the plan
currently in effect, Mr. Albright is eligible to earn a target bonus equal to
82
<PAGE>
65% of his base salary and a maximum bonus equal to 120% of his base salary.
Under the terms of the letter agreement signed at the time Mr. Albright became
interim Chief Financial Officer, LAI paid Mr. Albright a cash bonus of $30,000.
In connection with the negotiation of Mr. Albright's employment letter
agreements, the Compensation Committee awarded Mr. Albright stock options to
purchase 5,000 shares of LAI Common Stock with an initial exercise price of
$5.625 per share and stock options to purchase 30,000 shares of LAI Common Stock
with an initial exercise price of $6.25 per share. Such options vest ratably
over four years.
During fiscal 1999, the Committee also awarded Mr. Albright stock options to
purchase 7,000 shares of LAI Common Stock with an initial exercise price of
$10.00 per share (after giving effect to participation in the Option Exchange
Program). Such options are subject to a three-year cliff vesting schedule.
OPTION EXCHANGE PROGRAM
On October 8, 1998, the Compensation Committee approved a program to permit
the exchange of certain outstanding options to purchase LAI Common Stock for a
smaller number of newly issued options with lower exercise prices (the "Option
Exchange Program").
In the late summer and early fall of 1998 after a significant decline in
LAI's stock price, the Compensation Committee became increasingly concerned that
LAI's outstanding stock options with exercise prices significantly in excess of
current market prices were no longer providing effective employee incentives.
After carefully studying the issue, the Compensation Committee concluded that
the Option Exchange Program was necessary to provide appropriate equity-based
incentives to retain and motivate search consultants and other key employees.
The Compensation Committee engaged a nationally prominent consulting firm to
provide stock option valuation information and other advice in structuring the
Option Exchange Program. The Compensation Committee's goal was to design a
program in which the current economic value of the old options exchanged in the
Option Exchange Program would be equal to the current economic value of the new
options issued in exchange.
The Program applied to options issued under LAI's 1997 Omnibus Stock and
Incentive Plan and 1998 Omnibus Stock and Incentive Plan (the "Plans") with an
initial exercise price of $12.00 per share or higher (about 84% of all options
issued under the Plans at the time the Option Exchange Program was adopted). The
Option Program provided less favorable pricing and different exchange
percentages and vesting provisions for executive officers. Also, as a condition
to participating in the Option Exchange Program, individual option holders could
be required to satisfy certain conditions before they were allowed to
participate. When options covered by the Option Exchange Program were submitted
to LAI, and the holders satisfied any conditions, newly issued options were
delivered to the holder and the old options were canceled.
Options with an initial exercise price of less than $12.00 per share were
not covered by the Option Exchange Program. Also, stock options issued to
non-employee directors under LAI's Non-Employee Directors' Stock Option Plan
were not covered by the Option Exchange Program.
83
<PAGE>
The following tables illustrate the exchange provisions of the Option
Exchange Program:
<TABLE>
<CAPTION>
NON-EXECUTIVE OFFICERS
- -----------------------------------------------------------
ORIGINAL NEW PERCENTAGE OF
EXERCISE PRICE EXERCISE PRICE OLD OPTIONS
- ----------------- ------------------- -------------------
<S> <C> <C>
$12.00 $8.00 80%
Above $12.00 $8.00 60%
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
- ---------------------------------------------------------
ORIGINAL NEW PERCENTAGE OF
EXERCISE PRICE EXERCISE PRICE OLD OPTIONS
- ----------------- ----------------- -------------------
<S> <C> <C>
$12.00 $10.00 70%
Above $12.00 $10.00 70%
</TABLE>
When old options were exchanged for new options, most new options were
subject to a new vesting period beginning on October 8, 1998 (the date of grant
for the new options). Generally, old options that were partially vested were
replaced with completely un-vested options. A total of 82,000 performance
options issued to Robert L. Pearson were repriced to $10.00 per share but
remained subject to a longer six-year vesting schedule and stock price
performance criteria established at the time of their original grant in 1997.
The following tables illustrate the vesting provisions of the Option
Exchange Program:
<TABLE>
<CAPTION>
NON-EXECUTIVE OFFICERS
- -----------------------------------------------------------------
PERCENTAGE OF
NEW OPTIONS VESTED
ORIGINAL VESTING NEW VESTING ON GRANT DATE
- ------------------- ----------------- -------------------------
<S> <C> <C>
4 years 4 years 0%
(25% per year) (25% per year)
5 years 5 years 0%
(20% per year) (20% per year)
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
- -------------------------------------------------------------------------
PERCENTAGE OF
NEW OPTIONS VESTED
ORIGINAL VESTING NEW VESTING ON GRANT DATE
- --------------------- -------------------------- ----------------------
<S> <C> <C>
4 years 3 years 0%
(25% per year) (cliff vesting,
100% after 3 years)
5 years 3 years 0%
(20% per year) (cliff vesting,
100% after 3 years)
6 years 6 years Credit for
(cliff vesting or (cliff vesting or pre-Program vesting
$25 stock price for $25 stock price for
60 days) 60 days)
</TABLE>
A total of approximately 1.5 million options were eligible to participate in
the Option Exchange Program. A total of 632,640 newly granted options were
exchanged for a total of 943,175 old options, which were cancelled.
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<PAGE>
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code disallows deductions for certain compensation in
excess of $1 million per year to the Chief Executive Officer and four other most
highly compensated executives of LAI unless such compensation is "performance
based" as defined in the Code.
As a general rule, the Compensation Committee would prefer that all such
compensation be structured to qualify for deductibility, except in certain
limited cases when, in the judgment of the Compensation Committee, the interests
of LAI and its stockholders are better served by an alternative approach. In
determining executive compensation, the Compensation Committee considers a
variety of factors, including the possible tax consequences to LAI and to the
executives receiving such compensation. However, the Compensation Committee
believes that it is important to maintain maximum flexibility in designing and
implementing compensation programs that meet its stated objectives. In the view
of the Compensation Committee, insofar as LAI is concerned, compliance with the
requirements of Section 162(m) for "performance based compensation" would unduly
limit the flexibility which is needed to appropriately assess and reward the
performance of LAI's executive officers. For these reasons, the Compensation
Committee, while considering deductibility as one factor in its determinations,
has chosen not to limit compensation arrangements to those which will qualify
for deductibility under Section 162(m). The Compensation Committee will consider
alternative forms of compensation, consistent with its stated goals, that
preserve deductibility.
The application of Section 162(m) will not affect the deductibility of the
expenses recorded by LAI for Mr. Pearson fiscal 1998 compensation.
John C. Pope--Chairman
Ray J. Groves
Richard W. Pogue
TEN-YEAR OPTION/SAR REPRICINGS TABLE
The following table sets forth certain information concerning the Option
Exchange Program, including (i) the name and position of each executive officer
who participated in the exchange program, (ii) the date of any such exchange,
(iii) the number of securities underlying exchanged options, (iv) the per share
market price of the underlying security at the time of exchange, (v) the
original exercise price or base price of the canceled option at the time of
exchange, (vi) the per share exercise price of the option received in exchange
for the existing option and (vii) the original option term remaining at the date
of exchange.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING MARKET PRICE EXERCISE
OPTIONS/ OF STOCK AT PRICE
SAR'S TIME OF AT TIME OF NEW
DATE OF REPRICED OR REPRICING OR REPRICING OR EXERCISE
NAME AND POSITION REPRICING AMENDED(#) AMENDMENT ($) AMENDMENT ($) PRICE($)
- ------------------------------ ----------- ------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Robert L. Pearson............. 10/8/98 10,500 $ 6.75 $ 12.00 $ 10.00
Chairman and Chief Executive
Officer
10/8/98 57,400 6.75 19.125 10.00
Philip R. Albright............ 10/8/98 7,000 6.75 21.50 10.00
Vice President and Chief
Financial Officer
John S. Rothschild............ 10/8/98 17,500 6.75 18.25 10.00
Executive Vice President and
Director
Joe D. Goodwin................ 10/8/98 7,000 6.75 12.00 10.00
Executive Vice President and
Director
10/8/98 24,500 6.75 18.25 10.00
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM REMAINING
AT DATE OF
REPRICING OR
AMENDMENT
NAME AND POSITION (IN YEARS)
- ------------------------------ ---------------------------
<S> <C>
Robert L. Pearson............. 8.7
Chairman and Chief Executive
Officer
8.8
Philip R. Albright............ 9.5
Vice President and Chief
Financial Officer
John S. Rothschild............ 9.8
Executive Vice President and
Director
Joe D. Goodwin................ 8.7
Executive Vice President and
Director
9.8
</TABLE>
85
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on LAI's Common
Stock with the cumulative total return of the companies in the S&P 500 Index and
a Peer Group(1) constructed by LAI. Cumulative total return for each of the
periods shown in the Performance Graph is measured assuming an initial
investment of $100 on July 2, 1997, the date trading began in connection with
LAI's initial public offering, and the reinvestment of any dividends paid by any
company in the Peer Group.
COMPARISON OF CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
2Jul97 Feb98 Feb99
LAI WORLDWIDE INC 100.00 123.23 46.46
S&P 500 INDEX 100.00 117.20 140.33
PEER GROUP 100.00 132.52 98.81
PERIODS ENDING
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
JULY 2, 1997 1998 1999
<S> <C> <C> <C>
LAI 100 123.23 46.46
Peer Group 100 132.52 98.81
S&P 500 100 117.20 140.33
</TABLE>
- ------------------------
(1) The Peer Group is comprised of publicly traded companies which are engaged
principally or in significant part in professional staffing and consulting.
The returns of each company have been weighted according to their respective
stock market capitalization at the beginning of each measurement period for
purposes of arriving at a Peer Group average. The members of the Peer Group
are Diamond Technology Partners Incorporated; Interim Services Inc.; Modis
Professional Services, Inc.; On Assignment, Inc.; Robert Half International,
Inc.; Romac International, Inc.; Select Appointments (Holdings) Public
Limited Company; and SM&A Corporation. Modis Professional Services, Inc.
changed its name from AccuStaff Incorporated effective October 1, 1998, and
SM&A Corporation changed its name from Steven Myers & Associates effective
August 6, 1998. Information regarding SM&A Corporation is from January 30,
1998, the date its shares began trading in connection with its initial
public offering.
LAI STOCKHOLDER PROPOSALS FOR PRESENTATION AT THE 2000 ANNUAL MEETING
A LAI stockholder who desires to present a proposal next year, at LAI's 2000
Annual Meeting of Stockholders, may be entitled to have such proposal and
certain related information included in the proxy statement for that meeting.
For such a proposal to be included in the 2000 proxy statement, the proposal
must be received by management of LAI at its executive offices on or before
January 31, 2000. Even if submitted after such date, a stockholder may be
entitled to present a proposal at the 2000 Annual Meeting, subject to the
requirements described below, although the stockholder might not then be
entitled to have such proposal or related information included in the 2000 proxy
statement. Moreover, if any such proposal
86
<PAGE>
is received after January 31, 2000, then, under certain circumstances, any proxy
granted to LAI's officers and directors for the 2000 Annual Meeting may confer
discretionary authority to vote on such matter. All proposals submitted must
comply with applicable law, including the rules of the Securities and Exchange
Commission.
LAI's articles of incorporation and bylaws also require certain advance
notice to LAI of any stockholder proposal and of any nominations by stockholders
of persons to stand for election as directors at a stockholders' meeting. Notice
of stockholder proposals and of director nominations must be timely given in
writing to the Secretary of LAI prior to the meeting at which the directors are
to be elected. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of LAI not less than 60
days prior to the date of the meeting, regardless of any postponements,
deferrals or adjournments of that meeting to a later date; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
scheduled meeting is given or made, notice by the stockholder, to be timely,
must be so delivered or received not later than the close of business on the
tenth day following the earlier of the day on which notice was given or such
public disclosure was made.
A stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting, in addition to any other
information as may be required by the Florida Business Corporation Act, the
Exchange Act or other law: (1) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; (2) the name and address, as they appear on LAI's books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal; (3) the class and number of
shares of LAI's stock which are beneficially owned by the stockholder on the
date of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder
notice; and (4) any financial interest of the stockholder in such proposal.
A stockholder's notice with respect to a director nomination shall set
forth: (1) as to each person whom the stockholder proposes to nominate for
election or reelection as a director (a) the name, age, business address and
residence address of the person, (b) the principal occupation or employment of
the person, (c) the class and number of shares of capital stock of LAI which are
beneficially owned by the person and (d) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Schedule 14A under the Exchange Act, as
amended; and (2) as to the stockholder giving the notice (a) the name and
address, as they appear on LAI's books, of the stockholder and (b) the class and
number of shares of LAI's stock which are beneficially owned by the stockholder
on the date of such stockholder notice. LAI may require any proposed nominee to
furnish such other information as may reasonably be required by LAI to determine
the eligibility of such proposed nominee to serve as a director of LAI.
Copies of the complete provisions of LAI's articles of incorporation and
bylaws governing these matters are available to any stockholder upon request
without charge from the Secretary of LAI.
AVAILABILITY OF OTHER INFORMATION
A copy of LAI's Annual Report on Form 10-K for the fiscal year ended
February 28, 1999, including financial statements and financial statement
schedules as filed with the SEC (without exhibits) are available without charge
upon request to LAI, attention: Investor Relations, Metro Center, One Station
Place, Stamford, CT 06902, (203) 324-4445. Exhibits to the Form 10-K are
available, upon request to the same address, upon payment of LAI's reasonable
expenses in furnishing such exhibits. Information also may be accessed on our
website at www.laix.com. This proxy statement/prospectus also constitutes LAI's
annual report to stockholders for its fiscal year ended February 29, 1999.
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COMPARISON OF RIGHTS OF HOLDERS OF TMP COMMON STOCK
AND LAI COMMON STOCK
Once the merger is completed, the stockholders of LAI, which is a Florida
corporation, will become stockholders of TMP, which is a Delaware corporation.
The Delaware General Corporation Law, or the Delaware GCL and the Florida
Business Corporation Act, or the Florida BCA, differ in many respects, and these
differences will result in changes in the rights of LAI stockholders. In
addition, there are differences in the corporate documents of LAI and TMP. The
following description summarizes the significant differences between the
Delaware GCL and the Florida BCA and the corporate documents of LAI and TMP that
may affect the rights of LAI stockholders who become TMP stockholders.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
The Delaware GCL provides that any action required or permitted to be taken
at an annual or special meeting of stockholders may be taken without such a
meeting, without prior notice and without a vote, if a written consent is signed
by the holders of outstanding stock. Such stockholders must hold shares
representing the number of shares necessary to take such action at a meeting at
which all shares entitled to vote were present. Any company may provide
otherwise in its certificate of incorporation. The TMP certificate of
incorporation does not have this prohibition.
Similarly, the Florida BCA provides that any action required or permitted to
be taken at an annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if one or more consents in
writing, setting forth the action so taken, are signed. The written consents
must be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all shares entitled to vote thereon were present and
voted.
CLASS VOTES OF STOCKHOLDERS
The Delaware GCL does not require separate class votes of all voting classes
in order to approve charter amendments, mergers and sales of substantially all
assets. Section 242 of the Delaware GCL, however, provides that all classes of
stock, even a nonvoting class of stock, vote on charter amendments that
adversely affect the rights of holders of shares of such class.
The Florida BCA requires a majority vote of each class of stock outstanding
and entitled to vote to authorize a merger or consolidation, unless the articles
of incorporation require a greater vote or a class vote. The LAI articles of
incorporation do not contain this requirement.
STOCKHOLDER VOTING ON MERGER
The Delaware GCL generally requires a majority vote of the shares of stock
of each constituent corporation outstanding and entitled to vote in order to
effectuate a merger between two Delaware corporations. It also requires such a
vote in the case of a merger between the Delaware corporation and a corporation
organized under the laws of another state.
The Florida BCA requires a majority vote of each class of stock outstanding
and entitled to vote to authorize a merger or consolidation, unless the articles
of incorporation require a greater vote or a class vote. The LAI articles of
incorporation do not contain this requirement.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of the Delaware GCL prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for three
years following the time that such person becomes an interested stockholder.
With certain exceptions, an interested stockholder is a person or group who or
which owns 15% or more of the corporation's outstanding voting stock, including
any rights to
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acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only, or is an affiliate or
associate of the corporation and was the owner of 15% or more of such voting
stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include:
- mergers with or caused by the interested stockholder;
- sales or other dispositions to the interested stockholder, except
proportionately with the corporation's other stockholders, of assets of
the corporation or a subsidiary equal to 10% or more of the aggregate
market value of the corporation's consolidated assets or its outstanding
stock;
- the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the interested stockholder, except
for transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock; and
- receipt by the interested stockholder, except proportionately as a
stockholder, directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation
or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the time such stockholder becomes an interested stockholder, the
board of directors approves either the business combination or the
transaction which resulted in the person becoming an interested
stockholder;
- the interested stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him, her or it an interested
stockholder, excluding shares held by certain affiliates of the
corporation; or
- at or after the time such person becomes an interested stockholder, the
business combination is approved by both the board of directors and
66 2/3% of the outstanding voting stock of the corporation, excluding
shares held by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as Nasdaq, like TMP, or is held of record by
more than 2,000 stockholders. A Delaware corporation may elect in its original
certificate of incorporation, or by amending its certificate of incorporation or
bylaws, that it will not be governed by Section 203. Any such amendment must be
approved by the stockholders and may not be further amended by the board of
directors. TMP is governed by Section 203.
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue. TMP believes that so long as the constitutionality of
Section 203 is upheld, Section 203 will encourage any potential acquiror to
negotiate with TMP. Section 203 also has the effect of limiting the ability of a
potential acquiror to make a two-tiered bid for TMP in which all stockholders
would not be treated equally. Section 203 should also discourage certain
potential acquirers unwilling to comply with its provisions.
The Florida BCA has provisions, commonly referred to as the "Affiliated
Transaction Statute" and the "Control-Share Acquisition Statute," that are
intended to deter hostile takeovers of Florida corporations. In general, the
Affiliated Transaction Statute requires that, subject to limited exceptions, any
"affiliated transaction" between a corporation with more than 300 shareholders
and a person who is a beneficial owner of more than 10% of the corporation's
outstanding shares, or an affiliate or associate of that person,
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must be approved by a majority of the "disinterested directors" of the
corporation or the holders of two-thirds of the voting shares of the
corporation, excluding shares beneficially owned by the more than 10% shareowner
or his affiliate/associate. Absent such approval or an exception, the statute
requires that a "fair price" be paid to stockholders in a transaction such as
the merger. The Affiliated Transaction Statute will not apply to the merger.
Under the Control-Share Acquisition Statute, absent an applicable exemption,
"control shares" of an issuing public corporation that are acquired in a
"control-share acquisition" will retain their voting rights only to the extent
granted by a resolution that is approved by a majority of each class of voting
securities of the issuing public corporation. "Control shares" are shares of an
issuing corporation owned by a person that, immediately after acquisition of the
shares, would entitle the person to exercise directly or indirectly in the
election of directors of the corporation, voting power within any of the
following ranges: (A) 20% or more but less than 33% of all voting power of the
corporation's voting securities, (B) 33% or more but less than a majority of all
voting power of the corporation's voting securities or (C) a majority or more of
all the voting power of the corporation's voting securities. A "control share
acquisition" is a direct or indirect acquisition by a person of ownership of, or
the power to direct the exercise of voting power with respect to, "control
shares." If so authorized in its bylaws or articles of incorporation, an issuing
public corporation may redeem control shares for fair value in certain
circumstances. Furthermore, unless otherwise provided in a corporation's bylaws
or articles of incorporation before a control-share acquisition occurs, all the
stockholders of the issuing public corporation will have dissenters' rights, if
control shares representing a majority or more of all voting power in the
election of directors of the corporation are acquired in the transaction and
accorded full voting rights.
APPRAISAL RIGHTS
Section 262 of the Delaware GCL provides for appraisal rights only in the
case of a statutory merger or consolidation of a corporation where the
petitioning stockholder does not consent to the transaction. In addition, no
appraisal rights are available where the corporation is to be the surviving
corporation and a vote of its stockholders is not required under Delaware GCL
Section 251(f). There are also no appraisal rights, unless otherwise provided
for in a corporation's certificate of incorporation, for shares of stock listed
on a national securities exchange, or designated as a national market system
security on an inter-dealer quotation system by the NASD or held by more than
2,000 holders of record. This does not apply if such stockholders would be
required to accept anything other than shares of stock of the surviving
corporation, shares of another corporation so listed or held by such number of
holders of record, cash in lieu of fractional shares of such stock or any
combination thereof. TMP's certificate of incorporation does not provide for
such additional appraisal rights.
Section 607.1320 of the Florida BCA provides procedures under which
shareholders may dissent from, and receive payment of the fair value of their
shares in connection with, most mergers, consolidations and exchanges or sales
of substantially all or all of a corporation's assets. Unless a corporations's
articles of incorporation otherwise provide, such dissenter's rights are not
available with respect to a plan of merger, consolidation or sale or exchange of
assets to holders of shares of any class or series which were either registered
on a national securities exchange, designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by more than 2,000 shareholders. The
LAI articles of incorporation do not provide for such additional dissenter's
rights.
