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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21571
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TMP WORLDWIDE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 13-3906555
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 977-4200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,246,694,992 as of the close of business on March
22, 1999.
The number of shares of Common Stock, $.001 par value, outstanding as of
March 22, 1999 was 33,403,183.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in connection
with its Annual Meeting of Stockholders to be held on June 30, 1999, are
incorporated by reference into Part III of this report.
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ITEM 1. BUSINESS
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications, executive search and technology company that provides
comprehensive, individually tailored advertising services including development
of creative content, media planning, production and placement of corporate
advertising and market research, 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. All amounts referred to below reflect the amounts disclosed in the
Company's consolidated financial statements, which reflect the effect of
business combinations accounted for as poolings-of-interests and completed prior
to December 31, 1998. However, all historical amounts will be restated to
reflect the acquisition of Morgan & Banks Limited ("M&B") on January 28, 1999,
which was accounted for as a pooling-of-interests. For the year ended December
31, 1998, our gross billings were $1.4 billion, commissions and fees were $406.8
million, net income was $4.2 million ($20.0 million excluding the $15.8 million
after tax effect of merger costs) and EBITDA was $48.9 million ($66.8 million
excluding $17.9 million in merger costs).(1)
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 $485.2 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 search & selection
commissions and fees for the year ended December 31, 1998 were $92.6 million.
Our Internet revenue grew 160.3% to $48.5 million for the same period. A
substantial part of our growth has been achieved through acquisitions. For
example, from January 1, 1996 through December 31, 1998, we completed 45
acquisitions with estimated annual gross billings of approximately $700.0
million(2). In January 1999, we completed our largest acquisition to date by
acquiring 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.
The Company has several career sites, including Monster.com-SM-, Be the
Boss-SM-, and Job Hound, which collectively contain approximately 180,000 job
listings and career opportunities. In 1996, we began marketing our Dealer
Locator service to yellow page clients. Dealer Locator provides clients with the
ability to create Web pages for their local offices, franchisees or dealers.
Potential customers can then access these pages on the Internet by zip code or
other key word searches.
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(1) As used in this Report, "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 our consolidated financial statements,
the trends in gross billings directly impact the commissions and fees which
we earn. We earn 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, we earn fees for the placement of
advertisements on the Internet, including our career Web sites. Earnings
before interest, income taxes, depreciation and amortization ("EBITDA") is
presented to provide additional information about our ability to meet future
debt service, capital expenditures and working capital requirements and is
one of the measures which determines our ability to borrow under our 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.
(2) Gross billings with respect to companies which we acquire refer to our
estimate of the acquired companies' annual gross billings.
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INDUSTRY OVERVIEW
THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising consists
primarily of creating and placing recruitment advertisements in the classified
advertising sections of newspapers. While the recruitment advertising market has
historically been cyclical, during the period of 1990 through 1997, the U.S.
market grew at a compound annual growth rate of approximately 12%. Classified
readership by job seekers has remained constant over the last ten years and
approximately 85% of companies use newspapers to attract potential employees.
The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classified advertisements to the creation
of comprehensive image campaigns which internationally "brand" a client as a
quality employer. Further, shortages of qualified employees in many industries,
particularly in the technology area, have increased the need for recruitment
advertising agencies to expand the breadth of their service offerings to effect
national and sometimes global recruitment campaigns. For the year ended December
31, 1998, total spending on advertisements globally in the recruitment
classified advertisement section of newspapers was approximately $12 billion.
Agencies which place recruitment advertising are paid commissions generally
equal to 15% of recruitment advertising gross billings.
THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been
published in the U.S. since at least the 1890's and, traditionally, have been
published almost exclusively by telephone utilities. In the early 1980's, due in
part to telephone deregulation, independent companies began publishing an
increasing number of directories. Currently, approximately 7,000 yellow page
directories are published annually by 200 publishers and, in the U.S., many
cities with populations in excess of 80,000 are served by multiple directories.
The percentage of adults who use the yellow pages has remained relatively
constant over the last ten years at over 56%, and such readers consult the
yellow pages approximately two times weekly. Accordingly, yellow page
directories continue to be a highly effective advertising medium.
For the year ended December 31, 1998, total spending on yellow page
advertisements in the U.S. was $12.0 billion. Of this amount, approximately
$10.1 billion was spent by local accounts and approximately $1.9 billion was
spent by national accounts. As those terms are used in the yellow page industry,
"local" refers to an advertisement solicited by a yellow page publisher's own
sales staff and "national" refers to an advertisement that is placed by an
advertising agency and that meets certain criteria specified by the publisher.
Local accounts are typically merchants who primarily conduct their business
within the geographic area served by the publisher's directories.
The national account market consists of companies which sell products or
services in multiple markets and is the market in which we compete. Most
national accounts use independent advertising agencies to design and implement
their yellow page advertising programs to create a consistent brand image and
compelling message, to develop an effective media plan and to execute the
placement of the advertising at the local level. Agencies which place national
yellow page advertising are paid commissions by yellow page publishers. The
market has grown each year since 1981. During the period of 1990 through 1998,
the market grew at a compound average rate of approximately 6.2%.
THE EXECUTIVE SEARCH MARKET. The market for executive search firms is
generally separated into two broad categories: retained executive search firms
and contingency executive search firms. Retained executive search firms service
their clients' senior management needs by acting in an ongoing client-consultant
relationship to actively identify, evaluate, assess and recommend to the client
suitable candidates for senior level positions. Retained search firms are
generally engaged on an exclusive basis and paid a contractually agreed-to
compensation. Contingency executive search firms typically do not focus on the
senior executives and are generally paid a percentage of the hired candidate's
salary only when a candidate is successfully placed with the client. Contingency
firms are generally not hired on an exclusive basis and do not focus on the
assessment, evaluation or recommendation of a candidate other than to determine
if the candidate's resume qualifies him/her for the position. We provide
executive search services on a retained
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basis. We also provide search services on a retained or a contingency basis to
identify for our clients the mid-level executive, those who earn from $50,000 to
$150,000, annually. We refer to this as selection.
INTERNET. The Internet is an increasingly significant global medium for
communications, content and commerce. Growth in Internet usage has been fueled
by a number of factors, including the availability of a growing number of useful
products and services, the large and growing installed base of personal
computers in the workplace and home, advances in the performance and speed of
personal computers and modems, improvements in network infrastructure, easier
and cheaper access to the Internet and increased awareness of the Internet among
businesses and consumers.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium.
Thousands of companies have created corporate Web sites that feature information
about their product offerings and advertise employment opportunities. Through
the Web, Internet content providers are able to deliver timely, personalized
content in a manner not possible through traditional media. Internet content can
be continuously updated, distributed to a large number of consumers on a
real-time basis, and accessed by users at any time. Industry publications
indicate that the historical and projected adoption of online/Internet services
represents a faster rate of penetration than occurred with traditional media,
such as radio, broadcast television and cable television. We provide
internet-based solutions for our recruitment advertising, search & selection and
yellow page advertising clients.
OUR RECRUITMENT ADVERTISING BUSINESS
We entered the recruitment advertising business in 1993 and have grown both
through acquisitions and internally. For the year ended December 31, 1998, we
had recruitment advertising gross billings of $794.2 million. In addition to our
worldwide offices, we maintain relationships with unaffiliated agencies
throughout the world to further enhance our ability to reach qualified job
candidates. As a full service agency, we offer our clients comprehensive
recruitment advertising services including creation and placement of classified
advertising, development of employer image campaigns, creation of collateral
materials such as recruiting brochures and implementation of alternative
recruitment programs such as job fairs, employee referral programs and campus
recruiting. We specialize in designing recruitment advertising campaigns for
clients in high growth industries and in industries with high employee turnover
rates. Further, we believe that as employers find it more difficult to attract
qualified employees, they will increasingly seek out agencies that can implement
national and, in some cases, global recruitment strategies.
CREATING AND PLACING THE ADVERTISEMENT. Our task in formulating and
implementing a global recruitment advertising program is to design the creative
elements of the campaign and to select the appropriate media and/or other
recruitment methods. This is done in the context of the client's staffing
parameters which generally include skill requirements, job location and
advertising budget. In addition, while executing a given campaign, we will often
undertake basic research with respect to demographic profiles of selected
geographic areas to assist the client in developing an appropriate overall
strategy.
We have historically found that the strongest recruitment advertising
campaigns "brand" the client's image, demonstrate the client's unique selling
points and stress the client's employee benefits and corporate culture.
Effectively differentiating one employer from another has become particularly
important in the technology and healthcare sectors where there is an acute
shortage of qualified job candidates. The success of the campaign may depend on
whether an organization is seen as sufficiently distinct from its competitors.
After completing the design of an advertisement's creative elements, we
develop an appropriate media plan. Typically, a variety of media is used,
including newspapers, trade journals, the Internet, billboards, direct mail,
radio and television. If we recommend use of newspapers, we may recommend
certain newspapers or editions of a particular newspaper which are targeted to a
specific demographic
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segment of the population. We may also recommend a variety of advertisement
sizes and vary the frequency with which an advertisement appears.
After an advertisement is placed, we conduct extensive customer analysis to
assure satisfaction, including monitoring the effectiveness of the chosen media.
As an example, for a transportation client, we analyzed cost-per-response,
cost-per-application and cost-per-hire data for over a dozen media vehicles
running in approximately 30 markets in an effort to determine the return on
investment of each media vehicle. Our recruitment advertising division also
maintains a quality assurance program for its larger clients which involves
formal creative reviews by our clients as well as soliciting client feedback.
In the U.S., we receive commissions generally equal to 15% of recruitment
advertising gross billings. Outside of the U.S., where, collectively, we derive
the majority of our recruitment advertising commissions and fees, our commission
rates for recruitment advertising vary, ranging from approximately 10% in
Australia to 15% in Canada and the United Kingdom. In the U.S., we also earn
fees from value-added services such as design, research and other creative and
administrative services which resulted in aggregate commissions and fees equal
to approximately 21% of recruitment advertising gross billings for the year
ended December 31, 1998.
CLIENTS. We have more than 2,500 recruitment advertising clients. No
account represents more than 5% of our recruitment advertising commissions and
fees.
INTERNET-BASED SOLUTIONS FOR RECRUITMENT ADVERTISING CLIENTS. To complement
the broad reach and penetration of print recruitment advertising, we offer our
clients Internet-based solutions to meet their recruitment needs. We have
several career sites including Monster.com-SM-, Be the Boss-SM- and Job Hound.
Each of these Web sites consists of a database of employment opportunities and a
variety of other value added features. Collectively, our career hubs contain
approximately 180,000 job and other career opportunities. We believe that we
offer the most current career opportunities on the Web, with the majority of our
listings less than 60 days old.
Based on experience with our clients, we believe that only 20% to 30% of
open job positions are advertised using traditional print media. Therefore, we
further believe that on-line solutions will significantly expand the recruitment
advertising market because of their global reach and continuous availability.
Furthermore, on-line advertising is extremely cost effective when compared to
other traditional recruitment methods since print media need not be purchased.
Our Internet recruitment services have been actively marketed since May 1995.
In January 1999, we combined Online Career Center-SM- and MedSearch-SM- with
The Monster Board-Registered Trademark- to form Monster.com-SM-. The Monster
Board-Registered Trademark- launched in April 1994, is one of PC Magazine's top
100 Web sites (February 1998) and receives more unique visitors than any other
career Web site, as reported by Media Metrix in their January 1999 PC Meter
survey. It was also one of the first 1,000 commercial Web sites out of the more
than 158,000,000 which currently exist. As of March 19, 1999, Monster.com-SM-
listed approximately 180,000 jobs. Clients of Monster.com-SM- include
Blockbuster Entertainment Inc., McDonald's, Adecco, Procter & Gamble Co., and
Dell Computer Corporation. According to Nielson Media Research Internet Profiles
Corporation ("I/AUDIT"), Monster.com-SM- averaged approximately 153,000 visits
daily (the gross number of occasions on which a user looked up a site) in
January 1999 with the average length of each visit exceeding fifteen minutes.
Job seekers can search Monster.com's-SM- database of employment opportunities by
location, job category, industry and/or keyword. Keyword search allows a user to
enter specific keywords to match skills, job titles or other requirements.
Monster.com-SM- allows users to create their own personalized career start
page--My Monster. Using My Monster, job seekers can store their resume and cover
letters, plus create multiple job searches. They can even track how many times
their resume has been viewed by employers. My Monster is at the center of the
Monster.com-SM- job seeker experience, with over 2.3 million accounts as of
March 22, 1999. Monster.com's-SM- Job Search Agent, continuously seeks to find
the desired job for the job seeker. Job seekers can sign up for this free
service on the site by creating a simple personal profile indicating the
industry and location in which they want to
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work and any job-specific keywords. The Job Search Agent then continually scans
the entire Monster.com-SM- job database for opportunities that match the
requirements and delivers the leads to job seekers' desktops--even while they
are off-line. As of March 22, 1999, Monster.com-SM- contained over 533,000 Job
Search Agent profiles. In addition, job seekers can post their resume free of
charge in a confidential searchable access-restricted database. This database
can be searched, using key word searches, by employers, who pay for the service.
Monster.com's-SM- resume database currently contains over 1.1 million resumes.
We have developed private label applications of our interactive recruitment
products. For example, we adapted Monster.com technology to create a database of
jobs for Fidelity Investments which resides, through a hyper-link, on the
Fidelity home page. The search features have the look and ease of use associated
with Monster.com while appearing to the user as a seamless part of the Fidelity
site. We intend to continue to market private label products as a way to
increase the size of our databases.
To attract the maximum amount of volume to our Web sites, we intend to
continue to develop additional value-added content, while developing strategic
alliances with other on-line content providers. As of March 1, 1999, the Company
had 47 strategic alliances which, collectively, were responsible for more than
20% of site traffic. Monster.com-SM- utilizes 30 Dell 6300 Poweredge servers
with quad processors in the Windows NT environment, load balanced with a pair of
Hydra 5000 appliances and piped through a T3 connection. This creates 60m
bit/sec of bandwidth. A Microsoft SQL Server 7.0 database is incorporated to
store resumes and jobs. The SQL software also allows Monster.com to provide
enhanced user interaction, personalization and passive independent data searches
which the user can customize and view each time he/she logs on to the site.
OUR YELLOW PAGE BUSINESS
We entered the yellow page business in 1967 and have grown to become the
largest yellow page advertising agency in the world based on yellow page gross
billings.
CREATING AND PLACING YELLOW PAGE ADVERTISEMENTS. There are currently
approximately 7,000 yellow page directories in the U.S. Each has a separate
closing date for accepting advertisements and one or more of these closings
occur on every working day of the year. The steps involved in placing an
advertisement are numerous and can take as long as nine months.
The first step in the process is the formulation of the advertising
program's creative elements including illustrations, advertising copy, slogans
and other elements which are designed to attract a potential customer's
attention. To assess the effectiveness of a proposed campaign, we generally
undertake extensive research to determine which alternatives best reach the
client's target market. This research typically includes focus group testing and
the running of split-run advertisements. Focus group testing involves forming
groups of potential customers and gauging their reaction to a variety of
potential advertisements. Split-run testing measures the results of specific
campaigns by placing more than one version of an advertisement in various
editions of the same yellow page directory. By using multiple phone numbers and
various monitoring methods, we can then determine which advertisements generate
the most effective response.
After designing an advertising program, we create a media plan which
cost-effectively reaches the client's customer base. We analyze targeted
directories to determine circulation, rate of usage and demographic profile. We
then recommend advertisements ranging from a full page to as little as a one
line listing. For some of our larger yellow page clients, advertisements are
placed in over 2,000 directories.
To ensure client satisfaction, we maintain an extensive quality control
program. Account teams have frequent in-person client contact as well as formal
annual creative reviews. We also solicit feedback through client interviews,
written surveys and other methods consisting of focus groups made up of yellow
page users and yellow page user pollings. The principal aims of this program are
client retention and sales
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growth. We believe our focus on customer service has enabled us to maintain our
client retention rate, year to year, in excess of 90%.
In addition to traditional advertising, we offer selected yellow page
clients a variety of value-added services ranging from managing the maintenance
and installation of telephone lines for branch locations to the staffing and
operation of fulfillment centers which respond to toll-free calls requesting
product brochures and other information. While beyond the typical scope of
services provided by an advertising agency, these ancillary services are
designed to further integrate us into client processes for the mutual benefit of
both parties.
CLIENTS. We have over 2,100 yellow page clients, virtually all of whom
determine the content of their advertising programs on a centralized basis.
Placement of the advertising, however, requires an extensive local selling and
quality control effort because many of our clients are franchisors or
manufacturers who are dependent upon franchisees or independent dealers for
distribution. The participation of franchisees and dealers in the yellow page
program is discretionary and must be solicited at the local level. As an example
of the scale of this task, we visited approximately 80% of the over 1,800 Midas
shops owned by over 600 franchisees while executing the 1996 Midas yellow page
program. No account represents more than 5% of the Company's yellow page
commissions and fees.
We have a yellow page sales, marketing and customer service staff of
approximately 680 people to implement this local effort. We believe the size and
breadth of this staff, its local client relationships and its databases of
client branch locations, franchisors and dealers provide us with a strong
competitive advantage in executing the yellow page programs of existing clients.
We believe these resources are critical in marketing our services to potential
new clients and in marketing and executing our Internet-based service offerings.
INTERNET-BASED SOLUTIONS FOR YELLOW PAGE ADVERTISING CLIENTS. To complement
the broad reach and penetration of yellow page advertising, we offer our clients
an Internet-based solution called Dealer Locator. In creating a Dealer Locator
program, we typically create a home page for each franchise or dealer location
and link it to the client's corporate Web site. Internet users can then retrieve
information on a specific location such as directions to, or a map of, such
location, hours of operation and potentially other information such as sale
items and other special offers. Dealer Locator is designed to provide an
additional source of customer flow to our clients while, through linkage to the
corporate Web sites, reinforcing the desired brand imagery. We charge clients
who utilize the Dealer Locator product an up-front fee for the development of
each individual home page as well as an annual maintenance fee thereafter. We
have sold nine Dealer Locator products.
We believe that the Dealer Locator concept could be appropriate for certain
of our yellow page clients. For example, we have adapted Dealer Locator
technology to create, for The American Board of Medical Specialities, the
CertifiedDoctor Web Site (http://www.certifieddoctor.org). CertifiedDoctor
allows consumers to search for board certified physicians by specialty and
geographic area and also provides doctors' educational information.
OUR EXECUTIVE SEARCH BUSINESS
Traditionally, recruitment advertising did not target the senior or
mid-level executive. Therefore, in order to expand the range of services we
offer to our recruitment advertising clients, we entered the executive search
field. We currently have 34 executive search offices in 17 countries. We believe
that our expansion into the executive search field will enable us to attract and
service additional major clients because we can now market ourselves as a full
service firm that can accommodate all of our clients' employment and recruitment
advertising needs.
Our retained executive search process typically includes the following
steps: (a) a TMP executive search consultant interviews the client in order to
analyze the senior executive position that needs to be
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filled, the general environment of the client's work place and the character and
quality of candidates that have successfully performed as an executive of the
client; (b) our consultant then prepares a written synopsis of the position to
be filled in order to attract a suitable, qualified, successful candidate; (c)
the synopsis is then forwarded to other recruiters in order to assist with the
search for a candidate that fits the criteria set forth in the synopsis; (d) a
pool of suitable candidates is gathered and the consultants begin to schedule
interviews; (e) the candidates are then interviewed and analyzed by the
consultants on our premises to determine if the candidate meets the requisite
experience and potential cultural fit outlined by the consultant and the client;
(f) reports of the most suitable candidates are prepared by the consultant and
presented to the client, who then chooses the candidates to be met; (g) the
consultant then organizes a mutually convenient time and place for the client to
personally meet and interview such candidates; (h) the consultant will follow up
with the successful candidate to obtain any supplemental information needed or
requested by the client, including references and other documentary materials;
and (i) the consultant then assists the client in structuring and negotiating
the final compensation package and other benefits for the hired executive based
on all relevant factors researched by the consultant, including industry
comparisons, the experience levels of the executive and future trends.
