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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-22645
LAI WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-3547281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 PARK AVENUE, SUITE 3100
NEW YORK, NEW YORK 10166-0136
(212) 953-7900
(Address, including zip code, and telephone number
including area code, of Registrant's principal executive offices)
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 $.01 per share, Preferred Stock Purchase Rights
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. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on May 24, 1999,(7,361,053 shares, assuming
solely for these purposes that all directors, executive officers and 10% or
greater stockholders are affiliates), based on the closing price of the Common
Stock on the Nasdaq National Market as of such date, was approximately
$43,246,186.
The number of shares of the Registrant's Common Stock outstanding as of May 24,
1999, was approximately 8,016,571.
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TABLE OF CONTENTS
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PART I.
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II.
Item 5. Market for the Registrant's Common Equity and Related 9
Stockholder Matters
Item 6. Selected Consolidated Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements on Accountants on Accounting 19
and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and 31
Management
Item 13. Certain Relationships and Related Transactions 33
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 34
8-K
Signatures 58
Financial Statement Schedules 61
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
LAI Worldwide, Inc. ("LAI") provides executive search consulting
services aimed specifically at solving its clients' leadership needs by
identifying, evaluating and recommending qualified candidates for senior level
positions. LAI principally serves Fortune 500 and large private companies. LAI
provides executive search services exclusively on a retained basis, and charges
a fee typically equal to one-third of the first year cash compensation for the
position being filled.
LAI has developed a knowledge-based search practice organized around
five industry groups and one functional group. The industry groups execute
searches for clients in the following business sectors: consumer products and
services; financial services; health care and pharmaceuticals; industrial; and
technology. The functional group executes searches for specific functional
positions, including board of directors, human resources and legal. These
practice groups enable LAI's consultants to better understand each client's
business strategy and industry and position LAI as a consulting partner to its
clients.
MERGER AGREEMENT WITH TMP WORLDWIDE, INC.
Effective as of March 11, 1999, LAI entered into an Agreement and Plan
of Merger (the "Merger Agreement") with TMP Worldwide Inc. ("TMP"), pursuant to
which TMP is to acquire LAI in a pooling of interests transaction.
Under the terms of the Merger Agreement, each share of LAI stock will
be exchanged for 0.1321 shares of TMP common stock, assuming that the TMP
average share price for the 20 days ending on the 2nd day prior to closing is
between $42.00 and $64.00 per share. Should the 20-day average share price of
TMP stock fall below $42.00 per share, unless TMP elects to terminate the
acquisition, the exchange ratio will be adjusted to that obtained by dividing
$5.55 by TMP's 20-day average stock price measured prior to closing. Should
TMP's 20-day average share price exceed $64.00 per share, the exchange ratio
will be adjusted to that obtained by dividing $8.45 by TMP's 20-day average
stock price measured prior to closing, but not below that which would provide
LAI shareholders with a fraction of a TMP share equal to $5.55. Based on the
exchange ratio of 0.1321, TMP expects to issue approximately 1.2 million
shares, including the effect of options. The Merger Agreement is subject to
customary closing conditions, including approval by LAI's stockholders.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie
Associates, Inc., a Florida corporation ("Lamalie"), reorganized into a holding
company structure and began doing business under the name of the new holding
company, LAI Worldwide, Inc. The reorganization was intended to provide greater
flexibility for international and domestic expansion, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. In certain respects, the new holding company is
the successor to Lamalie, which became a wholly owned subsidiary of the new
holding company in the reorganization. In the reorganization, each share of
Lamalie common stock outstanding immediately prior to the reorganization was
converted into one share of the new holding company's common stock. As a
result, persons who were Lamalie stockholders before the reorganization now
hold common stock of LAI Worldwide, Inc. Prior to the reorganization, Lamalie's
common stock traded on the Nasdaq Stock Market under the ticker symbol "LAIX."
After the reorganization, the new holding company's common stock continues to
trade on the Nasdaq Stock Market under the same ticker
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symbol "LAIX." As used herein, unless the context otherwise requires,
references to "LAI" are intended to refer to Lamalie and its consolidated
subsidiaries with respect to events occurring prior to the effectiveness of the
reorganization, and to the new holding company, LAI Worldwide, Inc., and its
consolidated subsidiaries with respect to events occurring from and after the
effectiveness of the reorganization.
EXECUTIVE SEARCH INDUSTRY OVERVIEW
Executive search is generally separated into two broad fee-based
categories: retained search firms and contingency search firms. Retained search
firms fulfill their clients' senior leadership needs by identifying,
evaluating, assessing and recommending qualified candidates for senior level
positions, typically with annual cash compensation of $100,000 and above.
Contingency search firms, on the other hand, focus primarily on mid-level
positions with annual cash compensation of less than $150,000. Both types of
firms normally are paid a fee for their services equal to approximately
one-third of the guaranteed first year cash compensation for the position being
filled.
Retained search firms currently serve the majority of the Fortune 500
companies as well as numerous other organizations, including government
agencies, professional organizations and fast-growing entrepreneurial
companies. Retained search firms are compensated for an assignment whether or
not they are successful in placing a recommended candidate. Contingency search
firms also serve large corporations; however, their primary focus is on small
and medium sized companies. Unlike retained search firms, contingency search
firms are not compensated for an assignment unless they successfully complete a
search and place a recommended candidate.