AMENDMENT OF BYLAWS
Section 109 of the Delaware GCL provides that the power to adopt, amend or
repeal bylaws shall be in the stockholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on the
board of directors. In accordance with TMP's certificate of incorporation, the
board of directors is expressly authorized to adopt, amend or repeal TMP's
bylaws.
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Section 607.1020 of the Florida BCA provides generally that the board of
directors or the stockholders may amend or repeal the a corporation's bylaws.
The board of directors may not, however, amend or repeal the bylaws in certain
circumstances in which that power is specifically reserved to the stockholders.
The Florida BCA permits stockholders to amend or repeal a corporation's bylaws
even though the bylaws may also be amended or repealed by its board of
directors. LAI's articles of incorporation and bylaws expressly authorize the
board of directors to adopt, amend or repeal the LAI bylaws.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the Delaware GCL allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to the corporation and its stockholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the Delaware
GCL does not, however, permit a corporation to limit or eliminate the personal
liability of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- intentional or negligent payment of unlawful dividends or unlawful stock
purchases or redemptions; or
- any transaction from which the director derived an improper personal
benefit.
TMP's certificate of incorporation provides for limitations on directors'
liability to the fullest extent permitted by the Delaware GCL.
Section 145 of the Delaware GCL provides that a corporation may indemnify
any of its officers and directors party to any action, suit or proceeding by
reason of the fact that he or she 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 organization. However, a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, must approve this, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation. TMP's bylaws provide
for indemnification of officers and directors of TMP to the maximum extent and
in the manner permitted by the Delaware GCL.
Section 607.0850 of the Florida BCA allows a corporation to limit or
eliminate the personal liability of directors to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director.
Specifically, the LAI bylaws entitle but do not obligate LAI, subject to
specific exceptions, to the fullest extent permitted by the Florida BCA, to
indemnify any person who is or was a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or other type of
proceeding, other than an action by or in the right of the corporation, whether
civil, criminal, administrative, investigative or otherwise, and whether formal
or informal, by reason of the fact that such person (1) is or was a director or
officer of the corporation or (2) is or was serving at the request of the
corporation as a director, officer, employee, agent, trustee or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise,
against judgments, amounts paid in settlement, penalties, fines, including an
excise tax assessed with respect to any employee benefit plan and expenses
including attorneys' fees, paralegals' fees and court costs actually and
reasonably incurred. Both the Florida BCA and the LAI bylaws permit such
indemnification for expenses actually and reasonably incurred in the connection
with any such action, suit or other proceeding, including any appeal thereof, if
such person acted in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
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Section 607.0850 of the Florida BCA does not permit a corporation to limit
or eliminate the personal liability of a person if a judgment or final
adjudication establishes that such person's actions, or omissions to act, were
material to the cause of action so adjudicated and constitute:
- a violation of criminal law, unless such person had reasonable cause to
believe such person's conduct was lawful or had no reasonable cause to
believe such person's conduct was unlawful;
- a transaction from which such person derived improper personal benefit;
- an unlawful distribution under Florida BCA; or
- willful misconduct or conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor or in a proceeding by or in the right of a
stockholder.
The right to indemnification granted in the LAI bylaws is not exclusive of
any other rights to which a person may be entitled under any law, by-law,
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in such person's official capacity and as to action in any other
capacity while holding office with the corporation, and shall continue as to any
person who has ceased to be a director or officer and shall inure to the benefit
of such person's heirs and personal representatives.
The LAI bylaws also provide that LAI may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
LAI, or who is or was serving at the request of LAI as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity or arising out of such person's status as
such, whether or not LAI would have the power to indemnify such person against
the liability under the provisions of the LAI bylaws.
According to the Florida BCA, a director is not personally liable for
monetary damages to the corporation or any other person for any statement, vote,
decision or failure to act, regarding corporate management or policy, unless the
director breached or failed to perform his duties as a director and the
director's breach of, or failure to perform those duties constitutes:
- a violation of criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reason to believe his conduct was
unlawful;
- a transaction from which the director derived improper personal benefit;
- a violation of Section 607.0834 of the Florida BCA, which concerns
unlawful payment of dividends;
- in a proceeding by or in the right of the corporation or a stockholder,
conscious disregard for the best interests of the corporation, or willful
misconduct; or
- in a proceeding by or in the right of someone other than the corporation
or a stockholder, recklessness or an act or omission which was committed
in bad faith or with malicious purpose or in a manner exhibiting wanton
and willful disregard of human rights, safety or property.
CLASSIFIED BOARD OF DIRECTORS
The Delaware GCL permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively. TMP's
certificate of incorporation does not provide for a classified board.
The Florida BCA permits, but does not require, that the board of directors
be divided into not more than three classes of classified terms. The LAI
Articles and bylaws establishes a classified board with three classes, Class I,
Class II and Class III. Class I Directors shall hold office for a term expiring
at the 2001 annual meeting of stockholders; Class II directors shall be elected
to hold office for a term expiring at the 1999 annual meeting of stockholders;
and Class III directors shall be elected to hold office for a term
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expiring at the 2000 annual meeting of stockholders. Subject to adjustment, at
each annual meeting of stockholders after 1997, the successors to the class of
directors whose terms then shall expire shall be identified as being the same
class as the directors they succeed and elected to hold office for a term
expiring at the third succeeding annual meeting of stockholders.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any class
elected by stockholders to fill a vacancy shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
A director shall hold office until the annual meeting for the year in which his
or her term expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Notwithstanding the foregoing, if and whenever the holders of any one or
more classes or series of preferred stock issued by LAI shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of the
articles of incorporation or the resolution or resolutions adopted by the board
of directors, and such directors so elected shall not be divided into classes
unless expressly provided by such terms.
CUMULATIVE VOTING FOR DIRECTORS
Section 214 of the Delaware GCL permits cumulative voting for directors to
the extent provided for in a Delaware corporation's certificate of
incorporation. TMP's certificate of incorporation does not provide for
cumulative voting and there is no cumulative voting rights provision in TMP's
bylaws.
Section 607.0728 of the Florida BCA permits cumulative voting in the
election of directors to the extent provided in a Florida corporation's articles
of incorporation. The LAI articles do not provide for cumulative voting.
REMOVAL OF DIRECTORS
Under Section 141 of the Delaware GCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors. However, unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his or her removal would be sufficient to elect him or her if
then cumulatively voted at an election of the entire board of directors.
Under Section 607.0808 of the Florida BCA, the stockholders may remove one
or more directors with or without cause unless the articles of incorporation
provide otherwise. The LAI articles of incorporation provide that stockholders
may not remove directors without cause. If one voting group of stockholders
elects a particular director, only the stockholders of that voting group may
participate in removing him. A director may be removed by the stockholders at a
meeting of the stockholders provided that notice of the meeting states that one
of its purposes is removal of the director.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Section 223 of the Delaware GCL provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office even
though less than a quorum, or by a sole remaining director, unless (1) otherwise
provided in the certificate of incorporation or by laws of the corporation or
(2) the certificate of incorporation directs that a particular class is to elect
such director, in which case any other directors elected by such class, or a
sole remaining director, shall fill such vacancy. Neither TMP's
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certificate of incorporation or bylaws contain these provisions. In addition,
if, at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the whole board, the
Delaware Court of Chancery may, upon application of stockholders holding at
least 10% of the shares outstanding at the time and entitled to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office. Such elections are to be conducted in accordance with the
procedures provided by the Delaware GCL. Unless otherwise provided in the
certificate of incorporation or bylaws, when one or more directors resign from
the board, a majority of directors then in office, including those who have so
resigned, may vote to fill the vacancy. TMP's certificate of incorporation and
bylaws do not provide otherwise.
Section 607.0809 of the Florida BCA provides that any vacancy occurring in
the board of directors, including any vacancy created by reason of an increase
in the number of directors, may be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum of the board of directors.
The LAI articles of incorporation provide that any director elected in
accordance with the preceding sentence shall hold office until the next
stockholders' meeting at which directors are elected or, if permitted under
applicable law, until the expiration of the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor is duly elected and qualifies,
unless such director sooner dies, resigns or is removed by the stockholders at
any annual or special meeting. A director elected by stockholders to fill a
vacancy shall be elected for the unexpired term of such director's predecessor
in office.
SPECIAL MEETINGS
Under Section 211 of the Delaware GCL, special meetings of stockholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or bylaws.
Under TMP's bylaws, a special meeting of stockholders may be called by the
chairman of the board or by the president.
Under Section 607.0702 of the Florida BCA, special meetings of stockholders
may be called by a corporation's board of directors or any other person as may
be authorized by the corporation's articles or bylaws, or by the holders of not
less than ten percent, unless a higher percentage not to exceed 50 percent is
called for by the corporation's articles, of all votes entitled to be cast on
any issue at the proposed special meeting who sign, date, and deliver to the
corporation's secretary one or more written demands for the meeting, describing
the purpose or purposes for which it is to be held. LAI's articles and bylaws
provide that special meetings of the stockholders may be called at any time for
any purpose or purposes by the board of directors, the chairman of the board of
directors, the president of LAI, or by holders of not less than 33 1/3% of all
the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting, if such stockholders sign, date and deliver to LAI's
secretary one or more written demands for a special meeting, describing the
purpose or purposes for which it is to be held.
INSPECTION RIGHTS
Section 220 of the Delaware GCL provides that any stockholder, upon written
demand stating the purpose of the inspection, shall have the right to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records.
Section 607.1602 of the Florida BCA provides that a shareholder is entitled
to inspect, upon written demand if such demand is in good faith, the
corporation's stock ledger, a list of its stockholders, and its other books and
records, for any proper purpose reasonably related to such shareholder's
interest.
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ELECTION OF DIRECTORS
TMP's bylaws give the board the power to set the number of directors on the
board at not less than one and not more than nine. The board is currently set at
six.
LAI's articles and bylaws provide for a board of directors of not less than
three nor more than twelve directors, the number of the same to be fixed by
resolution adopted by a vote of a majority of the then authorized number of
directors; provided that no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. The current number of
members of the board of directors is set at ten.
STANDARDS OF CONDUCT
Delaware does not explicitly provide for the consideration of societal
interests by a corporation's board of directors in making decisions. The
Delaware Supreme Court has held that, in discharging their responsibilities to a
corporation, directors may consider constituencies other than stockholders, such
as creditors, customers, employees and perhaps even the community in general, as
long as there are rationally related benefits accruing to stockholders as well.
The Delaware Supreme Court has held, however, that concern for non-stockholder
interests is inappropriate when a sale of a company is inevitable and an auction
among active bidders is in progress.
The Florida BCA expressly provides that a director may consider the
long-term interests and prospects of the corporation and its shareholders, and
the social, economic, legal or other effects of any action on the employees,
suppliers, customers of the corporation or its subsidiaries, the communities and
society in which the corporation or its subsidiaries operate, and the economy of
the state and the nation, in determining what he or she reasonably believes to
be in the best interests of the corporation. Thus, these interests could be
considered by a director even in connection with, or after, a decision to sell
the corporation.
EXPERTS
The consolidated financial statements and schedule of TMP incorporated by
reference in this proxy statement/prospectus have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their reports incorporated herein by reference and are incorporated
herein in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
The consolidated balance sheets of Morgan & Banks Limited as of December 31,
1998 and March 31, 1998 and 1997, the consolidated statements of operations and
shareholders' equity for the year ended December 31, 1998 and each of the three
years in the period ended March 31, 1998 and the statements of cash flows for
the nine months ended December 31, 1998 and the three years in the period ended
March 31, 1998, incorporated herein by reference, have been incorporated herein
in reliance on the report of Pannell Kerr Forster, independent auditors, given
on the authority of that firm as experts in accounting and auditing.
The audited financial statements and schedule of LAI included in this proxy
statement/prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
The validity of the shares of TMP Common Stock to be issued in connection
with the merger will be passed upon for TMP by Fulbright & Jaworski L.L.P., 666
Fifth Avenue, New York, New York 10103.
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REPRESENTATIVES OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP are expected to be present at the
stockholders' meeting and, while such representatives have stated that they do
not plan to make a statement at such meeting, they will be available to respond
to appropriate questions from stockholders in attendance.
COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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INDEX TO LAI FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Comprehensive Income...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
Report of Independent Certified Public Accountants................................... F-21
Schedule II: Valuation and Qualifying Accounts....................................... F-22
Condensed Consolidated Balance Sheets at May 31, 1999 and February 28, 1999.......... F-23
Condensed Consolidated Statements of Operations for the three-month periods ended May
31, 1999 and 1998.................................................................. F-24
Condensed Consolidated Statements of Cash Flows for the three-month periods ended May
31, 1999 and 1998.................................................................. F-25
Notes to Condensed Consolidated Financial Statements................................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of LAI
Worldwide, Inc. (a Florida corporation) and subsidiaries as of February 28, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, comprehensive income and cash flows for each of the three years in the
period ended February 28, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 7, 1999
F-2
<PAGE>
LAI WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AS OF FEBRUARY 28,
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................................................ $ 23,780 $ 29,899
Accounts receivable, less allowance of $2,120 and $3,250, respectively................... 22,950 22,419
Prepaid expenses......................................................................... 689 628
Refundable income taxes.................................................................. 1,822 3,591
Current deferred tax assets.............................................................. 486 2,438
--------- ----------
Total current assets................................................................. 49,727 58,975
--------- ----------
Property and equipment, net................................................................ 5,612 9,521
Deferred tax assets........................................................................ 3,699 4,927
Goodwill, net.............................................................................. 24,790 22,492
Cash value of life insurance............................................................... 4,363 5,823
Other assets............................................................................... 725 2,085
--------- ----------
Total assets......................................................................... $ 88,916 $ 103,823
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities................................................. $ 7,191 $ 6,027
Payable to former WHI stockholders....................................................... 8,592 --
Accrued compensation..................................................................... 20,573 8,234
Current maturities of long-term debt..................................................... 3,070 3,004
Accrued restructuring charges............................................................ -- 577
--------- ----------
Total current liabilities............................................................ 39,426 17,842
--------- ----------
Accrued rent............................................................................... 1,013 1,279
Deferred compensation...................................................................... 6,951 8,239
Long-term debt, less current maturities.................................................... 6,055 2,903
--------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no shares issued and
outstanding.......................................................................... -- --
Common stock; $0.01 par value; 35,000,000 shares authorized; 5,576,446 and 8,112,927
shares issued, respectively, and 5,576,446 and 8,082,953 shares outstanding,
respectively......................................................................... 56 82
Additional paid-in capital............................................................... 32,873 78,065
Unamortized stock-based compensation..................................................... -- (2,732)
Common stock in treasury, at cost; 29,974 shares at February 28, 1999.................... -- (196)
Cumulative translation adjustments....................................................... -- 37
Retained earnings (accumulated deficit).................................................. 2,542 (1,696)
--------- ----------
Total stockholders' equity........................................................... 35,471 73,560
--------- ----------
Total liabilities and stockholders' equity........................................... $ 88,916 $ 103,823
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Fee revenue, net................................................................. $ 46,437 $ 61,803 $ 86,811
Operating expenses:
Compensation and benefits...................................................... 39,928 46,513 66,897
General and administrative..................................................... 6,685 8,663 21,628
Goodwill amortization.......................................................... -- 17 776
Restructuring charges.......................................................... -- -- 3,543
--------- --------- ---------
Total operating expenses................................................... 46,613 55,193 92,844
--------- --------- ---------
Operating income (loss).......................................................... (176) 6,610 (6,033)
--------- --------- ---------
Interest income.................................................................. 125 887 1,806
Interest expense................................................................. (501) (690) (1,188)
Foreign currency transaction losses.............................................. -- -- (329)
Other............................................................................ -- -- (41)
--------- --------- ---------
Other income (expense)..................................................... (376) 197 248
--------- --------- ---------
Income (loss) before income taxes................................................ (552) 6,807 (5,785)
Income tax expense (benefit)..................................................... 15 2,927 (1,547)
--------- --------- ---------
Net income (loss)................................................................ $ (567) $ 3,880 $ (4,238)
--------- --------- ---------
--------- --------- ---------
Basic net income (loss) per common share......................................... $ (0.18) $ 0.85 $ (0.58)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares................................................... 3,199 4,573 7,346
--------- --------- ---------
--------- --------- ---------
Diluted net income (loss) per common and common equivalent share................. $ (0.18) $ 0.82 $ (0.58)
--------- --------- ---------
--------- --------- ---------
Weighted average common and common equivalent shares............................. 3,199 4,751 7,346
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNAMORTIZED
-------------------------- PAID-IN STOCK-BASED SUBSCRIPTIONS TREASURY
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE STOCK
----------- ------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF FEBRUARY 29, 1996........ 2,790 $ 28 $ 3,652 $ -- $ (399) $ --
Redemption of common stock............. (345) (3) (509) -- -- --
Issuance of common stock............... 630 6 944 -- (950) --
Reduction of subscriptions receivable
from stockholders.................... -- -- -- -- 1,196 --
Net loss............................... -- -- -- -- -- --
----- --- ----------- ------- ------ -----------
BALANCE AS OF FEBRUARY 28, 1997........ 3,075 31 4,087 -- (153) --
Redemption of common stock............. (50) (1) (76) -- -- --
Initial public offering of common
stock................................ 2,300 23 24,628 -- -- --
Other issuance of common stock......... 251 3 4,183 -- -- --
Reduction of subscriptions receivable
from shareholders.................... -- -- -- -- 153 --
Amortization of discounted options..... -- -- 51 -- -- --
Net income............................. -- -- -- -- -- --
----- --- ----------- ------- ------ -----------
BALANCE AS OF FEBRUARY 28, 1998........ 5,576 56 32,873 -- -- --
Secondary public offering of common
stock................................ 2,265 23 41,365 -- -- --
Other issuance of common stock......... 272 3 4,072 (3,900) -- --
Amortization of discounted options and
stock-based compensation............. -- -- 151 576 -- --
Acquisition of treasury stock.......... (30) -- (396) 592 -- (196)
Translation adjustments................ -- -- -- -- -- --
Net loss............................... -- -- -- -- -- --
----- --- ----------- ------- ------ -----------
BALANCE AS OF FEBRUARY 28, 1999........ 8,083 $ 82 $ 78,065 $ (2,732) $ -- $ (196)
----- --- ----------- ------- ------ -----------
----- --- ----------- ------- ------ -----------
<CAPTION>
RETAINED
EARNINGS/ TOTAL
TRANSLATION (ACCUMULATED STOCKHOLDERS'
ADJUSTMENTS DEFICIT) EQUITY
--------------- --------------- -------------
<S> <C> <C> <C>
BALANCE AS OF FEBRUARY 29, 1996........ $ -- $ (771) $ 2,510
Redemption of common stock............. -- -- (512)
Issuance of common stock............... -- -- --
Reduction of subscriptions receivable
from stockholders.................... -- -- 1,196
Net loss............................... -- (567) (567)
----- ------- -------------
BALANCE AS OF FEBRUARY 28, 1997........ -- (1,338) 2,627
Redemption of common stock............. -- -- (77)
Initial public offering of common
stock................................ -- -- 24,651
Other issuance of common stock......... -- -- 4,186
Reduction of subscriptions receivable
from shareholders.................... -- -- 153
Amortization of discounted options..... -- -- 51
Net income............................. -- 3,880 3,880
----- ------- -------------
BALANCE AS OF FEBRUARY 28, 1998........ -- 2,542 35,471
Secondary public offering of common
stock................................ -- -- 41,388
Other issuance of common stock......... -- -- 175
Amortization of discounted options and
stock-based compensation............. -- -- 727
Acquisition of treasury stock.......... -- -- --
Translation adjustments................ 37 -- 37
Net loss............................... -- (4,238) (4,238)
----- ------- -------------
BALANCE AS OF FEBRUARY 28, 1999........ $ 37 $ (1,696) $ 73,560
----- ------- -------------
----- ------- -------------
</TABLE>
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss).................................................................... $ (567) $ 3,880 $ (4,238)
Other comprehensive income, net of tax:
Cumulative translation adjustments................................................. -- -- 37
--------- --------- ---------
Comprehensive income................................................................. $ (567) $ 3,880 $ (4,201)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................................................. $ (567) $ 3,880 $ (4,238)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................................ 768 885 1,620
Write-down of property and equipment......................................................... -- -- 1,385
Amortization of goodwill..................................................................... -- 17 776
Write-down of goodwill....................................................................... -- -- 1,522
Gain on short-term investments............................................................... -- -- (776)
Amortization of discounted options and stock-based compensation.............................. -- 51 727
Deferred income taxes........................................................................ (276) (897) (3,180)
Changes in assets and liabilities
Accounts receivable, net................................................................... (4,679) (1,718) 531
Prepaid expenses........................................................................... (331) 32 61
Refundable income taxes.................................................................... (1,146) (1,707) (1,769)
Accounts payable and accrued liabilities................................................... (155) 361 (1,164)
Accrued compensation....................................................................... 3,376 (493) (12,339)
Accrued rent............................................................................... 531 (25) 266
Deferred compensation...................................................................... 1,862 3,079 1,288
Accrued restructuring charges.............................................................. -- -- 577
Other...................................................................................... (36) (532) (1,060)
--------- --------- ----------
Net cash provided by (used in) operating activities...................................... (653) 2,933 (15,773)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments............................................................. -- -- (38,271)
Proceeds from short-term investments........................................................... -- -- 39,047
Investment in life insurance................................................................... (1,048) (2,109) (1,968)
Purchases of property and equipment............................................................ (1,825) (2,187) (6,914)
Acquisition of WHI............................................................................. -- 1,318 (8,384)
Acquisition of CPI............................................................................. -- (1,387) --
--------- --------- ----------
Net cash used in investing activities.................................................... (2,873) (4,365) (16,490)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings..................................................................................... 3,995 -- 2,221
Repayments of debt............................................................................. (2,262) (1,783) (5,439)
Proceeds from public offering of common stock.................................................. 1,197 25,410 41,388
Other issuances of common stock................................................................ -- -- 175
Payments to redeem common stock................................................................ (271) (77) --
--------- --------- ----------
Net cash provided by financing activities................................................ 2,659 23,550 38,345
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents..................................... (867) 22,118 6,082
Cash and Cash Equivalents, at beginning of period.............................................. 2,529 1,662 23,780
Cumulative translation adjustment.............................................................. -- -- 37
--------- --------- ----------
Cash and Cash Equivalents, at end of period.................................................... $ 1,662 $ 23,780 $ 29,899
--------- --------- ----------
Supplemental disclosures of cash flow information--
Cash paid for interest......................................................................... $ 204 $ 145 $ 466
Cash paid for income taxes..................................................................... 1,437 4,691 2,526
Supplemental disclosures of non-cash activities--
Debt issued in connection with acquisitions.................................................... -- 8,802 --
Equity issued in connection with acquisitions.................................................. -- 3,580 --
Payable in connection with acquisitions........................................................ -- 8,592 (208)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
LAI Worldwide, Inc. and its wholly-owned subsidiaries ("LAI" or the
"Company") provide consulting services aimed specifically at solving its
clients' leadership needs by identifying, evaluating and recommending qualified
candidates for senior level positions. LAI provides executive search services
exclusively on a retained basis primarily in the United States.