Candidates for mid-level positions, the search of whom we term "selection,"
are normally attracted by classified advertising or chosen through a
computerized database file search, as opposed to a detailed search assignment
used for senior executives. We screen and interview applicants prior to
providing the client with a short list. Upon acceptance of the short list of
suitable candidates, the client then proceeds to interview the selected
candidates. The next steps in the process include reference checking,
negotiation of an offer, confirmation of acceptance, confirmation of start date
and performance follow-up at the end of one and three months.
For assignments involving mid-level executives, we have developed the
Assessment Center process, which is designed to evaluate a person's capacity to
perform in a current or future role. It can be used for internal and external
candidates and is based on the premise that if the requirements for an
individual job are understood, it is possible to develop testing protocols which
assess an individual's ability to succeed in filling the position. Tools and
exercises include aptitude testing, job simulations, behavioral and situational
interviews, leadership and team exercises, group discussions, role plays and
work sample tests. The goals of the Assessment Center process are to put the
right people in the right job, boosting both individual job satisfaction and
productivity, minimize bad hires and develop objective criteria for downsizing.
In Australasia, we also aid our clients in attracting non-executive
candidates through our Alectus Personnel and Labour LinQ Services. Alectus
Personnel is a significant major player in both the permanent and temporary
recruitment markets for clerical and support staff. With a current network of 12
offices in Australia and New Zealand, Alectus can deliver a high level of
service to major corporations in this region. Alectus is the largest recruitment
advertiser in The Sydney Morning Herald employment section. Labour LinQ offers
recruitment and temporary contract services, predominantly at a "trades" and
"blue collar" level to a range of industries including engineering, food
processing, telecommunications, transport and manufacturing.
In addition, in Australia, we provide fee based management consulting
services which include: (i) information technology consulting; (ii) risk
analysis and risk management; (iii) financial consulting; (iv) cost reduction
reviews; and (v) assessment of competitive position.
TEMPORARY CONTRACTING SERVICES
In Australasia, with the acquisition of M&B, we provide temporary contract
employees ranging from executives to clerical workers. The demand for contract
employee services was created by organizations' need for flexible work forces
with the types of skills required to meet their particular circumstances in a
changing market.
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We place qualified executives, professionals, clerical and trade labor in
temporary positions, or for specific short term projects. Contractors can be
used for emergency support or to complement the skills of a client's core,
permanent staff. Contracting can be linked to the permanent placement, with the
client employing a "try before you buy" strategy. The period of the contracting
assignment can vary from as little as one day to over 12 months.
In addition to the more general contracting assignments, we provide
executives on a contract basis with our Australian clients, whereby a specific
task is managed by us but staffed by contract executives.
SALES AND MARKETING
At December 31, 1998, we had approximately 2,400 employees focused on our
sales, marketing and customer service efforts world-wide. Our sales, marketing
and customer service staff is divided into two groups: (i) new business
generation (approximately 220 employees) and (ii) existing client relationship
maintenance and improvement (approximately 2,100 employees). Within each group,
we maintain separate sales and marketing staffs for our recruitment advertising
business, yellow page advertising business and Internet business. In addition to
specializing by product, each group undertakes a cross-selling effort of TMP's
other products. Our Internet sales staff has targeted our recruitment
advertising and yellow page clients to capitalize on the interactivity and
additional services that our Internet products can cost effectively provide to
such clients. In addition to pursuing cross-selling opportunities within our
existing client base, each product sales force also designs targeted selling
campaigns for non-TMP clients. We assign a marketing manager to our clients in
order to work closely with the client to develop and design the appropriate
marketing and advertising campaign. Our customer service representative works
closely with the marketing manager and the client to implement the marketing and
advertising campaign, evaluate the effectiveness of the campaign and monitor
client satisfaction levels.
At December 31, 1998, we had more than 17,000 clients, including more than
80 of the Fortune 100 companies and approximately 400 of the Fortune 500
companies. No one client accounts for more than 5% of the Company's annual
commissions and fees. At December 31, 1998, we had 71 sales, marketing and
customer service offices located in the United States and 46 offices in the rest
of the world. We also maintained relationships with 16 international recruitment
advertising agencies throughout the world, further enhancing our ability to
reach qualified job candidates.
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COMPETITION
The markets for our services and products are highly competitive and are
characterized by pressure 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, media companies, as well as specialized and
integrated marketing communication firms. Many advertising agencies and media
companies have started to either internally develop or acquire new media
capabilities. New boutique businesses that provide integrated or specialized
services (such as advertising services or Web site design) and are
technologically proficient, especially in the new media arena, are also
competing with us. Many of our competitors or potential competitors have long
operating histories, and some have greater financial, management, technological,
development, sales, marketing and other resources than do we. In addition, our
ability to maintain our existing clients and generate new clients depends to a
significant degree on the quality of our services, pricing and our reputation
among our clients and potential clients.
We believe that our three largest competitors in the recruitment advertising
segment are Bernard Hodes Advertising, Inc., a subsidiary of Omnicom, Nationwide
Advertising Service, Inc., controlled by the Gund Brothers, and JWT Specialized
Communications, a subsidiary of the WPP Group USA, Inc. We also compete with
hundreds of Internet content providers. We believe that our largest competitors
in the executive search segment are Korn/Ferry International, Heidrick &
Struggles International Inc., Spencer Stuart & Associates and Russell Reynolds
Associates, Inc.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on the protection of
our original content for the Internet and on the goodwill associated with our
trademarks, trade names, service marks and other proprietary rights. We rely on
copyright laws to protect the original content that we develop for the Internet.
In addition, we rely on Federal trademark laws to provide additional protection
for the appearance of our Internet sites. A substantial amount of uncertainty
exists concerning the application of copyright laws to the Internet, and there
can be no assurance that existing laws will provide adequate protection for our
original content. In addition, because copyright laws do not prohibit
independent development of similar content, there can be no assurance that
copyright laws will provide any competitive advantage to us.
We also assert common law protection on certain names and marks that we have
used in connection with our business activities.
We rely on trade secret and copyright laws to protect the proprietary
technologies that we have developed to manage and improve our Internet sites and
advertising services, but there can be no assurance that such laws will provide
sufficient protection to us, that others will not develop technologies that are
similar or superior to ours, or that third parties will not copy or otherwise
obtain and use our technologies without authorization. We have filed patent
applications with respect to certain of our software systems, methods and
related technologies, but there can be no assurance that such applications will
be granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide us with a
competitive advantage. In addition, we rely on certain technology licensed from
third parties, and may be required to license additional technology in the
future, for use in managing our Internet sites and providing related services to
users and advertising customers. Our ability to generate fees from Internet
commerce may also depend on data encryption and authentication technologies that
we may be required to license from third parties. There can be no assurance that
these third party technology licenses will be available or will continue to be
available to us on acceptable commercial terms or at all. The inability to enter
into and maintain any of these technology licenses could have a material adverse
effect on our business, financial condition and operating results.
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Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford us little or no
effective protection of our intellectual property. In addition, there can be no
assurance that third parties will not bring claims of copyright or trademark
infringement against us or claim that our use of certain technologies violates a
patent. We anticipate an increase in patent infringement claims involving
Internet-related technologies as the number of products and competitors in this
market grows and as related patents are issued. Further, there can be no
assurance that third parties will not claim that we have misappropriated their
creative ideas or formats or otherwise infringed upon their proprietary rights
in connection with our Internet content. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements or prevent us from using important technologies or
methods, any of which could have a material adverse effect on the Company's
business, financial condition or operating results.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, we are subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies are subject to liability under
the FTC Act if the agency actively participated in creating the advertisement,
and knew or had reason to know that the advertising was false or deceptive.
In the event that any advertising created by us was 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.
There can be no assurance 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 cause a material adverse effect on our business, financial condition
or operating results.
EMPLOYEES
At February 28, 1999, we employed approximately 5,200 people (including
approximately 1,100 employees at M&B), of whom approximately 3,100 were client
services personnel, approximately 300 were sales and marketing personnel,
approximately 200 were search and selection personnel and approximately 500 were
creative and graphics personnel. The remainder of our personnel are information
systems, financial and administrative personnel. Our employees are not
represented by a labor union or a collective bargaining agreement. We regard our
employee relations as excellent.
COMPANY HISTORY
We are the successor to the businesses formerly conducted by TMP Worldwide
Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries
("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief executive
officer of which was Andrew J. McKelvey. On December 9, 1996, Old TMP merged
into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey
Enterprises, Inc. McKelvey Enterprises, Inc. then merged into Telephone
Marketing Programs Incorporated. Such mergers
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are collectively referred to as the "1996 Mergers." In addition, Mr. McKelvey
sold or contributed his interest in five other entities to the Company. Pursuant
to the 1996 Mergers, Telephone Marketing Programs Incorporated changed its name
to TMP Worldwide Inc. Furthermore, in poolings of interests transactions, the
Company merged with Johnson Smith & Knisely Inc. ("JSK") on May 6, 1998, TASA
Holding AG ("TASA") on August 31, 1998, Stackig, Inc. ("Stackig") on September
30, 1998, Recruitment Solutions, Inc. ("Recruitment Solutions") on October 2,
1998, SunQuest LLC, d.b.a. The SMART Group on November 2, 1998 and The
Consulting Group (International) Limited ("TCG") on December 2, 1998, (the
"Pooled Companies"). Accordingly, all historical financial data contained herein
reflects the historical financial data of Old TMP, WCI, McKelvey Enterprises,
Inc., the other entities and the Pooled Companies.
In January 1999, we completed our largest acquisition to date by acquiring
M&B. In March 1999, we announced that we had entered into an agreement with LAI
Worldwide, Inc. ("LAI"), an executive search firm, to acquire all of the
outstanding shares of LAI. Both transactions will be accounted for as poolings
of interests and will result in restatements of the Company's historical
financial statements in the periods that include the consummation of such
business combinations.
RISK FACTORS
WE MAY NOT BE ABLE TO MANAGE GROWTH. Our business has grown rapidly in
recent periods. This growth has placed a significant strain on management and
operations. As an example, we have completed the acquisition of seven executive
and mid-level search companies during 1998 and, with the acquisition of M&B in
January 1999 (the "Transaction"), we believe that we are one of the largest
executive search firms in the world. Our expansion has resulted, and is expected
in the future to result in, substantial growth in the number of our employees
and in increased responsibility for both existing and new management personnel
and incremental strain on our existing operations, and 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 cannot manage existing or
anticipated growth, our business, financial condition and operating results
would be materially adversely affected.
OUR ACQUISITIONS HAVE RISKS. We expect that we will continue to grow, in
part, by acquiring businesses. For example, on March 11, 1999, we announced our
intention to acquire, in a stock for stock transaction, LAI Worldwide Inc., in a
deal valued at approximately $63.6 million. The success of this strategy depends
upon several factors, including the continued availability of financing and our
ability to identify and acquire businesses on a cost-effective basis, as well as
our continued ability to integrate acquired personnel, operations, products and
technologies into our organization effectively, to retain and motivate key
personnel and to retain the clients of acquired firms. We cannot assure that
financing for acquisitions will be available on terms acceptable to us, or that
we will be able to identify or consummate new acquisitions, or manage and
integrate our recent or future expansions successfully, and any inability to do
so would have a material adverse effect on our business, financial condition and
operating results. There also can be no assurance that we will be able to
sustain the rates of growth that we have experienced in the past.
TRADITIONAL MEDIA MAY NOT BE VIABLE IN THE FUTURE. We derive a substantial
portion of our commissions and fees from designing and placing recruitment
advertisements in traditional media such as newspapers and trade publications.
This business, excluding search & selection which traditionally had been
included therein, constituted approximately 41.1% of total commissions and fees
for the year ended December 31, 1998 (40.5% of total revenue on a pro forma
basis giving effect to the Transaction). We also derive a substantial portion of
our commissions and fees from placing advertising in yellow page directories.
This business constituted approximately 24.4% of total commissions and fees for
the year ended December 31, 1998 (26.3% of total revenue on a pro forma basis
giving effect to the Transaction). There can be no assurance that the
commissions received by us in the future will be equal to the commissions which
we have historically received. To the extent that new media, such as the
Internet, cause
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yellow page directories and other forms of traditional media to be less
desirable forms of advertising media without causing at least, an equivalent fee
increase from advertising on the Internet, of which we cannot assure you, our
business, financial condition and operating results will be materially adversely
affected.
UNCERTAIN ACCEPTANCE OF THE INTERNET. Use of the Internet by consumers is
at a very early stage of development, and market acceptance of the Internet as a
medium for information, entertainment, commerce and advertising is subject to a
high level of uncertainty. Most of our clients have only limited experience with
the Internet as an advertising medium and such clients have not devoted a
significant portion of their advertising budgets to Internet-based advertising
in the past. In addition, a significant portion of 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 $48.5 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.
ACCEPTANCE OF OUR INTERNET CONTENT. Our future growth depends, in part,
upon our ability to deliver original and compelling services in order to attract
users valuable to our advertising clients. We cannot assure that our content
will be attractive to a sufficient number of Internet users to generate material
advertising revenues. We cannot assure you that we will be able to anticipate,
monitor and successfully respond to rapidly changing consumer tastes and
preferences so as to attract a sufficient number of users to our Web sites.
Internet users can freely navigate and instantly switch among a large number of
Web sites, many of which offer original content, making it difficult for us to
distinguish our content and attract users. In addition, many other Web sites
offer very specific, highly targeted content that could have greater appeal than
our sites to particular subsets of our target audience.
STRONG COMPETITION AND LOW BARRIERS TO ENTRY TO OUR BUSINESS. The markets
for our services are highly competitive and 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 and executive search firms. In
addition, with respect to new media, such as the Internet, many advertising
agencies and publications have started either to internally develop or acquire
new media capabilities. Some established companies that provide integrated
specialized services (such as advertising services or Web site design) and that
are technologically proficient, especially in the new media, are also competing
with us. 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 have. In addition, our
ability to maintain our existing clients and attract new clients depends to a
significant degree on the quality of our services and our reputation.
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
those offered by us, which could have a material adverse effect on our business,
financial condition and operating results.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND OUR BUSINESS IS CYCLICAL AND
SEASONAL. Our quarterly operating results have fluctuated in the past and may
fluctuate in the future as a result of factors including the timing of
acquisitions. In addition, 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
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yellow page publishers for achieving a specified volume of advertising, which
commissions are typically reported in the fourth quarter, also affect the
cyclicality of our quarterly results. Our quarterly commissions and fees earned
from recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter. For the year ended December 31, 1998, our
commissions and fees from recruitment advertising, excluding search and
selection which traditionally had been included therein, were 41.1% of the
Company's total commissions and fees (40.5% of total revenue on a pro forma
basis, giving effect to the Transaction). Recruitment advertising commissions
and fees tend to be more cyclical than yellow page commissions and fees, and
therefore, to the extent that a large part of our commissions and fees are
derived from recruitment advertising, our operating results may be subject to
increased cyclicality.
TECHNOLOGICAL RISKS. 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 require us to continually
improve the performance, features and reliability of our Internet content,
particularly 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 substantial expenditures by us to modify
or adapt our Web sites and services and could affect our financial condition or
operating results. In addition, new Internet services or enhancements which are
or may be offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of client confidence, either of
which would have a material adverse effect on our business, financial condition
or operating results. Any distruption in Internet access, or in the Internet
generally, could affect our financial condition or operating results.
WE ARE DEPENDENT ON ATTRACTING AND RETAINING QUALIFIED CONSULTANTS. The
success of our executive search business depends upon our ability to attract and
retain consultants who possess the skills, contacts and experience necessary to
fulfill our clients' executive search needs. Competition for qualified
consultants is intense. We believe that we have been able to attract and retain
highly qualified, effective consultants as a result our reputation, and
performance-based compensation system. Consultants have the potential to earn
substantial bonuses based on the amount of revenue generated by obtaining
executive search assignments, executing search assignments and by assisting
other consultants to obtain or complete executive search assignments. Bonuses
represent a significant proportion of our consultants' total compensation. Any
diminution of our reputation could impair our ability to retain existing or
attract additional qualified consultants. Any such inability to attract and
retain qualified consultants could have a material adverse effect on our
executive search business, results of operations and financial condition.
RISK OF LOSING CLIENT RELATIONSHIPS. Our 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 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.
Although client portability historically has not caused significant problems for
us, the failure to retain our most effective consultants or maintain the quality
of service to which our clients are accustomed, and 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.
MAINTENANCE OF PROFESSIONAL REPUTATION AND BRAND NAME. Our ability to
secure new executive search engagements and hire qualified professionals is
highly dependent upon our overall reputation and brand name recognition, as well
as the individual reputations of our professionals. Because we obtain a majority
of our new engagements from existing clients, or from referrals by those
clients, the dissatisfaction of any such client could have a disproportionate,
adverse impact on our ability to secure new engagements. Any
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factor that diminishes our reputation, including poor performance, could make it
substantially more difficult for us to compete successfully for both new
engagements and qualified consultants, and could have an adverse effect on our
executive search business, results of operations and financial condition.
INABILITY TO SOLICIT POTENTIAL RECRUITS. 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 (a "blocking"
arrangement). Blocking arrangements generally remain in effect for one or two
years following completion of an assignment. However, the duration and scope of
the blocking arrangement or "off limits" period, 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 our
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 such a
client or awareness by a client's competitors of such an arrangement may make it
difficult for us 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
our ability to attract and serve new clients, which could have an adverse effect
on our executive search business, results of operations and financial condition.
WE ARE DEPENDENT ON KEY PERSONNEL. Our continued success will depend to a
significant extent upon our senior management, including Andrew J. McKelvey, our
Chairman of the Board and CEO. The loss of the services 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. In the event of the loss of any such
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 ONE STOCKHOLDER. Andrew J. McKelvey, as of March 22,
1999, beneficially owned all of the outstanding TMP Class B Common Stock and
10,945,004 shares of our Common Stock which together represent approximately
60.9% of the combined voting power of all classes of voting stock. Mr. McKelvey
is, therefore, able to direct the election of all of the members of our Board of
Directors and exercise a controlling influence over the business and affairs,
including any determinations with respect to mergers or other business
combinations, the acquisition or disposition of assets, the incurrence of
indebtedness, the issuance of any additional Common Stock or other equity
securities and the payment of dividends with respect to the Common Stock.
Similarly, Mr. McKelvey has the power to determine matters submitted to a vote
of the Company's stockholders without the consent of our other stockholders and
has the power to prevent a change of control of the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW. Our Board of Directors has the authority to issue up to
800,000 shares of undesignated preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting and
conversion rights of such shares, without any further vote or action by our
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock. We have no current plans to issue shares of
preferred stock. Further, certain provisions of our Certificate of Incorporation
and Bylaws and of Delaware law could delay, prevent or make more difficult a
merger, tender offer or
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proxy content involving us. Among other things, these provisions specify advance
notice requirements for stockholder proposals and director nominations.
FOREIGN OPERATIONS AND RELATED RISKS. We conduct operations in various
foreign countries, including Australia, Belgium, Canada, France, Germany, Japan,
the Netherlands, New Zealand, Singapore, Spain and the United Kingdom. For the
year ended December 31, 1998, approximately 38% of our commissions and fees were
earned outside of the U.S. and collected in local currency. Giving pro forma
effect to the merger with M&B, approximately 60% of our revenue would have been
earned outside the U.S. for the year ended December 31, 1998. In addition, we
generally pay operating expenses in the corresponding local currency and will be
subject to increased 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 U.S. and
foreign withholding taxes. Applicable tax rates in foreign jurisdictions differ
from those of the U.S., and are subject to periodic change. The extent, if any,
to which we will receive credit in the U.S. for taxes paid in foreign
jurisdictions will depend upon the application of limitations set forth in the
Code, as well as the provisions of any tax treaties which may exist between the
U.S. and such foreign jurisdictions.
POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as our announcements 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 our Common Stock to fluctuate significantly. Further, due to the volatility
of the stock market generally, the price of our Common Stock could fluctuate for
reasons unrelated to our operating performance.
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 (the "FTC Act") which regulate advertising in
all media, including the Internet, and require advertisers and advertising
agencies to have substantiation for advertising claims before disseminating
advertisements. The FTC Act prohibits the dissemination of false, deceptive,
misleading, and unfair advertising, and grants the Federal Trade Commission
("FTC") enforcement powers to impose and seek civil penalties, consumer redress,
injunctive relief and other remedies upon advertisers and advertising agencies
which disseminate prohibited advertisements. Advertising agencies such as TMP
are subject to liability under the FTC Act if the agency actively participates
in creating the advertisement, and knew or had reason to know that the
advertising was false or deceptive.
In the event that any advertising created by us was 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.
Further, 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 cause a material adverse effect on our business, financial condition
or operating results.
NO DIVIDENDS. We currently intend to retain earnings, if any, to support
our growth strategy and do not anticipate paying dividends on our stock in the
foreseeable future. Payment of dividends on our stock is also restricted by our
financing agreement.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Andrew J. McKelvey........................ 64 Chairman of the Board, CEO and Director
Thomas G. Collison........................ 59 Vice Chairman and Secretary
James J. Treacy........................... 41 Chief Operating Officer, Executive Vice President and Director
Paul M. Camara............................ 51 Executive Vice President--Creative/Sales/Marketing
Jeffrey C. Taylor......................... 38 Executive Vice President--Interactive
George R. Eisele.......................... 62 Executive Vice President of TMP Worldwide Direct and Director
Karen L. MacPherson....................... 44 Executive Vice President--Recruitment Division
Stuart J. McKelvey........................ 32 Senior Vice President--Yellow Page Division
Roxane Previty............................ 39 Chief Financial Officer
Myron F. Olesnyckyj....................... 37 Vice President--General Counsel
</TABLE>
Andrew J. McKelvey founded the Company in 1967, and has served as Chairman
of the Board and CEO since that time. Mr. McKelvey has a B.A. from Westminster
College. Mr. McKelvey was a member of the Board of Directors of the Yellow Pages
Publishers Association and the Association of Directory Marketing from 1994
through September 1996. Andrew J. McKelvey is the father of Stuart J. McKelvey.
Thomas G. Collison joined the Company in February 1977 as Controller.
Subsequently, he was named Vice President--Finance; Senior Vice President;
Executive Vice President and Chief Financial Officer and, in March 1996, Vice
Chairman. Mr. Collison received a B.S. from Fordham University.
James J. Treacy joined the Company in June 1994 as chief executive officer
of the recruitment division. In April 1996, Mr. Treacy was named Executive Vice
President--Finance and Strategy. In February 1998, Mr. Treacy, in addition to
his then current position, was named to the position of Chief Operating Officer.
In September, 1998, Mr. Treacy was named a director. Prior to joining the
Company, Mr. Treacy was Senior Vice President--Western Hemisphere Treasurer for
the WPP Group USA, Inc. Prior thereto, Mr. Treacy was a corporate officer of The
Ogilvy Group Inc. Mr. Treacy received a B.B.A. from Siena College and an M.B.A.
from St. John's University.
Paul M. Camara joined the Company in February 1970. Mr. Camara was elected
as a Vice President of the Company in 1978 and as a Senior Vice President in
1987. He was named to his current position in April 1996. Mr. Camara received a
B.A. from the University of Massachusetts--Dartmouth.
Jeffrey C. Taylor joined the Company in November 1995. Mr. Taylor was
founder and president of Adion, Inc., a recruitment advertising firm, from May
1989 until its purchase by the Company in November 1995. Mr. Taylor founded The
Monster Board-Registered Trademark- in April 1994. He attended the University of
Massachusetts.
George R. Eisele joined the Company in 1976, and has been Executive Vice
President of TMP Worldwide Direct, the Company's direct marketing division,
since 1989, and a director of the Company since September 1987.
Karen L. MacPherson joined the Company in August 1994 in connection with its
acquisition of CALA H.R.C. Ltd, (Canada), where she was employed. From August
1994 until May 1996 she served as chief executive officer of the Company's
Canadian recruitment division, and from June 1996 through February 1998 she
served as chief executive officer of the Company's Australian recruitment
division. She was named to her current position in February 1998. Ms. MacPherson
holds a B.A. from the University of Prince Edward Island.
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Stuart J. McKelvey joined The Monster Board-Registered Trademark- as a
project manager in March 1996 and became a senior project manager in October
1996. He was named to his current position in March 1998. Mr. McKelvey holds a
B.A. from Stetson University. Stuart J. McKelvey is the son of Andrew J.
McKelvey.
Roxane Previty joined the Company in November 1994. Ms. Previty was employed
by WPP Group USA, Inc. in various capacities from June 1987 until October 1994.
Ms. Previty holds a B.A. from Stanford University and an M.B.A. from Harvard
Business School.
Myron F. Olesnyckyj joined the Company in June 1994. From September 1986
through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P.
and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown
University's School of Foreign Service and a J.D. from the University of
Pennsylvania Law School.
ITEM 2. PROPERTIES
Substantially all of our offices are located in leased premises.
Our principal office is located at 1633 Broadway, New York, New York, where
we occupy approximately 44,000 square feet of space under a lease expiring in
June 2004. Monthly payments under the lease currently are approximately $108,000
and escalate during the term of the lease.
We also have leases covering local offices throughout the United States and
in the foreign countries where we have operations.
All leased space is considered to be adequate for the operation of our
business, and no difficulties are foreseen in meeting any future space
requirements.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings that are incidental to the
conduct of our business. We are not involved in any pending or threatened legal
proceedings which we believe could reasonably be expected to have a material
adverse effect on our financial condition or results of operations.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of termination. Since the time of filing, one
of the named plaintiffs and the second cause of action for failure to pay
accrued but unused vacation and personal days have been dismissed with
prejudice. In addition, although the plaintiffs purport to represent a class of
450 former and current employees who are similarly situated, discovery has
indicated the purported class to include closer to 100 members. The Company
intends to continue to vigorously defend the overtime claim and continues to
deny all allegations as it did in its answer to the complaint filed on March 18,
1998. Management presently believes that the disposition of these claims will
not have a material adverse effect on the Company's financial position,
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TMPW." The following table sets forth for the periods indicated the high and
low reported sale prices per share for the Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.................................................................................. $ 32.62 $ 21.62
Second Quarter................................................................................. $ 34.88 $ 24.75
Third Quarter.................................................................................. $ 39.19 $ 27.88
Fourth Quarter................................................................................. $ 42.00 $ 20.50
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Fourth Quarter (Commencing December 12, 1996).................................................. $ 14.25 $ 12.50
</TABLE>
The number of stockholders of record of Common Stock on March 22, 1999 was
498. On March 22, 1999, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $63.50.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future; it intends to retain its earnings to finance the expansion of its
business and for general corporate purposes. Any payment of dividends will be at
the discretion of the Company's Board of Directors and will depend upon the
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to payment of dividends and other factors.
The Company's revolving credit agreement restricts the payment of dividends
without the prior written consent of the lenders.
ISSUANCE OF UNREGISTERED SECURITIES
On April 28, 1998, the Company issued to each of Herbert Fossler and Rosita
Fossler, 26,994 shares of the Company's Common Stock pursuant to Regulation S
promulgated under the Securities Act of 1933 ("Regulation S"). Such issuance
constitutes a portion of the total purchase price which the Company paid for all
the outstanding securities of Fossler & Partner, M-Page and ConServe.
On November 2, 1998, the Company issued 309,702 unregistered shares of the
Company's Common Stock to the stockholders of SunQuest, LLC d/b/a The SMART
Group as consideration for the Company's acquisition of The SMART Group.
On December 2, 1998, the Company issued an aggregate of 246,606 shares of
the Company's Common Stock to Peter W. Evans and Suzanne Evans pursuant to
Regulation S. Such issuance constituted the total purchase price which the
Company paid for all of the outstanding securities of TCG.
18
<PAGE>
On December 17, 1998, the Company issued 53,728 shares of the Company's
Common Stock to Klaus Schmah pursuant to Regulation S. Such issuance constituted
a portion of the total purchase price which the Company paid for all of the
outstanding securities of Bonde & Schmah Media GmbH, a/k/a Bonde & Schmah Human
Resources Services GmbH.
On December 18, 1998, the Company issued 84,612 shares of the Company's
Common Stock to Joachim Staude pursuant to Regulation S. Such issuance
constituted a portion of the total purchase price which the Company paid for all
of the outstanding securities of PMM Management Consultants GmbH.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees...................................... $ 406,769 $ 319,535 $ 227,695 $ 186,745 $ 143,152
Operating expenses:
Salaries and related costs.............................. 223,773 179,370 126,464 102,078 86,727
Office and general...................................... 126,835 102,547 75,078 57,976 41,680
Merger costs............................................ 21,526 -- -- -- --
Amortization of intangibles............................. 8,922 6,284 4,440 3,237 3,264
Special compensation and CEO bonus(1)................... 1,250 1,500 52,019 -- --
Total operating expenses.................................. 382,306 289,701 258,001 163,291 131,671
Operating income (loss)................................... 24,463 29,834 (30,306) 23,454 11,481
Other income (expense):
Interest expense, net(2):............................... (10,415) (8,687) (14,132) (10,615) (8,824)
Other, net.............................................. (926) (202) (683) (1,054) (1,674)
Income (loss) before provision for income taxes, minority
interests and equity in earnings (losses) of
affiliates.............................................. 13,122 20,945 (45,121) 11,785 983
Provision for income taxes................................ 8,476 9,969 4,183 5,240 716
Net income (loss) applicable to common and Class B common
stockholders............................................ 4,250 10,677 (49,834) 5,621 (245)
Net income (loss) per common and Class B common share:
Basic................................................... $ .14 $ .38 $ (2.17) $ .25 $ (.01)
Diluted................................................. $ .14 $ .38 $ (2.17) $ .24 $ (.01)
Weighted average shares outstanding:
Basic................................................... 29,834 27,884 22,940 22,706 22,706
Diluted................................................. 30,673 28,376 22,940 23,157 22,706
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross Billings:
Recruitment advertising............................. $ 794,234 $ 604,420 $ 342,379 $ 195,178 $ 78,142
Yellow page advertising............................. 485,205 469,342 443,594 435,283 367,599
Search & selection.................................. 92,604 76,533 53,353 53,953 49,258
Internet(3)......................................... 54,269 19,640 6,659 392 --
------------ ------------ ---------- ---------- ----------
Total Gross Billings.................................. $ 1,426,312 $ 1,169,935 $ 845,985 $ 684,806 $ 494,999
------------ ------------ ---------- ---------- ----------
------------ ------------ ---------- ---------- ----------
Total operating expenses as a percentage of
commissions and fees................................ 94.0% 90.7% 113.3% 87.4% 92.0%
Number of employees................................... 4,108 3,813 2,389 1,759 1,483
Number of offices..................................... 178 152 107 78 56
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................................ $ 343,356 $ 325,784 $ 248,580 $ 212,776 $ 163,235
Current liabilities................................... 359,517 318,918 255,868 213,523 170,355
Total assets.......................................... 608,059 542,675 373,642 295,926 230,915
Long-term liabilities................................. 125,214 118,513 71,916 89,309 72,836
Minority interests.................................... -- -- 3,082 3,105 3,153
Redeemable preferred stock............................ -- -- 2,000 2,000 2,000
Total stockholders' equity (deficit).................. 123,328 105,244 40,776 (12,011) (17,429)
</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 the Company to stockholders of predecessor companies of the Company
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 the Company 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 consist of a mandatory bonus of $375
thousand per quarter payable to Andrew J. McKelvey, the Company's CEO and
Principal Stockholder, as provided for in the Principal Stockholder's 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 Note 14(B) to the
Company's Consolidated Financial Statements included elsewhere 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 the
Company'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 the
Company's Consolidated Financial Statements included elsewhere herein.
(3) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, expenses or other financial items and statements
concerning assumptions made or exceptions as to any future events, conditions,
performance or other matters are "forward-looking statements" as that term is
defined under the federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which would cause actual
results to differ materially from those stated in such statements. (Please see
"Business Risk Factors" for more information).
OVERVIEW
A substantial part of our growth has been achieved through acquisitions. For
the period January 1, 1998 through December 31, 1998, the Company completed 19
acquisitions of which six, Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding
AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest
L.L.C. d.b.a. The SMART Group, and The Consulting Group (International) Limited
("TCG"), (the "Pooled Companies") are being accounted for as poolings of
interests. Approximately 3.6 million shares of our common stock were issued in
exchange for all of the outstanding common stock of the Pooled Companies (the
"1998 Mergers") and our consolidated financial statements have been
retroactively restated to reflect the consummation of the 1998 Mergers and, as a
result, the financial position, results of operations and cash flows are
presented as if the Pooled Companies had been consolidated for all periods
presented. In addition, for the period January 1, 1996 through December 31,
1998, we completed 39 acquisitions, which were accounted for using the purchase
method, with estimated annual gross billings of approximately $582 million.
Given the significant number of acquisitions in each of the periods presented,
the results of operations from period to period may not necessarily be
comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services and fees earned for search and selection and related services
and revenue from temporary contracting services. While gross billings are not
included in our consolidated financial statements, the trends in gross billings
directly impact the total revenue earned. For recruitment and yellow page
advertising, we earn commissions based on a percentage of the media advertising
purchased at a rate established by the related publisher, and associated fees
for related services. Publishers typically bill us for the advertising purchased
by clients and we in turn bill our clients for this amount. Generally, the
payment terms with yellow page clients require payment to us prior to the date
payment is due to publishers. The payment terms with recruitment advertising
clients typically require payment when payment is due to publishers.
Historically, we have not experienced substantial problems with unpaid accounts.
We design and execute yellow page advertising programs, receiving an
effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. We typically recognize this additional commission, if any, in the
fourth quarter when it is certain that such commission has been earned. The
amounts reported in the fourth quarters of 1998, 1997 and 1996 were $0.9
million, $2.0 million and $3.5 million, respectively. For recruitment
advertising placements in the U.S., publisher commissions average 15% of
recruitment advertising gross billings. We also earn fees from value-added
services such as design, research and other creative and administrative
services. Outside of the U.S., where, collectively, we derive the majority of
our recruitment advertising commissions and fees, our commission rates for
recruitment advertising vary, ranging from approximately 10% in Australia to 15%
in Canada and the United Kingdom. Based on our consolidated results for the
years ended December 31, 1998, 1997 and 1996, 60%, 59%, and 52%, respectively,
of our recruitment commission fees were attributable to clients
21
<PAGE>
outside the U.S. We also earn fees for recruitment advertisements and related
services on our career oriented Web sites on the Internet.
Through our search & selection services, we identify and screen candidates
for hiring by clients based on criteria established by such clients. We entered
this business by acquiring in 1998, JSK, the 12th largest executive search firm
in the U.S. according to Kennedy Publications, an official ranking service for
the search industry, TASA, an international executive search firm, both of which
were recorded as poolings of interest, and five regional European firms,
including, TCG, which acquisition was recorded as a pooling of interests.
Primarily as a result of acquisitions which are included in the financial
statements using the purchase method of accounting from their respective dates
of acquisitions made from January 1, 1996 through December 31, 1998, our total
revenue increased from $227.7 million in 1996 to $406.8 million in 1998. We are
continuously monitoring the marketplace for opportunities to expand our presence
in both yellow page and recruitment advertising, which include Internet-related
opportunities, and intend to continue our acquisition strategy to supplement our
internal growth and the expansion of our Internet business.
Our operating expenses have increased significantly since 1996 primarily as
a result of acquisitions and hiring to support gross billings growth and
expansion of our Internet business.
Salaries and related costs increased $97.3 million to $223.8 million for the
year ended December 31, 1998 from $126.5 million for the year ended December 31,
1996, a 76.9% increase, supporting a $580.3 million or a 68.6% increase in gross
billings over the same period. When measured as a percent of billings, salaries
and related costs for the year ended December 31, 1998 were 15.7%, up slightly
from 14.9% for the comparable 1996 period. Salaries and related costs include
total payroll and associated benefits as well as payroll taxes, sales
commissions, recruitment fees and training costs.
Office and general expenses increased $51.7 million to $126.8 million for
the year ended December 31, 1998 from $75.1 million for the year ended December
31, 1996, a 68.9% increase, primarily due to increased costs needed to support
the increased gross billings and the expansion of recruitment offices through
acquisitions in the U.S. and foreign markets and marketing costs to promote the
growth of our Internet business. When measured as a percent of gross billings,
office and general costs for the year ended December 31, 1998 were 8.9%, flat
from 8.9% for the comparable 1996 period. This cost category includes expenses
for office operations, business promotion, market research, advertising,
professional fees and fees paid to our primary lending institution for its
services in the processing and collection of payments for accounts receivable.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
businesses acquired and capitalized costs for non-compete arrangements with the
principals of acquired companies. This acquisition related amortization was $8.9
million, $6.3 million and $4.4 million for the years ended December 31, 1998,
1997 and 1996, respectively.
The CEO bonus for the years ended December 31, 1998 and 1997 of $1.3 and
$1.5 million reflects a non-cash charge, recorded in compliance with Staff
Accounting Bulletin No. 79 ("SAB 79"), for a bonus mandated by the Principal
Stockholder's employment contract, even though such bonus was irrevocably
waived. The contractual obligation to pay such bonus was eliminated as of
November 1998. Special compensation for the year ended December 31, 1996,
reflects a non-cash, non-recurring charge of approximately $52.0 million
resulting from the issuance of approximately 3.6 million shares of our common
stock to stockholders of our predecessor companies in exchange for their shares
in those companies. This charge was incurred because these stockholders had
received such shares for nominal or no consideration as employees or as
management of such companies and, accordingly, were not considered to have made
substantive investments for their shares.
22
<PAGE>
Net interest expense includes interest: (i) on loans made by our primary
lender under our financing agreement with such lender, (ii) to certain vendors,
(iii) on capitalized lease obligations, (iv) on net amounts payable to the
holders of seller financed notes and (v) on a term loan related to the purchase
of certain transportation equipment. In addition, 1996 net interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with our financing agreement, the
difference between the value of the stock issued at the initial public offering
price of $14.00 per share and the value recorded for the warrant when it was
originally issued.