According to Kennedy Information, a leading industry publication,
revenue in the executive search industry historically has been divided almost
evenly between retained and contingency search firms; however, retained search
firms are estimated to employ only one-third of the consultants in the
industry. Thus, the average fee revenue per consultant for retained firms is
substantially higher than for contingency firms. Moreover, the predictable
revenue stream associated with a retained search enables a retained firm, such
as LAI, to devote more personnel and greater resources to an assignment than a
contingency search firm whose revenue is not assured. LAI believes this
difference in payment structure enables retained search firms to provide
clients with more value-added consulting services than contingency search
firms.
BUSINESS STRATEGY
LAI's objective is to be a leader in providing comprehensive
consulting services aimed specifically at solving its clients' senior
leadership needs. The key elements of LAI's business strategy include:
Attract, Motivate and Retain High Quality Search Consultants. LAI
seeks to attract, motivate and retain highly productive executive search
consultants. LAI's compensation system is primarily based on consultant
performance, which is measured by the amount of fee revenue each consultant
generates.
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Build on Knowledge-Based Practice Groups. LAI believes a thorough
understanding of both its clients and the industries in which they operate are
among the most significant factors in obtaining and completing search
assignments. Accordingly, LAI has developed a knowledge-based search practice
organized around five industry groups and one functional group. The industry
groups execute searches for clients in the following business sectors: (1)
consumer products and services; (2) financial services; (3) healthcare and
pharmaceuticals; (4) industrial; and (5) technology. The functional group
executes searches for specific functional positions, including board of
directors, human resources and legal. Each practice group is coordinated under
the direction of a Practice Group Leader who establishes the marketing and
search strategies for that practice group.
Build Long-Term, Consultative Relationships. LAI strives to develop
long-term relationships by becoming a consulting partner with its clients. To
position itself as a consulting partner, LAI works closely with clients to gain
an in-depth understanding of their unique organizational structure, history,
operations, culture, strategic objectives and leadership needs. In addition,
LAI's focus on knowledge-based practice groups enables its consultants to
provide more specialized and efficient service to LAI's clients.
Capitalize on Research and Technology. LAI believes that its
industrial specialization and technological capabilities enable it to perform
comprehensive research and, ultimately, deliver high quality search results to
its clients.
SERVICES
Executive Search Services. LAI provides executive search services
exclusively on a retained basis principally for Fortune 500 and large private
companies. LAI typically is retained to identify candidates to fill its
clients' senior leadership positions, which range from brand managers and
controllers to chief operating and chief executive officers. The average first
year cash compensation of positions for which LAI conducted searches in fiscal
1999 was approximately $210,000.
LAI serves its clients in a consultative capacity by (i) assessing the
client's existing management capabilities, corporate culture and business
strategies, (ii) evaluating the client's industry position and major
competition, (iii) determining the relevant business experience, skills and
personal characteristics that a qualified candidate should possess, (iv)
identifying, contacting and interviewing potential candidates, (v) developing
detailed candidate reports and making recommendations to the client regarding
the most qualified candidates, (vi) advising the client with respect to
appropriate compensation and benefits and (vii) monitoring the quality of its
search procedures with client surveys and other client feedback mechanisms.
In providing high quality executive search services, LAI uses a
team-oriented approach rather than relying on the reputation of a few key
consultants. Each of LAI's consultants is expected to develop and maintain an
expertise in one or two industries and build long-term relationships with a
limited number of clients. To maintain a high level of quality on a consistent
basis, consultants employ LAI's standard executive search process for each new
search assignment, regardless of how similar the parameters of the new search
may be to other search assignments previously conducted by LAI. At the start of
each search assignment, LAI and its client jointly develop detailed candidate
and job specifications and establish a search strategy that targets specific
industries and companies that are expected to produce the most appropriate
candidates. LAI's consultants and research staff then contact potential
candidates, distribute job specifications and client promotional materials,
conduct extensive telephone and personal interviews, and check references of
those candidates who appear most qualified for the position. Because most
candidates are successfully employed and not seeking to change jobs, initial
contact must be conducted discreetly.
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After meeting with job candidates, LAI submits to the client
confidential candidate reports regarding those candidates who LAI believes are
the most qualified. Each report contains a detailed business history of the
candidate, results of LAI's preliminary reference checks and LAI's assessment
of the candidate's relevant business experience, qualifications, personal
characteristics and suitability. LAI then assists in the introduction of
selected candidates to the client and administers the interview process. When
the client is ready to extend an employment offer, LAI facilitates the
negotiation of employment terms and the transition by the candidate to the
employ of the client.
Selection Services. In early fiscal 2000, LAI launched a new service
offering, known as "selection services," to complement its core executive
search practice. Termed LAIcompass.com ("Compass"), this business focuses on
searches for mid-level executives with cash compensation in the $70,000 to
$140,000 range, and specializes in completing multiple positions under a single
search engagement.