PUBLIC OFFERINGS & REINCORPORATION
The Company completed its initial public offering (the "IPO") of 2.3 million
shares of common stock on July 1, 1997. The proceeds of $24.7 million, net of
underwriters' discounts and other offering costs, were used to repay outstanding
indebtedness under the Company's credit facilities, to finance business
acquisitions and to provide additional working capital. On June 3, 1997, in
connection with the IPO, the Company reincorporated from Delaware to Florida.
On June 9, 1998, the Company completed a secondary public offering of 3.2
million shares of common stock, approximately 2.3 million of which were offered
by the Company with the balance being offered by certain stockholders of the
Company. The proceeds to the Company of approximately $41.4 million, net of
underwriters' discounts and other offering costs, were used to support the
Company's international expansion efforts, to pursue strategic acquisitions, to
support continued enhancements to the Company's technology-based infrastructure
and to provide additional working capital.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie Associates,
Inc., a Florida corporation, reorganized into a holding company structure in
which LAI Worldwide, Inc., a Florida corporation, became the new holding
company.
STOCK SPLIT
On June 3, 1997, in connection with the IPO, the Company effected a 1,000
for one stock split of each outstanding share of common stock. All share related
data in these consolidated financial statements have been adjusted retroactively
to give effect to this event as if it had occurred at the beginning of the
earliest period presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial position and
results of operations of the Company and its wholly-owned subsidiaries. All
material intercompany profits, transactions and balances have been eliminated.
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.
F-7
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investment instruments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the assets'
estimated useful lives of 7 years for office furniture and equipment and 5 years
for software. Leasehold improvements are stated at cost less accumulated
amortization using the straight-line method over the related remaining lease
terms which range from 1 to 15 years. Repair and maintenance costs which do not
extend the useful lives of the assets are expensed as incurred.
GOODWILL
Goodwill relates to acquisitions made during the year ended February 28,
1998, (see Note 3) and is being amortized on a straight-line basis over thirty
years. During the year ended February 28, 1999, the Company finalized its
analysis of the fair market value of assets acquired and the acquisition
reserves and, accordingly, decreased goodwill by approximately $1.5 million.
Accumulated amortization as of February 28, 1998 and 1999, was approximately
$17,000 and $793,000, respectively.
At each balance sheet date, the Company evaluates the realizability of its
goodwill based upon expectations on non-discounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at February 28, 1999.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from fees for
professional services, which are recognized as fee revenue as clients are
billed, generally over a 60- to 90-day period commencing with the initial
acceptance of a search. Fee revenue is presented net of adjustments to original
billings.
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from activities of
the Company's international operations. Results of operations are translated
using the average exchange rates during the period, while assets and liabilities
are translated into U.S. dollars using current rates. Resulting foreign currency
translation adjustments are recorded in stockholders' equity, and foreign
currency transaction gains or losses are recorded in the consolidated statements
of operations.
F-8
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets and liabilities are
measured by applying enacted statutory tax rates applicable to the future years
in which the related deferred tax assets or liabilities are expected to be
settled or realized. Income tax expense (benefit) consists of the taxes payable
for the current period and the change during the period in deferred tax assets
and liabilities.
The Company's United Kingdom subsidiary is treated as a branch operation for
tax purposes.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share was determined by dividing the net
income (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted net income (loss) per common and common
equivalent share was determined by dividing the net income (loss) by the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options using the treasury stock method and
from the convertible debt assuming conversion upon issuance (see Note 9).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, shares of common stock issued by the Company during the 12 months preceding
the IPO have been included in the calculation of weighted average shares of
common stock outstanding as if the shares were outstanding for all periods
presented.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of accounts receivable. Credit risk arising
from receivables is minimal due to the large number of clients comprising the
Company's customer base, which is concentrated primarily in the U.S. Credit
losses in the past have not been material.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments as of February
28, 1998 and 1999, approximate fair value.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has implemented
SFAS 130 for the year ended February 28, 1999.
F-9
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way companies report information about operating segments
including the related disclosures about the different economic environments in
which it operates. The Company has implemented SFAS 131 for the year ended
February 28, 1999 (see Note 10).
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company has implemented SOP
98-1 for the year ended February 28, 1999.
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. Management believes the
effect of adopting SFAS 133 would not have a material impact on the accompanying
consolidated financial statements.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform to
the current year financial statement presentation.
(2) RESTRUCTURING CHARGES
During the first and second quarters of fiscal 1999, the Company focused its
growth strategy on international expansion, opening offices in London, England
and Wanchai, Hong Kong. This expansion involved the hiring of 15 executive
search consultants and 47 support staff, principally in London. Due to economic
conditions and the inherent difficulties in establishing start-up operations,
revenues from international operations were less than projected, resulting in
substantial losses from this business segment. As a result, in December 1998,
the Company decided to significantly reduce the size and scope of its London
office.
The results of operations for the year ended February 28, 1999, include a
restructuring charge of approximately $3.5 million. This charge included
approximately $2.1 million for write-downs of abandoned assets, approximately
$925,000 of severance benefits payable to 28 employees whose positions were
eliminated and approximately $500,000 of legal and other costs directly related
to the restructuring. Approximately $577,000 of accrued expenses related to the
above charges were payable as of February 28, 1999, and are accrued for in the
accompanying consolidated balance sheets.
F-10
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999
(3) ACQUISITIONS
On February 27, 1998, the Company completed the acquisition by merger of
Ward Howell International, Inc. ("WHI"). WHI and its subsidiary were merged into
a wholly-owned subsidiary of the Company and WHI was the surviving corporation
in the merger. The purchase price was approximately $19.5 million including $7.6
million in notes payable and approximately 190,000 shares or $3.1 million of
common stock. The remaining $8.8 million of the purchase consideration was
payable to the former WHI stockholders as of February 28, 1998, and is accrued
for in the accompanying consolidated balance sheets. The acquisition was
accounted for as a purchase with goodwill being recognized for the excess of the
purchase amount over the fair market value of the assets acquired.
On January 2, 1998, the Company acquired Chartwell Partners International,
Inc. ("CPI"). The acquisition cost was approximately $3.1 million and consisted
of approximately $1.4 million cash, a $1.25 million convertible subordinated
note payable, and approximately 26,000 shares or $424,000 of common stock. The
acquisition was accounted for as a purchase with goodwill being recognized for
the excess of the purchase amount over the fair market value of the assets
acquired.
Had the acquisitions of WHI and CPI been completed on March 1, 1996 and
1997, respectively, the combined proforma unaudited results of operations would
have been as follows for the year ended February 28:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
(UNAUDITED)
Fee revenue, net............................................................................ $ 74,193 $ 91,730
Net income.................................................................................. 2,943 4,485
Basic net income per common share........................................................... 0.86 0.94
Diluted net income per common and common equivalent share................................... 0.86 0.90
</TABLE>
The unaudited pro forma combined results of operations for the year ended
February 28, 1997 and 1998 were prepared using the financial statements of WHI
and CPI for the years ended December 31, 1996 and 1997, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of February 28:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Office furniture and equipment............................................................... $ 3,934 $ 6,419
Leasehold improvements....................................................................... 2,614 4,209
Software..................................................................................... 1,672 3,121
--------- ---------
8,220 13,749
Less: accumulated depreciation and amortization.............................................. (2,608) (4,228)
--------- ---------
$ 5,612 $ 9,521
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following as of February 28:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Notes payable to former WHI stockholders dated February 27, 1998, payable in three equal
annual installments plus accrued interest bearing interest at 5.0%......................... $ 7,552 $ 4,892
Convertible subordinated promissory note to a former CPI stockholder, dated January 2, 1998,
payable in three equal annual installments plus accrued interest, bearing interest at
6.75%, and convertible into shares of common stock at each anniversary date at prices
specified in the asset purchase agreement.................................................. 1,250 833
Notes payable due to former LAI stockholders, non-interest bearing (interest imputed at
6.5%), payable in three equal annual installments maturing through April 2000.............. 254 140
Notes payable to former WHI stockholders bearing interest from 5.8% to 9.5% maturing through
February 2003.............................................................................. 69 42
--------- ---------
9,125 5,907
Less: current maturities of long-term debt................................................... (3,070) (3,004)
--------- ---------
$ 6,055 $ 2,903
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
February 29, 2000.................................................................... $ 3,004
February 28, 2001.................................................................... 2,889
February 28, 2002.................................................................... 7
February 28, 2003.................................................................... 7
---------
$ 5,907
---------
---------
</TABLE>
The Company maintains a line of credit which provides for maximum borrowings
of $25 million bearing interest at various rates based on either a LIBOR index
or the bank's prime lending rate (7.75% at February 28, 1999) as determined at
the Company's option. Interest is payable monthly and the principal balance is
due upon demand. The line of credit is collateralized by accounts receivable
with borrowings limited to 75% of qualifying receivables. Additionally, the
Company is required to comply with certain working capital and liquidity
covenants. The Company was in compliance with or has obtained waivers for the
terms and covenants of its debt agreements as of February 28, 1998 and 1999. No
amounts were outstanding under the line of credit as of February 28, 1998 or
1999.
F-12
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Significant components of the income tax expense (benefit) are summarized as
follows as of February 28:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal............................................................................ $ 235 $ 2,931 $ 485
State.............................................................................. 56 893 272
--------- --------- ---------
291 3,824 757
--------- --------- ---------
Deferred:
Federal............................................................................ (220) (683) (1,377)
State.............................................................................. (56) (214) (829)
Foreign............................................................................ -- -- (98)
--------- --------- ---------
(276) (897) (2,304)
--------- --------- ---------
$ 15 $ 2,927 $ (1,547)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax expense (benefit) differs from the amount computed by
applying the U.S. federal corporate tax rate to income (loss) before income tax
expense (benefit) as follows as of February 28:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate.................................................. 35.0% 34.0% (34.0)%
Meals, entertainment and dues......................................................... (31.2) 2.1 4.9
Keyperson life insurance premiums..................................................... (3.8) .5 .6
Nondeductible goodwill................................................................ -- -- 4.7
Stock-based compensation.............................................................. -- -- 3.5
Foreign operations.................................................................... -- -- (1.7)
State taxes, net of federal benefit................................................... (2.8) 6.4 (6.0)
Other................................................................................. -- -- 1.3
--------- --- ---------
Effective income tax rate........................................................... (2.8)% 43.0% (26.7)%
--------- --- ---------
--------- --- ---------
</TABLE>
F-13
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax reporting purposes.
As of February 28, 1998, the Company changed its method of reporting for income
taxes from the cash basis to the accrual basis. Significant components of the
Company's deferred tax assets and liabilities as of February 28, 1998 and 1999,
are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Accounts payable and accrued liabilities................................................... $ 124 $ 2,129
Accrued rent............................................................................... 408 499
Allowance for uncollectible accounts....................................................... 595 1,137
Deferred compensation...................................................................... 2,798 3,213
Net operating loss carryforward............................................................ 2,207 2,122
Stock-based compensation................................................................... -- 83
Other...................................................................................... 35 74
--------- ---------
Total deferred tax assets................................................................ 6,167 9,257
--------- ---------
Deferred tax liabilities:
Accrued compensation....................................................................... (117) (418)
Liability for change in tax method......................................................... (1,241) (860)
Property and equipment, net................................................................ (623) (569)
Other...................................................................................... (1) (45)
--------- ---------
Total deferred tax liabilities........................................................... (1,982) (1,892)
--------- ---------
Net deferred tax asset................................................................... $ 4,185 $ 7,365
--------- ---------
--------- ---------
</TABLE>
During the year ended February 28, 1999, the Company increased its deferred
tax assets related to the WHI purchase and decreased goodwill accordingly (see
Note 1).
The Company has net operating loss carryforwards of approximately $6.0
million, expiring in 2018. Approximately $4.3 million of this amount relates to
the acquisition of WHI (see Note 3). These losses are limited to approximately
$1.0 million each year in accordance with IRC Section 382.
(7) EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND SAVINGS PLAN
The Company maintains a defined contribution profit sharing plan covering
substantially all employees. In August 1998, the plan was amended to add a
401(k) savings and Company matching feature. Company profit sharing and matching
contributions are discretionary and are funded annually as approved by the Board
of Directors. As of February 28, 1998, the Company had accrued for contributions
totaling approximately $1.6 million, which is included in accrued compensation
in the accompanying consolidated balance sheets. No amount was accrued as of
February 28, 1999.
F-14
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED COMPENSATION PLAN
The Company has deferred compensation agreements with 69 employees and
former employees. Under the terms of the agreements, employees are eligible to
make annual elections, on a calendar year basis, to defer a portion of their
compensation. This compensation, together with accrued interest, is paid upon
termination of the agreements, as defined. Effective January 1, 1999, the plan
was amended to prohibit future deferrals of compensation to the plan. The
present value of the obligation is recorded as deferred compensation in the
accompanying consolidated balance sheets. Interest is earned on deferred amounts
at a rate determined annually by the Company (6.25% at February 28, 1999).
The Company is the beneficiary of whole life insurance policies with an
aggregate cash surrender value of approximately $4.4 million and $5.8 million,
and an aggregate face amount of $13.5 million and $22.3 million, as of February
28, 1998 and 1999, respectively. Proceeds from the policies are intended to fund
the deferred compensation agreements.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan (the "ESPP") covering
all eligible employees meeting length of service requirements as specified in
the ESPP. An aggregate of 200,000 shares of common stock is reserved for
issuance under the ESPP. Eligible employees are given the right to purchase
shares of common stock two times a year at a price equal to 85% of the then
current market price of the common stock. The second purchase window for
calendar year 1999 will be suspended due to the pending transaction with TMP
Worldwide, Inc. (see Note 13).
(8) STOCK OPTION PLANS
The Company has two employee stock option plans, the 1997 Omnibus Stock and
Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive Plan
(the "1998 Plan"). Under the 1997 Plan and the 1998 Plan, incentive stock
options, nonqualified stock options, stock appreciation rights, performance
units, performance shares, restricted stock, restricted stock units and stock
not subject to restrictions may be granted to employees of the Company at prices
determined at the time of grant. Generally, incentive stock options,
nonqualified stock options, restricted stock and restricted stock units will
vest each year beginning on the first anniversary of the date of grant at 20-25%
per year and will expire after 10 years. An aggregate of 950,000 and 1,500,000
shares of common stock is reserved for issuance under the 1997 Plan and the 1998
Plan, respectively. Certain options under the 1997 Plan and the 1998 Plan which
have been granted to executive officers of the Company vest immediately upon the
Company's stock price exceeding specified closing prices for a specified length
of time as determined by the Board of Directors. If the specified criteria are
not met, the options become 100% exercisable six years from the date of grant.
The Company also maintains a non-employee directors' stock plan (the
"Directors' Stock Plan"). An aggregate of 80,000 shares of common stock is
reserved for issuance under the Directors' Stock Plan. Among other provisions,
outside directors will annually receive options to purchase 5,000 shares of
common stock at an exercise price equal to the market price of the common stock
on the date of grant. The options will vest fully on the first anniversary of
the date of grant and expire after ten years.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25 ("APB 25"), under which approximately $51,000
and $151,000 of compensation expense has been recognized for options with an
exercise price less than the market price on the date of grant for the years
ended February 28, 1998 and 1999, respectively. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which was
effective for fiscal years beginning after December 15, 1995. SFAS 123 allows
companies to continue following the accounting guidance of
F-15
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APB 25, but requires pro forma disclosure of net income and earnings per share
for the effects on compensation expense had the accounting guidance of SFAS 123
been adopted.
The Company adopted SFAS 123 for disclosure purposes during the year ended
February 28, 1998. For SFAS 123 purposes, the fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumption: risk-free interest
rates ranging from 4.2 to 6.4 percent, depending on the date of grant, expected
life of 7 years, dividend rate of zero percent, and expected volatility of 45
percent and 66 percent for the years ended February 28, 1998 and 1999,
respectively. Using these assumptions, the fair value of the stock options
granted in the years ended February 28, 1998 and 1999, is approximately $10.9
million and $5.9 million, respectively. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income (loss) and net income (loss) per share, as reported would
have been the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
DATE)
Net income (loss)
As reported................................................................................. $ 3,880 $ (4,238)
Pro forma................................................................................... 3,399 (5,938)
Basic net income (loss) per common stare
As reported................................................................................. $ 0.85 $ (0.58)
Pro forma................................................................................... 0.74 (0.81)
Diluted net income (loss) per common and common equivalent share
As reported................................................................................. $ 0.82 $ (0.58)
Pro forma................................................................................... 0.72 (0.81)
</TABLE>
A summary of the Company's stock option plans' activity for the years ended
February 28, 1998 and 1999 and a status of the Company's stock option plans as
of February 28, 1999, is presented in the table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Options outstanding at February 28, 1997................................................. -- $ --
Option activity:
Granted................................................................................ 1,211,615 15.97
Exercised.............................................................................. -- --
Cancelled or expired................................................................... -- --
----------- -----
Options outstanding at February 28, 1998................................................. 1,211,615 15.97
Option activity:
Granted................................................................................ 1,652,740 11.30
Exercised.............................................................................. (5,750) 12.00
Cancelled or expired................................................................... (1,224,267) 16.35
----------- -----
Options outstanding at February 28, 1999................................................. 1,634,338 10.99
----------- -----
----------- -----
</TABLE>
F-16
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
<S> <C> <C> <C>
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED-
AS OF REMAINING AVERAGE
FEBRUARY 28, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE
- ------------------------------------------------------------------- ---------------- --------------- -----------
$ 5.63-- 8.00...................................................... 838,315 10 years $ 7.11
$ 8.50--12.00...................................................... 372,850 9 years 10.11
$17.88--21.50...................................................... 423,173 9 years 19.44
</TABLE>
As of February 28, 1998 and 1999, options to purchase an aggregate of
1,211,615 and 1,634,338 shares, respectively, were outstanding with a weighted
average fair value of $9.02 and $6.25, respectively. Of the options outstanding
at February 28, 1999, 136,380 were immediately exercisable with a weighted
average exercise price of $15.74. No options were exercisable as of February 28,
1998. No options were granted during the year ended February 28, 1997.
On October 8, 1998, the Compensation and Management Development Committee
(the "Compensation Committee") of the Board of Directors approved a program to
permit the exchange of certain outstanding options to purchase LAI common stock
for a smaller number of newly issued options with lower exercise prices (the
"Option Exchange Program"). The Option Exchange Program applied to options
issued under the 1997 Plan and 1998 Plan with initial exercise prices of $12.00
per share or higher. Under the Option Exchange Program, such options were
exchanged for options with initial exercise prices of $8.00 or $10.00. The
closing price of the Company's common stock as reported on the Nasdaq Stock
Market on October 8, 1998, was $6.75. A total of 943,175 options were exchanged
for 632,640 newly granted options. These options are included in the option
activity as cancelled or expired and granted, respectively.