RESULTS OF OPERATIONS
The following table sets forth our gross billings, commissions and fees,
commissions and fees as a percentage of gross billings and our EBITDA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
(IN THOUSANDS)
GROSS BILLINGS:
Recruitment advertising................................................ $ 794,234 $ 604,420 $ 342,379
Yellow page advertising................................................ 485,205 469,342 443,594
Search & selection..................................................... 92,604 76,533 53,353
Internet(1)............................................................ 54,269 19,640 6,659
------------ ------------ ----------
Total.................................................................. $ 1,426,312 $ 1,169,935 $ 845,985
------------ ------------ ----------
------------ ------------ ----------
COMMISSIONS AND FEES:
Recruitment advertising................................................ $ 167,234 $ 127,211 $ 71,741
Yellow page advertising................................................ 99,384 98,007 95,942
Search & selection..................................................... 91,635 75,716 53,353
Internet(1)............................................................ 48,516 18,601 6,659
------------ ------------ ----------
Total.................................................................. $ 406,769 $ 319,535 $ 227,695
------------ ------------ ----------
------------ ------------ ----------
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS:
Recruitment advertising................................................ 21.1% 21.0% 21.0%
Yellow page advertising................................................ 20.5% 20.9% 21.6%
Search & selection..................................................... 99.0% 98.9% 100.0%
Internet(1)............................................................ 89.4% 94.7% 100.0%
Total.................................................................. 28.5% 27.3% 26.9%
EBITDA(2).............................................................. $ 48,936 $ 44,667 $ (21,328)
Cash provided by operating activities.................................. $ 59,040 $ 20,651 $ 11,689
Cash used in investing activities...................................... $ (45,850) $ (76,060) $ (31,071)
Cash provided by (used in) financing activities........................ $ (1,682) $ 58,478 $ 18,772
</TABLE>
- ------------------------
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about our ability to
meet our future debt service, capital expenditures and working capital
requirements and is one of the measures which determines our ability to
borrow under our 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
23
<PAGE>
prepared in accordance with generally accepted accounting principles or as a
measure of our profitability or liquidity. EBITDA for the indicated periods
is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
EBITDA CALCULATION 1998 1997 1996
- --------------------------------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Net income (loss).......................................................... $ 4,250 $ 10,800 $ (49,624)
Interest, net............................................................ 10,415 8,687 14,132
Income tax expense....................................................... 8,476 9,969 4,183
Depreciation and amortization............................................ 25,795 15,211 9,981
--------- --------- ----------
EBITDA..................................................................... $ 48,936 $ 44,667 $ (21,328)
--------- --------- ----------
--------- --------- ----------
</TABLE>
THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,426.3 million, a
net increase of $256.4 million or 21.9% from $1,169.9 million for the year ended
December 31, 1997. This increase in gross billings resulted primarily from
acquisitions in recruitment advertising. Commissions and fees for the year ended
December 31, 1998 were $406.8 million, an increase of $87.3 million or 27.3%
from $319.5 million for the year ended December 31, 1997. Recruitment
commissions and fees were $167.2 million for the year ended December 31, 1998
compared with $127.2 million for the year ended December 31, 1997, an increase
of $40.0 million or 31.5%. This increase was primarily due to acquisitions which
contributed approximately $38.6 million and approximately $4.1 million from
increased client spending and new clients, partially offset by client losses and
a decrease from foreign currency exchange fluctuations with a negative effect of
approximately $2.9 million. Yellow page commissions and fees were $99.4 million
for the year ended December 31, 1998 compared with $98.0 million for the year
ended December 31, 1997, an increase of 1.4% or $1.4 million. All of the
increase was due to acquisitions. Search & selection fees were $91.6 million
compared with $75.7 million for the year ended December 31, 1997, an increase of
$15.9 million or 21.0%, due primarily to increased business from existing
clients and new clients in executive search. Internet commissions and fees
increased 160.8% or $29.9 million to $48.5 million for the year ended December
31, 1998 from $18.6 million for the year ended December 31, 1997 due to an
increasing acceptance of our Internet products from existing and new clients,
the benefits of "co-branding" marketing efforts with other Internet content
providers and increased sales and marketing activities.
Operating expenses for the year ended December 31, 1998 were $382.3 million,
compared with $289.7 million for the same period in 1997. The increase of $92.6
million or 32.0% reflects acquisition activity, including $21.5 million for
merger costs, and costs related to the internal growth of our businesses.
Six of the acquisitions completed by us in the year ended December 31, 1998,
are being accounted for as poolings-of-interests. (See Notes 1 and 5 to the
Company's Consolidated Financial Statements included elsewhere herein.) In
connection with these six acquisitions, we expensed merger related costs of
$21.5 million for the year ended December 31, 1998, consisting of (1) $11.9
million of non-cash employee stay bonuses, which included (a) $3.6 million for
the amortization of a $6.0 million charge being expensed over the eighteen
months from April 1, 1998 to September 30, 1999 for TMP shares set aside for key
personnel of JSK and TCG who must remain employees for a full year in order to
earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA
and Stackig as employee stay bonuses, (2) $1.5 million of stay bonuses paid as
cash to key personnel of the Pooled Companies and (3) $8.1 million of
transaction related costs, including legal, accounting and advisory fees and the
costs incurred for the subsequent registration of shares issued in the
acquisitions. The after tax effect of this charge is $15.8 million or $.51 per
diluted share.
Salaries and related costs for the year ended December 31, 1998 were $223.8
million, a $44.4 million or 24.8% increase over the $179.4 million for the year
ended December 31, 1997, due primarily to
24
<PAGE>
acquisitions and growth in search & selection fees. The ratio of salaries and
related costs for the year ended December 31, 1998 to commissions and fees was
55.0% compared with 56.1% ratio for the year ended December 31, 1997, due
primarily to higher Internet commissions and fees.
Office and general costs were $126.8 million for the year ended December 31,
1998, a $24.3 million or 23.7% increase over the $102.5 million for the year
ended December 31, 1997, due primarily to acquisitions and expenditures to grow
our Internet business. However, office and general expenses as a percentage of
commissions and fees declined to 31.2% for the year ended December 31, 1998 from
32.1% in the prior year period, due primarily to higher Internet commissions and
fees.
Amortization of intangibles was $8.9 million for the year ended December 31,
1998 compared to $6.3 million for the year ended December 31, 1997. The increase
is due to our continued growth through acquisitions. As a percentage of
commissions and fees, amortization of intangibles was 2.2% and 2.0% for the
years ended December 31, 1998 and 1997, respectively.
As a result of the above, operating income for the year ended December 31,
1998 decreased $5.4 million or 18.0% to $24.5 million from $29.8 million for the
comparable period last year.
Net interest expense for the year ended December 31, 1998 was $10.4 million,
an increase of $1.7 million or 19.9% over the $8.7 million for the comparable
period in 1997, reflecting a net increase in debt resulting from acquisitions
and capital expenditures.
Taxes on income for the year ended December 31, 1998 were $8.5 million on a
pretax profit of $13.1 million, for an effective tax rate of 64.6%. This
compares with taxes of $10.0 million for the same period last year on a pretax
profit of $20.9 million, for an effective tax rate of 47.6%. The higher
effective tax rate primarily reflects the non-deductibility of certain costs
associated with the acquisitions of the Pooled Companies.
For the year ended December 31, 1998, equity in losses of affiliates was
$396,000, reflecting losses at our minority owned real estate advertising
affiliate, as compared with a $33,000 loss for the same period in 1997. Minority
interests in consolidated earnings for the year ended December 31, 1997 were
$143,000 and preferred dividends for the year ended December 31, 1997 were
$123,000. There were no such items in 1998 because the underlying instruments
were redeemed in 1997.
As a result of all of the above, net income available to common and Class B
common stockholders for the year ended December 31, 1998 was $4.3 million, a
decrease of $6.4 million or 60.2% over the $10.7 million for the year ended
December 31, 1997. Per diluted share, earnings for the year ended December 31,
1998 was $.14, a decrease of $.24 or 63.2% over $.38 for the year ended December
31, 1997.
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1.2 billion, a
$324.0 million or 38.3% increase when compared to gross billings for the year
ended December 31, 1996. The growth is primarily due to acquisitions in
recruitment advertising, rate increases in yellow page advertising and increased
clients and higher client spending for search & selection and Internet.
Commissions and fees increased to $319.5 million for the year ended December 31,
1997 from $227.7 million for the year ended December 31, 1996, an increase of
40.3%. This reflects increases, as compared to the prior year period, in
commissions and fees for (a) recruitment advertising of $55.5 million or 77.3%,
(b) search & selection of $22.4 million or 41.9%, (c) yellow page advertising of
$2.1 million or 2.2% and (d) Internet of $11.9 million or 179.3%. A substantial
portion of the increase in commissions and fees derived from recruitment
advertising was due to acquisitions, including $9.2 million from Austin Knight,
acquired August 1997, and the remainder was due to higher client spending and
new clients. The increase in commissions and fees for search & selection was due
primarily to increased client spending in the United States. The increase in
commissions and fees derived from yellow page advertising was due primarily to
increased rates by the yellow page publishers and an acquisition offset by lower
publisher incentives and the full year effect of accounts
25
<PAGE>
lost and resigned in 1996. Fees derived from Internet were generated from
placements of Internet advertising. The Internet revenue increase reflects the
continued customer acceptance of our Internet products both from our existing
clients as well as new clients and price increases on certain products.
Salaries and related costs increased $52.9 million or 41.8% to $179.4
million for the year ended December 31, 1997. As a percent of commissions and
fees, salaries and related costs increased to 56.1% for the year ended December
31, 1997 from 55.5% for the year ended December 31, 1996. This increase was
primarily due to additional staff required to service increased recruitment
advertising billings, increased sales staffing for Internet, and generally
higher salary and related costs as a percentage of commissions and fees for
search & selection operations, which increased 41.9% as stated above.
Office and general expenses increased $27.5 million to $102.5 million for
the year ended December 31, 1997. As a percent of commissions and fees, office
and general expenses decreased to 32.1% for the year ended December 31, 1997
from 33.0% for the year ended December 31, 1996. This decrease was primarily due
to consolidation of offices, which slowed the growth of office related expenses,
increased growth in recruitment advertising commissions and fees combined with
the relatively fixed nature of some of these expenses and generally lower office
and general expenses as a percentage of commissions and fees for search &
selection operations.
Amortization of intangibles was $6.3 million for the year ended December 31,
1997 compared to $4.4 million for the year ended December 31, 1996. The increase
is due to our continued growth through acquisitions. As a percentage of
commissions and fees, amortization of intangibles was 2.0% for both the years
ended December 31, 1997 and 1996.
For 1996, special compensation of $52.0 million consists of a non-cash,
non-recurring charge that reflects the value of shares issued in connection with
the acquisition of the minority interests in our predecessors because the
stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for the our Common Stock.
Operating income increased $60.1 million to $29.8 million for the year ended
December 31, 1997 as compared with an operating loss of $(30.3) million for the
year ended December 31, 1996. The increase was primarily due to the 1996
non-recurring special compensation charge and increased recruitment advertising
commissions and fees and Internet billings. As a percent of commissions and
fees, operating income was 9.3% for the year ended December 31, 1997 as compared
to a loss of 13.3% for the year ended December 31, 1996. The lower percent for
1996 was primarily due to the 1996 non-recurring special compensation charge,
expenses related to the introduction of its Internet business, and costs in
connection with the consolidation of the recruitment advertising acquisitions.
Net interest expense decreased $5.4 million to $8.7 million for the year
ended December 31, 1997 as compared to $14.1 million for the year ended December
31, 1996. This decrease in interest expense is due primarily to the repayment of
a portion of the debt with the net cash proceeds of our initial public and
secondary offerings. In addition, in 1996 there was a $2.6 million non-cash,
non-recurring charge to reflect, upon exercise of a warrant issued in connection
with our financing agreement, the value of the stock issued at our initial
public offering price of $14.00 per share and the value recorded for the warrant
when it was originally issued. Our effective interest rate was 10.4% for the
year ended December 31, 1997 compared with 13.9% for the year ended December 31,
1996.
Taxes on income increased $5.8 million to $10.0 million for the year ended
December 31, 1997 from $4.2 million for the year ended December 31, 1996
primarily due to higher pre-tax income. The effective tax rate for the year
ended December 31, 1997 was 47.6% compared with (9.3)% for the year ended
December 31, 1996. The effective tax rate for 1997 is higher than the U.S.
Federal statutory rate of 34.0% primarily due to nondeductible expenses of
approximately $2.9 million and state taxes of $1.1 million. The effective tax
rate for 1996 reflects nondeductible special compensation of $52.0 million and
interest
26
<PAGE>
expense of $2.6 million, as described above, nondeductible expenses of
approximately $1.7 million and state taxes of $.4 million as well as our
inability to offset profits at certain subsidiaries with losses incurred by
others.
The net income applicable to common and Class B common stockholders was
$10.7 million for the year ended December 31, 1997, or $.38 per diluted share,
compared with a net loss of $49.8 million, or $(2.17) per diluted share, for the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions, (ii)
working capital, (iii) capital expenditures and (iv) advertising and development
of our Internet business. Our working capital requirements are generally higher
in the quarters ending March 31 and June 30 during which payments to the major
yellow page directory publishers are at their highest levels. We have met our
liquidity needs over the last three years through funds provided by operating
activities, equity offerings in 1997 and 1996, long-term borrowings in 1997 and
1996, capital leases and vendor financing in 1996. In December 1996, the Company
completed the initial public offering of an aggregate of 4,147,408 shares of
Common Stock at a purchase price of $14.00 per share in an underwritten public
offering managed by Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation and Ladenburg Thalmann & Co. Inc. In the initial
public offering, certain stockholders sold an additional aggregate of 652,592
shares of Common Stock. Our net proceeds from the initial public offering of
$50.8 million were used to repay debt and, in early 1997, to repay accounts
payable and to redeem preferred stock. In September 1997, we completed the
second public offering of an aggregate of 2,400,000 shares of Common Stock at a
purchase price of $23.00 per share in an underwritten public offering managed by
Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 1,600,000 shares of Common
Stock in such offering. Our net proceeds from this offering of $63.4 million,
including net repayment of borrowings of $12.2 million to us by certain
stockholders, were used to repay debt.
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $59.0 million, $20.7 million and $11.7 million,
respectively. The increase in cash from operating activities for 1998 over 1997
was primarily due to an increase in accounts payable, a $10.5 million increase
in depreciation and amortization costs and utilization of our common stock to
pay bonuses partially offset by decreases in net income and deferred income
taxes and increases in accounts receivable and work-in-process. In addition, in
1998 we paid approximately $10.6 million for restructuring. Such amount was
applied against a reserve set up during 1997 in connection with acquisitions
accounted for using the purchase method. This restructuring reserve totaled
$16.8 million as of December 31, 1997, was increased by $10.0 million during
1998, with a corresponding increase to intangible assets, and reduced by the
payments of $10.6 million leaving a restructuring reserve at December 31, 1998
of $16.2 million. (See Note 5 to the Company's Consolidated Financial Statements
included elsewhere herein.)
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $45.9 million, $76.1 million and $31.1 million, respectively.
During 1997, with funds received from their sale of shares included with our
second public offering, our principal stockholder and certain shareholders
repaid, net of amounts borrowed, $12.2 million to us. Payments for purchases of
business acquisitions decreased by $42.7 million from 1997 to 1998 as we
acquired more businesses through poolings. Capital expenditures, primarily for
computer equipment and furniture and fixtures were $21.7 million, $20.6 million
and $8.9 million for the years ended December 31, 1998, 1997 and 1996. In
addition, in 1997, we acquired certain transportation equipment and made capital
improvements for a total of $6.8 million, replacing the transportation equipment
sold during 1996 for $6.1 million and simultaneously entered into a $7.8 million
financing agreement to fund the purchase and provide additional operating funds.
In December 1996, we sold certain transportation equipment for $6.1 million
receiving a note for $2.7 million and retained $1.2
27
<PAGE>
million in cash, after payment of related debt. We estimate that expenditures
for computer equipment and software, furniture and fixtures and leasehold
improvement will be approximately $25.0 million for 1999.
EBITDA increased $4.2 million to $48.9 million for the year ended December
31, 1998 from $44.7 million for the year ended December 31, 1997. As a percent
of commissions and fees EBITDA decreased to 12.0% for the year ended December
31, 1998 as compared to 14.0% for the year ended December 31, 1997. The decrease
resulted primarily from the $17.9 million charge for merger costs ($21.5 million
less $3.6 million in amortization of deferred compensation), which was 4.4% of
total revenue for the year ended December 31, 1998. For the year ended December
31, 1997 EBITDA increased $66.0 million to $44.7 million from $(21.3) million
for the year ended December 31, 1996, and as a percent of total revenue
increased to 14.0% for the year ended December 31, 1997 as compared to (9.4)%
for the year ended December 31, 1996 due to a higher operating profit.
Our financing activities include equity offerings, borrowings and repayments
under our financing agreement and payments on (i) installment notes, principally
to finance acquisitions, and (ii) capital leases. In the fourth quarter of 1996,
we completed our initial public offering of 4,147,408 shares of Common Stock for
net proceeds of $50.8 million and in the third quarter of 1997, we completed our
second public offering of 2,400,000 shares of Common Stock for net proceeds of
$51.2 million. With a portion of the proceeds received from our initial public
offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and $2.1
million, respectively. Such redemptions included approximately $100,000 each of
premiums. Our financing activities used net cash of $(1.7) million and provided
net cash of $58.5 million and $18.8 million in 1998, 1997 and 1996,
respectively. In November, 1998 and 1997 we amended our financing agreement with
our primary lender to provide for borrowings up to $175 million under a
revolving credit facility. Such facility has been used to finance our
acquisitions and for working capital requirements. As of December 31, 1998,
there was $97.7 million outstanding under such facility. As of December 31, 1998
there was approximately $77.3 million available under such facility. Our current
interest rate under the agreement is LIBOR plus 87.5 basis points. In addition,
we have secured lines of credit aggregating $12.7 million for our operations in
Australia, France, Belgium and the Netherlands of which approximately $7.7
million was unused at December 31, 1998. We believe we will be able to fund our
short-term cash needs through funds from operations, our credit facilities in
the United States, the United Kingdom, Canada and Australia and, to a lesser
extent, equipment leases. The borrowings are secured by a lien on substantially
all of our assets. In addition, the financing agreement contains certain
covenants which restrict, among other things, our ability to borrow, pay
dividends, acquire businesses, guarantee debts of others and lend funds to
affiliated companies and contains criteria on the maintenance of certain
financial statement amounts and ratios.
Part of our acquisition strategy is to pay, over time, a portion of the
purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt, are generally payable
over five years and totaled $8.0 million at December 31, 1998.
We intend to continue our acquisition strategy and promotion of our Internet
activities through the use of operating profits, borrowings against our
long-term debt facility and seller financed notes. We believe that our
anticipated cash flow from operations, as well as the availability of funds
under its existing financing agreements and the net proceeds of our recent
secondary public offering and access to public equity and debt markets, will
provide us with liquidity to meet our current forseeable cash needs for at least
the next year. However, if we determine that conditions are favorable, we would
consider additional corporate finance transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for
28
<PAGE>
Internal Use" ("SOP 98-1"). SOP 98-1 is effective for financial statements for
years beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization of such
costs. We do not expect the adoption of this standard to have a material effect
on our capitalization policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have developed a comprehensive plan to deal with the Year 2000 issue. The
plan is an evolving document as we continue to acquire and integrate companies
throughout 1999. The plan is intended to achieve three basic objectives: to
ensure that core systems will operate reliably through the year 2000 and beyond;
to ensure that each business unit follows a consistent approach and adheres to
project deadlines; and to track the status of all Year 2000 efforts.
Our Year 2000 task force is currently conducting an inventory of and
developing testing procedures for all software and other systems that it
believes might be affected by Year 2000 issues. Since third parties developed
and currently support many of the systems used, a significant part of this
effort will be to ensure that these third-party systems are Year 2000 compliant.
Our plan is to confirm this compliance by obtaining representations by these
third parties that their products' are year 2000 compliant and through specific
testing of these systems. Our plan is to complete this process prior to the end
of the third quarter of 1999. Until such testing is completed and such vendors
and providers are contacted, we will not be able to completely evaluate whether
our systems will need to be revised or replaced.
COSTS
We expect to incur approximately $3.0 million, globally, during 1999 in
connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of these costs relate to time spent by employees and consultants in
making our systems Year 2000 compliant. Such costs, are not expected to have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will
29
<PAGE>
not need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could have a material adverse effect
on our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
We are heavily dependent on a significant number of third-party vendors to
provide both network services and equipment. A significant Year 2000-related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations.
In addition, we cannot assure you that governmental agencies, utility
companies, internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged internet, telecommunications or electrical failure, which
could also prevent us from delivering our services to our customers, decrease
the use of the internet or prevent users from accessing our Web sites which
could have a material adverse effect on our business, results of operations and
financial condition.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have not yet developed any contingency plans. The results of our Year 2000
simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions and fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Our quarterly commissions and fees
for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter; however, the cyclicality in the economy and our
clients' employment needs have an overriding impact on our quarterly results in
recruitment advertising. Moreover, our recruitment advertising acquisition
activity has had more of an impact on our recently reported quarterly results
than any other factor. (See Note 2 to the Company's Consolidated Financial
Statements included elsewhere herein.)