LAI's approach to selection services is similar to its other executive
searches, in that search consultants profile the needs of each client and
develop job specifications and desired candidate attributes. Compass utilizes
several methods to identify candidates, including print and Internet
advertising, research, data mining and LAI's extensive professional network. To
expand and manage selection services more efficiently, Compass utilizes an
Internet based registration site allowing candidates to provide relevant
biographical and employment histories and complete an assessment profile that
is considered against the predetermined job profiles. This process, coupled
with follow-up interviews conducted by Compass consultants, optimizes the
resulting "fit" with a prospective employer. With the exception of the personal
interview, the entire process is intended to be conducted on-line, allowing for
maximum efficiency in completing assignments regardless of the number of
positions the employer desires to fill. Compass is a particularly effective
recruiting solution for companies launching new service offerings, expanding
existing operations, or for start-up companies needing to get their sales force
and other critical resources in place quickly.
Compass's fee for selection services is based on a percentage of the
first year cash compensation for each position filled, in addition to the
overall volume and complexity of the positions being filled. Compass's lower
cost structure and overall efficiencies gained through technology allow for a
profit margin consistent with LAI despite the lower salary level positions
which are being filled. In addition, selection services allow LAI's consultants
to address a much broader range of human resource needs for both new and
existing clients. To date, revenues from selection services has not been
significant.
In May 1999, LAI entered into a four-year co-operative advertising
arrangement with TMP, a leading provider of Internet based recruitment
solutions including Monster.com. The arrangement is documented in two letter
agreements providing for (1) a direct link from the Monster.com home page to
LAIcompass.com, (2) TMP's appointment of LAIcompass.com as the exclusive
provider of TMP's online candidate assessment activities for mid-level
managerial positions, (3) LAI's listing on Monster.com of LAI's search
assignments for mid-level positions paying annual base salaries between $70,000
and $140,000 and (4) LAI providing for $10 million in television and print
advertising in May and June 1999 to promote its relationship with Monster.com
and the availability of the link to LAIcompass.com at Monster.com. After an
initial five-month period, either party may terminate the arrangement. If the
arrangement is terminated, TMP is required to reimburse LAI for substantially
all of the advertising expenses incurred under the terms of the agreement.
TMP's obligations are secured by an irrevocable standby letter of credit.
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MARKETING AND CLIENTS
Knowledge-Based Practice Groups. LAI has developed a knowledge-based
search practice organized around five industry groups and one functional group.
The industry groups execute searches for clients in the following business
sectors: consumer products and services; financial services; health care and
pharmaceuticals; industrial; and technology. The functional group executes
searches for specific functional positions, including board of directors, human
resources and legal. Each practice group is coordinated by a Practice Group
Leader who is responsible for developing new business and maintaining a high
standard of service in that practice group. To achieve these objectives, each
Practice Group Leader (i) establishes the marketing and search strategies for
the particular practice group, (ii) identifies focused accounts and targets
clients within that practice group's business sector and (iii) facilitates and
assists the marketing activities of other consultants in the practice group.
Each Practice Group Leader has substantial industry expertise, frequently
having held one or more executive positions in the group's business sector
prior to becoming a search consultant. Additionally, LAI's Practice Group
Leaders have an average of approximately 14 years of experience in the
executive search industry.
LAI's practice groups enable its consultants to better understand each
client's business strategy and industry and position LAI as a consulting
partner to its clients. LAI emphasizes long-term relationships with clients,
rather than one-time projects or assignments. Each of LAI's 30 largest clients,
based on LAI's fiscal 1999 fee revenue, had been a client for an average of
approximately nine years as of February 28, 1999. In addition, approximately
60% of LAI's fiscal 1999 fee revenue was attributable to companies for which
LAI conducted one or more searches during the prior two fiscal years.
Offices. To complement its knowledge-based practice groups, LAI has
established offices in cities that are key business centers for one or more of
LAI's practice groups. Each major office is run by a Managing Partner who has
complete fiscal responsibility for that office. The Managing Partner's
principal responsibilities include overseeing day-to-day operational and
administrative matters at the local office level, providing assistance to
consultants in that office, assuring quality control in business development
and search execution, and hiring and supervising office personnel. While
compensation for other consultants is based primarily on individual
performance, Managing Partners are generally paid a base salary plus bonus
which is based on the profitability of their respective local office, as well
as on their ability to successfully recruit highly qualified consultants to
LAI. Since consultants have greater opportunities to develop relationships with
clients and prospective clients in close geographic proximity, they normally
focus on, but do not limit their efforts to, clients in the region served by
their particular office. Over time, consultants seek to establish deep roots in
the community and develop strong links with local business, government and
cultural leaders.
Blocking Arrangements. Either by agreement with clients or for
marketing or client relations purposes, executive search firms frequently
refrain from recruiting employees of a client, and possibly other entities
affiliated with that client, for a specified period of time (a "blocking"
arrangement). LAI actively manages its blocking arrangements and seeks to
mitigate any adverse effects of blocking by strengthening its long-term
relationships with focused accounts, shortening the length of the off-limits
period and by resisting requests for blocking arrangements with clients who do
not engage LAI for multiple assignments. Additionally, in recent years market
conditions and industry practices have resulted in blocking arrangements that
are becoming narrower in scope and shorter in duration.