(9) NET INCOME (LOSS) PER SHARE
The Company adopted SFAS 128, "Earnings per Share" during the year ended
February 28, 1998. Accordingly, basic and diluted earnings per share ("EPS") are
shown on the face of the accompanying consolidated statements of operations. The
following is a reconciliation of the numerator and denominator of basic EPS to
diluted EPS.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28,
----------------------------------------------------------------------------------------
1997 1998
------------------------------------------- -------------------------------------------
INCOME (LOSS) SHARES PER SHARE INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available to common
stockholders.................... $ (567) 3,199 $ (0.18) $ 3,880 4,573 $ 0.85
Effect of Dilutive Securities
Options........................... -- -- -- 121
Convertible promissory note....... -- -- 14 57
----- ----- ----------- ------ ----- -----
Diluted EPS
Income (loss) available to common
stockholders -- assumed
conversions..................... $ (567) 3,199 $ (0.18) $ 3,894 4,751 $ 0.82
----- ----- ----------- ------ ----- -----
----- ----- ----------- ------ ----- -----
<CAPTION>
1999
------------------------------------------
INCOME
(LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ --------------- -----------
<S> <C> <C> <C>
Basic EPS
Income (loss) available to common
stockholders.................... $ (4,238) 7,346 $ (0.58)
Effect of Dilutive Securities
Options........................... -- -- --
Convertible promissory note....... -- --
------------ ----- -----------
Diluted EPS
Income (loss) available to common
stockholders -- assumed
conversions..................... $ (4,238) 7,346 $ (0.58)
------------ ----- -----------
------------ ----- -----------
</TABLE>
F-17
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options to purchase 605,615 shares of common stock at prices ranging from
$19.13 to $19.56 per share and options to purchase 1,634,338 shares of common
stock at prices ranging from $5.63 to $21.50 and $833,000 of debt convertible
into 32,829 shares of common stock were outstanding as of February 28, 1998 and
1999, respectively, but were not included in the computation of diluted EPS
because the effect would be antidilutive.
(10) SEGMENT REPORTING
During March 1999, the Company closed both its London and Hong Kong offices
(see Note 13). Prior to that time, the Company was divided into two operating
segments, domestic and international. Domestic operations were, and continue to
be, conducted from offices located in most major cities throughout the United
States. International operations were conducted from offices in London and Hong
Kong. Both segments provided consulting services aimed specifically at solving
their clients' leadership needs by identifying, evaluating, and recommending
qualified candidates for senior executive positions primarily at Fortune 500 and
large private companies exclusively on a retained basis.
The Company evaluates each segment's performance based on its operating
profit or loss. The Company did not have international operations for the years
ended February 28, 1997 and 1998. Information concerning the operations of the
Company's reportable segments for the year ended February 28, 1999, is as
follows:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CONSOLIDATED
---------- ------------- ------------
<S> <C> <C> <C>
(IN
THOUSANDS)
Fee revenue, net........................................................ $ 83,449 $ 3,362 $ 86,811
Depreciation and amortization........................................... (2,155) (241) (2,396)
Restructuring charges................................................... -- (3,543) (3,543)
Operating income (loss)................................................. 6,531 (12,564) (6,033)
Interest income......................................................... 1,799 7 1,806
Interest expense........................................................ (1,188) -- (1,188)
Income tax (expense) benefit............................................ (3,453) 5,000 1,547
Purchases of property and equipment..................................... 3,823 3,091 6,914
Total assets............................................................ 95,980 7,843 103,823
</TABLE>
(11) EQUITY TRANSACTIONS
On November 16, 1998, the Company announced that it had adopted a
Stockholder Rights Agreement. To implement this plan, the Company declared a
dividend of one Preferred Stock Purchase Right on each outstanding share of the
Company's common stock. The dividend distribution was payable to stockholders of
record on November 16, 1998. The rights will be exercisable for fractions of a
share of the Company's Series A Junior Participating Preferred Stock only if a
person or group of persons acquires 20 percent or more of the Company's common
stock or announces a tender offer, the consummation of which would result in
ownership by a person or group of persons of 20 percent or more of the common
stock.
Subsequent to year end, the Company amended the Stockholder Rights Agreement
to exclude TMP Worldwide, Inc. ("TMP") as an Acquiring Person, as defined in the
agreement (see Note 13).
F-18
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES
Future minimum lease payments, net of sublease income, under these leases
are as follows:
<TABLE>
<CAPTION>
AMOUNT
(IN
YEAR ENDING THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
February 29, 2000.............................................................. $ 5,921
February 28, 2001.............................................................. 5,795
February 28, 2002.............................................................. 4,861
February 28, 2003.............................................................. 4,470
February 29, 2004.............................................................. 3,731
Thereafter..................................................................... 17,140
-------------
$ 41,918
-------------
-------------
</TABLE>
Rent expense totaled approximately $2.9, $3.4 and $7.7 million during the
years ended February 28, 1997, 1998 and 1999, respectively. Certain real
property leases provide for periods of free rent or escalating lease payments
throughout the lease term. In accordance with generally accepted accounting
principles, rent expense is recognized ratably over the term of the agreement.
LETTERS OF CREDIT
As of February 28, 1999, the Company has four standby letters of credit
totaling approximately $2.6 million at February 28, 1999. The letters of credit,
which are required by certain lessors as security deposits, expire between
August and December 1999.
LITIGATION
The Company is involved in various legal actions arising in the normal
course of business. While it is not possible to determine with certainty the
outcome of these matters, in the opinion of management, the eventual resolution
of these claims and actions outstanding will not have a material adverse effect
on the Company's financial position or results of operations.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers which provide for minimum compensation under certain circumstances. The
agreements also provide for a payment of amounts up to three times their annual
salary if a change in control, as defined, of the Company occurs and include a
covenant against competition with the Company which extends for two to three
years after termination. In the event all the covered executives elected to
terminate their employment during a specified period following a change in
control, the Company's maximum liability would be approximately $5.2 million.
F-19
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) SUBSEQUENT EVENTS
ACQUISITION BY TMP WORLDWIDE, INC.
Effective as of March 11, 1999, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with TMP Worldwide, Inc. ("TMP"),
pursuant to which TMP is to acquire LAI in a pooling of interests transaction.
Under the terms of the Agreement, each share of LAI common stock or option to
purchase LAI common stock will be exchanged for a specified number of shares of
TMP common stock or options to purchase TMP common stock, respectively. The
Merger Agreement is subject to customary closing conditions, including approval
by the shareholders of LAI.
INTERNATIONAL OPERATIONS
In March 1999, the Company completed a second review of its international
operations and assessed the impact of the actions taken as a result of the
decision made in December 1998, to significantly reduce the size and scope of
its London office (see Note 2). The Company determined that projections for
revenues from international operations were not being met. Consistent with its
previously stated intentions to prevent further operating losses from
international operations in fiscal 2000, the Company determined to immediately
enact a plan of closure for its two international offices. In accordance with
this plan, both the London and Hong Kong offices were closed during the first
quarter of fiscal 2000. The Company expects that the office closures will result
in further restructuring charges which will be recorded in the first quarter of
fiscal 2000.
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of LAI Worldwide, Inc. included in this Form
10-K and have issued our report thereon dated April 7, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index in Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-21
<PAGE>
SCHEDULE II
LAI WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO AMOUNT ADDED BALANCE AT
BEGINNING COST AND THROUGH END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
- ------------------------------------------------ ----------- ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1997
Allowance for doubtful accounts............... $ 625 $ 225 $ -- $ -- $ 850
Accrued restructuring charges................. -- -- -- -- --
Year ended February 28, 1998
Allowance for doubtful accounts............... 850 450 820 -- 2,120
Accrued restructuring charges................. -- -- -- -- --
Year ended February 28, 1999
Allowance for doubtful accounts............... 2,120 1,130 -- -- 3,250
Accrued restructuring charges................. -- 3,543 -- 2,966 577
</TABLE>
F-22
<PAGE>
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY
MAY 31, 28,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 20,535 $ 29,899
Accounts receivable, less allowance of $3,795 and $3,250,
respectively...................................................... 19,987 22,419
Prepaid expenses.................................................... 673 628
Refundable income taxes............................................. 870 3,591
Deferred tax assets................................................. 3,201 2,438
----------- -----------
Total current assets.............................................. 45,266 58,975
----------- -----------
Property and equipment, net of accumulated depreciation and
amortization of $5,093 and $4,228, respectively..................... 9,006 9,521
Deferred tax assets................................................... 9,341 4,927
Goodwill, net of accumulated amortization of $987 and $793,
respectively........................................................ 22,298 22,492
Other assets.......................................................... 7,764 7,908
----------- -----------
Total assets...................................................... $ 93,675 $ 103,823
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................ $ 4,900 $ 6,027
Accrued compensation................................................ 7,435 8,234
Current maturities of long-term debt................................ 1,418 3,004
Accrued restructuring charges....................................... 1,281 577
----------- -----------
Total current liabilities......................................... 15,034 17,842
----------- -----------
Accrued rent.......................................................... 1,101 1,279
Deferred compensation................................................. 8,949 8,239
Long-term debt, less current maturities............................... 2,878 2,903
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding..................................... -- --
Common stock; $0.01 par value; 35,000,000 shares authorized;
8,120,427 and 8,112,927 shares issued, respectively, and 8,024,071
and 8,082,953 shares outstanding, respectively.................... 82 82
Additional paid-in capital.......................................... 77,497 78,065
Unamortized stock-based compensation................................ (1,747) (2,732)
Common stock in treasury, at cost; 96,356 and 29,974 shares,
respectively...................................................... (619) (196)
Cumulative translation adjustments.................................. 18 37
Retained earnings................................................... (9,518) (1,696)
----------- -----------
Total stockholders' equity........................................ 65,713 73,560
----------- -----------
Total liabilities and stockholders' equity........................ $ 93,675 $ 103,823
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Fee revenue, net......................................................... $ 18,964 $ 23,494
Operating expenses:
Compensation and benefits.............................................. 16,520 17,317
General and administrative............................................. 12,978 3,718
Goodwill amortization.................................................. 194 206
Restructuring charges.................................................. 2,789 --
--------- ---------
Total operating expenses............................................. 32,481 21,241
--------- ---------
Operating income (loss).................................................. (13,517) 2,253
Other income (expense), net.............................................. 259 (118)
--------- ---------
Income (loss) before income taxes........................................ (13,258) 2,135
Income tax expense (benefit)............................................. (5,436) 938
--------- ---------
Net income (loss).................................................... $ (7,822) $ 1,197
--------- ---------
--------- ---------
Basic net income (loss) per common share................................. $ (.97) $ .21
--------- ---------
--------- ---------
Weighted average common shares......................................... 8,046 5,625
--------- ---------
--------- ---------
Diluted net income (loss) per common and common equivalent share......... $ (.97) $ .20
--------- ---------
--------- ---------
Weighted average common and common equivalent shares................... 8,046 6,005
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
<PAGE>
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MAY 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (7,822) $ 1,197
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization........................................ 789 295
Write-down of property and equipment................................. 1,088 --
Goodwill amortization................................................ 194 206
Amortization of deferred compensation................................ (5) 88
Changes in operating assets and liabilities.......................... (635) (12,843)
--------- ---------
Net cash used in operating activities.............................. (6,391) (11,057)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................... (1,362) (775)
Investment in life insurance........................................... -- (467)
Acquisition of Ward Howell International, Inc.......................... -- (8,092)
--------- ---------
Net cash used in investing activities.............................. (1,362) (9,334)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt..................................................... (1,611) (31)
--------- ---------
Net cash used in financing activities.............................. (1,611) (31)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................ (9,364) (20,422)
CASH AND CASH EQUIVALENTS, at beginning of period........................ 29,899 23,780
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period.............................. $ 20,535 $ 3,358
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION
LAI Worldwide, Inc. and its wholly-owned subsidiaries ("LAI" or the
"Company") provide consulting services aimed specifically at solving its
clients' leadership needs by identifying, evaluating and recommending qualified
candidates for senior level positions. LAI provides executive search and
selection services exclusively on a retained basis primarily in the United
States.
NOTE 2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of May 31, 1999, and February 28, 1999, and the results of
operations for the three-month periods ended May 31, 1999 and 1998, and cash
flows for the three-month periods ended May 31, 1999 and 1998.
The condensed consolidated financial statements include the financial
position and results of operations of the Company and its wholly-owned
subsidiaries. All material intercompany profits, transactions and balances have
been eliminated.
These condensed consolidated financial statements, including the condensed
consolidated balance sheet as of February 28, 1999, which has been derived from
audited financial statements, are presented in accordance with the requirements
of Form 10-Q and consequently may not include all disclosures normally required
by generally accepted accounting principles or those normally made in the
Company's Annual Report on Form 10-K. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's fiscal year 1999 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on May 27, 1999.
Certain prior year balances have been reclassified in order to conform to
the current year financial statement presentation.
NOTE 3. MERGER WITH TMP WORLDWIDE, INC.
Effective as of March 11, 1999, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with TMP Worldwide, Inc. ("TMP"),
pursuant to which TMP is to merge with LAI in a pooling of interests
transaction. Under the terms of the Agreement, each share of LAI common stock or
option to purchase LAI common stock will be exchanged for a specified number of
shares of TMP common stock or options to purchase TMP common stock,
respectively. The Merger Agreement is subject to customary closing conditions,
including approval by the shareholders of LAI.
NOTE 4. RESTRUCTURING CHARGES
During the first and second quarters of fiscal 1999, the Company focused its
growth strategy on international expansion, opening offices in London, England
and Wanchai, Hong Kong. This expansion involved the hiring of 15 executive
search consultants and 47 support staff, principally in London. Due to economic
conditions and the inherent difficulties in establishing start-up operations,
revenues from international operations were less than projected, resulting in
substantial losses from this business segment. As a result, in December 1998,
the Company decided to significantly reduce the size and scope of its London
office. A restructuring charge of approximately $3.5 million was recorded in the
fourth quarter of fiscal 1999.
F-26
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In March 1999, the Company completed a second review of its international
operations and assessed the impact of the actions taken in fiscal 1999. The
Company determined that the projections for revenues from international
operations were not being met. The Company immediately enacted a plan of closure
for its two international offices. In connection with the closure, the Company
recorded a restructuring charge of approximately $2.8 million. This charge
included approximately $900,000 for write-downs of abandoned assets,
approximately $800,000 of severance benefits payable to 24 employees whose
positions were eliminated and approximately $1.0 million of legal and other
costs directly related to the restructuring. A summary of the changes in the
accrued expenses related to the restructuring is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
FEBRUARY 28, COSTS AND BALANCE AT
1999 EXPENSES DEDUCTIONS MAY 31, 1999
--------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1999 restructuring................................... $ 577 $ 116 $ 198 $ 495
Fiscal 2000 restructuring................................... -- 2,673 1,887 786
----- ----------- ----------- ------
$ 577 $ 2,789 $ 2,085 $ 1,281
</TABLE>
NOTE 5. ADVERTISING COSTS
In May 1999, the Company entered into a four-year co-operative advertising
arrangement with TMP, under which the Company agreed to provide $10 million in
television and print advertising in May and June, 1999. As a result, the Company
recorded $7.6 million in advertising costs during May, 1999.
NOTE 6. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Basic net earnings per common share ("basic EPS") was determined by dividing
the net income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted net earnings per common and common
equivalent share ("diluted EPS") was determined by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding and
dilutive common equivalent shares from stock options using the treasury stock
method and from convertible debt assuming conversion upon issuance. The
following reconciles the numerator and denominator of basic EPS to diluted EPS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MAY 31, 1999 MAY 31, 1998
--------------------------------------------- ----------------------------------
INCOME (LOSS) SHARES PER-SHARE INCOME (LOSS) SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR)
------------- ----------------- ----------- --------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available to common
stockholders........................ $ (7,822) 8,046 $ (.97) $ 1,197 5,625
EFFECT OF DILUTIVE SECURITIES
Options............................... -- -- -- 322
Convertible promissory note........... -- -- 12 58
------------- ----- ------ -----
DILUTED EPS
Income (loss) available to common
stockholders + assumed
conversions......................... $ (7,822) 8,046 $ (.97) $ 1,209 6,005
------------- ----- ----------- ------ -----
------------- ----- ----------- ------ -----
<CAPTION>
PER-SHARE
AMOUNT
-------------
<S> <C>
BASIC EPS
Income (loss) available to common
stockholders........................ $ .21
EFFECT OF DILUTIVE SECURITIES
Options...............................
Convertible promissory note...........
DILUTED EPS
Income (loss) available to common
stockholders + assumed
conversions......................... $ .20
---
---
</TABLE>
F-27
<PAGE>
LAI WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7. COMPREHENSIVE INCOME
Comprehensive income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)........................................ $ (7,822) $ 1,197
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment...................... 18 4
--------- ---------
Comprehensive income (loss).............................. $ (7,804) $ 1,201
--------- ---------
--------- ---------
</TABLE>
NOTE 8. SEGMENT REPORTING
During March 1999, the Company closed both its London and Hong Kong offices
(see Note 4). Prior to that time, the Company was divided into two operating
segments, domestic and international. Domestic operations were, and continue to
be, conducted from offices located in most major cities throughout the United
States. International operations were conducted from offices in London and Hong
Kong. Both segments provided consulting services aimed specifically at solving
their clients' leadership needs by identifying, evaluating, and recommending
qualified candidates for senior executive positions primarily at Fortune 500 and
large private companies exclusively on a retained basis.
The Company evaluates each segment's performance based on its operating
profit or loss.
Information concerning the operations of the Company's reportable segments
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fee revenue, net:
Domestic............................................. $ 18,844 $ 23,494
International........................................ 120 --
--------- ---------
Consolidated......................................... $ 18,964 $ 23,494
--------- ---------
--------- ---------
Restructuring charges:
Domestic............................................. $ -- $ --
International........................................ $ 2,789 --
--------- ---------
Consolidated......................................... $ 2,789 $ --
--------- ---------
--------- ---------
Operating income (loss):
Domestic............................................. $ (10,355) $ 2,572
International........................................ (3,162) (319)
--------- ---------
Consolidated......................................... $ (13,517) $ 2,253
--------- ---------
--------- ---------
<CAPTION>
MAY 31,
1999
---------
<S> <C> <C>
Total assets:
Domestic............................................. $ 89,110
International........................................ 4,565
---------
Consolidated......................................... $ 93,675
---------
---------
</TABLE>
F-28
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 11, 1999,
by and among TMP Worldwide Inc., a Delaware corporation ("Buyer"), TMP Florida
Acquisition Corp., a Florida corporation and a direct, wholly-owned subsidiary
of Buyer ("Sub"), and LAI Worldwide, Inc., a Florida corporation ("Seller").
WHEREAS, the Boards of Directors of Buyer, Sub and Seller deem it advisable
and in the best interests of each corporation and its respective stockholders
that Buyer, Sub and Seller combine in order to advance the long-term business
interests of Buyer, Sub and Seller;
WHEREAS, the combination of Buyer, Sub and Seller shall be effected by the
terms of this Agreement and in accordance with the Florida Business Corporation
Act (the "FBCA") through a merger of Sub into Seller, as a result of which the
stockholders of Seller will become stockholders of Buyer (the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, articles of merger in such form as is required by the relevant
provisions of the FBCA (the "Articles of Merger") shall be duly executed and
acknowledged by the appropriate parties hereto and thereafter delivered to the
Department of State of the State of Florida for filing, as soon as practicable
on the Closing Date (as defined in Section 1.02). The Merger shall become
effective at the time of filing on the date filed, as evidenced by the
Department of State's date and time endorsement on the original Articles of
Merger, as delivered to the Department of State for filing (the "Effective
Time").
SECTION 1.02 CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., New York City time, on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
hereof (other than the conditions with respect to the documents to be delivered
at the Closing), at the offices of Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, NY 10103, unless another date, place or time is agreed to in
writing by the parties.
SECTION 1.03 EFFECTS OF THE MERGER. At the Effective Time (i) the separate
corporate existence of Sub shall cease and Sub shall be merged with and into
Seller (Sub and Seller are sometimes referred to below as the "Constituent
Corporations" and Seller following the Merger is sometimes referred to below as
the "Surviving Corporation"), (ii) the Articles of Incorporation of Sub as in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation (except that the name of the
Surviving Corporation shall be "LAI Worldwide, Inc."), and (iii) the Bylaws of
Sub as in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation. The Merger shall have the effects set forth in the
FBCA.
A-1
<PAGE>
SECTION 1.04 DIRECTORS AND OFFICERS. The directors and officers of Sub
immediately prior to the Effective Time shall become the directors and officers
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
shares of the common stock, $.01 par value per share, of Seller ("Seller Common
Stock"), or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK. All shares of Seller Common Stock that
are owned directly or indirectly by Seller as treasury stock shall be
cancelled and retired and shall cease to exist and no stock of Buyer or
other consideration shall be delivered in exchange therefor.