The following table sets forth summary quarterly unaudited financial
information for the years ended December 31, 1998 and 1997. Amounts have been
restated to reflect the effect of the retroactive
30
<PAGE>
restatement for business combinations completed in 1998, accounted for as
poolings-of-interests, and the change in accounting for a waived bonus to the
CEO/Principal Stockholder:
<TABLE>
<CAPTION>
1998 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Recruitment advertising..................................... $ 43.5 $ 43.2 $ 40.3 $ 40.2
Yellow page advertising..................................... 22.0 25.4 30.1 21.9
Search & selection.......................................... 22.0 23.8 22.7 23.1
Internet.................................................... 7.7 10.7 13.3 16.8
----------- ----------- ------ ------
Total commissions and fees.................................... $ 95.2 $ 103.1 $ 106.4 $ 102.0
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 7.9 $ 9.8 $ 8.0 $ (1.2)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 3.1 $ 3.5 $ 3.0 $ (5.3)
Net income (loss) per common and Class B common share:
Basic....................................................... $ 0.10 $ 0.12 $ 0.10 $ (0.18)
Diluted..................................................... $ 0.10 $ 0.11 $ 0.10 $ (0.18)
Weighted average shares outstanding (in thousands):
Basic....................................................... 29,747 29,798 29,820 29,862
Diluted..................................................... 30,769 30,564 30,688 29,862
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Recruitment advertising..................................... $ 24.6 $ 28.7 $ 33.4 $ 40.5
Yellow page advertising..................................... 20.3 23.5 29.2 25.0
Search & selection.......................................... 15.1 18.4 20.2 22.0
Internet.................................................... 3.8 4.4 4.7 5.7
----------- ----------- ------ ------
Total commissions and fees.................................... $ 63.8 $ 75.0 $ 87.5 $ 93.2
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 6.5 $ 7.1 $ 10.6 $ 5.6
Net income applicable to common and Class B common
stockholders................................................ $ 2.2 $ 2.6 $ 4.0 $ 1.9
Net income per common and Class B common share:
Basic....................................................... $ 0.08 $ 0.10 $ 0.14 $ 0.06
Diluted..................................................... $ 0.08 $ 0.10 $ 0.14 $ 0.06
Weighted average shares outstanding (in thousands):
Basic....................................................... 27,108 27,131 27,619 29,702
Diluted..................................................... 27,403 27,636 28,174 30,212
</TABLE>
Earnings per share calculations for each quarter include the weighted
average effect for the quarter; therefore, the sum of the quarters may not equal
the full year earnings per share amount, which reflects the weighted average
effect on an annual basis. In addition, diluted earnings per share calculations
for each quarter include the effect of stock options and warrants, when dilutive
to the quarter.
31
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
and exchange rate variability. Substantially all of the Company's debt relates
to a five-year financing agreement with an outstanding principal balance of
approximately $97.7 million as of December 31, 1998. Interest on the outstanding
balance is charged based on a variable interest rate related to the higher of
the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus a margin
specified in the agreement, and is thus subject to market risk in the form of
fluctuations in interest rates. The Company does not trade in derivative
financial instruments.
The Company also conducts operations in various foreign countries, including
Australia, Belgium, Canada, France, Germany, Japan, the Netherlands, New
Zealand, Singapore, Spain and the United Kingdom. For the year ended December
31, 1998, approximately 38% of our commmissions and fees were earned outside of
the U.S. and collected in local currency. Giving pro forma effect to the merger
with M&B, approximately 60% of our revenue would have been earned outside the
U.S. for the year ended December 31, 1998. In addition, we generally pay
operating expenses in the corresponding local currency and will be subject to
increased risk for exchange rate fluctuations between such local currencies and
the dollar. We do not conduct any significant hedging activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries are filed as part of this report.
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
Report of Independent Certified Public Accountants...................................................... 33
Consolidated Financial Statements:
Balance sheets as of December 31, 1998 and 1997....................................................... 34
Statements of operations for the years ended December 31, 1998, 1997 and 1996......................... 35
Statements of stockholders' equity (deficit) for the years ended December 31, 1998, 1997 and 1996..... 36
Statements of comprehensive income (loss) for the years ended December 31, 1998, 1997 and 1996........ 37
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996......................... 38
Notes to consolidated financial statements............................................................ 39-66
Report of Independent Certified Public Accountants...................................................... 71
Schedule II--Valuation and qualifying accounts for the years ended December 31, 1998, 1997 and 1996..... 72
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the consolidated financial statements or the
notes thereto.
32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
comprehensive income (loss) and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 17, on January 28, 1999, the Company acquired all of
the outstanding capital stock of Morgan & Banks Limited in a business
combination to be accounted for as a pooling of interests. This transaction will
require the retroactive restatement of the Company's financial statements to
reflect the business combination as if the companies had always been together
once the financial statements for the period in which the business combination
occurred are issued. Accordingly, the accompanying consolidated financial
statements will be restated to reflect the effect of this material business
combination.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
March 26, 1999
33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 28,912 $ 17,404
Accounts receivable, net................................................................ 274,557 278,496
Work-in-process......................................................................... 18,309 15,623
Prepaid and other....................................................................... 21,578 14,261
---------- ----------
Total current assets.................................................................. 343,356 325,784
Property and equipment, net............................................................... 53,525 42,735
Deferred income taxes..................................................................... 6,701 5,195
Intangibles, net.......................................................................... 194,612 161,302
Other assets.............................................................................. 9,865 7,659
---------- ----------
$ 608,059 $ 542,675
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 249,434 $ 218,374
Accrued expenses and other current liabilities.......................................... 62,801 53,192
Accrued restructuring costs............................................................. 16,170 16,801
Deferred revenue........................................................................ 13,348 7,992
Deferred income taxes................................................................... 7,959 10,809
Current portion of long-term debt....................................................... 9,805 11,750
---------- ----------
Total current liabilities............................................................. 359,517 318,918
Long-term debt, less current portion...................................................... 118,018 117,841
Other long-term liabilities............................................................... 7,196 672
---------- ----------
Total liabilities..................................................................... 484,731 437,431
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000 shares; issued and
outstanding--none..................................................................... -- --
Common stock, $.001 par value, authorized 200,000,000 shares; issued and
outstanding--27,632,246 and 16,136,790, shares, respectively.......................... 28 16
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--2,381,000 and 13,587,541 shares, respectively............................ 2 14
Additional paid-in capital.............................................................. 180,803 163,797
Other comprehensive loss................................................................ (1,272) (301)
Deficit................................................................................. (56,233) (58,282)
---------- ----------
Total stockholders' equity............................................................ 123,328 105,244
---------- ----------
$ 608,059 $ 542,675
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Commissions and fees............................................................ $ 406,769 $ 319,535 $ 227,695
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 223,773 179,370 126,464
Office and general............................................................ 126,835 102,547 75,078
Merger costs.................................................................. 21,526 -- --
Amortization of intangibles................................................... 8,922 6,284 4,440
Special compensation and CEO bonus............................................ 1,250 1,500 52,019
--------- --------- ---------
Total operating expenses.................................................. 382,306 289,701 258,001
--------- --------- ---------
Operating income (loss)................................................... 24,463 29,834 (30,306)
--------- --------- ---------
Other income (expense):
Interest expense.............................................................. (13,669) (11,362) (14,805)
Interest income............................................................... 3,254 2,675 673
Other, net.................................................................... (926) (202) (683)
--------- --------- ---------
(11,341) (8,889) (14,815)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 13,122 20,945 (45,121)
Provision for income taxes...................................................... 8,476 9,969 4,183
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 4,646 10,976 (49,304)
Minority interests.............................................................. -- 143 434
Equity in earnings (losses) of affiliates....................................... (396) (33) 114
--------- --------- ---------
Net income (loss)............................................................... 4,250 10,800 (49,624)
Preferred stock dividends....................................................... -- (123) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 4,250 $ 10,677 $ (49,834)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .14 $ .38 $ (2.17)
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .14 $ .38 $ (2.17)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 29,834 27,884 22,940
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 30,673 28,376 22,940
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON
STOCK,
COMMON STOCK, $.001 PAR
$.001 PAR VALUE VALUE
---------------------- ----------
SHARES AMOUNT SHARES
--------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996............................................................ 7,918,033 $ 8 14,787,541
Stock repurchase agreements....................................................... -- -- --
Issuance of common stock for purchase of minority interest in subsidiary.......... 205,581 -- --
Issuance of common stock as compensation.......................................... 142,740 -- --
Repurchase and cancellation of common stock....................................... (481,284) -- --
Issuance of common stock.......................................................... 4,147,408 4 --
Issuance of common stock in connection with the exercise of options............... 85,354 -- --
Issuance of common stock in connection with exercise of warrant................... 228,768 -- --
Foreign currency translation adjustment........................................... -- -- --
Dividends on preferred stock...................................................... -- -- --
Dividends declared by pooled companies............................................ -- -- --
Special compensation.............................................................. -- -- --
Net loss.......................................................................... -- -- --
--------- ----------- ----------
Balance, December 31, 1996.......................................................... 12,246,600 12 14,787,541
Issuance of common stock in connection with the exercise of options............... 49,766 -- --
Tax benefit of stock options exercised............................................ -- -- --
Capital contribution from Principal Stockholder re: CEO bonus and other........... -- -- --
Issuance of common stock in connection with acquisitions.......................... 135,028 -- --
Issuance of common stock for purchase of an equity interest in a subsidiary....... 61,848 -- --
Conversion of shares.............................................................. 1,200,000 1 (1,200,000)
Issuance of common stock.......................................................... 2,400,000 3 --
Issuance of common stock for matching contribution to 401(k) plan................. 43,548 -- --
Foreign currency translation adjustment........................................... -- -- --
Dividend and redemption premium on preferred stock................................ -- -- --
Dividends declared by pooled companies............................................ -- -- --
Net income........................................................................ -- -- --
--------- ----------- ----------
Balance, December 31, 1997.......................................................... 16,136,790 16 13,587,541
Issuance of common stock in connection with the exercise of options............... 126,462 -- --
Tax benefit of stock options exercised............................................ -- -- --
Issuance of common stock for purchases of interests in subsidiaries............... 200,753 -- --
Issuance of options to outside sales persons for commissions...................... -- -- --
Redemption of common stock........................................................ (287,352) -- --
Issuance of common stock for matching contribution to 401(k) plan................. 27,273 -- --
Conversion of Class B common shares to common shares.............................. 11,206,541 12 (11,206,541)
Issuance of common stock for employee stay bonuses................................ 221,779 -- --
Foreign currency translation adjustment........................................... -- -- --
Capital contribution by Principal Stockholder re: CEO bonus....................... -- -- --
Dividends declared by pooled companies............................................ -- -- --
Net income........................................................................ -- -- --
--------- ----------- ----------
Balance, December 31, 1998.......................................................... 27,632,246 $ 28 2,381,000
--------- ----------- ----------
--------- ----------- ----------
<CAPTION>
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE
AMOUNT CAPITAL INCOME (LOSS)
----------- ----------- ---------------
<S> <C> <C>
Balance, January 1, 1996............................................................ $ 15 $ 685 $ 1,717
Stock repurchase agreements....................................................... -- 1,172 --
Issuance of common stock for purchase of minority interest in subsidiary.......... -- 1,727 --
Issuance of common stock as compensation.......................................... -- 20 --
Repurchase and cancellation of common stock....................................... -- (2,160) --
Issuance of common stock.......................................................... -- 50,779 --
Issuance of common stock in connection with the exercise of options............... -- 347 --
Issuance of common stock in connection with exercise of warrant................... -- 2,603 --
Foreign currency translation adjustment........................................... -- -- (374)
Dividends on preferred stock...................................................... -- -- --
Dividends declared by pooled companies............................................ -- -- --
Special compensation.............................................................. -- 50,175 --
Net loss.......................................................................... -- -- --
----------- ----------- -------
Balance, December 31, 1996.......................................................... 15 105,348 1,343
Issuance of common stock in connection with the exercise of options............... -- 643 --
Tax benefit of stock options exercised............................................ -- 175 --
Capital contribution from Principal Stockholder re: CEO bonus and other........... -- 1,775 --
Issuance of common stock in connection with acquisitions.......................... -- 3,136 --
Issuance of common stock for purchase of an equity interest in a subsidiary....... -- 1,000 --
Conversion of shares.............................................................. (1) -- --
Issuance of common stock.......................................................... -- 51,165 --
Issuance of common stock for matching contribution to 401(k) plan................. -- 555 --
Foreign currency translation adjustment........................................... -- -- (1,644)
Dividend and redemption premium on preferred stock................................ -- -- --
Dividends declared by pooled companies............................................ -- -- --
Net income........................................................................ -- -- --
----------- ----------- -------
Balance, December 31, 1997.......................................................... 14 163,797 (301)
Issuance of common stock in connection with the exercise of options............... -- 1,252 --
Tax benefit of stock options exercised............................................ -- 407 --
Issuance of common stock for purchases of interests in subsidiaries............... -- 5,546 --
Issuance of options to outside sales persons for commissions...................... -- 280 --
Redemption of common stock........................................................ -- (668) --
Issuance of common stock for matching contribution to 401(k) plan................. -- 627 --
Conversion of Class B common shares to common shares.............................. (12) -- --
Issuance of common stock for employee stay bonuses................................ -- 8,312 --
Foreign currency translation adjustment........................................... -- -- (971)
Capital contribution by Principal Stockholder re: CEO bonus....................... -- 1,250 --
Dividends declared by pooled companies............................................ -- -- --
Net income........................................................................ -- -- --
----------- ----------- -------
Balance, December 31, 1998.......................................................... $ 2 $ 180,803 $ (1,272)
----------- ----------- -------
----------- ----------- -------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
DEFICIT (DEFICIT)
--------- ---------------
Balance, January 1, 1996............................................................ $ (14,436) $ (12,011)
Stock repurchase agreements....................................................... -- 1,172
Issuance of common stock for purchase of minority interest in subsidiary.......... -- 1,727
Issuance of common stock as compensation.......................................... -- 20
Repurchase and cancellation of common stock....................................... -- (2,160)
Issuance of common stock.......................................................... -- 50,783
Issuance of common stock in connection with the exercise of options............... -- 347
Issuance of common stock in connection with exercise of warrant................... -- 2,603
Foreign currency translation adjustment........................................... -- (374)
Dividends on preferred stock...................................................... (210) (210)
Dividends declared by pooled companies............................................ (1,672) (1,672)
Special compensation.............................................................. -- 50,175
Net loss.......................................................................... (49,624) (49,624)
--------- ---------------
Balance, December 31, 1996.......................................................... (65,942) 40,776
Issuance of common stock in connection with the exercise of options............... -- 643
Tax benefit of stock options exercised............................................ -- 175
Capital contribution from Principal Stockholder re: CEO bonus and other........... -- 1,775
Issuance of common stock in connection with acquisitions.......................... -- 3,136
Issuance of common stock for purchase of an equity interest in a subsidiary....... -- 1,000
Conversion of shares.............................................................. -- --
Issuance of common stock.......................................................... -- 51,168
Issuance of common stock for matching contribution to 401(k) plan................. -- 555
Foreign currency translation adjustment........................................... -- (1,644)
Dividend and redemption premium on preferred stock................................ (123) (123)
Dividends declared by pooled companies............................................ (3,017) (3,017)
Net income........................................................................ 10,800 10,800
--------- ---------------
Balance, December 31, 1997.......................................................... (58,282) 105,244
Issuance of common stock in connection with the exercise of options............... -- 1,252
Tax benefit of stock options exercised............................................ -- 407
Issuance of common stock for purchases of interests in subsidiaries............... -- 5,546
Issuance of options to outside sales persons for commissions...................... -- 280
Redemption of common stock........................................................ -- (668)
Issuance of common stock for matching contribution to 401(k) plan................. -- 627
Conversion of Class B common shares to common shares.............................. -- --
Issuance of common stock for employee stay bonuses................................ -- 8,312
Foreign currency translation adjustment........................................... -- (971)
Capital contribution by Principal Stockholder re: CEO bonus....................... -- 1,250
Dividends declared by pooled companies............................................ (2,201) (2,201)
Net income........................................................................ 4,250 4,250
--------- ---------------
Balance, December 31, 1998.......................................................... $ (56,233) $ 123,328
--------- ---------------
--------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss)................................................................ $ 4,250 $ 10,800 $ (49,624)
Foreign currency translation adjustment.......................................... (971) (1,644) (374)
--------- --------- ----------
Comprehensive income (loss)...................................................... $ 3,279 $ 9,156 $ (49,998)
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
Cash flows from operating activities:
Net income (loss).............................................................. $ 4,250 $ 10,800 $ (49,624)
---------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment...................... 13,251 8,927 5,541
Amortization of intangibles.................................................. 8,922 6,284 4,440
Amortization of deferred compensation in connection with employee stay
bonuses.................................................................... 3,622 -- --
Provision for doubtful accounts.............................................. 4,895 3,588 3,131
Common stock issued for matching contribution to 401(k) plan................. 627 555 --
Special compensation, CEO bonus and indemnity payment........................ 1,250 1,775 52,019
Interest expense for shares issued upon exercise of warrant.................. -- -- 2,603
Common stock issued for employee stay bonuses................................ 8,312 -- --
Provision for deferred income taxes.......................................... 606 5,029 1,620
Minority interests........................................................... -- 143 434
Other........................................................................ 841 3 451
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net......................................... (10,337) (5,747) (7,562)
(Increase) decrease in work-in-process....................................... (2,583) 42 68
Increase in prepaid and other................................................ (5,510) (1,616) (853)
(Increase) decrease in other assets.......................................... (975) (62) 235
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities................................................................ 31,869 (9,070) (814)
---------- --------- ---------
Total adjustments.......................................................... 54,790 9,851 61,313
---------- --------- ---------
Net cash provided by operating activities.................................. 59,040 20,651 11,689
---------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder............... -- (3,064) (12,878)
Repayments from Principal Stockholder.......................................... -- 14,477 7,994
Capital expenditures........................................................... (21,698) (20,641) (8,940)
Payments for purchases of businesses, net of cash acquired..................... (24,152) (66,832) (23,755)
Proceeds from sale of assets................................................... -- -- 6,115
Repayments from affiliates..................................................... -- -- 393
---------- --------- ---------
Net cash used in investing activities...................................... (45,850) (76,060) (31,071)
---------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases................................................. (3,257) (2,862) (2,386)
Borrowings under line of credit and proceeds from issuance of long-term debt... 1,049,120 721,074 486,457
Repayments under line of credit and principal payments on long-term debt....... (1,046,596) (703,164) (511,583)
Distribution to minority interests............................................. -- -- (457)
Net proceeds from stock issuance............................................... -- 51,165 50,783
Cash received from the exercise of employee stock options...................... 1,252 643 --
Repurchase of common stock..................................................... -- -- (2,160)
Redemption of minority interest (including premium)............................ -- (3,133) --
Redemption of preferred stock (including premium).............................. -- (2,105) --
Dividends on preferred stock................................................... -- (123) (210)
Dividends paid by pooled companies............................................. (2,201) (3,017) (1,672)
---------- --------- ---------
Net cash provided by (used in) financing activities........................ (1,682) 58,478 18,772
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. 11,508 3,069 (610)
Cash and cash equivalents, beginning of year..................................... 17,404 14,335 14,945
---------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 28,912 $ 17,404 $ 14,335
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses
formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December 9,
1996, Old TMP, which sells yellow page advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "1996 Mergers"). Concurrent with the 1996 Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc.