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RESEARCH AND TECHNOLOGY
LAI believes that its industry specialization and technological
capabilities enable it to perform comprehensive research and, ultimately,
deliver high quality search results to its clients. Search consultants must
understand a client's industry, competitors and business strategies and be able
to readily identify the universe of most qualified executive candidates. LAI's
133 associates, researchers and IT professionals support LAI's consultants by,
among other things, gathering and analyzing information obtained from numerous
electronic databases, trade journals and directories, the Internet and other
sources. LAI also maintains a proprietary database containing professional
information on more than 100,000 executive candidates. Consultants can query
this database on a variety of attributes, including demographic information,
work experience, compensation and personal interview results. LAI's wide area
computer network provides remote document sharing and data search capabilities,
groupware features and real-time updates on ongoing search engagements. LAI is
committed to continually upgrading its proprietary database and other
information sources to enable LAI's consultants to retrieve relevant
information quickly and efficiently.
In the search process, the principal function of LAI's research
department is to support consultants by gathering and analyzing information on
the industries and companies expected to produce the most qualified candidates.
LAI's research professionals also support LAI's business development activities
by providing target lists, data on past LAI searches and information on
companies and executives in target industries. LAI's researchers typically have
had professional research or library training and experience prior to joining
LAI, and many have undergraduate and graduate degrees in such fields as library
science. LAI's research staff is organized by practice group, with most
researchers specializing in one or two specific industries. LAI believes its
focused approach facilitates the development of specialized expertise, promotes
a consistent culture and cooperation across the firm and standardizes
communication and training.
PROFESSIONAL STAFF AND EMPLOYEES
At February 28, 1999, LAI had 408 full time employees, of which 119
were executive search consultants, 133 were associates, researchers or IT
professionals and 156 were administrative and support staff. LAI has never been
a party to any collective bargaining agreement and considers relations with its
employees to be good.
LAI's search professionals are categorized either as consultants,
consisting of partners and principals, or as associates. Associates are junior
search professionals who generally do not directly execute search assignments,
but assist partners and principals by performing research and other functions.
After several years of experience and satisfactory performance, an associate
will be considered for promotion to the position of principal. If a principal
continues to develop and generate revenue, the principal will be offered the
opportunity to advance to the position of partner. Promotions depend on a
variety of factors, including productivity and business development. As a
matter of corporate philosophy, LAI strives to hire as associates only those
individuals it believes have the potential to become productive consultants.
COMPETITION
The executive search industry is highly competitive. It is estimated
that there are more than 4,000 executive search firms worldwide. There are
relatively few barriers to entry and new competitors frequently enter the
market. While LAI faces competition to some degree from all firms in the
industry, LAI believes its most direct competition comes from other large firms
in the industry. To a lesser extent, LAI also faces competition from smaller
boutique or specialty firms that may compete in certain regional
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or functional markets and from in-house human resource departments of clients
and prospective clients. Some of LAI's competitors possess greater resources
and name recognition than LAI. Each firm with which LAI competes is also a
competitor in seeking to attract the most productive search consultants. In
LAI's experience, the executive search business is more quality-sensitive than
price-sensitive. As a result, LAI competes on the level of service it offers,
reflected by its knowledge-based practice groups and individual client focus,
and, ultimately, the quality of its search results.
ITEM 2. PROPERTIES
LAI leases all of its office locations. As of February 28, 1999, LAI
leased an aggregate of approximately 193,000 square feet of office space under
leases calling for future minimum lease payments, net of sublease income, of
approximately $41.9 million and with remaining terms up to 15 years (exclusive
of renewal options exercisable by LAI). LAI believes that its facilities are
adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time LAI has been involved in litigation incidental to
its business. LAI currently is not a party to any litigation the adverse
resolution of which, in management's opinion, would be likely to have a
material adverse effect on LAI's business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended February 28, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LAI's Common Stock is traded on The Nasdaq Stock Market under the
symbol "LAIX."
The following table sets forth, for the periods indicated, the range
of high and low closing sale prices for the Common Stock, as reported on The
Nasdaq Stock Market since trading began on July 2, 1997, in connection with
LAI's initial public offering, at $12.00 per share, under the symbol LAIX.
<TABLE>
<CAPTION>
HIGH LOW
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FISCAL YEAR 1998:
Second Quarter (from July 2, 1997) $21.250 $15.875
Third Quarter 22.875 17.750
Fourth Quarter 21.250 16.375
FISCAL YEAR 1999:
First Quarter $23.250 $18.750
Second Quarter 19.813 5.938
Third Quarter 8.938 4.875
Fourth Quarter 8.188 5.719
FISCAL YEAR 2000:
First Quarter (through May 24, 1999) $ 5.813 $10.00
</TABLE>
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On May 24, 1999, the last reported sales price of the Common Stock on
the Nasdaq National Market was $5.875 per share. As of May 24, 1999, there were
approximately 167 holders of record of the Common Stock and approximately 2,000
beneficial holders of the Common Stock.