(c) EXCHANGE RATIO FOR SELLER COMMON STOCK. Subject to Section 2.02, each
issued and outstanding share of Seller Common Stock (other than shares to
be cancelled in accordance with Section 2.01(b) and any shares of Seller
Common Stock which are held by shareholders who are dissenting
shareholders pursuant to Sections 607.1301 through 607.1320 of the FBCA)
shall be converted into the right to receive a fraction of a fully paid
and non-assessable share of Buyer's Common Stock, $.001 par value per
share ("Buyer Common Stock"), such fraction to be in the ratio (the
"Exchange Ratio") as set forth herein. If the Average Stock Price (as
hereinafter defined) is:
(i) Greater than $64.00, the Exchange Ratio shall be equal to the
quotient obtained by dividing (A) $8.45 by (B) the Average Stock
Price (provided however, that if the Average Stock Price is greater
than $64.00 but the Average Closing Stock Price is such that the
product of the Exchange Ratio multiplied by the Average Closing
Stock Price is less than $5.55, then the Exchange Ratio shall be
adjusted to that quotient determined by dividing $5.55 by the
Average Closing Stock Price);
(ii) Equal to or greater than $42.00 but less than or equal to $64.00,
the Exchange Ratio shall be 0.1321; or
(iii) Less than $42.00, the Exchange Ratio shall be equal to the quotient
obtained by dividing (A) $5.55 by (B) the Average Stock Price
(provided that Buyer shall have the right to terminate this
Agreement pursuant to Section 8.01(g) of this Agreement if the
Average Stock Price is less than $42.00).
"Average Stock Price" means the average of the daily closing prices of
Buyer Common Stock for the twenty consecutive trading days ending on the
second trading day immediately prior to the Closing Date. "Average
Closing Stock Price" means the average of the daily closing prices of
Buyer Common Stock for the two consecutive trading days ending on the
trading day immediately prior to the Closing Date.
All such shares of Seller Common Stock when so converted shall no longer
be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Buyer Common Stock and any cash in lieu of
fractional shares of
A-2
<PAGE>
Buyer Common Stock to be issued or paid in consideration therefor upon
the surrender of such certificate in accordance with Section 2.02,
without interest.
(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock or Seller Common Stock),
reorganization, recapitalization or other like change with respect to
Buyer Common Stock or Seller Common Stock occurring after the date hereof
and prior to the Effective Time.
SECTION 2.02 EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of Seller Common Stock for Buyer Common Stock pursuant to the
Merger are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Buyer shall deposit with a
bank or trust company designated by Buyer and Seller (the "Exchange
Agent"), for the benefit of the holders of shares of Seller Common Stock
for exchange in accordance with this Section 2.02, through the Exchange
Agent, (i) certificates representing the shares of Buyer Common Stock
(such shares of Buyer Common Stock, together with cash in lieu of
fractional shares and any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.01 in exchange for outstanding shares of Seller
Common Stock and (ii) cash, as required, in an amount sufficient to make
payments of cash in lieu of fractional shares, if any, required pursuant
to Section 2.02(e).
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, Buyer shall
instruct the Exchange Agent and the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Seller Common
Stock (the "Certificates") whose shares of Seller Common Stock were
converted pursuant to Section 2.01 into the right to receive shares of
Buyer Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, and shall be in such form and have such other provisions
as Buyer and Seller may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
representing shares of Buyer Common Stock (plus cash in lieu of
fractional shares, if any, of Buyer Common Stock as provided below). Upon
surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Buyer, together with
such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Buyer Common Stock which such
holder has the right to receive pursuant to the provisions of this
Article II after taking into account all the shares of Seller Common
Stock then held by such holder under all such Certificates so
surrendered, and the Certificate so surrendered shall immediately be
cancelled. In the event of a transfer of ownership of Seller Common Stock
which is not registered in the transfer records of Seller, a certificate
representing the proper number of shares of Buyer Common Stock may be
issued to a transferee if the Certificate representing such Seller Common
Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon such surrender the certificate representing shares of Buyer Common
Stock and cash in lieu of any fractional shares of Buyer Common Stock as
contemplated by this Section 2.02.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions declared or made after the Effective Time with respect to
Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Buyer Common Stock to which such holder is entitled until the
holder of record of such
A-3
<PAGE>
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the record holder of the certificates representing whole
shares of Buyer Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Buyer Common Stock to which such
holder is entitled pursuant to subsection (e) below and the amount of
dividends or other distributions with a record date after the Effective
Time previously paid with respect to such whole shares of Buyer Common
Stock date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of
Buyer Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN SELLER COMMON STOCK. All shares of Buyer
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or (e) of this Section 2.02) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of
Seller Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or
made by Seller on such shares of Seller Common Stock in accordance with
the terms of this Agreement (to the extent permitted under Section 5.01)
prior to the date hereof and which remain unpaid at the Effective Time,
and from and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Seller Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Section 2.02.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of Buyer. Notwithstanding any other provision of this Agreement, each
holder of shares of Seller Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share
of Buyer Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Buyer
Common Stock multiplied by the Average Stock Price.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Seller for 180 days after
the Effective Time shall be delivered to Buyer, upon demand, and any
stockholders of Seller who have not previously complied with this Section
2.02 shall thereafter look only to Buyer for payment of their claim for
Buyer Common Stock, any cash in lieu of fractional shares of Buyer Common
Stock and any dividends or distributions with respect to Buyer Common
Stock.
(g) NO LIABILITY. To the extent permitted by applicable law, neither Buyer
nor Seller shall be liable to any holder of shares of Seller Common Stock
or Buyer Common Stock, as the case may be, for such shares (or dividends
or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) WITHHOLDING RIGHTS. Each of Buyer and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Seller Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by
Surviving Corporation or Buyer, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Seller Common Stock in respect of which
such deduction and withholding was made by Surviving Corporation or
Buyer, as the case may be.
A-4
<PAGE>
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a
bond in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Buyer Common Stock
and any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Buyer Common Stock deliverable in respect
thereof pursuant to this Agreement.
SECTION 2.03 CONVERSION OF OPTIONS. At the Effective Time, each option
granted by Seller to purchase shares of Seller Common Stock ("Seller Stock
Option") which is outstanding and unexercised immediately prior thereto shall
cease to represent a right to acquire shares of Seller Common Stock and shall be
converted automatically into an option to purchase the number of shares of Buyer
Common Stock equal to the number of whole shares of Seller Common Stock subject
to such option multiplied by the Exchange Ratio, at a price per share of Buyer
Common Stock equal to (i) the exercise price for the shares of Seller Common
Stock purchasable pursuant to such Seller Stock Option immediately prior to the
Effective Time divided by (ii) the Exchange Ratio, and shall otherwise be
subject to the terms of the Seller Employee Plans (as defined in Section 3.11)
pursuant to which such options were issued and the agreements evidencing grants
thereunder and shall thereupon be assumed by Buyer. Subject to the foregoing,
the adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. Subject to the adjustments
noted herein, the duration and other terms of the option shall be the same as
the original option except that all references to (i) Seller Common Stock shall
be deemed to be references to Buyer Common Stock and (ii) the Company shall be
deemed to be references to Buyer. Further, any and all vesting or performance
requirements or conditions affecting any outstanding restricted stock,
performance stock, stock option, stock appreciation right, phantom stock, bonus,
award, right, grant or any other arrangement with any director or employee of
Seller or any of its Subsidiaries shall be based on the terms of the respective
Seller Employee Plan and the agreements evidencing grants thereunder. This
Section 2.03 is intended to be for the benefit of holders of options to purchase
the Common Stock of Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer and Sub that the statements
contained in this Article III are true and correct, except as set forth herein
and in the disclosure schedule delivered by Seller to Buyer on or before the
date of this Agreement (the "Seller Disclosure Schedule"). The Seller Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraphs. Without limiting the generality
of the foregoing, the mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty
concerns the existence of the document or the other item itself).
SECTION 3.01 ORGANIZATION OF SELLER. Seller and each of its Subsidiaries
(as defined below) which is a corporation is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the business, properties, financial condition or results of operations of Seller
and its Subsidiaries, taken as a whole (a "Seller Material Adverse Effect");
provided, however, that for purposes
A-5
<PAGE>
of this Agreement, the following events, shall not be taken into account in
determining whether there has been or would be a "Seller Material Adverse
Effect" on or with respect to Seller and its Subsidiaries, taken as a whole: (A)
changes, events or occurrences in the United States securities markets which are
not specific to Seller and its Subsidiaries, (B) changes, events or occurrences
in the world economy which are not specific to the Seller and its Subsidiaries,
(C) the existence of this Agreement or the transactions contemplated hereby or
the announcement thereof, (D) any changes in generally accepted accounting
principles ("GAAP") and (E) changes, events or occurrences relating to the
executive search industry in general, and not specifically to Seller and its
Subsidiaries. Seller has no Subsidiaries other than Subsidiaries which are
corporations. Except as set forth in the Seller SEC Reports (as defined in
Section 3.04(a)) filed on or prior to the date hereof and except for inactive
Subsidiaries, neither Seller nor any of its Subsidiaries directly or indirectly
owns any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity, excluding securities in any publicly
traded company held for investment by Seller and comprising less than five
percent (5%) of the outstanding stock of such company. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
or member (excluding partnerships and limited liability companies, the general
partnership or membership interests of which held by such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership or limited liability company or veto rights with respect to
decisions made by or on behalf of such partnership or limited liability
company), or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
SECTION 3.02 SELLER CAPITAL STRUCTURE. (a) The authorized capital stock of
Seller consists of 35,000,000 shares of Common Stock ("Seller Common Stock") and
3,000,000 shares of Preferred Stock ("Seller Preferred Stock"). As of February
28, 1999, (i) 8,082,953 shares of Seller Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Seller Common Stock were held in the treasury of Seller or by
Subsidiaries of Seller, and (iii) no shares of Seller Preferred Stock were
issued and outstanding. The Seller Disclosure Schedule shows the number of
shares of Seller Common Stock reserved for future issuance pursuant to stock
options and warrants granted and outstanding as of February 28, 1999 and the
plans under which such options were granted, if applicable (collectively, the
"Seller Stock Plans"). No material change in such capitalization has occurred
between February 28, 1999 and the date of this Agreement. All shares of Seller
Common Stock subject to issuance as specified above are duly authorized and,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, shall be validly issued, fully paid and
nonassessable. There are no bonds, debentures, notes or other indebtedness of
Seller having the right to vote (or convertible into securities having the right
to vote) on any matters on which shareholders of Seller may vote. There are no
obligations, contingent or otherwise, of Seller or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Seller Common Stock,
Seller Preferred Stock, or the capital stock of any Subsidiary or to provide
funds to or make any material investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock or other
equity interests of or in each of Seller's Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable and all such shares (other than
directors' qualifying shares in the case of foreign Subsidiaries) and other
equity interests are owned by Seller or another Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Seller's
voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02 or as reserved for future
grants of options and warrants under the Seller Stock Plans, there are no equity
securities of any class of Seller or any of its Subsidiaries,
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or any security exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding, and there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Seller or any of its Subsidiaries is a party or by
which such entity is bound (including under letters of intent, whether binding
or nonbinding) obligating Seller or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other equity interests of Seller or any of its Subsidiaries or
obligating Seller or any of its Subsidiaries to grant, extend, accelerate the
vesting of, otherwise modify or amend or enter into any such option, warrant,
equity security, call, right, commitment or agreement. To the best knowledge of
Seller, there are no voting trusts, proxies or other voting agreements or
understandings with respect to the shares of capital stock or other equity
interests of Seller or any Subsidiary other than the Seller Voting Agreements.
(c) No consent of the holders of the Seller Stock Options is required in
connection with the conversion of the Seller Stock Options into options to
acquire Buyer Common Stock in accordance with Section 2.03.
SECTION 3.03 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Seller
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and thereby by Seller have been duly authorized by all
necessary corporate action on the part of Seller, subject only to the approval
of the Merger by Seller's stockholders under the FBCA; the vote of Seller's
stockholders required to approve this Agreement and the Merger is a majority of
the outstanding shares of Seller Common Stock on the record date for the Seller
Meeting (as defined in Section 3.15), at which a quorum is present. This
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles (the "Bankruptcy
and Equity Exception").
(b) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and thereby will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of Seller, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Seller or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with, violate, or cause the termination of any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Seller or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Seller Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Seller or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of the
pre-merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), (ii) the filing of the
Articles of Merger with the Department of State of the State of Florida, (iii)
the filing of the Proxy Statement (as defined in Section 3.15 below) with the
Securities and Exchange Commission (the "SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities
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laws and the laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not materially interfere with the operations of any material
facility of Seller or otherwise be reasonably likely to have a Seller Material
Adverse Effect.
SECTION 3.04 SEC FILINGS; FINANCIAL STATEMENTS. (a) Since the date of its
initial public offering, and to the extent that their failure to do so would not
be reasonably likely to have a Seller Material Adverse Effect, Seller and/or its
Subsidiaries have filed all forms, reports and documents, including the exhibits
thereto, required to be filed by Seller and/or its Subsidiaries with the SEC
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act (these forms, reports and documents, including the exhibits
thereto, are referred to collectively as "Seller SEC Reports". The Seller SEC
Reports (i) at the time filed complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Seller SEC Reports or necessary in
order to make the statements in such Seller SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Seller's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Seller SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Seller and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of Seller as of November 30,
1998 is referred to herein as the "Seller Balance Sheet."
SECTION 3.05 NO UNDISCLOSED LIABILITIES. Except as set forth on the Seller
Disclosure Schedule or as disclosed in the Seller SEC Reports or in press
releases that have been made public by Seller and available at Nasdaq's website
at http://www.nasdaq.com ("Seller Releases") filed prior to the date hereof, and
except for normal or recurring liabilities incurred since November 30, 1998 in
the ordinary course of business consistent with past practices, Seller and its
Subsidiaries do not have any liabilities, either accrued, contingent or
otherwise (whether or not required to be reflected in financial statements in
accordance with GAAP), and whether due or to become due, which individually or
in the aggregate are reasonably likely to have a Seller Material Adverse Effect.
SECTION 3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Seller SEC Reports filed prior to the date hereof or Seller Releases, since
the date of the Seller Balance Sheet, Seller and its Subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent with
past practice and, since such date, there has not been (i) any change in the
financial condition, results of operations, business or properties of Seller and
its Subsidiaries, taken as a whole that has had, or is reasonably likely to
have, a Seller Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Seller or any of its
Subsidiaries that has had, or is reasonably likely to have, a Seller Material
Adverse Effect; (iii) any material change by Seller in its accounting methods,
principles or practices to which Buyer has not previously consented in writing;
(iv) any revaluation by Seller of any of its assets that has had, or is
reasonably likely to have, a Seller Material Adverse Effect; or (v) any other
action or event that would have required the consent of Buyer pursuant to
Section 5.01 of this Agreement had such action or event occurred after the date
of this Agreement.
SECTION 3.07 TAXES. (a) For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges,
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duties, fees, levies, impositions and liabilities, including without limitation,
income, gross receipts, profits, sales, use and occupation, and value added, ad
valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment insurance, social security, business license,
occupation, business organization, stamp, environmental, personal property, real
property, worker's compensation, license, lease, service, service use,
severance, windfall profits, customs and other taxes, together with all
interest, fines, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity. For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
(b) Except as set forth on the Seller Disclosure Schedule, Seller and each
of its Subsidiaries have (i) timely filed all federal, state, local and foreign
Tax Returns required to be filed by them prior to the date of this Agreement
(taking into account extensions) and will timely file all such Tax Returns
required to be filed on or before the Closing Date, (ii) paid or accrued all
Taxes due and payable, and (iii) paid or accrued all Taxes for which a notice of
assessment or collection has been received (other than amounts being contested
in good faith by appropriate proceedings and for which adequate reserves have
been established on the books of the Seller), except in the case of clause (i),
(ii) or (iii) for any such filings, payments or accruals which are not
reasonably likely, individually or in the aggregate, to have a Seller Material
Adverse Effect. The unpaid Taxes of the Seller and each of its Subsidiaries for
tax periods through the Seller Balance Sheet date do not exceed the accruals and
reserves for Taxes (excluding reserves for deferred Taxes) set forth on the
Seller Balance Sheet by an amount that is reasonably likely to have a Seller
Material Adverse Effect nor will unpaid Taxes of Seller and each of its
Subsidiaries through the Closing Date exceed the accruals or reserves for Taxes
(excluding reserves for deferred Taxes on the financial statements and the books
and records of Seller) on the Closing Date. Neither the Internal Revenue Service
(the "IRS") nor any other taxing authority has asserted any claim for Taxes, or
to the actual knowledge of the executive officers of Seller, is threatening to
assert any claims for Taxes, which claims, individually or in the aggregate, are
reasonably likely to have a Seller Material Adverse Effect; no waivers of time
to assess any Tax are in effect and no requests for waiving of the time to
assess any Tax are pending. Seller and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all Taxes required by law to be withheld or
collected, except for amounts which are not reasonably likely, individually or
in the aggregate, to have a Seller Material Adverse Effect. There are no liens
for Taxes upon the assets of Seller or any of its Subsidiaries (other than liens
for taxes that are not yet due or that are being contested in good faith by
appropriate proceedings), except for liens which are not reasonably likely,
individually or in the aggregate, to have a Seller Material Adverse Effect.
(c) Seller is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated or combined Tax Returns, under operation of any state
or local laws as a result of being a member of a combined, consolidated or
unitary group, or under comparable laws of any other foreign jurisdiction) which
includes a party other than Seller and its Subsidiaries nor does Seller owe any
amount under any such agreement.
(d) Neither Seller nor any of its Subsidiaries is a "consenting corporation"
within the meaning of Section 341(f) of the Code, and none of the assets of
Seller or the Subsidiaries are subject to an election under Section 341(f) of
the Code.
(e) Neither Seller nor any of its Subsidiaries has been a United States real
property holding corporation with the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
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(f) Neither Seller nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will be an "excess parachute payment"
under Section 280G of the Code as a result of the transactions contemplated by
this Agreement.
SECTION 3.08 PROPERTIES. (a) Seller has provided to Buyer a true and
complete list of all real property leased by Seller or its Subsidiaries pursuant
to leases providing for the occupancy of facilities with an annual rent in
excess of $50,000 (collectively "Seller Material Lease(s)") and the location of
the premises. With respect to each such Seller Material Lease and except as set
forth on the Seller Disclosure Schedule: (i) the lease is legal, valid, binding,
enforceable against Seller subject to the Bankruptcy and Equity Exception, and
in full force and effect; (ii) the lease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(iii) neither Seller nor, to the Seller's knowledge, any other party to the
lease or sublease is in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default or permit
termination, modification or acceleration thereunder; and (iv) Seller has not
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the leasehold or sublease hold; except, in the case of clauses (i)
through (iv) that the same is not reasonably likely to have a Seller Material
Adverse Effect. Neither Seller nor any of its Subsidiaries owns any real
property.
SECTION 3.09 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as disclosed in
the Seller SEC Reports or delivered to Buyer or as set forth on the Seller
Disclosure Schedule, there are no contracts, agreements or commitments that are
required to be filed as an exhibit under the Exchange Act and the rules and
regulations thereunder. Neither Seller nor any Subsidiary has breached, or
received in writing any claim or notice that it has breached, any of the terms
or conditions of any material agreement, contract or commitment filed as an
exhibit to the Seller SEC Reports or any other agreement, contract or
commitment, the termination of which would have a Seller Material Adverse Effect
("Seller Material Contracts") in such a manner as, individually or in the
aggregate, are reasonably likely to have a Seller Material Adverse Effect. Each
Seller Material Contract that has not expired by its terms is in full force and
effect, and no party to any of the Seller Material Contracts will have the right
to terminate such contract as a result of the transactions contemplated by this
Agreement. None of the Seller Material Contracts is currently being
renegotiated, and Seller has no knowledge that any Seller Material Contract will
be the subject of a voluntary or regulatory ordered renegotiation within 12
months after the date of this Agreement.
SECTION 3.10 LITIGATION. Except as described in the Seller SEC Reports
filed prior to the date hereof or as set forth on the Seller Disclosure
Schedule, there is no action, suit or proceeding, claim, arbitration or
investigation against Seller or any of its Subsidiaries pending or as to which
Seller or any of its Subsidiaries has received any written notice of assertion,
which, individually or in the aggregate, is reasonably likely to have a Seller
Material Adverse Effect or a material adverse effect on the ability of Seller to
consummate the transactions contemplated by this Agreement. There is no
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitration outstanding against Seller or any of its Subsidiaries having, or
insofar as reasonably can be foreseen in the future, would have a Seller
Material Adverse Effect.
SECTION 3.11 EMPLOYEE BENEFIT PLANS. (a) Seller has listed in Section 3.11
of the Seller Disclosure Schedule all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement or severance plans or agreements, for the
benefit of, or relating to, any current or former employee, director or
independent contractor providing services to Seller, any Subsidiary, or any
entity which is a member (an "ERISA Affiliate") of (i) a controlled group of
corporations, (ii) a group of trades or businesses (whether or not incorporated)
under common control
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with Seller, or (iii) an affiliated service group, all within the meaning of
Section 414 of the Code, of which includes the Seller, or any Subsidiary of
Seller (together, the "Seller Employee Plans").
(b) With respect to each Seller Employee Plan, Seller has made available to
Buyer, a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS (and the related financial statement), (ii) such Seller
Employee Plan, (iii) each trust agreement and group annuity contract, if any,
relating to such Seller Employee Plan and (iv) the most recent actuarial report
or valuation relating to a Seller Employee Plan subject to Title IV of ERISA.
(c) With respect to the Seller Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Seller, there exists
no condition or set of circumstances in connection with which Seller could be
subject to any liability that is reasonably likely to have a Seller Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Seller Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted,
in either case, in accordance with GAAP, on the financial statements of Seller,
which obligations are reasonably likely to have a Seller Material Adverse
Effect.