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling-of-interests, the interests previously owned by the Principal
Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill
in the amount of approximately $1.6 million was recorded for the issuance of
271,278 shares of common stock of the Company to Old TMP stockholders who had
been previously issued shares of Old TMP in exchange for their minority
interests in certain operating subsidiaries in which they were original owners
and, accordingly, were considered to have made a substantive investment, and is
based on an initial public offering price of $14.00 per share, less
approximately $2.2 million previously recorded on the issuance of these shares,
and (ii) special compensation in the amount of approximately $52.0 million was
recorded for the issuance of 3,584,790 shares of common stock of the Company to
Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in
those companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the Principal
Stockholder and, accordingly, were not considered to have made substantive
investments for their minority shares, and is based on an initial public
offering price of $14.00 per share. The minority stockholders of Old TMP had
received compensation in lieu of their share of earnings of Old TMP in exchange
for waiving their rights to such earnings, and WCI and the MEI subsidiary had
cumulative losses. Accordingly, no amounts were attributable to these minority
interests in the accompanying consolidated financial statements.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling-of-interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
The consolidated financial statements of the Company reflect the shares of
the Company that were outstanding after the 1996 Mergers and have been prepared
to give retroactive effect to the mergers with Johnson Smith & Knisely Inc.
("JSK") on May 6, 1998, TASA Holding AG ("TASA") on August 31, 1998, Stackig,
Inc. ("Stackig") on September 30, 1998, Recruitment Solutions, Inc. on October
2, 1998, SunQuest, LLC., d.b.a. The SMART Group on November 2, 1998 and The
Consulting Group (International) Limited ("TCG") on December 2, 1998 (the
"Pooled Companies") which have been accounted for as poolings of interests (the
"1998 Mergers"). The consolidated financial statements give retroactive effect
39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
to the 1998 Mergers, which have been accounted for using the pooling of
interests method and, as a result, the financial position, results of operations
and cash flows are presented as if the combining companies had been consolidated
for all periods presented. The consolidated statements of stockholders' equity
reflect the accounts of TMP as if the additional common stock issued in
connection with the 1998 Mergers had been issued for all periods presented.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for using the equity
method when the Company owns at least 20% but no more than 50% of such
affiliates. Under the equity method, the Company records its proportionate share
of profits and losses based on its percentage interest in earnings of companies
50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 4-8
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related
leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
LONG-LIVED ASSETS
Long-lived assets, such as ongoing client relationships, goodwill and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value. No impairment losses have been incurred
through December 31, 1998.
40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the cumulative translation adjustment account in stockholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in other income (expense).
REVENUE RECOGNITION AND WORK-IN-PROCESS
A significant portion of our revenues are derived from commissions for
advertisements placed in telephone directories, newspapers and other media, plus
associated fees for related services. In addition, the Company earns fees for
the placement of advertisements on the Internet, including its career Web sites.
Commissions and fees are generally recognized upon placement date for newspapers
and other media and on publication close date for yellow page advertisements.
The Company also earns fees for executive and mid-level search and selection
services. Revenue is recognized as clients are billed. Billings begin with the
client's acceptance of a contract. For search, a retainer equal to 33 1/3% of a
candidate's first year estimated annual cash compensation is billed in equal
installments over three consecutive months (at which time, in general, the
retainer has been substantially earned). A final invoice is issued in the event
that the candidate's actual compensation package exceeds the original estimate.
For selection, a fee equal to between 20% and 30% of a candidate's first year
estimated annual cash compensation is billed in equal installments over three
consecutive months (the average length of time needed to successfully complete a
search).
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. Amounts reported in the three months ended December 31, 1998, 1997 and
1996 for commissions on volume placements were $0.9 million, $2.0 million and
$3.5 million, respectively. The Company's quarterly commissions and fees for
recruitment advertising are typically highest in the first quarter and lowest in
the fourth quarter; however, the cyclicality in the economy and the Company's
clients' employment needs have an overriding impact on the Company's quarterly
results in recruitment advertising.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision for income taxes is computed on the pretax income (loss) based
on the current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates.
41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in three business segments, advertising, Internet and
search and selection. The Company primarily earns commission income for selling
and placing yellow page and recruitment advertising to a large number of
customers in many different industries, fees for executive and mid-level search
& selection services, and fees for advertisements placed on its Internet
websites. The Company operates principally throughout North America, Europe and
the Pacific Rim. In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information is available
and that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
SFAS 131 became effective for financial statements for periods beginning
after December 15, 1997. As required by SFAS 131, all periods presented have
been restated to comply with the provision of SFAS 131.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates fair
value because, in general, the interest on the underlying instruments fluctuates
with market rates.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by SFAS No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS PER SHARE
During 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per share. This
Statement became effective for financial statements issued for periods ending
after December 15, 1997. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflect, in periods in which they
42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have a dilutive effect, the effect of common shares issuable upon exercise of
stock options and warrants. As required by the Statement, all periods presented
have been restated to comply with the provisions of SFAS No. 128.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1998:
Basic............................................................. 29,834
Effect of assumed conversion of stock options..................... 839
---------
Diluted........................................................... 30,673
---------
---------
December 31, 1997:
Basic............................................................. 27,884
Effect of assumed conversion of stock options..................... 492
---------
Diluted........................................................... 28,376
---------
---------
December 31, 1996:
Basic............................................................. 22,940
---------
---------
Diluted........................................................... 22,940
---------
---------
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash is not
material.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current 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 only
item of comprehensive income (loss) is foreign currency translation adjustments.
The Company adopted SFAS No. 130 in the first quarter of 1998.
POST RETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which standardizes the disclosure
requirements for pensions and other postretirement benefits. The adoption of
SFAS No. 132 in 1998 did not have a material impact on the Company's
disclosures.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1. "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98.1"). SOP 98-1
is effective for financial statements for years beginning after
43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We do not expect the
adoption of this standard to have a material effect on our capitalization
policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Trade................................................................. $ 273,929 $ 274,215
Earned commissions(a)................................................. 12,811 14,491
---------- ----------
286,740 288,706
Less: Allowance for doubtful accounts................................. 12,183 10,210
---------- ----------
Accounts receivable, net.......................................... $ 274,557 $ 278,496
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1998 and 1997 are recorded
as accounts receivable of $67,955 and $75,058, respectively, and the related
advertising costs are recorded as accounts payable of $55,144 and $60,567,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1998 1997
---------- ---------
Buildings and improvements............................................. $ 860 $ 916
Furniture and equipment................................................ 82,462 66,729
Leasehold improvements................................................. 8,610 6,092
Transportation equipment............................................... 9,111 9,179
---------- ---------
101,043 82,916
Less: Accumulated depreciation and amortization........................ 47,518 40,181
---------- ---------
Property and equipment, net........................................ $ 53,525 $ 42,735
---------- ---------
---------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1998 and 1997 with a cost of $13,663 and $12,514, respectively, and
accumulated amortization of $7,026 and $5,128, respectively.
During 1997, the Company acquired certain transportation equipment and made
capital improvements thereto for a total of $6,800 and simultaneously entered
into a $7,800 financing agreement (see Note 9) to fund the purchase and provide
additional funds.
44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTEREST METHOD
During the period of January 1, 1998 through December 31, 1998, the Company
completed the following acquisitions which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP stock and are accounted
for as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
NATURE OF
ENTITY OPERATIONS ACQUISITION DATE NUMBER OF TMP SHARES ISSUED
- ------------------------------- -------------------------- ---------------------- ----------------------------
<S> <C> <C> <C>
Johnson Smith & Knisely........ Search & selection May 6, 1998 771,353
TASA Holding AG................ Search & selection August 31, 1998 1,703,894
Stackig Inc.................... Advertising September 30, 1998 507,082
Recruitment Solutions, Inc. ... Search & selection October 2, 1998 104,042
SunQuest, L.L.C. d.b.a. The
SMART Group................... Advertising November 2, 1998 309,702
The Consulting Group
(International) Limited....... Search & selection December 2, 1998 246,606
</TABLE>
Revenue, net income (loss) and net income (loss) applicable to common and
Class B common stockholders of the combining entities for the two years ending
December 31, are as follows:
<TABLE>
<CAPTION>
REVENUE 1997 1996
- ---------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
TMP, as previously reported............................................................. $ 237,417 $ 162,631
TASA Holding AG......................................................................... 39,518 37,763
Johnson Smith & Knisely Inc............................................................. 21,868 12,850
Stackig Inc............................................................................. 11,816 10,075
SunQuest, L.L.C. d.b.a. the SMART Group................................................. 2,239 1,397
Recruitment Solutions, Inc.............................................................. 920 239
The Consulting Group (International) Limited............................................ 5,757 2,740
----------- -----------
TMP, as restated........................................................................ $ 319,535 $ 227,695
----------- -----------
----------- -----------
<CAPTION>
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS 1997 1996
- ---------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
TMP, as previously reported............................................................. $ 8,000 $ (52,449)
TASA Holding AG......................................................................... 422 366
Johnson Smith & Knisely Inc............................................................. 289 364
Stackig Inc............................................................................. 1,571 1,736
SunQuest, L.L.C. d.b.a. the SMART Group................................................. (64) 170
Recruitment Solutions................................................................... 119 --
The Consulting Group (International) Limited............................................ 340 (21)
----------- -----------
TMP, as restated........................................................................ $ 10,677 $ (49,834)
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1997 1996
- ---------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
As previously reported:
Basic................................................................................. $ .33 $(2.72)
Diluted............................................................................... $ .32 $(2.72)
Restated:
Basic................................................................................. $ .38 $(2.17)
Diluted............................................................................... $ .38 $(2.17)
</TABLE>
45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with these poolings-of-interests, the Company expensed merger
related costs of $21,526. The $21,526 of merger costs for the year ended
December 31, 1998 consists of (1) $11,934 of non-cash employee stay bonuses,
which included (a) $3,622 for the amortization of $5,986, recorded as prepaid
compensation and a corresponding long-term liability, being expensed over the
eighteen months from April 1, 1998 to September 30, 1999 for TMP shares set
aside for key personnel of JSK and TCG who must remain employees of the Company
for a full year in order to earn such shares and (b) $8,312 for TMP shares to
key personnel of TASA and Stackig as employee stay bonuses and (2) $1,461 of
stay bonuses paid as cash to key personnel of the Pooled Companies and (3)
$8,131 of transaction related costs, including legal, accounting and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the poolings of interest transactions discussed above, the
Company has acquired 39 businesses (primarily recruitment advertising
businesses) between January 1, 1996 and December 31, 1998 including, on August
26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $30,668,
$74,500 and $25,400 for 1998, 1997 and 1996, respectively. The shares of Common
Stock issued by the Company in connection with certain of the above mentioned
acquisitions were 200,753 and 135,028 for 1998 and 1997, respectively. These
acquisitions have been accounted for under the purchase method of accounting and
accordingly, operations of these businesses have been included in the
consolidated financial statements from their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1998 and 1997 assume the acquisitions in 1998 and
1997 occurred as of the beginning of the year of acquisition and the beginning
of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Commissions and fees...................................................................... $ 423,043 $ 383,003
Net income applicable to common and Class B common stockholders........................... $ 4,851 $ 11,424
Net income per common and Class B common share:
Basic................................................................................... $.16 $.41
Diluted................................................................................. $.16 $.40
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using the
purchase method, the Company began to assess and formulate preliminary plans to
restructure the operations of the acquired companies. Such plans involved the
closure of certain offices of the acquired companies and the termination of
certain management and employees. The objective of the plans was to create a
single brand in the related markets in which the Company operates. The
preliminary plans were finalized in July 1998. These costs and liabilities
include:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS DECEMBER 31, 1998
----------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be
closed........................................... $ 7,830 $ 2,846 $ (1,448) $ 9,228
Consolidation of acquired facilities............... 2,521 3,630 (3,406) 2,745
Contracted lease payments exceeding current market
costs............................................ 783 73 (149) 707
Severance, relocation and other employee costs..... 4,017 3,368 (5,648) 1,737
Pension obligation................................. 1,650 103 -- 1,753
------- ----------- ---------- -------
Total.............................................. $ 16,801 $ 10,020 $ (10,651) $ 16,170
------- ----------- ---------- -------
------- ----------- ---------- -------
</TABLE>
Accrued liabilities for surplus property in the amount of $9,228 as of
December 31, 1998 relates to 18 leased office locations of the acquired
companies that were either unutilized prior to the acquisition date or will be
closed by March 31, 1999 in connection with the restructuring plans. The amount
is based on the present value of minimum future lease obligations, net of
sublease revenue on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,745 as of December 31, 1998 relates to the
write-off of leasehold improvements and other fixed assets as well as
termination costs of contracts relating to billing systems, external reporting
systems and other contractual arrangements with third parties.
Above market lease costs in the amount of $707 as of December 31, 1998
relates to the present value of contractual lease payments in excess of current
market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,737 as of December 31, 1998 relates to
estimated severance for terminated employees at closed locations, costs
associated with employees transferred to continuing offices and other related
costs. Employee groups affected include sales, service, administrative and
management personnel at duplicate locations as well as duplicate corporate
headquarters management and administrative personnel. As of December 31, 1998
the accrual related to approximately 45 employees including senior management,
sales, service and administrative personnel.
Pension obligations in the amount of $1,753 were assumed in connection with
the acquisition of Austin Knight.
During the year ended December 31, 1998, payments of $2,127 were made to 25
members of senior management and employees for severance and charged against the
reserve.
In connection with the finalization of the restructuring plans, the Company
recorded additional charges of $10,020 as additional costs of the acquired
companies during the year ended December 31, 1998. The Company continues to
evaluate and assess the impact of duplicate responsibilities and office
locations. Additional future costs incurred, resulting from revised plan actions
occurring after December 31, 1998, in excess of the amounts previously recorded
as goodwill will be charged to operations in the period in which they occur.
47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
---------------------- PERIOD
1998 1997 (YEARS)
---------- ---------- -------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of
$5,360 and $4,370, respectively..................... $ 9,693 $ 10,083 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,511 and $2,036, respectively..... 2,047 2,188 3 to 10
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$18,093 and $10,904, respectively................... 182,531 148,234 10 to 30
Other, net of accumulated amortization of $1,931 and
$2,103, respectively................................ 341 797 4 to 10
---------- ----------
$ 194,612 $ 161,302
---------- ----------
---------- ----------
</TABLE>
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest..................................................... $ 10,704 $ 12,966 $ 11,389
Income taxes................................................. 5,148 1,860 936
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ---------
Fair value of assets acquired, excluding cash............ $ 34,586 $ 129,000 $ 52,731
Less: Liabilities assumed and created upon acquisition... 10,434 62,168 28,976
---------- ---------- ---------
Net cash paid............................................ $ 24,152 $ 66,832 $ 23,755
---------- ---------- ---------
---------- ---------- ---------
Capital lease obligations incurred......................... $ 217 $ 5,781 $ 4,873
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
NOTE 8--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement (the "Agreement"), as amended and restated on
June 27, 1996, further amended on November 14, 1997 and amended and restated
again on November 5, 1998. Subsequent to the five year term which expires
November 4, 2003, the Agreement provides for one-year extensions subject to bank
approval unless terminated by either party at least 90 days prior to expiration
of the initial term or any renewal term. The Agreement, as amended, provides for
borrowings of up to $175,000 at the higher of (a) prime rate or
48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENT (CONTINUED)
(b) Federal Funds rate less 1/2 of 1% or, (c) LIBOR plus a margin determined by
the ratio of the Company's debt to earnings before interest, taxes, depreciation
and amortization (EBITDA) as defined in the Agreement. At December 31, 1998 the
margin equaled .875%. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed as defined in the Agreement. Substantially all the assets
of the Company are pledged as collateral for borrowings under the Agreement. The
Agreement contains certain covenants which restrict, among other things, the
ability of the Company to borrow, pay dividends, acquire businesses, guarantee
debts of others and lend funds to affiliated companies and contains criteria on
the maintenance of certain financial statement amounts and ratios, all as
defined in the Agreement. The Agreement also provides for a fee on any unused
portion of the commitment based upon a rate determined by the ratio of the
Company's debt to EBITDA. At December 31, 1998 this rate equaled .25%. In
addition the Agreement provides for a declining termination fee of $1,000, $500
and $0 for the annual periods ended November 5, 1999, 2000 and 2001.
At December 31, 1998 the prime rate, Federal Funds rate and one month LIBOR
were 7.75%, 5.75% and 5.06%, respectively. Borrowings outstanding were at a
weighted average interest rate of 6.56%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant was
independently appraised at $600, which amount was being amortized over the
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Borrowings under financing agreement (see Note 8)..................... $ 97,720 $ 95,800
Borrowings under financing agreements, interest payable at rates
varying from 5% to 9.2%, and collateralized by assets in certain
foreign countries................................................... 4,944 5,957
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001............... 8,031 12,133
Capitalized lease obligations, payable with interest from 9% to 15%,
in varying installments through 2001 (see Note 14).................. 9,115 7,245
Term note payable in sixty consecutive monthly installments from July
1997 through June 2002, collateralized by transportation equipment
and with interest at 8.43% for the first 36 months. Thereafter the
interest rate will be based on two year U.S. Treasury Notes......... 7,556 7,760
Notes payable, in varying monthly installments maturing through 2001,
with interest at rates ranging from 7.5% to 8.5%.................... 457 696
---------- ----------
127,823 129,591
Less: Current portion................................................. 9,805 11,750
---------- ----------
$ 118,018 $ 117,841
---------- ----------
---------- ----------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
2000................................................................................................ $ 7,543
2001................................................................................................ 3,690
2002................................................................................................ 8,888
2003................................................................................................ 97,847*
Thereafter.......................................................................................... 50
------------
$ 118,018
------------
------------
</TABLE>
- ------------------------
* Of this amount, $97,720 is subject to one year extensions subsequent to
2003. See Note 8.
NOTE 10--MINORITY INTERESTS
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock
50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10--MINORITY INTERESTS (CONTINUED)
ownership trust. These shares were redeemed in January 1997 for a total of
$3,133, which included a redemption premium of $133.
NOTE 11--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 12--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have identical rights except that each share
of Class B common stock is entitled to ten votes and is convertible, at any
time, at the option of the stockholder into one share of common stock.
(B) STOCK OPTIONS
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options, to purchase an aggregate of up to 900,000 shares (amended to
3,000,000 on April 27, 1998) of the common stock of the Company. The Stock
Option Plan permits the granting of options to officers, employees and
consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 3 million and the number of shares available for new awards
under the Stock Option Plan.
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant, an
aggregate of 296,640 shares of common stock were granted to officers, employees
and consultants of the Company. Such options vest at the rate of 25% per year
commencing one year after the date of grant. As of December 31, 1998, 25,879
options were
51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
cancelled, 71,343 options were exercised and, of the outstanding options, 64,038
options were exercisable and will expire ten years from the date of grant.
On January 6, 1997 options to purchase, at an exercise price of $12.88 per
share, the market price on the date of grant, an aggregate of approximately
1,203,782 shares of common stock were granted to officers and employees of the
Company and options for 7,091 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate at 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997 and are exercisable after
January 5, 1999. At December 31, 1998, 31,355 options were exercised and 7,157
were exercisable. Such options will expire ten years from date of grant.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options vested as of December 31,
1998, and 8,400 options were exercised.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. Options for 5,815 shares were
subsequently cancelled. Generally, such options were vested as of December 31,
1997, are exercisable after January 5, 1999, and will expire ten years from the
date of grant.
On June 24, 1997, options to purchase 50,000 shares of common stock, at an
exercise price of $21.50 per share, the market price on the date of grant, were
granted to MLE Consultants Inc, with 25,000 options exercisable one year from
the date of grant and 25,000 options exercisable eighteen months from the date
of grant. Such options will expire ten years from the date of grant. At December
31, 1998, 5,000 options were exercised and 45,000 were exercisable.
On August 28, 1997, options to purchase, at an exercise price of $15.00 per
share, the market price on the date of grant, 35,000 shares of common stock were
granted to various Austin Knight officers and individuals. Such options
generally vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
8,750 options were exercisable.