LAI has not paid dividends since the beginning of fiscal 1997 and does
not intend to pay any cash dividends for the foreseeable future but instead
intends to retain earnings, if any, for the future operation and expansion of
LAI's business. Any determination to pay dividends in the future will be at the
discretion of LAI's Board of Directors and will be dependent upon LAI's results
of operations, financial condition, contractual restrictions, restrictions
imposed by applicable law and other factors deemed relevant by the Board of
Directors. Moreover, LAI's credit facilities prohibit payment of dividends
without the consent of the lender.
During the fiscal year ended February 28, 1998, LAI issued 189,677 and
25,707 shares of its Common Stock, without registration under the Securities
Act of 1933 (the "Securities Act"), in connection with the acquisitions of Ward
Howell International, Inc. ("WHI") and Chartwell Partners International, Inc.
("CPI"), respectively, to the former stockholders of such companies. LAI
believes that all such transactions were exempt from registration pursuant to
Section 4(2) and/or Rule 506 under the Securities Act.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and other data of
LAI for fiscal years ended February 1995 through 1999 and as of the last day of
each of those fiscal years. The Statement of Operations Data for, and Balance
Sheet Data as of the end of, fiscal 1995 through 1999, are derived from the
audited Consolidated Financial Statements of LAI. The financial data shown
below should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Report.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
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(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
1995 1996 1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Fee revenue, net $ 28,262 $ 35,088 $ 46,437 $ 61,803 $ 86,811
Compensation and benefits 23,991 30,693 39,928 46,513 66,897
General and administrative expenses 2,333 4,467 6,685 8,663 21,628
Goodwill amortization -- -- -- 17 776
Restructuring charges -- -- -- -- 3,543
-------- -------- -------- -------- --------
Operating income (loss) 1,938 (72) (176) 6,610 (6,033)
Other income (expense) (6) (40) (376) 197 248
-------- -------- -------- -------- --------
Income (loss) before income taxes 1,932 (112) (552) 6,807 (5,785)
income taxes
Income tax expense (benefit) 671 90 15 2,927 (1,547)
-------- -------- -------- -------- --------
Net income (loss) $ 1,261 $ (202) $ (567) $ 3,880 $ (4,238)
======== ======== ========= ======== ========
Diluted net income (loss) per common and
common equivalent share $ 0.82 $ (0.58)
========= ========
Diluted weighed average common and common
equivalent shares outstanding 4,751 7,346
</TABLE>
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<TABLE>
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OTHER DATA:
Number of consultants employed as of
fiscal year end 46 54 62 111 119
Average fee revenue per consultant
employed during entire fiscal year $689,000 $706,000 $740,000 $989,000 $782,000
Average cash compensation of
positions filled (1) $180,000 $196,000 $226,000 $226,000 $210,000
<CAPTION>
AS OF FEBRUARY 28 OR 29,
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- --------- -------- --------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital (deficit) $ 1,439 $ (485) $ 617 $ 10,301 $ 41,133
Total assets 12,193 18,300 25,561 88,916 103,823
Total long-term debt 143 63 2,037 9,125 5,907
Total stockholders' equity 2,325 2,509 2,627 35,471 73,560
</TABLE>
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(1) Represents the average first year cash compensation of positions for
which LAI conducted searches during the fiscal year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following presentation of management's discussion and analysis of
LAI's financial condition and results of operations should be read in
conjunction with LAI's Consolidated Financial Statements, the Notes thereto and
other financial information included herein.
OVERVIEW
LAI derives substantially all of its revenue from fees for
professional services which are billed exclusively on a retained basis. LAI's
fees typically equal one-third of the anticipated first year cash compensation
for the position being filled. If the actual compensation package for a
successfully placed candidate varies from the amount anticipated at the time of
the engagement, an appropriate adjustment may be made to LAI's search fee. LAI
recognizes fee revenue as clients are billed, generally over a 60 to 90 day
period following the acceptance of a search assignment. In addition, clients
usually are required to reimburse LAI for out-of-pocket expenses incurred and
other service charges related to its search process.
LAI's fee revenue has grown from $28.2 million in fiscal 1995 to $86.8
million in fiscal 1999, representing a compound annual growth rate of
approximately 32%. This growth has been achieved by increasing the number of
consultants. In the two fiscal years ended February 28, 1998, the increase was
principally the result of hiring new consultants. In fiscal 1999, the increase
was principally the result of consultants added in connection with two
acquisitions effected in the fourth quarter of fiscal 1998.
The largest component of LAI's operating expenses consists of
compensation and benefits paid to its executive search consultants, executive
officers and administrative and support personnel. General and administrative
expenses consist of occupancy expense associated with LAI's leased premises,
costs associated with LAI's investments in information technology and marketing
and other general office expenses.
11
<PAGE> 12
INTERNATIONAL OPERATIONS
During the first and second quarters of fiscal 1999, LAI focused its
growth strategy on international expansion, opening offices in London, England
and Wanchai, Hong Kong. This expansion involved the hiring of 15 executive
search consultants and 47 support staff, principally in London. LAI also signed
exclusivity and confidentiality letter agreements in December 1998 with Futura
Beteiligungs GmbH, the majority owner of Neumann Holding AG, one of Europe's
largest executive search and assessment consulting firms. The parties entered
into preliminary talks about the possibility of LAI acquiring Futura. These
talks were terminated in March 1999 when LAI signed the Merger Agreement with
TMP.