(e) Except as disclosed in Seller SEC Reports filed prior to the date of
this Agreement, except as set forth on the Seller Disclosure Schedule and except
as provided for in this Agreement, neither Seller nor any of its Subsidiaries is
a party to any oral or written (i) agreement with any current or former officer
or other key employee of Seller or any of its Subsidiaries, the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Seller of the nature contemplated by this
Agreement, (ii) agreement with any current or former officer of Seller providing
any term of employment or compensation guarantee extending for a period longer
than eighteen months from the date hereof and for the payment of compensation in
excess of $200,000 per annum, or (iii) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting or
funding of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(f) There are no pending or, to Seller's knowledge, threatened claims,
actions, suits, termination proceedings, or investigations by any Governmental
Entity against or involving any Seller Benefit Plan; any Seller Benefit Plan
intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to that effect, which has
not been revoked, and nothing has occurred since the date of the most recent
determination letter that would adversely affect such qualification.
SECTION 3.12 COMPLIANCE WITH LAWS. Seller and its Subsidiaries have
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation or any judgment, decree or order of any Governmental Entity with
respect to the conduct of their respective business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Seller Material Adverse Effect. Seller and its Subsidiaries have in
effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, notices, permits and rights
("Approvals") necessary for them to own lease or operate their properties and
assets and to carry on their respective businesses as now conducted and there
has occurred no default under any such Approval, or failure to obtain such
Approval, which would in the aggregate have a Seller Material Adverse Effect.
SECTION 3.13 ACCOUNTING AND TAX MATTERS. To its knowledge, after
consulting with its independent auditors, neither Seller nor any of its
Affiliates (as defined in Section 6.10) has taken or agreed to take any
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action which would (i) prevent Buyer from accounting for the business
combination to be effected by the Merger as a pooling of interests or (ii)
prevent the Merger from constituting a transaction qualifying as a
reorganization under 368(a) of the Code.
SECTION 3.14 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information to be supplied by Seller for inclusion in the registration statement
on Form S-4 pursuant to which shares of Buyer Common Stock issued in the Merger
will be registered under the Securities Act (the "Registration Statement"),
shall not at the time the Registration Statement is filed with the SEC and at
the time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by Seller for
inclusion in the proxy statement/prospectus to be sent to the stockholders of
Seller in connection with the meeting of Seller's stockholders to consider this
Agreement and the Merger (the "Seller Meeting") (the "Proxy Statement") shall
not, on the date the Proxy Statement is first mailed to stockholders of Seller,
at the time of the Seller Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made in the
Proxy Statement not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Seller Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Seller or any of its Affiliates, officers or directors should be discovered by
Seller which should be set forth in an amendment the Registration Statement or a
supplement to the Joint Proxy Statement, Seller shall promptly inform Buyer. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Seller with respect to
statements made or incorporated by reference therein based on information
supplied by Buyer or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement.
SECTION 3.15 LABOR MATTERS. Neither Seller nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor union or labor organization,
nor, as of the date hereof, is Seller or any of its Subsidiaries the subject of
any material proceeding asserting that Seller or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor, as of the date of this Agreement, is
there pending or, to the knowledge of Seller, threatened, any material labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving Seller
or any of its Subsidiaries.
SECTION 3.16 YEAR 2000 COMPLIANCE. The computer systems of Seller and its
Subsidiaries (including, without limitation, all software, hardware,
workstations and related components, automated devices, embedded chips and other
date sensitive equipment such as security systems, alarms, elevators and HVAC
systems) are Year 2000 Compliant or will be Year 2000 Compliant by September 30,
1999, except to the extent that any failure to be Year 2000 Compliant, either
individually or in the aggregate, would not have a Seller Material Adverse
Effect. The term "Year 2000 Compliant" as used herein means that the computer
systems are (1) capable of recognizing, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(2) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data whose year is represented by only two
digits and date fields assigned special values), (3) have the ability to
automatically function into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000, (4) have the ability to correctly interpret data, dates and time
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into and beyond the year 2000, (5) have the ability not to produce noncompliance
in existing information, nor otherwise corrupt such data into and beyond the
year 2000, (6) have the ability to correctly process after January 1, 2000 data
containing dates before that date, and (7) have the ability to recognize all
"leap years", including February 29, 2000.
Seller and its Subsidiaries do not believe that the lack of ability of their
computer systems to properly interface with internal and external applications
and systems of third parties with whom the Seller and its Subsidiaries exchange
data electronically (including without limitation customers, clients, suppliers,
service providers, subcontractors, processors, converters, shippers,
warehousemen, outsources, data processors, regulatory agencies and banks) will
have a Seller Material Adverse Effect.
SECTION 3.17 NO EXISTING DISCUSSIONS. As of the date hereof, Seller has
terminated all discussions or negotiations with any third party with respect to
an Acquisition Proposal (as defined in Section 6.01(a)).
SECTION 3.18 OPINION OF FINANCIAL ADVISOR. The financial advisor of Seller
has delivered to the Board of Directors of Seller an opinion dated the date of
approval by such Board of Directors of the terms hereof to the effect that the
Exchange Ratio in the Merger is fair to the holders of Seller Common Stock from
a financial point of view.
SECTION 3.19 ANTI-TAKEOVER LAWS; STOCKHOLDER RIGHTS AGREEMENT. Seller has
taken or at or prior to the Closing will have taken, all actions necessary such
that no "fair price", "business combination", "control share acquisition", or
similar statute will be applicable to the transactions contemplated by this
Agreement. With respect to that certain Stockholder Rights Agreement between
Seller and Chasemellon Shareholder Services, LLC dated as of December 30, 1998
(the "Stockholder Rights Agreement") and the preferred stock purchase rights
issued under or pursuant thereto (the "Rights"), Seller has taken, or at or
prior to the Closing will have taken, all actions necessary such that the
entering into of this Agreement and the consummation of the transactions
contemplated hereby do not and will not result in any Right becoming
exercisable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub jointly and severally represent and warrant to Seller that the
statements contained in this Article IV are true and correct, except as set
forth herein in the disclosure schedule delivered by Buyer and Sub to Seller on
or before the date of this Agreement (the "Buyer Disclosure Schedule"). The
Buyer Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article IV and the disclosure
in any paragraph shall qualify other paragraphs in this Article IV only to the
extent that it is reasonably apparent from a reading of such disclosure that it
also qualifies or applies to such other paragraphs. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
concerns the existence of the document or the other item itself).
SECTION 4.01 ORGANIZATION OF BUYER AND SUB. Buyer and Sub and each of
Buyer's other Subsidiaries which is a corporation is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition or results of
operations of Buyer and its Subsidiaries, taken as a whole (a "Buyer Material
Adverse Effect"); provided, however, that for purposes of this Agreement, the
following events shall not be taken into account in determining whether there
has been or would be a "Buyer Material Adverse Effect" on or with respect to
Buyer and its Subsidiaries, taken as a whole: (A) changes, events or occurrences
in the United States securities markets
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which are not specific to Buyer and its Subsidiaries, (B) changes, events or
occurrences in the world economy which are not specific to the Buyer and it
Subsidiaries, (C) the existence of this Agreement or the transactions
contemplated hereby or the announcement thereof, (D) any changes in GAAP, and
(E) changes, events or occurrences relating to the yellow page advertising,
recruitment advertising or the executive search industries in general, and not
specifically to Buyer and its Subsidiaries. Each of Buyer's Subsidiaries which
is a limited partnership or a limited liability company is validly existing and
in good standing under the laws of the jurisdiction of its formation, has all
requisite statutory power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign limited
partnership or foreign limited liability company, as the case may be, in each
jurisdiction in which the failure to be so qualified would have a Buyer's
Material Adverse Effect. Except as set forth in the Buyer SEC Reports (as
defined in Section 4.04(a)) filed prior to the date hereof and with respect to
acquisitions of third parties of which Buyer advises Seller after the closing
thereof, neither Buyer nor any of its Subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association, or entity, excluding securities in any publicly
traded company held for investment by Buyer and comprising less than five
percent (5%) of the outstanding stock of such company.
SECTION 4.02 BUYER CAPITAL STRUCTURE. (a) The authorized capital stock of
Buyer consists of (i) 200,000 shares of 10.5% Cumulative Preferred Stock, par
value $10.00 per share ("10.5% Cumulative Preferred Stock") (ii) 800,000 shares
of Preferred Stock, par value $.001 per share ("Buyer Preferred Stock") (iii)
200,000,000 shares of Buyer Common Stock, and (iv) 39,000,000 shares of Class B
Common Stock, par value $.001 per share ("Buyer Class B Common Stock"). As of
February 28, 1999, there were outstanding no shares of 10.5% Cumulative
Preferred Stock, no shares of Buyer Preferred Stock, 33,283,203 shares of Buyer
Common Stock and 2,381,000 shares of Buyer Class B Common Stock. 3,590,988
shares of Buyer Common Stock are reserved for future issuance pursuant to stock
options granted and outstanding as of February 28, 1999 under Buyer's stock
option plans (collectively, the "Buyer Stock Plans"). There are no shares of
Buyer Class B Common Stock reserved for future issuance. Except for the issuance
of additional shares of Buyer Common Stock in acquisitions, no material change
in such capitalization has occurred between February 28, 1999 and the date of
this Agreement. All shares of Buyer Common Stock subject to issuance as
specified above are duly authorized and, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable. The shares of Buyer
Common Stock to be issued in the Merger will, when issued in accordance with the
terms of this Agreement, be validly issued, fully paid and nonassessable. Except
with respect to approximately 50,000 shares of Buyer Common Stock, there are no
obligations, contingent or otherwise, of Buyer or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Buyer Common Stock, Buyer
Class B Common Stock, 10.5% Cumulative Preferred Stock or Buyer Preferred Stock
or the capital stock of any Subsidiary. All of the outstanding shares of capital
stock of each of Buyer's Subsidiaries are duly authorized, validly issued, fully
paid and nonassessable and such shares owned by Buyer (other than directors'
qualifying shares in the case of foreign Subsidiaries) are owned by Buyer or
another Subsidiary free and clear of all security interests, liens, claims,
pledges, agreements, limitations in Buyer's voting rights, charges or other
encumbrances of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Buyer Stock Plans or as may be reserved for issuance
from time to time in connection with acquisitions, there are no equity
securities of any class of Buyer or any of its Subsidiaries, or any security
exchangeable into or exercisable or convertible for such equity securities,
issued, reserved for issuance or outstanding. There are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which Buyer or any of its Subsidiaries is a party or by which such entity is
bound (including under letters of intent, whether binding or nonbinding)
obligating Buyer or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of Buyer or
any of its Subsidiaries or obligating Buyer or any of its Subsidiaries to grant,
extend, accelerate the vesting of, otherwise modify or
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amend or enter into any such option, warrant, equity security, call, right,
commitment or agreement except under Buyer Stock Plans or in connection with
acquisitions. To the knowledge of Buyer, there are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of capital
stock of Buyer.
SECTION 4.03 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a)
Each of Buyer and the Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of each of Buyer and
Sub (including the approval of the Merger by Buyer as the sole stockholder of
Sub). This Agreement has been duly executed and delivered by each of Buyer and
Sub and constitutes the valid and binding obligation of each of Buyer and Sub,
enforceable in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(b) The execution and delivery of this Agreement by each of Buyer and Sub
does not, and the consummation of the transactions contemplated by this
Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of Buyer or Sub,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Buyer or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict with, violate, or cause the termination of any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Buyer or any of its Subsidiaries or
any of its or their properties or assets, except in the case of (ii) and (iii)
for any such conflicts, violations, defaults, terminations, cancellations or
accelerations which are not, individually or in the aggregate, reasonably likely
to have a Buyer Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the pre-merger notification report under
the HSR Act, (ii) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (iii) the filing of the Articles of Merger
with the Department of State of the State of Florida, (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country, (v) the approval by the Nasdaq National Market of the listing
of the shares of Buyer Common Stock to be issued in the transactions
contemplated by this Agreement, and (vi) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
interfere with the operation of any facility of Buyer or otherwise be reasonably
likely to have a Buyer Material Adverse Effect.
SECTION 4.04 SEC FILINGS; FINANCIAL STATEMENTS. (a) Since the date of its
initial public offering, Buyer has filed all forms, reports and documents,
including the exhibits thereto, required to be filed by Buyer with the SEC under
the Securities Act or the Exchange Act (these forms, reports and documents are
referred to collectively as "Buyer SEC Reports"). The Buyer SEC Reports (i) at
the time filed complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Buyer SEC Reports or necessary in order to make
the statements in such Buyer SEC Reports, in the light of the circumstances
under which they were made, not misleading. None of Buyer's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Buyer SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Buyer and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of Buyer as of September 30,
1998 is referred to herein as the "Buyer Balance Sheet."
SECTION 4.05 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Buyer
SEC Reports or in press releases that have been made public by Buyer and are
available at Nasdaq's website at ("Buyer Releases") filed prior to the date
hereof, and except for normal or recurring liabilities incurred since September
30, 1998 in the ordinary course of business consistent with past practices,
Buyer and its Subsidiaries do not have any liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, which
individually or in the aggregate, are reasonably likely to have a Buyer Material
Adverse Effect.
SECTION 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Buyer SEC Reports filed prior to the date hereof or Buyer Releases, since
the date of the Buyer Balance Sheet, Buyer and its Subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent with
past practice and, since such date, there has not been (i) any change in the
financial condition, results of operations, business or properties of Buyer and
its Subsidiaries, taken as a whole, that has had, or is reasonably likely to
have, a Buyer Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Buyer or any of its
Subsidiaries that has had, or is reasonably likely to have, a Buyer Material
Adverse Effect; (iii) any material change by Buyer in its accounting methods,
principles or practices to which Seller has not previously consented in writing;
(iv) any revaluation by Buyer of any of its assets that has had, or is
reasonably likely to have, a Buyer Material Adverse Effect; or (v) any other
action or event that would have required the consent of Seller pursuant to
Section 5.02 of this Agreement had such action or event occurred after the date
of this Agreement.
SECTION 4.07 TAXES. Buyer and each of its Subsidiaries have (i) filed all
federal, state, local and foreign Tax Returns required to be filed by them prior
to the date of this Agreement (taking into account extensions), (ii) paid or
accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for which
a notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Buyer
Material Adverse Effect. The unpaid Taxes of the Buyer and each of its
Subsidiaries for tax periods through the Buyer Balance Sheet date do not exceed
the accruals and reserves for Taxes (excluding reserves for deferred Taxes) set
forth on the Buyer Balance Sheet by an amount that is reasonably likely to have
a Buyer Material Adverse Effect. Neither the IRS nor any other taxing authority
has asserted any claim for Taxes, or to the actual knowledge of the executive
officers of Buyer, is threatening to assert any claims for Taxes, which claims,
individually or in the aggregate, are reasonably likely to have a Buyer Material
Adverse Effect. Buyer and each of its Subsidiaries have withheld or collected
and paid over to the appropriate governmental authorities (or are properly
holding for such payment) all Taxes required by law to be withheld or collected,
except for amounts which are not reasonably likely, individually or in the
aggregate, to have a Buyer Material Adverse Effect. There are no liens for Taxes
upon the assets of Buyer or any of its Subsidiaries (other than liens for taxes
that are not yet due or that are being contested in good faith by appropriate
proceedings), except for liens which are not reasonably likely, individually or
in the aggregate, to have a Buyer Material Adverse Effect.
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SECTION 4.08 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as delivered to
Seller or as set forth on the Buyer Disclosure Schedule, there are no contracts,
agreements or commitments that are required to be filed as an exhibit under the
Exchange Act and the rules and regulations thereunder. Neither Buyer nor any
Subsidiary has breached, or received in writing any claim or notice that it has
breached, any of the terms or conditions of any material agreement, contract or
commitment filed as an exhibit to the Buyer SEC Reports or any other agreement,
contract or commitment the termination of which would have a Buyer Material
Adverse Effect ("Buyer Material Contracts") in such a manner as, individually or
in the aggregate, are reasonably likely to have a Buyer Material Adverse Effect.
Each Buyer Material Contract that has not expired by its terms is in full force
and effect, and no party to any of the Buyer Material Contracts will have the
right to terminate such contract as a result of the transactions contemplated by
this Agreement. Except for employment agreements, none of the Buyer Material
Contracts is currently being renegotiated in any material respect, and Buyer has
no knowledge that any Buyer Material Contract will be subject of a voluntary or
regulatory ordered renegotiation within 12 months after the date of this
Agreement.
SECTION 4.09 LITIGATION. Except as described in the Buyer SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Buyer or any of its Subsidiaries pending or
as to which Buyer or any Subsidiary has received any written notice of
assertion, which, individually or in the aggregate, is reasonably likely to have
a Buyer Material Adverse Effect or a material adverse effect on the ability of
Buyer to consummate the transactions contemplated by this Agreement. There is no
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitration outstanding against Buyer or any of its Subsidiaries having, or
insofar as reasonably can be foreseen in the future, would have a Buyer Material
Adverse Effect.
SECTION 4.10 COMPLIANCE WITH LAWS. Buyer and its Subsidiaries have
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation or any judgment, decree or order of any Governmental Entity with
respect to the conduct of their respective business, or the ownership or
operation of their business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Buyer Material Adverse Effect. Buyer and its Subsidiaries have all
Approvals necessary for them to own, lease or operate their properties and to
carry on their respective businesses as now conducted and there has occurred no
default under any such Approval, or failure to obtain such Approval, which would
not in the aggregate have a Buyer Material Adverse Effect.
SECTION 4.11 ACCOUNTING AND TAX MATTERS. To its knowledge, after
consulting with its independent auditors, neither Buyer nor any of its
Affiliates has taken or agreed to take any action which would (i) prevent Buyer
from accounting for the business combination to be effected by the Merger as a
pooling of interests, or (ii) prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.12 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information in the Registration Statement (except for information supplied by
Seller for inclusion in the Registration Statement, as to which Buyer makes no
representation) shall not at the time the Registration Statement is filed with
the SEC and at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Buyer for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders of Seller, at the time of
the Seller Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Seller Meeting
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which has become false or misleading. If at any time prior to the Effective Time
any event relating to Buyer or any of its Affiliates, officers or directors
should be discovered by Buyer which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Buyer shall
promptly inform Seller. The Registration Statement will comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Buyer with respect to statements made or incorporated by reference therein based
on information supplied by Seller specifically for inclusion or incorporation by
reference in the Registration Statement.
SECTION 4.13 YEAR 2000 COMPLIANCE. The computer systems of Buyer and its
Subsidiaries (including, without limitation, all software, hardware,
workstations and related components, automated devices, embedded chips and other
date sensitive equipment such as security systems, alarms, elevators and HVAC
systems) are Year 2000 Compliant or will be Year 2000 Compliant by September 30,
1999, except to the extent that any failure to be Year 2000 Compliant, either
individually or in the aggregate, would not have a Buyer Material Adverse
Effect. The term "Year 2000 Compliant" as used herein means that the computer
systems are (1) capable of recognizing, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(2) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data whose year is represented by only two
digits and date fields assigned special values), (3) have the ability to
automatically function into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000, (4) have the ability to correctly interpret data, dates and time into and
beyond the year 2000, (5) have the ability not to produce noncompliance in
existing information, nor otherwise corrupt such data into and beyond the year
2000, (6) have the ability to correctly process after January 1, 2000 data
containing dates before that date, and (7) have the ability to recognize all
"leap years", including February 29, 2000.
The computer systems of Buyer and its Subsidiaries have the ability to
properly interface and will continue to properly interface with internal and
external applications and systems of third parties with whom Buyer and its
Subsidiaries exchange data electronically (including without limitation
customers, clients, suppliers, service providers, subcontractors, processors,
converters, shippers, warehousemen, outsources, data processors, regulatory
agencies and banks) whether or not they have achieved Year 2000 Compliance.