On December 12, 1997, options to purchase, at an exercise price of $15.00
per share, the market price on the date of grant, an aggregate of 700,000 shares
of common stock were granted to officers and employees of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
175,491 options were cancelled, 6,000 options were exercised and 129,628 were
exercisable at December 31, 1998.
On May 4, 1998, options to purchase at an exercise price of $25.50 per
share, the market price on the date of grant, 5,346 shares of common stock were
granted to two employees. Such options vest at the rate of 25% per year
commencing one year after the date of grant and will expire ten years from the
date of grant. At December 31, 1998, 3,846 options were cancelled and none of
the options were exercisable.
On May 19, 1998, options to purchase at an exercise price of $26.25 per
share, the market price on the date of grant, 5,370 shares of common stock were
granted to an employee of the Company. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998 none of the options were exercisable.
52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On May 20, 1998, options to purchase at an exercise price of $25.625 per
share, the market price on the date of grant, 104,755 shares of common stock
were granted to certain officers and employees of JSK. Such options vest at a
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998 none of these options
were exercisable.
On June 15, 1998, options to purchase at an exercise price of $26.13 per
share, the market price on the date of grant, an aggregate of approximately
2,100 shares of common stock were granted to an employee of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998
none of these options were exercisable.
On October 30, 1998, options to purchase at an exercise price of $30.00 per
share, the market price on the date of grant, an aggregate of approximately
184,000 shares of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On November 5, 1998, options to purchase at an exercise price of $25.125 per
share, the market price on the date of grant, 100,000 shares of common stock to
the officers and employees of Stackig. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998, none of these options were exercisable.
On November 13, 1998, options to purchase at an exercise price of $23.75 per
share, the market price on the date of grant, 24,450 shares of common stock to
the officers and employees of the Company. Such options vest at the rate of 25%
per year commencing one year after the date of grant and will expire ten years
from the date of grant. At December 31, 1998, none of these options were
exercisable.
On December 9, 1998, options to purchase at an exercise price of $26.875 per
share, the market price on the date of grant, an aggregate of approximately
800,000 options of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 11, 1998, options to purchase at an exercise price of $29.50 per
share, the closing market price on the date of grant, 50,000 shares of common
stock to the officers and employees of TASA Holding AG. Such options vest at the
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998, none of these options
were exercisable.
On December 28, 1998, options to purchase at an exercise price of $38.00 per
share, the market price on the date of grant, an aggregate of approximately
400,000 shares of common stock to the officers and employees of TASA. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do
53
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
not qualify as incentive stock options within the meaning of Section 422 of the
Code. The Directors' Plan provides for an automatic grant to each of the
Company's nonemployee directors of an option to purchase 11,250 shares of common
stock on the date of such director's initial election or appointment to the
Board. The options will have an exercise price of 100% of the fair market value
of the common stock on the date of grant, have a ten-year term and become
exercisable in accordance with a vesting schedule determined by the Board of
Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant were granted on January 24, 1996 to one nonemployee director. Half
of these options vested on the date of the grant and the balance vests in two
equal annual installments commencing one year after the date of grant. Such
options will expire ten years from the date of grant. As of December 31, 1998
11,250 options were exercised.
In September 1996, options to purchase an aggregate of 33,750 shares of
common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant. Vesting is on terms similar to that of the previous
director's grant. In December 1996, 11,250 of these options were cancelled and
options to purchase 125,000 shares of common stock were granted at an exercise
price of $14.00 (the initial public offering price). Of the total, 50,000 of
such options vested on the closing of the initial public offering. In April
1997, in connection with a former director's resignation, the Company agreed
that an additional 12,500 of such stock options would vest on June 1, 1997 and
the unvested options totalling, 62,500 were cancelled. As of December 31, 1998,
42,880 options were exercised, 42,120 options are exercisable and will expire
ten years from the date of grant.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. At December 31, 1998, 8,438 options were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
weighted average fair values of options granted during 1998, 1997 and 1996 were
$11.59, $7.10 and $5.93, respectively. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions; risk-free interest rates of
approximately 4.6%, 6.5% and 6.1% in 1998, 1997 and 1996, respectively;
volatility factor of the expected market price of the Company's common stock of
24%, 27% and 25% in 1998, 1997 and 1996, respectively; a weighted average
expected life of the options of 9 years in 1998 and 8 years in both 1997 and
1996; and no dividend yield in 1998, 1997 and 1996.
54
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Under the accounting provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common stockholders.......... $ (376) $ 8,635 $ (50,447)
Net income (loss) per common and Class B common share
Basic......................................................................... $ (.01) $.31 $ (2.20)
Diluted....................................................................... $ (.01) $.30 $ (2.20)
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ----------------- ---------- ----------------- ---------- -----------------
Outstanding at
beginning of
year.............. 2,239,758 $ 13.01 448,334 $ 9.07 -- --
Granted............. 1,726,021 27.73 1,986,643 13.91 466,640 $ 9.15
Exercised........... (126,462) 9.65 (49,766) 12.92 -- --
Forfeited/
cancelled......... (128,068) 14.55 (145,453) 13.20 (18,306) 11.17
---------- ---------- ----------
Outstanding at end
of year........... 3,711,249 20.79 2,239,758 13.01 448,334 9.07
---------- ---------- ----------
---------- ---------- ----------
Options exercisable
at year-end....... 305,131 $ 14.26 114,579 $ 9.85 66,875 $ 13.38
Weighted average
fair value of
options granted
during the year... $ 11.59 $ 7.10 $ 5.93
</TABLE>
55
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICES
- ----------- ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
6$.65...... 199,418 7.0(year) $ 6.65 64,038 $ 6.65
14.00..... 42,120 7.9 14.00 42,120 14.00
12.88..... 1,165,336 8.0 12.88 7,157 12.88
19.00..... 22,441 8.6 19.00 -- --
17.25..... -- 8.3 17.25 -- --
15.00..... 35,000 8.8 15.00 8,750 15.00
15.00..... 518,509 8.9 15.00 129,628 15.00
23.63..... 11,250 8.8 23.63 8,438 23.63
21.50..... 45,000 7.0 21.50 45,000 21.50
25.63..... 104,755 8.5 25.63 -- --
25.50..... 1,500 8.3 25.50 -- --
26.25..... 5,370 8.5 26.25 -- --
26.13 2,100 8.6 26.13 -- --
29.50 50,000 9.9 29.50 -- --
30.00 184,000 9.8 30.00 -- --
25.13 100,000 9.8 25.13 -- --
23.75 24,450 9.9 23.75 -- --
26.88 800,000 9.9 26.88 -- --
38.00 400,000 10.0 38.00 -- --
----------------- -----------------
3,711,249 305,131 $ 14.26
----------------- -----------------
----------------- -----------------
</TABLE>
56
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Domestic......................................................... $ 3,595 $ 9,686 $ (47,968)
Foreign.......................................................... 9,527 11,259 2,847
--------- --------- ----------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of
affiliates................................................... $ 13,122 $ 20,945 $ (45,121)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current tax provision:
U.S. Federal.................................................. $ 240 $ 220 $ 145
State and local............................................... 858 1,311 984
Foreign....................................................... 6,772 3,409 1,434
--------- --------- ---------
Total current............................................... 7,870 4,940 2,563
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal.................................................. 3,756 2,689 1,787
State and local............................................... 145 739 (321)
Foreign....................................................... (3,295) 1,601 154
--------- --------- ---------
Total deferred.............................................. 606 5,029 1,620
--------- --------- ---------
Total provision............................................. $ 8,476 $ 9,969 $ 4,183
--------- --------- ---------
--------- --------- ---------
</TABLE>
57
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1998 1997
--------- ----------
Current deferred tax assets (liabilities):
Earned commissions.................................................... $ (5,124) $ (5,796)
Allowance for doubtful accounts....................................... 4,873 3,901
Work-in-process....................................................... (5,224) (6,222)
Accrued expenses and other liabilities................................ (2,484) (2,692)
--------- ----------
Total current deferred tax liability................................ (7,959) (10,809)
--------- ----------
Noncurrent deferred tax assets (liabilities):
Property and equipment................................................ (1,104) (980)
Intangibles........................................................... (541) (654)
Accrued expenses and other liabilities................................ 3,534 (2,235)
Tax loss carryforwards................................................ 6,733 11,283
Valuation allowance................................................... (1,921) (2,219)
--------- ----------
Total noncurrent deferred tax asset................................. 6,701 5,195
--------- ----------
Net deferred tax liability.............................................. $ (1,258) $ (5,614)
--------- ----------
--------- ----------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $12,000 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized. In addition, certain subsidiaries
have operating loss carryforwards which are only useable by such subsidiary.
Consequently, there is no reasonable assurance that the benefit of such loss
carryforward can be used. Accordingly, a valuation allowance has been
established.
58
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Provision (benefit) at Federal statutory rate................. $ 4,492 $ 7,122 $ (15,341)
State income taxes, net of Federal income tax effect.......... 662 844 278
Nondeductible expenses(1)..................................... 4,569 1,029 685
Nondeductible special charge and bonus........................ 425 510 18,571
Interest imputed on receivable from principal stockholder..... -- -- 216
Losses for which no tax benefits are available................ -- -- 45
Foreign income taxes at other than the Federal statutory
rate........................................................ (1,144) 405 (370)
Other......................................................... (528) 59 99
--------- --------- ----------
Income tax provision.......................................... $ 8,476 $ 9,969 $ 4,183
--------- --------- ----------
--------- --------- ----------
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1998, the
cumulative amount of reinvested earnings was approximately $14,000.
- ------------------------
(1) Primarily composed of amortization of intangible assets and meals and
entertainment expense and, for 1998, nondeductible merger costs.
59
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1999.................................................................... $ 4,869 $ 12,608
2000.................................................................... 3,650 12,277
2001.................................................................... 1,633 12,117
2002.................................................................... 592 6,402
2003.................................................................... 127 3,910
Thereafter.............................................................. -- 35,262
--------- -----------
10,871 $ 82,576
-----------
-----------
Less: Amount representing interest...................................... 1,756
---------
Present value of minimum lease payments................................. 9,115
Less: Current portion................................................... 4,258
---------
$ 4,857
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $14,872,
$11,948, and $10,856 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the agreement was eliminated. Such
bonuses were waived by the Principal Stockholder. However, in compliance with
the SEC's interpretation of the application of Staff Accounting Bulletin 79,
Topic 5T "Accounting for Expenses or Liabilities paid by Principal Stockholder,"
the Company recorded in 1998 and 1997, $1,250 and $1,500, respectively, in bonus
expense and increased the Additional Paid-in Capital account to complete the
concept that the amount of the waived bonus was contributed to the Company by
the Principal Stockholder. Because the amount was not and will never be paid, no
tax benefit was accrued for this charge. The agreement also provides that the
Company will pay the Principal Stockholder his base salary for the remaining
term of the agreement in the event he is terminated for reasons other than
cause.
60
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999............................................................................ $ 6,397
2000............................................................................ 6,235
2001............................................................................ 5,205
2002............................................................................ 819
2003............................................................................ 754
Thereafter...................................................................... 1,704
------------
$ 21,114
------------
------------
</TABLE>
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to $738, $626 and $600 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. The cost of these plans amounted to $1,741,
$1,264 and $1,007 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997 and
1996. The plan was terminated during 1997.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of termination. The plaintiffs purport to
represent a class of 450 former and current employees who are similarly
situated. The Company intends to vigorously defend the claims brought by the
plaintiffs and on March 18, 1998 responded to the complaint by filing an answer
denying all allegations. Management presently believes that the disposition of
these claims will not have a material adverse effect on the Company's financial
position, operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against
61
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Old TMP, WCI and the Principal Stockholder. The complaint alleged, among other
things, that the defendants breached purported contractual obligations pursuant
to which the former employee was entitled to an ownership interest in the
Company's recruitment advertising business.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1998 is
approximately $5,741 based on the formula.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(B) The Company charged management and other fees to affiliates for services
provided of approximately $651, $788 and $602 for the years ended December 31,
1998, 1997, and 1996, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying consolidated statements of
operations.
(C) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 31, 1997 at
which time the arrangement was terminated. A payment of $875 was made in the
year ended December 31, 1996, in exchange for 50% of the agency's profits, as
defined in the agreement. The Company also entered into three-year employment
and consulting agreements with the two other stockholders of the agency and
granted them the right to convert their agency shares into Company shares after
an initial public offering. That conversion right, as amended, provided that
those two stockholders may convert 25% of the agency's stock into unregistered
common stock of the Company with a total value of $1,000 as of the effective
date of conversion. The conversion was exercised in February 1997 and 61,848
shares of common stock were issued to these stockholders pursuant to the above
agreement. Simultaneously, the Company transferred to such stockholders 50% of
its interest in the agency, thus retaining a 25% interest and terminated its
obligation to provide office and administrative services effective October 1,
1997.
(D) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an investee
of the Company leases an office, at an annual rental of approximately $119, from
a partnership in which the Principal Stockholder holds a 49% interest.
62
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in three lines of business, advertising (recruitment
and yellow pages), Internet and executive search and selection. Operations are
conducted in several geographic regions: North America, the Pacific Rim
(primarily in Australia, New Zealand, and Japan) and Europe. The following is a
summary of the Company's operations by business segment and by geographic
segment, as of and for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
SEARCH &
Information by business segment ADVERTISING INTERNET SELECTION TOTAL
- ------------------------------------------------------------------ ----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
- ------------------------------------------------------------------
Commissions and fees.............................................. $ 266,618 $ 48,516 $ 91,635 $ 406,769
----------- --------- ---------- ----------
Operating expenses:
Salaries and related costs, office & general and CEO bonus...... 221,235 47,051 83,572 351,858
Merger costs.................................................... 2,600 -- 18,926 21,526
Amortization of intangibles..................................... 8,522 234 166 8,922
----------- --------- ---------- ----------
Total expenses.................................................... 232,357 47,285 102,664 382,306
----------- --------- ---------- ----------
Operating income (loss)........................................... $ 34,261 $ 1,231 $ (11,029) 24,463
----------- --------- ----------
----------- --------- ----------
Other expense:
Interest expense, net........................................... * * * (10,415)
Other, net...................................................... * * * (926)
----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates.................................. * * * $ 13,122
----------
----------
Total assets...................................................... $ 535,713 $ 33,751 $ 38,595 $ 608,059
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</TABLE>
63
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
SEARCH &
Information by business segment (Continued) ADVERTISING INTERNET SELECTION TOTAL
- ----------------------------------------------------------------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1997
- -----------------------------------------------------------------
Commissions and fees............................................. $ 225,218 $ 18,601 $ 75,716 $ 319,535
----------- --------- ---------- -----------
Operating expenses:
Salaries and related costs, office & general and CEO bonus..... 188,300 21,978 73,139 283,417
Amortization of intangibles.................................... 5,993 167 124 6,284
----------- --------- ---------- -----------
Total expenses................................................... 194,293 22,145 73,263 289,701
----------- --------- ---------- -----------
Operating income (loss).......................................... $ 30,925 $ (3,544) $ 2,453 29,834
----------- --------- ----------
----------- --------- ----------
Other expense:
Interest expense, net.......................................... * * * (8,687)
Other, net..................................................... * * * (202)
-----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates................................. * * * $ 20,945
-----------
-----------
Total assets..................................................... $ 491,374 $ 13,844 $ 37,457 $ 542,675
----------- --------- ---------- -----------
----------- --------- ---------- -----------
December 31, 1996
- -----------------------------------------------------------------
Commissions and fees............................................. $ 167,683 $ 6,659 $ 53,353 $ 227,695
----------- --------- ---------- -----------
Operating expenses:
Salaries and related costs, office & general and CEO bonus..... 142,009 8,266 51,267 201,542
Amortization of intangibles.................................... 4,216 224 -- 4,440
Special compensation........................................... 52,019 -- -- 52,019
----------- --------- ---------- -----------
Total expenses................................................... 198,244 8,490 51,267 258,001
----------- --------- ---------- -----------
Operating income (loss).......................................... $ (30,561) $ (1,831) $ 2,086 (30,306)
----------- --------- ----------
----------- --------- ----------
Other expense:
Interest expense, net.......................................... * * * (14,132)
Other, net..................................................... * * * (683)
-----------
Loss before provision for income taxes, minority interests and
equity in earnings of affiliates............................... * * * $ (45,121)
-----------
-----------
Total assets..................................................... $ 337,467 $ 5,431 $ 30,744 $ 373,642
----------- --------- ---------- -----------
----------- --------- ---------- -----------
</TABLE>
- ------------------------
* Not allocated
64
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
Information by geographic region: NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
- ----------------------------------------------- -------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Commissions and fees......................... $ 253,575 $ 21,043 $ 80,897 $ 51,254 $ 406,769
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates................................. 5,989 1,064 6,249 (180) 13,122
Long-lived assets............................ 93,437 19,935 87,126 47,639 248,137
December 31, 1997
Commissions and fees......................... $ 224,089 $ 27,066 $ 52,160 $ 16,220 $ 319,535
Income before taxes, minority interests and
equity in earnings of affiliates........... 12,210 1,891 4,287 2,557 20,945
Long-lived assets............................ 84,232 17,033 81,123 21,649 204,037
December 31, 1996
Commissions and fees......................... $ 175,824 $ 18,932 $ 12,982 $ 19,957 $ 227,695
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates*................................ (46,603) 258 1,803 (579) (45,121)
Long-lived assets............................ 74,274 15,914 6,864 1,501 98,553
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively for North America.
NOTE 17--SUBSEQUENT EVENTS
M&B ACQUISITION
On January 28, 1999, the Company acquired all of the outstanding capital
stock, and options to purchase such stock, of Morgan & Banks Limited ("M&B") for
an aggregate of 5,114,924 shares of the Company's common stock and approximately
300,000 shares of the Company's common stock which have been reserved for
issuance upon exercise of stock options by the M&B shareholders. This
acquisition has been accounted for as a pooling-of-interests.
M&B provides human resource services to both the public and private sectors
in Australasia. Employment-related services provided by M&B include permanent
recruitment, temporary contracting and consulting. M&B permanent recruitment
services cover traditional search assignments, which involve the placement of
highly specialized and senior executive level employees, and selection
assignments, which involve the placement of mid-level executives through
semi-skilled employees. M&B has also developed a proprietary Assessment Center
process which is used by M&B to recruit numerous employees to fill a set of
similar positions required by the client. The Assessment Center is designed to
simultaneously evaluate the abilities of a group of candidates to perform in a
current or future role through job simulations, behavioral and situational
interviews, leadership and team exercises, group discussions and role plays.
M&B's temporary contracting services place qualified personnel in temporary
positions or on discrete short-term projects, thereby enabling M&B's clients to
gain the full benefit of a flexible workforce in times
65
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
of rapidly changing commercial environments. M&B's consulting services assist
clients in formulating and implementing effective human resource strategies
through workplace training, outplacement and career transition management,
psychological services and general human resource consulting.
LAI WORLDWIDE ACQUISITION
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI and that the transaction is expected to be accounted
for as a pooling of interests.
The acquisition is anticipated to close in the third quarter of 1999. It is
estimated that costs associated with the merger, including a non-cash charge of
$2.7 million to reflect the accelerated vesting of equity incentives due LAI
employees, will be approximately $6.0 million.
Under the terms of the agreement, each share of LAI stock will be exchanged
for 0.1321 shares of the Company's common stock, assuming that the average share
price of the Company's common stock for the 20 days ending on the 2nd day prior
to closing is between $42.00 and $64.00 per share. Should such 20-day average
share price fall below $42.00 per share, unless the Company elects to terminate
the acquisition, the exchange ratio will be adjusted to that obtained by
dividing $5.55 by the Company's 20-day average stock price measured prior to
closing. Should such 20-day average share price exceed $64.00 per share, the
exchange ratio will be adjusted to that obtained by dividing $8.45 by the
Company's 20-day average stock price measured prior to closing, but not below
that which would provide LAI shareholders with a fraction of a share of the
Company's common stock equal to $5.55. Based on the exchange ratio of 0.1321,
the Company expects to issue approximately 1.2 million shares, including the
effect of options. The agreement is subject to customary closing conditions,
including approval by the shareholders of LAI Worldwide.