Due to economic conditions and the inherent difficulties in
establishing start-up operations, revenues for the London and Hong Kong offices
were less than projected, resulting in substantial losses from LAI's
international business segment. See Note 10 to the accompanying Consolidated
Financial Statements. As a result, in December 1998, LAI decided to
significantly reduce the size and scope of its London office. In connection
with this downsizing, a restructuring charge of approximately $3.5 million was
recorded which included write-downs of abandoned assets, severance benefits
payable to international employees whose positions were eliminated, and legal
and other costs directly related to the restructuring. See Note 2 to the
accompanying Consolidated Financial Statements.
In March 1999, LAI completed a second review of its international
operations and assessed the impact of the actions taken as a result of the
decision made in December 1998. LAI determined that projections for revenues
from international operations were not being met. Consistent with its
previously stated intentions to prevent further operating losses from
international operations in fiscal 2000, LAI determined to immediately enact a
plan of closure for its two international offices. In accordance with this
plan, both the London and Hong Kong offices were closed during the first
quarter of fiscal 2000. LAI expects that the office closures will result in
further restructuring charges which will be recorded in the first quarter of
fiscal 2000.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of fee revenue:
<TABLE>
<CAPTION>
PERCENTAGE OF FEE REVENUE
--------------------------------------
YEAR ENDED
FEBRUARY 28,
--------------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Fee revenue, net 100.0% 100.0% 100.0%
Compensation and benefits 86.0 75.3 77.1
General and administrative expenses 14.4 14.0 24.9
Goodwill amortization -- -- 0.9
Restructuring charges -- -- 4.1
-------- -------- --------
Operating income (loss) (0.4) 10.7 (7.0)
Other income (expense) (0.8) 0.3 0.3
-------- -------- --------
Income (loss) before income taxes (1.2) 11.0 (6.7)
Income tax expense (benefit) -- 4.7 (1.8)
-------- -------- --------
Net income (loss) (1.2)% 6.3% (4.9)%
======== ======== ========
</TABLE>
12
<PAGE> 13
FISCAL 1999 COMPARED WITH FISCAL 1998
Fee revenue, net. LAI's fee revenue increased $25.0 million, or 40.5%,
to $86.8 million for fiscal 1999 from $61.8 million for fiscal 1998.
LAI's domestic revenue increased $21.6 million, or 35.0%, to $83.4
million for fiscal 1999 from $61.8 million for fiscal 1998. This increase is
attributable to an increase in the number of consultants. During fiscal 1999,
LAI employed an average of 116 consultants domestically as compared to an
average of 78 consultants during fiscal 1998. This increase was primarily due
to the net addition of 34 consultants in connection with the acquisitions of
WHI and CPI in the fourth quarter of fiscal 1998.
As of the end of fiscal 1999, LAI employed a total of 110 consultants
domestically. During fiscal 1999, LAI experienced turnover of approximately
17%, which was higher than LAI has typically experienced. LAI is uncertain
whether this trend will continue.
The average revenue per consultant employed for a full year decreased
20.9%, to $782,000, for fiscal 1999 from $989,000 for fiscal 1998. The average
first-year cash compensation of positions for which LAI conducted searches
decreased 7.1% to $210,000 for fiscal 1999 from $226,000 for fiscal 1998.
LAI commenced international operations in May 1998, with the opening
of its London, England office. For fiscal 1999, international operations
accounted for 3.9% of total revenue.
Compensation and benefits. Compensation and benefits increased $20.4
million, or 43.8%, to $66.9 million for fiscal 1999 from $46.5 million for
fiscal 1998. As a percentage of fee revenue, compensation and benefits
increased to 77.1% for fiscal 1999 from 75.3% for fiscal 1998.
Domestic compensation and benefits increased $12.9 million, or 27.7%,
to $59.4 million for fiscal 1999 from $46.5 million for fiscal 1998. As a
percentage of domestic fee revenue, domestic compensation and benefits
decreased to 71.2% for fiscal 1999 from 75.3% for fiscal 1998. This decrease
was due to lower discretionary compensation and a decrease in cash compensation
paid to consultants in connection with LAI's adoption of a revised compensation
plan for consultants effective December 1, 1998.
International compensation and benefits accounted for 11.2% of total
compensation and benefits expense for fiscal 1999. In order to attract
qualified executive search consultants, and consistent with industry practice,
LAI generally provides for new consultants to be paid under a compensation
system with much higher fixed salaries for a specified transitional period.
After the end of the transitional period, consultants are generally paid based
on a formula applied to their productivity. The higher fixed salaries resulted
in compensation and benefits as a percentage of revenue for international
operations being higher than LAI typically experiences domestically.
General and administrative expenses. General and administrative
expenses increased $12.9 million to $21.6 million for fiscal 1999 from $8.7
million for fiscal 1998. As a percentage of fee revenue, general and
administrative expenses increased to 24.9% for fiscal 1999 from 14.0% for
fiscal 1998.
Domestic general and administrative expenses increased $8.1 million,
or 93.6%, to $16.8 million for fiscal 1999 from $8.7 million for fiscal 1998.