SECTION 4.14 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 COVENANTS OF SELLER. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Seller agrees as to itself and its respective
Subsidiaries (except to the extent that Buyer shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform its other obligations when due, and, to the extent consistent with
such business, use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
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relationships with customers, suppliers, distributors, and others having
business dealings with it. Except as expressly contemplated by this Agreement,
Seller shall not (and shall not permit any of its respective Subsidiaries to),
without the written consent of Buyer:
(a) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock;
(b) Accelerate, amend or change the period of exercisability of options or
restricted stock or authorize cash payments in exchange for any such
options except as required by the terms of any employee stock plans or
any related agreements in effect as of the date of this Agreement or
purchase any shares of Seller Common Stock;
(c) Issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the grant of options consistent with past practices to
existing or new employees, which options represent in the aggregate the
right to acquire no more than 200,000 shares (net of cancellations) of
Seller Common Stock, or (ii) the issuance of shares of Seller Common
Stock pursuant to the exercise of options and warrants outstanding on the
date of this Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business);
(e) Sell, lease, license, mortgage or otherwise encumber or otherwise
dispose of any of its material properties or assets in an amount in
excess of $100,000 except as required to carry on Seller's business in
the usual, regular and ordinary course;
(f) Except to the extent required under applicable law, and except for
amendments as may be requested by the Internal Revenue Service in
connection with a determination letter request, (i) increase or agree to
increase the compensation payable or to become payable to its officers or
employees, except for increases in salary or wages of employees (other
than officers) in accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter into any employment
or severance agreements with, any employees or officers, provided,
however, that Seller may enter into employment or severance arrangements
with those employees or officers who earn or have earned less than
$100,000 annually, (iii) enter into any collective bargaining agreement,
or (iv) establish, adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees or pay any bonuses except for bonuses
based on the performance of Seller and its employees during the Seller's
fiscal year ended February 28, 1999 which are consistent in nature and
amount with Seller's bonus payments for its prior year or in accordance
with contracts in effect on the date hereof;
(g) Amend or propose to amend its charter or bylaws, except as contemplated
by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to credit
agreements in effect as of the date hereof or indebtedness in the form of
deferred purchase price;
(i) Initiate, compromise, or settle any material litigation or arbitration
proceeding;
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(j) Except in the ordinary course of business, modify, amend or terminate
any Seller Material Contract or waive, release or assign any material
rights or claims;
(k) Make any Tax election, settle or compromise any Tax liability or amend
any Tax return;
(l) Change its methods of accounting as in effect at February 28, 1999;
(m) Make or commit to make any capital expenditures that exceed the capital
budget furnished by Seller to Buyer;
(n) Make any cash disbursement exceeding $250,000 for any single item or
related series of items except as expressly set forth in the Seller
Disclosure Schedule or except as consistent with the capital budget
furnished by Seller to Buyer;
(o) Invest funds in debt securities or other instruments in each case
maturing more than 90 days after the date of investment;
(p) Adopt, implement or amend any stockholder rights plan that could have
the effect of impeding or restricting the consummation of the
transactions contemplated hereby;
(q) Permit the purchase of Seller Common Stock pursuant to Seller's Employee
Stock Purchase Plan; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (q) above.
SECTION 5.02 COVENANTS OF BUYER. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Buyer agrees as to itself and its respective Subsidiaries
(except to the extent that Seller shall otherwise consent in writing), to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and taxes when due subject
to good faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, and others having business dealings with it.
Except as expressly contemplated by this Agreement, Buyer shall not (and shall
not permit any of its respective Subsidiaries to), without the written consent
of Seller:
(a) Accelerate, amend or change the period of exercisability of options or
restricted stock or authorize cash payments in exchange for any options
granted under any of such plans except as required by the terms of any
employee stock plans or any related agreements in effect as of the date
of this Agreement or purchase any shares of Buyer Common Stock;
(b) Amend or propose to amend its charter or bylaws;
(c) Change its methods of accounting as in effect at December 31, 1998; or
(d) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (c) above.
SECTION 5.03 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Buyer and Seller shall confer
on a regular and frequent basis with one or more representatives of the other
party to report on the general status of ongoing operations and shall promptly
provide the other party or its counsel with copies of all filings made by such
party with any Governmental Entity in connection with this Agreement, the Merger
and the transactions contemplated hereby and thereby.
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SECTION 5.04 CONFIDENTIALITY. The parties acknowledge that Buyer and
Seller have previously executed a Confidentiality Agreement dated as of February
2, 1999 (the "Confidentiality Agreement"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms, except as
expressly modified herein.
SECTION 5.05 NOTICES OF CERTAIN EVENTS. Each of Buyer and Seller shall
give prompt notice to the other of (i) any notice or other communication from
any person alleging that the consent of such person is or may be required in
connection with the Merger; (ii) any notice of other communication from any
Governmental Entity in connection with the Merger; and (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting the Buyer or Seller or
their respective Subsidiaries that relate to the consummation of the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 NO SOLICITATION. (a) Seller shall not, directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent of such party solicit, initiate, or encourage (including
by the way of furnishing non-public information) any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer to
acquire all or any Substantial part of the business or properties of the Seller
or any of its Subsidiaries or any Substantial part of the capital stock of the
Seller or any of its Subsidiaries, whether by merger, consolidation, business
combination, purchase of Substantial assets, tender offer or otherwise, whether
for cash, securities or any other consideration or combination thereof, other
than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an "Acquisition
Proposal"); provided, however, that if the Board of Directors of Seller
determines in good faith, based on the advice of outside counsel and of an
investment banker, that failure to do so would be reasonably likely to
constitute a breach of its fiduciary duties to Seller's stockholders under
applicable law, Seller, in response to a written Acquisition Proposal that (i)
was unsolicited or that did not otherwise result from a breach of this section,
and (ii) is more favorable, as determined by the Board of Directors in good
faith, than the transaction contemplated by this Agreement (a "Superior
Proposal"), may (x) furnish non-public information with respect to Seller to the
person who made such Acquisition Proposal pursuant to a customary
confidentiality agreement and (y) participate in negotiations regarding such
Acquisition Proposal. The term "Substantial" as used herein means (i) 10% or
more of the capital stock of Seller or any Subsidiary or (ii) the assets of
Seller and/or its Subsidiaries representing 10% or more of the consolidated
assets of Seller as set forth on the Seller Balance Sheet or generating 10% or
more of Seller's consolidated revenue, operating profit or net income for the
nine months ended November 30, 1998.
The Board of Directors of Seller shall not (1) withdraw or modify, in a
manner adverse to Buyer, its approval or recommendation of this Agreement or the
Merger unless there is a Superior Proposal outstanding, (2) approve or
recommend, or propose to approve or recommend, an Acquisition Proposal that is
not a Superior Proposal or (3) cause Seller to enter into any letter of intent,
agreement in principle or other agreement with respect to an Acquisition
Proposal unless, in the case of (3), the Board of Directors of Seller (x) shall
have determined in good faith, based on the advice of outside counsel, that
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to Seller's stockholders under applicable law, (y) shall then
terminate this Agreement pursuant to the termination provisions of Section 8.01
and (z) shall then pay to Buyer the fees and expenses set forth in Section 8.03.
Notwithstanding anything to the contrary contained herein, Seller may only take
any of the actions permitted in clauses (1), (2) and (3) above after the second
business day following Buyer's receipt of written notice advising Buyer that
Seller has received a Superior Proposal, specifying the terms of the
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Superior Proposal and identifying the person making such Superior Proposal (it
being understood that any amendment to a Superior Proposal shall necessitate an
additional two business day period).
Nothing contained in this Section shall prohibit Seller from at any time
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) of the Exchange Act with regard to an Acquisition Proposal.
(b) Seller shall notify Buyer immediately after receipt by Seller (or its
advisors) of any Acquisition Proposal or any request for nonpublic information
in connection with an Acquisition Proposal or for access to the properties,
books or records of Seller by any person or entity that informs Seller that it
is considering making, or has made, an Acquisition Proposal. Such notice shall
be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact. Seller shall continue to keep Buyer informed, on a current basis, of
the status of any such discussions or negotiations and the terms being discussed
or negotiated.
SECTION 6.02 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practical after the execution of this Agreement, Buyer and Seller
shall prepare and file with the SEC the Proxy Statement, and Buyer shall prepare
and file with the SEC the Registration Statement, in which the Proxy Statement
will be included as a prospectus, provided that Buyer may delay the filing of
the Registration Statement until the Proxy Statement is cleared by the SEC.
Buyer and Seller shall use all reasonable efforts to cause the Registration
Statement to become effective as soon after such filing as practicable. Buyer
and Seller shall make all necessary filings with respect to the Merger under the
Securities Act, the Exchange Act, applicable state blue sky laws and the rules
and regulations thereunder. Seller shall mail the Proxy Statement to its
shareholders as soon as possible after the Registration Statement is declared
effective.
SECTION 6.03 NASDAQ QUOTATION. Seller agrees to use reasonable efforts to
continue the quotation of Seller Common Stock on the Nasdaq National Market
during the term of this Agreement.
SECTION 6.04 ACCESS TO INFORMATION. Upon reasonable notice, Seller and
Buyer shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Seller and Buyer shall
(and shall cause each of their respective Subsidiaries to) furnish promptly to
the other (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Unless otherwise required by law, the parties will hold any such information
which is nonpublic in confidence in accordance with the Confidentiality
Agreement. No information or knowledge obtained in any investigation pursuant to
this Section 6.04 or otherwise shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.
SECTION 6.05 STOCKHOLDER MEETING. The Seller, acting through its Board of
Directors, shall, subject to and according to applicable law and its Articles of
Incorporation and Bylaws, promptly and duly call, give notice of, convene and
hold as soon as practicable following the date on which the Registration
Statement becomes effective the Seller Meeting for the purpose of voting to
approve and adopt this Agreement and the Merger (the "Seller Voting Proposal").
The Board of Directors of the Seller shall (i) recommend approval and adoption
of the Seller Voting Proposal by the stockholders of the Seller and include in
the Proxy Statement such recommendation and (ii) take all reasonable and lawful
action to solicit and obtain such approval; provided, however, that the Board of
Directors of Seller may withdraw such recommendation as permitted by Section
6.01.
SECTION 6.06 LEGAL CONDITIONS TO MERGER. (a) Seller and Buyer shall use
their respective reasonable best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things
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necessary and proper under applicable law to consummate and make effective the
transactions contemplated hereby as promptly as practicable, (ii) obtain from
any Governmental Entity or any other third party any consents, licenses,
permits, waivers, approvals, authorizations, or orders required to be obtained
or made by Seller or Buyer or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the Merger,
and (iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any related
governmental request thereunder, and (C) any other applicable law. Seller and
Buyer shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
Seller and Buyer shall use their respective best efforts to furnish to each
other all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable law (including all
information required to be included in the Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Buyer and Seller agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective best efforts to obtain
any government clearances or approvals required for Closing under the HSR Act,
the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other Federal, state or foreign law or,
regulation or decree designed to prohibit, restrict or regulate actions for the
purpose or effect of monopolization or restraint of trade (collectively
"Antitrust Laws"), to respond to any government requests for information under
any Antitrust Law, and to contest and resist any action, including any
legislative, administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that restricts, prevents or
prohibits the consummation of the Merger or any other transactions contemplated
by this Agreement under any Antitrust Law. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to any Antitrust Law.
Buyer and Seller shall mutually direct any proceedings or negotiations with any
Governmental Entity relating to any of the foregoing, and shall afford each
other a reasonable opportunity to participate therein. Notwithstanding anything
to the contrary in this Section 6.06, neither Seller, Buyer nor any of their
respective Subsidiaries shall be required to (i) divest any of their respective
businesses, product lines or assets, or to take or agree to take any other
action or agree to any limitation, or (ii) take any action under this Section
6.06 if the United States Department of Justice or the United States Federal
Trade Commission authorizes its staff to seek a preliminary injunction or
restraining order to enjoin consummation of the Merger.
(c) Each of Seller and Buyer shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their reasonable efforts to obtain any third
party consents related to or required in connection with the Merger that are (A)
necessary to consummate the transactions contemplated hereby, (B) disclosed or
required to be disclosed in the Seller Disclosure Schedule or the Buyer
Disclosure Schedule, as the case may be, or (C) required to prevent a Seller
Material Adverse Effect or a Buyer Material Adverse Effect from occurring prior
to or after the Effective Time.
SECTION 6.07 PUBLIC DISCLOSURE. Buyer and Seller shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as,
in the reasonable judgment of the Board of Directors of either Buyer or Seller,
may be required by law or the rules and regulations of Nasdaq.
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SECTION 6.08 REORGANIZATION. Buyer and Seller shall each use its best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Code.
SECTION 6.09 POOLING ACCOUNTING. From and after the date hereof and until
the Effective Time, neither Seller nor Buyer, nor any of their respective
Subsidiaries, shall knowingly take any action, or knowingly fail to take any
action, that is reasonably likely to jeopardize the treatment of the Merger as a
pooling of interests for accounting purposes.
SECTION 6.10 AFFILIATE AGREEMENTS. Upon the execution of this Agreement,
Seller will provide Buyer with a list of those persons who are, in Seller's
reasonable judgment, "affiliates" of Seller, respectively, within the meaning of
Rule 145 promulgated under the Securities Act ("Rule 145") (each such person who
is an "affiliate" of Seller within the meaning of Rule 145 is referred to as an
"Affiliate"). Seller shall provide Buyer such information and documents as Buyer
shall reasonably request for purposes of reviewing such list and shall notify
Seller in writing regarding any change in the identity of its Affiliates prior
to the Closing Date. Seller shall have delivered or caused to be delivered to
Buyer, prior to the execution of this Agreement, from each of its Affiliates, an
executed Affiliate Agreement, in substantially the form appended hereto as
Exhibit A (collectively, the "Affiliate Agreements"). Buyer shall be entitled to
place appropriate legends on the certificates evidencing any Buyer Common Stock
to be received by such Affiliates of Seller pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the Buyer Common Stock, consistent with the terms of the Affiliate
Agreements (provided that such legends or stop transfer instructions shall be
removed, two years after the Effective Date, upon the request of any stockholder
that is not then an Affiliate of Buyer). Buyer shall publish through the filing
of a Quarterly Report on Form 10-Q or Annual Report on Form 10-K, as applicable,
no later than 45 days and 90 days respectively, after the end of the first
quarter after the Effective Time in which there are at least 30 days of
post-Merger combined operations, combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135. This Section 6.10 is intended to be for the benefit of
affiliates of the Seller.
SECTION 6.11 NASDAQ NATIONAL MARKET LISTING. Buyer shall use its best
efforts to cause the shares of Buyer Common Stock to be issued in the Merger to
be listed on the Nasdaq National Market, subject to official notice of issuance,
on or prior to the Closing Date.
SECTION 6.12 STOCK PLANS. (a) As soon as practicable after the Effective
Time, Buyer shall deliver to the participants in the Seller Stock Plans
appropriate notice setting forth such participants' rights pursuant thereto and
the grants pursuant to the Seller Stock Plans shall continue in effect on the
same terms and conditions (subject to the adjustments required by Section 2.03
after giving effect to the Merger).
(b) Buyer shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Buyer Common Stock for delivery under Seller
Stock Plans assumed in accordance with Section 2.03. As soon as practicable
after the Effective Time, Buyer shall file a registration statement on Form S-8
(or any successor or other appropriate forms), or another appropriate form with
respect to the shares of Buyer Common Stock subject to such options and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding. This Section 6.12(b) is intended to be for the benefit of holders
of options to purchase the Common Stock of Seller.
SECTION 6.13 CERTAIN EMPLOYEE BENEFIT PLAN OBLIGATIONS. Buyer shall make
its standard health (including medical insurance, life insurance and disability
plans) available to the Seller's employees, and shall waive any preexisting
condition, waiting period or insurability limitation whether or not required
under the Health Insurance Portability and Accountability Act of 1996.
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SECTION 6.14 INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) Buyer and Sub
agree that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors, officer, employees or agents of Seller
and its Subsidiaries as provided in their respective Articles or Certificates of
Incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements or arrangements of Seller shall be assumed by Buyer,
shall survive the Merger and shall continue in full force and effect, without
amendment, for six years after the Effective Time; provided, however, that all
rights to indemnification in respect of any claim asserted or made within such
period shall continue until the final disposition of such claim. Buyer shall pay
any expenses of any indemnified person under this Section 6.14 in advance of the
final disposition of any action, proceeding or claim relating to any such act or
omission to the fullest extent permitted under applicable law upon receipt from
the applicable indemnified person to whom advances are to be advanced of any
undertaking to repay such advances required under applicable law. Buyer shall
cooperate in the defense of any such matter. In addition, from and after the
Effective Time, directors or officers of Seller and its Subsidiaries who become
directors or officers of Buyer or its Subsidiaries will be entitled to the same
indemnity rights and protections as are afforded to other directors and officers
of Buyer.
(b) In the event that either of the Surviving Corporation or Buyer or any of
its successors or assigns (i) consolidates with or merges with or into any other
person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each such case, proper
provision will be made so that the successors and assigns of Buyer or the
Surviving Corporation, as applicable, will assume the obligations thereof set
forth in this Section 6.14.
(c) The provisions of this Section 6.14 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
(d) For six years after the Effective Time, Buyer or the Surviving
Corporation shall maintain in effect the Seller's current directors' and
officers' liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who are currently covered by the
Sellers' directors' and officers' liability insurance policy on terms with
respect to such coverage and amount no less favorable in the aggregate to
Seller's directors and officers currently covered by such insurance than those
of such policy in effect on the date hereof; provided that Buyer may substitute
therefor policies of Buyer or its Subsidiaries containing terms with respect to
coverage and amount no less favorable to such directors or officers.
(e) Buyer shall cause the Surviving Corporation or any successor thereto to
comply with its obligations under this Section 6.14.
SECTION 6.15 BROKERS OR FINDERS. Each of Buyer and Seller represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
for Robert W. Baird & Co. Incorporated, whose fees and expenses will be paid by
Seller in accordance with Seller's agreements with such firms (a copy of which
have been delivered by Seller to Buyer prior to the date of this Agreement).
SECTION 6.16 COMFORT LETTERS FROM SELLER'S ACCOUNTANTS. Seller shall use
reasonable efforts to cause to be delivered to Buyer and Seller a letter of
Arthur Andersen LLP, Seller's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to Buyer, in form reasonably satisfactory to Buyer and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
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SECTION 6.17 COMFORT LETTER FROM BUYER'S ACCOUNTANTS. Buyer shall use
reasonable efforts to cause to be delivered to Seller and Buyer a letter of BDO
Seidman, LLP, Buyer's independent auditors, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to Seller, in form reasonably satisfactory to Seller and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
SECTION 6.18 CONTROL OF OPERATIONS. Nothing contained in this Agreement
shall give Buyer, directly or indirectly, the right to control or direct the
operations of the Seller or its Subsidiaries prior to the Effective Time.
Nothing contained in this Agreement shall give Seller, directly or indirectly,
the right to control or direct the operations of Buyer or its Subsidiaries prior
to the Effective Time. Prior to the Effective Time, each of Buyer and Seller
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision over its respective operations.
SECTION 6.19 NO RIGHTS TRIGGERED. Seller shall take all actions necessary,
and Buyer shall cooperate in the taking of such actions, such that the entering
into of this Agreement and the consummation of the transactions contemplated
hereby do not and will not result in any Right becoming exercisable.
SECTION 6.20 RELEASE OF LOCKUPS. Seller shall use its best efforts to
obtain from Robert W. Baird & Co. Incorporated ("Baird") the release of all
lockup agreements, effective as of the Effective Time, in effect as of the date
of this Agreement between Baird and certain current or former holders of Seller
Common Stock with respect to the Seller Common Stock.
SECTION 6.21 GUARANTY OF CERTAIN OBLIGATIONS. Buyer hereby unconditionally
and irrevocably guarantees, and shall cause the Surviving Corporation to
guarantee, the obligations of the Seller and its Subsidiaries under the
agreements specified on Exhibit B hereto. The provisions of this Section 6.21
are intended to be for the benefit of the officers, directors and employees of
Seller and its Subsidiaries parties to the agreements set forth in Exhibit B
hereto.
ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. The Seller Voting Proposal shall have been
approved and adopted by the affirmative vote of the holders of a majority
of the shares of Seller Common Stock outstanding on the record date for
the Seller Meeting, at which a quorum is present.
(b) HSR ACT. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(c) APPROVALS. Other than the filing provided for by Section 1.01, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity, the failure of which to file, obtain or occur is
reasonably likely to have a Buyer Material Adverse Effect or Seller
Material Adverse Effect shall have been filed, been obtained or occurred.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
(e) NO INJUNCTIONS. No Governmental Entity or federal, state or foreign
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any order, executive order, stay, decree, judgment or
injunction (each an "Order") or statute, rule, regulation which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
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(f) POOLING LETTERS. Buyer and Seller shall have received letters from
Arthur Andersen LLP, and BDO Seidman, LLP, regarding the concurrence of
such accountants with Buyer's and Seller's management's conclusions, as
to the appropriateness of the pooling of interests accounting, under
Accounting Principles Board Opinion No. 16 for the Merger, as
contemplated to be effected as of the date of the letters, it being
agreed that Buyer and Seller shall each provide reasonable cooperation to
Arthur Andersen LLP and BDO Seidman, LLP to enable them to issue such
letters.
(g) NASDAQ NATIONAL MARKET LISTING. The shares of Buyer Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq
National Market, subject only to official notice of issuance.
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER AND SUB. The
obligations of Buyer and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Buyer and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for, (i) changes contemplated
by this Agreement and (ii) where the failures to be true and correct
(without giving effect as to any limitation as to "materiality" or
"Seller Material Adverse Effect"), individually or in the aggregate, have
not had and are not reasonably likely to have a Seller Material Adverse
Effect or a material adverse effect upon the ability of Seller to
consummate the transactions contemplated hereby; and Buyer shall have
received a certificate signed on behalf of Seller by the President and
the Chief Financial Officer of Seller to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall have performed in all
material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and Buyer shall have
received a certificate signed on behalf of Seller by the President and
the Chief Financial Officer of Seller to such effect.
(c) PERMITS AND LICENSES. All permits, licenses and other governmental
authorizations required for Buyer to conduct Seller's business in the
same manner as conducted prior to the Effective Time and as contemplated
to be conducted subsequent to the Merger shall be in full force and
effect, and any necessary approvals for the continued effectiveness of
such permits, licenses and authorizations subsequent to the Effective
Time shall have been obtained; except where the lack of such permits,
licenses and other governmental authorizations or approvals for same
shall not have, individually or in the aggregate, a Seller Material
Adverse Effect.