66
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information set forth under the caption "Proposal No. 1--Election of
Directors" in the Company's definitive Proxy Statement to be used in connection
with the 1999 Annual Meeting of Stockholders is incorporated herein by
reference.
EXECUTIVE OFFICERS
See "Part I--Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Company's definitive Proxy Statement to be used in connection with the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's definitive Proxy Statement to be used in connection with the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(A) DOCUMENT LIST
1. FINANCIAL STATEMENTS
The financial statements of the Company filed herewith are set forth in Part
II, Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule and opinion thereon are filed as
a part of this Report:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
67
<PAGE>
3. EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K
(a) The following exhibits are filed as part of this report or are
incorporated herein by reference (Exhibit Nos. 10.1, 10.3, 10.4, 10.5, 10.6,
10.25, 10.26 and 10.27 are management contracts, compensatory plans or
arrangements):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 -- Agreement relating to the Entire Issued Share Capital of Austin Knight Limited, dated July 1997,
between AK Warranty and Indemnity Limited and TMP Worldwide Inc.*
2.2 -- Scheme Implementation Agreement, dated August 17, 1998, between Morgan & Banks Limited and TMP
Worldwide Inc.***
2.3 -- Agreement and Plan of Merger, dated as of March 11, 1999, by and among TMP Worldwide Inc., TMP
Florida Acquisition Corp. and LAI Worldwide, Inc.
3.1 -- Certificate of Incorporation.**
3.2 -- Bylaws.**
4.1 -- Form of Common Stock Certificate.**
10.1 -- Form of Employee Confidentiality and Non-Solicitation Agreement.**
10.2 -- Form of Indemnification Agreement.**
10.3 -- 1996 Stock Option Plan.**
10.4 -- Form of Stock Option Agreement under 1996 Stock Option Plan.**
10.5 -- 1996 Stock Option Plan for Non-Employee Directors.**
10.6 -- Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.**
10.7 -- Lease, dated as of October 31, 1978, between Telephone Marketing Programs Inc. and PDC Realty Inc.
as agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June
20, 1991.**
10.8 -- Share Sale and Purchase Agreement, dated July 2, 1996, relating to the entire issued share capital
of Neville Jeffress Australia Pty Limited, between Neville Jeffress Holding Pty Limited, Petzow
Holdings Pty Ltd., TMP Australia Pty Limited and Neville Jeffress Australia Pty Ltd.**
10.9 -- Asset Purchase Agreement, dated as of January 3, 1995, by and among Rogers Acquisition Corp.,
Rogers & Associates Advertising, Inc., Curtis Rogers, Steven Schmidt and Ronni Rogers.**
10.10 -- Amended and Restated Accounts Receivable Management and Security Agreement, dated as of June 27,
1996, between TMP Worldwide Inc. and BNY Financial Corporation, as amended by Amendment No. 1 to
Amended and Restated Accounts Receivable Management and Security Agreement, dated as of August 29,
1996.**
10.11 -- Agreement and Plan of Merger of TMP Worldwide Inc., Worldwide Classified Inc., McKelvey
Enterprises, Inc. and Telephone Marketing Programs Incorporated.**
10.12 -- Stock Purchase Agreement, dated May 26, 1977, among Telephone Marketing Programs, Inc., Andrew J.
McKelvey, Timothy P. Hanley and Bard Publishing Company, as amended on June 15, 1977.**
10.13 -- Agreement, dated as of January 3, 1995, among Andrew J. McKelvey, Aeronautic Media, Inc. and
McKelvey Enterprises, Inc. relating to a yacht.**
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
10.14 -- Stock Purchase Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Volando, Inc.**
10.15 -- Contribution Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of EPI Aviation, Inc.**
10.16 -- Lease Agreement, dated as of June 1, 1996, by and between TPH and AJM, a partnership, and Telephone
Directory Advertising, Inc.**
10.17 -- Contribution Agreement, dated as of July 16, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc. relating to the common stock of General Directory Advertising Services, Inc.**
10.18 -- Stock Purchase Agreement, dated as of August 15, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of National Media Holding Company, Inc.**
10.19 -- Stock Purchase Agreement, dated as of September 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Telephone Directory Advertising, Inc.**
10.20 -- Stock Purchase Agreement, dated as of September 4, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of S.M.E.T. Servizio Marketing Elenchi Telefonici
s.r.l.**
10.21 -- Agreement, dated as of March 17, 1996, between TMP Worldwide Inc. and George Eisele, as amended by
Amendment 1 to Agreement, dated as of September 5, 1996.**
10.22 -- Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C.
Ltd.**
10.23 -- Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide
Inc., as amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.**
10.24 -- Indenture, dated April 29, 1988, between International Drive, L.P. and Telephone Marketing
Programs, Inc.**
10.25 -- Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive
Inc. and Jeffrey C. Taylor.**
10.26 -- Amendment No. 1 to Employment Agreement, dated October 21, 1996, between TMP Worldwide Inc. and
James J. Treacy.+
10.27 -- Amendment No. 1 to Employment Agreement, dated November 15, 1998, between TMP Worldwide Inc. and
Andrew J. McKelvey.+
10.28 -- Warrant Agreement, dated October 13, 1993, between TMP Worldwide Inc. and BNY Financial
Corporation, as amended by an amendment dated December 31, 1995.**
10.29 -- Form of Option Agreement, dated as of January 1, 1995, relating to options issued to shareholders
and/or principals of Kidd, Schneider & Dersch, Inc.**
10.30 -- Amendment No. 3 to Amended and Restated Accounts Receivable Management and Security Agreement,
dated as of May 15, 1997, between BNY Financial Corporation and TMP Worldwide Inc.*
10.32 -- Management Agreement, dated June 1, 1997, between Dir-Ad Services Inc./Les Services Dir-Ad Inc. and
TMP Worldwide Ltd.*
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
10.33 -- Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of
November 5, 1998, between BNY Financial Corporation and TMP Worldwide Inc.+
21 -- Subsidiaries of the Company.*
23.1 -- Consent of BDO Seidman, LLP.
27 -- Financial Data Schedule--Year ended December 31, 1998
27.1 -- Restated Financial Data Schedule--Year ended December 31, 1997
27.2 -- Restated Financial Data Schedule--Nine Months ended September 30, 1997+++
27.3 -- Restated Financial Data Schedule--Six months ended June 30, 1997++
27.4 -- Restated Financial Data Schedule--Three months ended March 31, 1997++
27.5 -- Restated Financial Data Schedule--Year ended December 31, 1996
27.6 -- Restated Financial Data Schedule--Nine months ended September 30, 1996++
27.7 -- Restated Financial Data Schedule--Six months ended June 30, 1996++
27.8 -- Restated Financial Data Schedule--Three months ended March 31, 1996++
27.9 -- Restated Financial Data Schedule--Year ended December 31, 1995+++
</TABLE>
(b) Reports on Form 8-K.
(i) A Form 8-K, dated December 7, 1998, was filed with respect to the
issuance of 246,606 shares of Common Stock to Peter Evans and his affiliates in
connection with an acquisition. The shares were issued pursuant to Regulation S
of the Securities Act of 1933.
(ii) A Form 8-K, dated December 22, 1998, was filed with respect to the
issuance of 53,728 shares of Common Stock to Klaus Schmah in connection with an
acquisition and 84,612 shares of Common Stock were issued to Joachim Staude in
connection with an acquisition. The shares were issued pursuant to Regulation S
of the Securities Act of 1933.
(c) Exhibits.
See (3)(a)above.
* Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 (Registration No. 333-31657).
** Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 (Registration No. 333-12471).
*** Incorporated by reference to Exhibits to the Registration Statement on Form
S-3 (Registration No. 333-63499)
+ Incorporated by reference to Exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998 (Registration
No. 000-21571)
++ Incorporated by reference to Exhibits to the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997 (Registration No. 000-21571)
+++ Incorporated by reference to Exhibits to the Company's Current Report on
Form 8-K dated March 17, 1999.
70
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated March 26, 1999 relating to the
consolidated financial statements of TMP Worldwide Inc. and Subsidiaries, which
is contained in Item 8 of this Form 10-K, included the audits of the financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based upon our
audits.
In our opinion the financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
March 26, 1999
71
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--
COLUMN B ADDITIONS COLUMN E
----------------- -------------------------------- -------------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------- BEGINNING OF COSTS AND OTHER --------------- END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------- ----------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996............... $ 3,865 $ 3,131 $ 2,111(1) $ 1,800 $ 7,307
Year ended December 31, 1997............... $ 7,307 $ 3,588 $ 1,923(1) $ 2,608 $ 10,210
Year ended December 31, 1998............... $ 10,210 $ 4,895 $ 286(1) $ 3,208 $ 12,183
Restructuring Reserves
Year ended December 31, 1997............... $ 0 $ 0 $ 17,663 $ 862 $ 16,801
Year ended December 31, 1998............... $ 16,801 $ 0 $ 10,020 $ 10,651 $ 16,170
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
72
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN OF THE BOARD AND PRESIDENT
</TABLE>
March 29, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman of the Board, President and March 29, 1999
------------------------------------------- Director (principal executive
Andrew J. McKelvey officer)
/s/ THOMAS G. COLLISON Vice Chairman (principal financial March 29, 1999
------------------------------------------- officer)
Thomas G. Collison
/s/ JAMES J. TREACY Executive Vice President, Chief March 29, 1999
------------------------------------------- Operating Officer and Director
James J. Treacy
/s/ ROXANE PREVITY Chief Financial Officer (principal March 29, 1999
------------------------------------------- accounting officer)
Roxane Previty
/s/ GEORGE R. EISELE Director March 29, 1999
-------------------------------------------
George R. Eisele
/s/ JOHN R. GAULDING Director March 29, 1999
-------------------------------------------
John R. Gaulding
/s/ MICHAEL KAUFMAN Director March 29, 1999
-------------------------------------------
Michael Kaufman
/s/ JOHN SWANN Director March 29, 1999
-------------------------------------------
John Swann
</TABLE>
73
<PAGE>
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER...............................................................1
SECTION 1.01 Effective Time of the Merger..........................1
SECTION 1.02 Closing...............................................1
SECTION 1.03 Effects of the Merger.................................2
SECTION 1.04 Directors and Officers................................2
ARTICLE II
CONVERSION OF SECURITIES.................................................2
SECTION 2.01 Conversion of Capital Stock...........................2
SECTION 2.02 Exchange of Certificates..............................4
SECTION 2.03 Conversion of Options.................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER.................................7
SECTION 3.01 Organization of Seller................................8
SECTION 3.02 Seller Capital Structure..............................8
SECTION 3.03 Authority; No Conflict; Required Filings and Consents10
SECTION 3.04 SEC Filings; Financial Statements....................11
SECTION 3.05 No Undisclosed Liabilities...........................11
SECTION 3.06 Absence of Certain Changes or Events.................11
SECTION 3.07 Taxes................................................12
SECTION 3.08 Properties...........................................13
SECTION 3.09 Agreements, Contracts and Commitments................14
SECTION 3.10 Litigation...........................................14
SECTION 3.11 Employee Benefit Plans...............................14
SECTION 3.12 Compliance With Laws.................................15
SECTION 3.13 Accounting and Tax Matters...........................16
SECTION 3.14 Registration Statement; Proxy Statement/Prospectus...16
SECTION 3.15 Labor Matters........................................16
SECTION 3.16 Year 2000 Compliance.................................17
SECTION 3.17 No Existing Discussions...........................17
SECTION 3.18 Opinion of Financial Advisor.........................17
SECTION 3.19 Anti-Takeover Laws; Stockholder Rights Agreement.....17
(i)
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB.........................18
SECTION 4.01 Organization of Buyer and Sub........................18
SECTION 4.02 Buyer Capital Structure..............................19
SECTION 4.03 Authority; No Conflict; Required Filings and Consents20
SECTION 4.04 SEC Filings; Financial Statements....................21
SECTION 4.05 No Undisclosed Liabilities...........................21
SECTION 4.06 Absence of Certain Changes or Events.................21
SECTION 4.07 Taxes................................................22
SECTION 4.08 Agreements, Contracts and Commitments................22
SECTION 4.09 Litigation...........................................23
SECTION 4.10 Compliance With Laws.................................23
SECTION 4.11 Accounting and Tax Matters...........................23
SECTION 4.12 Registration Statement; Proxy Statement/Prospectus...23
SECTION 4.13 Year 2000 Compliance.................................24
SECTION 4.14 Interim Operations of Sub............................24
ARTICLE V
CONDUCT OF BUSINESS.....................................................25
SECTION 5.01 Covenants of Seller..................................25
SECTION 5.02 Covenants of Buyer...................................27
SECTION 5.03 Cooperation..........................................28
SECTION 5.04 Confidentiality......................................28
SECTION 5.05 Notices of Certain Events............................28
ARTICLE VI
ADDITIONAL AGREEMENTS...................................................28
SECTION 6.01 No Solicitation......................................28
SECTION 6.02 Proxy Statement/Prospectus; Registration Statement...30
SECTION 6.03 Nasdaq Quotation.....................................30
SECTION 6.04 Access to Information................................30
SECTION 6.05 Stockholder Meeting..................................30
SECTION 6.06 Legal Conditions to Merger...........................31
SECTION 6.07 Public Disclosure....................................32
SECTION 6.08 Reorganization.......................................32
SECTION 6.09 Pooling Accounting...................................32
SECTION 6.10 Affiliate Agreements.................................32
(ii)
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
SECTION 6.11 Nasdaq National Market Listing.......................33
SECTION 6.12 Stock Plans..........................................33
SECTION 6.13 Certain Employee Benefit Plan Obligations............33
SECTION 6.14 Indemnification, Exculpation and Insurance...........33
SECTION 6.15 Brokers or Finders...................................34
SECTION 6.16 Comfort Letters from Seller's Accountants............34
SECTION 6.17 Comfort Letter from Buyer's Accountants..............35
SECTION 6.18 Control of Operations................................35
SECTION 6.19 No Rights Triggered..................................35
SECTION 6.20 Release of Lockups..................................35
SECTION 6.21 .....................................................35
ARTICLE VII
CONDITIONS TO MERGER....................................................35
SECTION 7.01 Conditions to Each Party's Obligation To
Effect the Merger....................................35
SECTION 7.02 Additional Conditions to Obligations of
Buyer and Sub........................................36
SECTION 7.03 Additional Conditions to Obligations of Seller.......38
ARTICLE VIII
TERMINATION AND AMENDMENT...............................................39
SECTION 8.01 Termination..........................................39
SECTION 8.02 Effect of Termination................................40
SECTION 8.03 Fees and Expenses....................................40
SECTION 8.04 Amendment............................................41
SECTION 8.05 Extension; Waiver....................................42
ARTICLE IX
MISCELLANEOUS...........................................................42
SECTION 9.01 Nonsurvival of Representations, Warranties
and Agreements.......................................42
SECTION 9.02 Notices..............................................42
SECTION 9.03 Interpretation.......................................43
SECTION 9.04 Counterparts.........................................43
SECTION 9.05 Entire Agreement; No Third Party Beneficiaries.......43
SECTION 9.06 GOVERNING LAW........................................44
SECTION 9.07 Jurisdiction.........................................44
SECTION 9.08 Assignment...........................................44
SECTION 9.09 Severability.........................................44
(iii)
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
SECTION 9.10 Enforcement..........................................44
SECTION 9.11 No Rule of Construction..............................45
(iv)
<PAGE>
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
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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.
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
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("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 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
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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
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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 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
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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.
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(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
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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 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
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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, 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. (a)
Seller has all requisite corporate power and authority to enter into this
Agreement and to consummate
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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 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.
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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)
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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, 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
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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.
(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,
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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 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
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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.
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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 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
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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 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
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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 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
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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 amend or enter into any
such option, warrant, equity security, call, right, commitment or agreement
except under Buyer
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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.
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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.
(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 http://www.nasdaq.com ("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,
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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.
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
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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 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
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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
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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
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
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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;
(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;
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(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
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(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.
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
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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 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
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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 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
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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.
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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.
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
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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.
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.
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(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.
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
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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.
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(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.
(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
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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.
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
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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
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(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
(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).
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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).
(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.
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(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.
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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):
(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
(b) 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
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
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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 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.
43
<PAGE>
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.
44
<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.
TMP WORLDWIDE INC.
By: /s/ Myron Olesnyckyj
------------------------------------
TMP FLORIDA ACQUISITION CORP.
By: /s/ Myron Olesnyckyj
------------------------------------
LAI WORLDWIDE, INC.
By: /s/ Robert Pearson
------------------------------------
45
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the previously filed
Registration Statements (Nos. 333-17743, 333-18937, 333-63631 and 333-50699) of
TMP Worldwide Inc. and Subsidiaries of our reports dated March 26, 1999,
relating to the consolidated financial statements and schedule of TMP Worldwide
Inc. and Subsidiaries appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
/s/BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 28,912
<SECURITIES> 0
<RECEIVABLES> 286,740
<ALLOWANCES> 12,183
<INVENTORY> 0
<CURRENT-ASSETS> 343,356
<PP&E> 101,043
<DEPRECIATION> 47,518
<TOTAL-ASSETS> 608,059
<CURRENT-LIABILITIES> 359,517
<BONDS> 118,018
0
0
<COMMON> 30
<OTHER-SE> 123,298
<TOTAL-LIABILITY-AND-EQUITY> 608,059
<SALES> 406,769
<TOTAL-REVENUES> 406,769
<CGS> 0
<TOTAL-COSTS> 377,411
<OTHER-EXPENSES> 926
<LOSS-PROVISION> 4,895
<INTEREST-EXPENSE> 10,415
<INCOME-PRETAX> 13,122
<INCOME-TAX> 8,476
<INCOME-CONTINUING> 4,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,250
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED INITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,404
<SECURITIES> 0
<RECEIVABLES> 288,706
<ALLOWANCES> 10,210
<INVENTORY> 0
<CURRENT-ASSETS> 325,784
<PP&E> 82,916
<DEPRECIATION> 40,181
<TOTAL-ASSETS> 542,675
<CURRENT-LIABILITIES> 318,918
<BONDS> 117,841
0
0
<COMMON> 30
<OTHER-SE> 105,214
<TOTAL-LIABILITY-AND-EQUITY> 542,675
<SALES> 319,535
<TOTAL-REVENUES> 319,535
<CGS> 0
<TOTAL-COSTS> 286,113
<OTHER-EXPENSES> 202
<LOSS-PROVISION> 3,588
<INTEREST-EXPENSE> 8,687
<INCOME-PRETAX> 20,945
<INCOME-TAX> 9,969
<INCOME-CONTINUING> 10,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,800
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,345
<SECURITIES> 0
<RECEIVABLES> 218,066
<ALLOWANCES> 7,307
<INVENTORY> 0
<CURRENT-ASSETS> 248,580
<PP&E> 55,151
<DEPRECIATION> 30,745
<TOTAL-ASSETS> 373,642
<CURRENT-LIABILITIES> 255,868
<BONDS> 71,672
0
0
<COMMON> 27
<OTHER-SE> 40,749
<TOTAL-LIABILITY-AND-EQUITY> 373,642
<SALES> 227,695
<TOTAL-REVENUES> 227,695
<CGS> 0
<TOTAL-COSTS> 254,870
<OTHER-EXPENSES> 683
<LOSS-PROVISION> 3,131
<INTEREST-EXPENSE> 14,132
<INCOME-PRETAX> (45,121)
<INCOME-TAX> 4,183
<INCOME-CONTINUING> (49,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,624)
<EPS-PRIMARY> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