As a percentage of domestic fee revenue, domestic general and administrative
expenses increased to 20.1% for fiscal 1999 from 14.0 % for fiscal 1998. This
change was primarily due to increases in the following areas: travel and
meeting expenses, legal and consulting fees, occupancy expenses, and IT costs.
The increase in travel and meeting expenses related to conferences designed to
focus marketing efforts within practice group areas, provide post-acquisition
13
<PAGE> 14
cultural integration, and train new consultants. These expenses were higher
than LAI has typically experienced due to the significant number of new
employees hired in connection with acquisitions in the fourth quarter of fiscal
1998. Legal and consulting fees increased due to LAI's merger and acquisition
activities and the holding company reorganization. See "Business --
Reorganization." Occupancy costs and IT expenses increased primarily as a
result of the eight offices and 110 employees added since 1998.
International general and administrative expenses accounted for 22.5%
of total Company general and administrative expenses for fiscal 1999. General
and administrative expenses as a percentage of revenues was substantially
higher than initially anticipated for international operations due to revenues
being generated at levels less than originally planned.
Goodwill amortization. Goodwill amortization was $776,000 for fiscal
1999 as compared to $17,000 for fiscal 1998. This change was a result of
goodwill acquired in connection with two acquisitions during the fourth quarter
of fiscal 1998.
Restructuring charges. Restructuring charges were $3.5 million in
fiscal 1999 and relate to the significant reduction of LAI's international
operations undertaken during the fourth quarter of fiscal 1999. See Note 2 to
the accompanying Consolidated Financial Statements.
Operating income (loss). LAI experienced an operating loss of $6.0
million in fiscal 1999 as compared to operating income of $6.6 million in
fiscal 1998. This decrease was primarily due to operating losses and
restructuring charges experienced in connection with LAI's international
operations.
Other income (expense). Other income increased $51,000, or 25.9%, to
$248,000 for fiscal 1999 from $197,000 for fiscal 1998. This increase was the
result of earnings associated with investment of the net proceeds from the
secondary public offering in June 1998. These earnings were partially offset by
an increase in interest expense related to notes payable issued in connection
with acquisitions completed during the fourth quarter of fiscal 1998 and
foreign currency transaction losses associated with LAI's international
operations.
Income tax expense (benefit). The effective income tax rate for fiscal
1999 of 26.7% varied from the statutory rate of 34.0% due to state and foreign
income tax effects and the non-deductibility of certain expenses, including
goodwill amortization, premiums on key person life insurance policies, and a
portion of meals and entertainment. LAI's United Kingdom subsidiary was treated
as a branch operation for tax purposes.
FISCAL 1998 COMPARED WITH FISCAL 1997
Fee revenue, net. Fee revenue increased $15.4 million, or 33.1%, to
$61.8 million for fiscal 1998 from $46.4 million for fiscal 1997. The increase
in fee revenue was primarily a result of an increase in the number of
consultants and an increase in the average fee revenue per consultant. At the
end of fiscal 1998, LAI employed a total of 111 consultants, which represents a
net increase of 49 consultants since the beginning of fiscal 1998 and reflects
the 37 consultants added in connection with the acquisitions of WHI on February
27, 1998 and CPI on January 2, 1998. The average fee revenue per consultant
employed for a full year increased 33.6% to $989,000 for fiscal 1998 from
$740,000 for fiscal 1997.
Compensation and benefits. Compensation and benefits increased $6.6
million, or 16.5%, to $46.5 million for fiscal 1998 from $39.9 million for
fiscal 1997. The increase was primarily due to compensation and benefits
associated with the growth in the number of consultants and the increase in fee
revenue per consultant. As a percentage of fee revenue, compensation and
benefits decreased to 75.3% for fiscal 1998 from 86.0% for fiscal 1997
primarily due to a decrease in cash compensation paid to
14
<PAGE> 15
consultants in connection with LAI's adoption of a revised compensation plan
for consultants effective March 1, 1997. The decrease in compensation and
benefits as a percentage of fee revenue also was due to spreading compensation
and benefits for LAI's administrative and support staff, which are primarily
fixed, over a greater fee revenue base.
General and administrative expenses. General and administrative
expenses increased $2.0 million, or 29.8%, to $8.7 million for fiscal 1998 from
$6.7 million for fiscal 1997. These changes were the result of additional
infrastructure costs related to business expansion, including increased
occupancy and IT expenses. As a percentage of fee revenue, general and
administrative expenses decreased to 14.0% for fiscal 1998 from 14.4% for
fiscal 1997.
Goodwill amortization. Goodwill amortization was $17,000 for fiscal
1998 compared to no amortization for fiscal 1997. This change was the result of
goodwill acquired in connection with two acquisitions during the fourth quarter
of fiscal 1998.
Operating income (loss). Operating income was $6.6 million for fiscal
1998, as compared to a loss of $176,000 for fiscal 1997. This change was
primarily the result of an increase in fee revenue and decreases in
compensation and benefits and general and administrative expenses as a
percentage of fee revenue.