(d) DISSENTING SHAREHOLDERS. The shares of Seller Common Stock held by
dissenting shareholders shall not exceed 10% of the shares of Seller
Common Stock issued and outstanding on the Closing Date.
(e) STOCKHOLDER RIGHTS AGREEMENT. Seller shall have taken all actions
necessary such that the entering into of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
result in any Right becoming exercisable.
(f) OPINION. Buyer and Sub shall have received the written opinion of
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional
Association, counsel to Seller, as to the due organization of Seller and
the corporate authority of Seller to enter into this Agreement and that
the shares of Seller Common Stock to be acquired in the Merger have been
duly authorized, validly issued and are fully paid and non-assessable
shares of the capital stock of Seller.
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SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER. The
obligation of Seller to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Seller:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer and Sub set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations
speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date, except for, (i) changes contemplated by this
Agreement and (ii) where the failures to be true and correct (without
giving effect as to any limitation as to "materiality" or "Buyer Material
Adverse Effect"), individually or in the aggregate, have not had and are
not reasonably likely to have a Buyer Material Adverse Effect or a
material adverse effect upon the ability of Buyer and Sub to consummate
the transactions contemplated hereby; and Seller shall have received a
certificate signed on behalf of Buyer by the chief executive officer and
the chief financial officer of Buyer to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER AND SUB. Buyer and Sub shall have
performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date,
and Seller shall have received a certificate signed on behalf of Buyer by
the chief executive officer and the chief financial officer of Buyer to
such effect.
(c) TAX OPINION. Seller shall have received the opinion of Trenam, Kemker,
Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, counsel
to Seller, to the effect that the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code; (it being agreed that Buyer and Seller shall each
provide reasonable cooperation to such firm to enable them to render such
opinion).
(d) OPINION. Seller shall have received the written opinion of Fulbright &
Jaworski L.L.P., counsel to Buyer and Sub, as to the due organization of
Buyer and the corporate authority of Buyer to enter into this Agreement
and that the shares of Buyer Common Stock to be issued in the Merger have
been duly authorized, validly issued and are fully paid and
non-assessable shares of the capital stock of Buyer.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Seller or Buyer:
(a) by mutual written consent of Buyer and Seller; or
(b) by either Buyer or Seller if the Merger shall not have been consummated
by September 30, 1999 (the "Outside Date") (provided that the right to
terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger
to occur on or before such date); or
(c) by either Buyer or Seller if a court of competent jurisdiction or other
Governmental Entity shall have issued a nonappealable final order, decree
or ruling or taken any other nonappealable final action, in each case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
A-28
<PAGE>
(d) by either Buyer or Seller, if at the Seller Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Seller in favor of the Seller Voting Proposal shall not have been
obtained (provided that the right to terminate this Agreement under this
Section 8.01(d) shall not be available to any party seeking termination
who at the time is in breach of or has failed to fulfill its obligations
under this Agreement); or
(e) by Buyer, if (i) the Board of Directors of Seller shall have withdrawn
or modified its recommendation of this Agreement or the Merger; (ii)
after the receipt by Seller of an Acquisition Proposal, Buyer requests in
writing that the Board of Directors of Seller reconfirm its
recommendation of this Agreement or the Merger and the Board of Directors
of Seller fails to do so within 10 business days after its receipt of
Buyer's request; (iii) the Board of Directors of Seller shall have
recommended to the stockholders of Seller an Acquisition Proposal; (iv) a
tender offer or exchange offer for 10% or more of the outstanding shares
of Seller Common Stock is commenced (other than by Buyer or an Affiliate
of Buyer) and the Board of Directors of Seller recommends that the
stockholders of Seller tender their shares in such tender or exchange
offer; or (v) for any reason Seller fails to call and hold the Seller
Meeting by the Outside Date; or
(f) by Buyer or Seller, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth
in this Agreement, which breach (i) causes the conditions set forth in
Section 7.02(a) or (b) (in the case of termination by Buyer) or 7.03(a)
or (b) (in the case of termination by Seller) not to be satisfied, and
(ii) shall not have been cured within 30 days following receipt by the
breaching party of written notice of such breach from the other party; or
(g) by Buyer in the event that the Average Stock Price is less than $42.00;
or
(h) by Seller if the Board of Directors of Seller shall have withdrawn or
modified its recommendation of this Agreement or the Merger because it
has accepted a Superior Proposal and Seller has paid Buyer's expenses
pursuant to Section 8.03(b).
SECTION 8.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Buyer, Seller,
Sub or their respective officers, directors, stockholders or Affiliates, except
as set forth in Sections 5.04 and 8.03; provided that any such termination shall
not limit liability for any wilful breach of this Agreement and the provisions
of Sections 5.04 and 8.03 of this Agreement and the Confidentiality Agreements
shall remain in full force and effect and survive any termination of this
Agreement.
SECTION 8.03 FEES AND EXPENSES. (a) Except as set forth in this Section
8.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Seller and Buyer shall share equally all fees and expenses, other than
attorneys' fees, incurred with respect to the printing and filing of the Proxy
Statement (including any related preliminary materials) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements.
(b) Seller shall pay Buyer up to $2,000,000 as reimbursement for expenses of
Buyer actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and
expenses of Buyer's counsel, accountants and financial advisors, but
excluding any discretionary fees paid to such financial advisors), upon
the termination of this Agreement by Buyer pursuant to (i) Section
8.01(e), (ii) Section 8.01(b) as a result of the failure to satisfy the
condition set forth in Section 7.02(a), (iii) Section 8.01(f) or (iv)
Section 8.01(h).
A-29
<PAGE>
(c) In addition to the expenses specified above, Seller shall pay Buyer a
termination fee of $2,000,000 upon the earliest to occur of the following
events:
(i) the termination of this Agreement by Buyer pursuant to Section
8.01(e) or by Seller pursuant to Section 8.01(h); or
(ii) the termination of this Agreement by Buyer pursuant to Section
8.01(f) after a willful breach by Seller of this Agreement,
provided at the time of such breach, Seller shall have received an
Acquisition Proposal; or
(iii) the termination of the Agreement by Buyer pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote
for approval of the Seller Voting Proposal by the stockholders of
Seller at the Seller Meeting if, at the time of such failure, there
shall have been announced an Acquisition Proposal relating to
Seller which shall not have been absolutely and unconditionally
withdrawn and abandoned.
(d) Buyer shall pay Seller up to $2,000,000 as reimbursement for expenses of
Seller actually incurred relating to the transactions contemplated by
this Agreement prior to termination (including, but not limited to fees
and expenses of Seller's counsel, accountants and financial advisors, but
excluding any discretionary fees paid to such financial advisors), upon
(A) the termination of this Agreement by Seller pursuant to (i) Section
8.01(b) as a result of the failure to satisfy the condition set forth in
Section 7.03(a), or (ii) Section 8.01(f) or (B) the termination of this
Agreement by Buyer pursuant to Section 8.01(g).
(e) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), or 8.03(d) shall be paid within one business day after
the first to occur of the events described in Section 8.03(b), 8.03(c),
or 8.03(d); provided that in no event shall Buyer or Seller, as the case
may be, be required to pay the expenses and fees, if applicable, to the
other, if, immediately prior to the termination of this Agreement, the
party to receive the expenses and fees, if applicable, was in material
breach of its obligations under this Agreement.
SECTION 8.04 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Seller or of Buyer, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 8.05 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
2.01, 2.02, 2.03, 6.10, 6.11, 6.12, 6.13, 6.14, 6.21 and Article IX. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement.
A-30
<PAGE>
SECTION 9.02 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) or by Federal Express to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
<TABLE>
<S> <C>
(a) if to Buyer or Sub, to
TMP Worldwide Inc.
1633 Broadway
New York, NY 10019
Attn: Andrew J. McKelvey
Myron Olesnyckyj
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
Attn: Gregg J. Berman
Roy Goldman
(a) if to Seller, to
LAI Worldwide, Inc.
Thanksgiving Tower, Suite 4150
1601 Elm Street
Dallas, TX 75201
Attn: Robert L. Pearson
Patrick J. McDonnell
with a copy to:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill,
& Mullis, Professional Association
2700 Barnett Plaza
101 E. Kennedy Boulevard
Tampa, FL 33601
Attn: Richard Leisner
</TABLE>
SECTION 9.03 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.05 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as specifically provided in Section 9.01
(with respect to Sections 2.01, 2.02, 2.03, 6.10, 6.11, 6.13, 6.14, 6.21 and
this Article IX) are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder; provided that the
Confidentiality Agreements shall
A-31
<PAGE>
remain in full force and effect until the Effective Time. Each party hereto
agrees that, except for the representations and warranties contained in this
Agreement, neither Seller nor Buyer makes any other representations or
warranties, and each hereby disclaims any other representations and warranties
made by itself or any of its officers, directors, employees, agents, financial
and legal advisors or other representatives, with respect to the execution and
delivery of this Agreement or the transactions contemplated hereby,
notwithstanding the delivery or disclosure to the other or the other's
representatives of any documentation or other information with respect to any
one or more of the foregoing.
SECTION 9.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO ANY
APPLICABLE CONFLICTS OF LAW.
SECTION 9.07 JURISDICTION. Each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of any Federal court located in the
State of New York or any New York state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this agreement in any court other than a
Federal court sitting in the State of New York or a New York state court.
SECTION 9.08 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties provided that Sub may assign its rights hereunder
to Buyer or a Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 9.09 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
SECTION 9.10 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in any New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any court of the United States located in the State of
New York or of any New York state court in the event any dispute arises out of
this Agreement or the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, and (c) agrees that it will not
bring any action relating to this Agreement in any court other than a court of
the United States located in the State of New York or a New York state court.
SECTION 9.11 NO RULE OF CONSTRUCTION. The parties agree that, because all
parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
A-32
<PAGE>
IN WITNESS WHEREOF, Buyer, Sub and Seller have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ MYRON F. OLESNYCKYJ
-----------------------------------------
TMP FLORIDA ACQUISITION CORP.
By: /s/ MYRON F. OLESNYCKYJ
-----------------------------------------
LAI WORLDWIDE, INC.
By: /s/ ROBERT L. PEARSON
-----------------------------------------
</TABLE>
A-33
<PAGE>
ANNEX B
[BAIRD LETTERHEAD]
March 10, 1999
Board of Directors
LAI Worldwide, Inc.
1601 Elm Street
Thanksgiving Tower, Suite 4150
Dallas, Texas 75201-4768
Gentlemen:
LAI Worldwide, Inc. (the "Company") proposes to enter into an Agreement and
Plan of Merger (the "Agreement") with TMP Worldwide Inc. ("Buyer") and TMP
Florida Acquisition Corp. ("Sub"). Pursuant to the Agreement, at the Effective
Time (as defined in the Agreement), Sub will be merged with and into the Company
(the "Merger") and each share of common stock, $.01 par value per share
("Company Common Stock"), of the Company (other than shares owned directly or
indirectly by the Company as treasury stock or any shares of Company Common
Stock held by shareholders who are dissenting shareholders as defined in the
Agreement) will be converted into the right to receive a fraction of a share of
Buyer's Common Stock, $.001 par value per share ("Buyer Common Stock"), equal to
the "Exchange Ratio" (as hereinafter defined).
The Exchange Ratio will be calculated in the following manner. If the
Average Stock Price (as hereinafter defined) is greater than $64.00, the
Exchange Ratio shall be equal to the quotient obtained by dividing (A) $8.45 by
(B) the Average Stock Price (provided, however, that if the Average Stock Price
is greater than $64.00 but the Average Closing Stock Price (as hereinafter
defined) is such that the product of the Exchange Ratio multiplied by the
Average Closing Stock Price is less than $5.55, then the Exchange Ratio shall be
adjusted to that quotient determined by dividing $5.55 by the Average Closing
Stock Price). If the Average Stock Price is equal to or greater than $42.00 but
less than or equal to $64.00, the Exchange Ratio shall be 0.1321. If the Average
Stock Price is less than $42.00, the Exchange Ratio shall be equal to the
quotient obtained by dividing (A) $5.55 by (B) the Average Stock Price (provided
the Buyer shall have the right to terminate the Agreement if the Average Stock
Price is less than $42.00). "Average Stock Price" means the average of the daily
closing prices of Buyer Common Stock for the twenty consecutive trading days
ending on the second trading day immediately prior to the Closing Date. "Average
Closing Stock Price" means the average of the daily closing prices of Buyer
Common Stock for the two consecutive trading days ending on the trading day
immediately prior to the Closing Date.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio to the holders of Company Common Stock (other than
Buyer and its affiliates).
B-1
<PAGE>
Board of Directors
LAI Worldwide, Inc.
March 10, 1999
Page 2
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In that
connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company and the Buyer furnished to us for
purposes of our analysis, as well as publicly available information including
but not limited to the Company's and the Buyer's recent filings with the
Securities and Exchange Commission and equity analyst research reports prepared
by various investment banking firms including Baird; (ii) reviewed the Agreement
in the form presented to the Company's Board of Directors; (iii) compared the
historical market prices and trading activity of the Company's and Buyer's
common stock with those of certain other publicly traded companies we deemed
relevant; (iv) compared the financial position and operating results of the
Company and Buyer with those of other publicly traded companies we deemed
relevant; (v) compared the proposed financial terms of the Merger with the
financial terms of certain other business combinations we deemed relevant; and
(vi) reviewed certain potential pro forma effects of the Merger. We have held
discussions with certain members of the Company's and Buyer's respective senior
management concerning the Company's and Buyer's historical and current financial
condition and operating results, as well as the future prospects of the Company
and Buyer, respectively. With the exception of one prospective purchaser, we
have not been requested and we did not solicit third party interest in acquiring
all or any part of the Company. We have also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant for the preparation of this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided us by or on behalf of the Company and the Buyer, and have
not assumed any responsibility to verify any such information. We have also
assumed, with your consent, that (i) all material assets and liabilities
(contingent or otherwise, known or unknown) of the Company and the Buyer are as
set forth in their respective financial statements; (ii) the Merger will be
accounted for as a pooling-of-interests under generally accepted accounting
principles; (iii) the Merger will qualify as a tax-free reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended;
and (iv) the Merger will be consummated in accordance
B-2
<PAGE>
Board of Directors
LAI Worldwide, Inc.
March 10, 1999
Page 3
with the terms of the Agreement, without any amendment thereto and without
waiver by the Company or Buyer of any of the conditions to their respective
obligations thereunder. We have also assumed that the estimates regarding the
Company's results for the fiscal year ended February 28, 1999 and the financial
projections examined by us in connection with the rendering of this opinion were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of (i) the Company's senior management as to the
Company's financial results for the year ended February 28, 1999 and (ii) the
Company's and Buyer's senior management as to the future performance of the
Company and Buyer, respectively. At the direction of the Company, we have not
considered any expense increases, cost savings, operating synergies or other
projected combined benefits that might result from the Merger and have excluded
estimated transaction expenses relating to the Merger from our analyses. In
conducting our review, we have not undertaken nor obtained an independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of the Company or Buyer nor have we made a physical inspection of the
properties or facilities of the Company or Buyer. Our opinion necessarily is
based upon economic, monetary and market conditions as they exist and can be
evaluated on the date hereof, and does not predict or take into account any
changes which may occur, or information which may become available, after the
date hereof.
Our opinion has been prepared at the request and for the information of the
Board of Directors of the Company, and shall not be used for any other purpose
or disclosed to any other party without the prior written consent of Baird;
provided, however, that this letter may be reproduced in full in the Proxy
Statement/Prospectus to be provided to the Company's shareholders in connection
with the Merger. This opinion does not address the relative merits of the Merger
and any other potential transactions or business strategies considered by the
Company's Board of Directors, and does not constitute a recommendation to any
shareholder of the Company as to how any such shareholder should vote with
respect to the Merger. Furthermore, we express no opinion as to the price or
trading range at which any of the Company's or Buyer's securities will trade at
any time. Baird has acted as financial advisor to the Company in connection with
the Merger and will receive a fee for our services, part of which is payable
upon the preparation and delivery of this fairness opinion and part of which is
contingent upon consummation of the Merger. In the past, we have provided
investment banking services to the Company, including acting as financial
advisor to the Company in connection with its acquisition of Ward Howell
International, Inc. and serving as managing underwriter in both its initial
public offering and secondary offering of Company Common Stock in July 1997 and
June 1998, respectively, for which we received customary compensation.
B-3
<PAGE>
Board of Directors
LAI Worldwide, Inc.
March 10, 1999
Page 4
In the ordinary course of our business, we may from time to time trade the
securities of the Company or Buyer for our own account or the accounts of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of Company Common Stock (other than Buyer and its affiliates).
Very truly yours,
/s/ Robert W. Baird & Co. Incorporated
ROBERT W. BAIRD & CO. INCORPORATED
B-4
<PAGE>
- --------------------------------------------------------------------------------
LAI WORLDWIDE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 26, 1999
The undersigned, a stockholder of LAI WORLDWIDE, INC. (the
"Company"), does hereby appoint Robert L. Pearson, Patrick J. McDonnell and
Philip R. Albright, and each of them acting individually, as the attorney and
proxy of the undersigned, with power of substitution, for and on behalf of
the undersigned, to attend the Annual Meeting of Stockholders of the Company
to be held on Thursday, August 26, 1999, at 9:00 AM, at The Tampa Club, 101
East Kennedy Boulevard, Tampa, Florida and any adjournment or adjournments
thereof (the "Annual Meeting"), to represent the undersigned at the Annual
Meeting, and there to vote all the shares of Common Stock of the Company
which the undersigned is entitled to vote at the Annual Meeting, in any
manner and with the same effect as if the undersigned were personally present
at the Annual Meeting, all as described in the Company's proxy
statement/prospectus filed by the Company and TMP Worldwide Inc. dated July
12, 1999 relating to the Annual Meeting, and the undersigned hereby
authorizes and instructs the above named proxy to vote as specified on the
reverse side.
The shares represented by this Proxy will be voted only if this Proxy
is properly executed and timely returned. In that event, such shares will be
voted in the manner directed herein. IF NO DIRECTION IS MADE, THE SHARES WILL BE
VOTED FOR THE APPROVAL OF THE PROPOSED MERGER COMBINING THE COMPANY AND A
SUBSIDIARY OF TMP WORLDWIDE INC., FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR
LISTED ON THE REVERSE SIDE AND FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING FEBRUARY 28, 2000, AND IN THE DISCRETION OF THE PROXIES FOR
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(Continued and to be signed on reverse side)
*** If you wish to vote by telephone, please read the instructions below ***
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
You will be asked to enter a Control Number which is located in the box in the
lower righthand corner of this form.
OPTION #1: TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL PROPOSALS:
PRESS 1
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
OPTION #2: IF YOU CHOOSE TO VOTE ON EACH PROPOSAL SEPARATELY, PRESS 0. YOU WILL
HEAR THESE INSTRUCTIONS:
Proposal 1: -To vote FOR the merger, press 1; to vote Against
the merger, press 9; to ~Abstain, press 0.
Proposal 2: -To vote FOR ALL nominees, press 1; to WITHHOLD
FOR ALL nominees, press 9. To withhold FOR AN
INDIVIDUAL nominee, press 0 and listen to the
instructions.
Proposal 3: To vote FOR, press 1; Against, press 9; Abstain,
press 0.
Proposal 4: To vote FOR, press 1; Against, press 9; Abstain,
press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU VOTED BY PHONE
Call *** Toll Free *** On a Touch Tone Telephone
1-800-840-1208 -- ANYTIME
There is NO~CHARGE to you for this call.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE MARK YOUR 2406
/X/ VOTES AS INDICATED
IN THIS EXAMPLE.
The Board of Directors recommends voting FOR the following proposals:
1. Approval of the proposed merger combining LAI and a subsidiary of TMP
Worldwide Inc.
FOR AGAINST ABSTAIN
/ / / / / /
2. ELECTION OF DIRECTORS
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Authority Granted to Authority WITHHELD
vote FOR Nominee to Vote for Nominee
/ / / /
Richard W. Pogue and John C. Pope
3. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN
LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL
YEAR ENDING FEBRUARY 28, 2000.
FOR AGAINST ABSTAIN
/ / / / / /
4. OTHER MATTERS. Unless a line is stricken through this sentence, the
proxies herein named may in their discretion vote the shares represented by
this Proxy upon such other matters as may properly come before the Annual
Meeting.
Please check this box if you intend to attend the Annual
Meeting and vote your shares in person / /
The undersigned acknowledges receipt of the Company's Notice of
Annual Meeting and proxy statement/prospectus dated July 12, 1999 relating to
the Annual Meeting. The undersigned does hereby revoke any proxy previously
given with respect to the shares represented by this Proxy.
NOTE: Your signature should appear as your name appears hereon. As to shares
held in joint names, each joint owner should sign. If you are a
corporation, please have signed full in corporate name by a duly
authorized officer. If a partnership, please have signed in partnership
name by an authorized person. If signing as attorney, executor,
administrator, trustee, guardian, or in other representative capacity,
please give full title as such.
Signature______________ Signature if held jointly___________ Dated: _______,1999
Please mark, sign and date this proxy card and promptly return it using the
enclosed envelope.
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FOLD AND DETACH HERE