Other income (expense). LAI received net interest income of $197,000
for fiscal 1998, as compared to net interest expense incurred of $376,000 for
fiscal 1997. This change was a result of LAI repaying all outstanding
indebtedness under its credit facilities with proceeds from the issuance of
Common Stock during its initial public offering, as well as investment earnings
from the remaining net proceeds.
Income tax expense (benefit). The effective tax rate for fiscal 1998
of 43.0% varied from the statutory rate of 34.0% due to state income taxes and
the non-deductibility of certain expenses, including a portion of meals,
entertainment and dues expense and premiums on keyperson life insurance
policies.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information of LAI for fiscal 1998 and fiscal 1999. This information has been
prepared on the same basis as the audited Consolidated Financial Statements
contained elsewhere in this Report and, in the opinion of management, includes
all adjustments, consisting solely of normal and recurring adjustments,
necessary for the fair presentation of the information for the periods
presented. The financial data shown below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto. Results for any
previous fiscal quarter are not necessarily indicative of results for the full
year or for any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1997 1997 1997 1998 1998 1998 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue, net $13,725 $16,773 $15,349 $15,956 $23,494 $24,179 $23,311 $15,827
Operating income (loss) 1,377 1,745 1,701 1,787 2,253 2,298 780 (11,364)
Net income (loss) 702 1,016 1,056 1,106 1,197 1,172 11 (6,618)
</TABLE>
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
LAI relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During fiscal
1997, 1998 and 1999, cash flows provided by (used in) operations were
$(653,000), $2.9 million and $(15.8) million, respectively. In fiscal 1999,
cash used in operations included a decrease in accrued compensation of
approximately $12.3 million not anticipated to recur in fiscal 2000. To provide
for additional liquidity, LAI maintains credit facilities providing for maximum
borrowings of $25.0 million. Borrowings under this facility bear interest at
variable rates.
Capital expenditures totaled approximately $1.8 million, $2.2 million
and $6.9 million for fiscal 1997, 1998 and 1999, respectively. These
expenditures consisted primarily of purchases of office equipment, upgrades to
information systems and leasehold improvements. Investments in whole life
insurance policies intended to fund LAI's deferred compensation plan were $1.0
million, $2.1 and $2.0 million in fiscal 1997, 1998 and 1999, respectively.
Cash provided by financing activities was approximately $38.3 million
during fiscal 1999, including $41.4 million from the sale of Common Stock in
LAI's secondary offering. Cash provided by financing activities was
approximately $23.6 million during fiscal 1998, including $25.4 million from
the sale of Common Stock in LAI's initial public offering. During fiscal 1998
LAI issued $8.8 million of subordinated debt in connection with the WHI and CPI
acquisitions. Cash provided by financing activities was approximately $2.7
million during fiscal 1997, which included $1.7 million of net borrowings under
a term loan and $926,000 in proceeds from sales of Common Stock (net of Common
Stock repurchases) to newly hired and promoted consultants as part of LAI's
strategy to increase the breadth of stock ownership among its consultants.
LAI believes that funds from operations, its expanded credit
facilities and availability of equity capital will be sufficient to meet its
anticipated working capital, capital expenditure, debt repayment and general
corporate requirements on both a short-term and long-term basis.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. LAI has implemented
SFAS 130 for the year ended February 28, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way companies report information about operating
segments including the related disclosures about the different economic
environments in which it operates. LAI has implemented SFAS 131 for the year
ended February 28, 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. LAI has
implemented SOP 98-1 for the year ended February 28, 1999.
16
<PAGE> 17
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Management believes the effect of adopting SFAS 133 would not have a
material impact on the accompanying consolidated financial statements.
YEAR 2000 COMPLIANCE
LAI has completed its assessment of its internal systems and believes
that the cost to ensure all internal systems are Year 2000 compliant and to
make necessary enhancements will not be material. LAI has also completed its
assessment of issues related to its third-party vendors' states of Year 2000
readiness and the potential impact, if any, of any lack of readiness on LAI's
operations. Based on its assessment, LAI does not expect to be materially
affected by any non-compliant third-party vendors. Nevertheless, LAI has
identified alternate vendors during its assessment. LAI believes that costs
associated with Year 2000 compliance will not have a material impact on LAI's
financial statements.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion above and other portions of this document contain some
forward-looking statements. Forward-looking statements also may be included in
other written and oral statements made or released by the LAI and its
representatives. You can identify forward-looking statements by the fact that
they do not relate strictly to historical or current facts. They may include
words such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe" and other words and terms of similar meaning. Forward-looking
statements describe our expectations today of what we believe is most likely to
occur or reasonably achievable in the future, but they do not predict or assure
any future occurrence and may turn out to be wrong. In particular, forward
looking statements in this document include those regarding LAI's business
strategy and its growth and expansion plans and strategies. Forward-looking
statements are subject to both known and unknown risks and uncertainties and
can be affected by inaccurate assumptions LAI might make. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially. LAI does not undertake any obligation to publicly update any
forward-looking statements to reflect new information or future events or
occurrences.
LAI wishes to caution readers that, in addition to the business,
economic and legal factors that affect executive search firms generally, as
well as other important factors included elsewhere in this document, described
in other documents filed with the Securities and Exchange Commission or
otherwise publicly disclosed, the important factors discussed below could
affect LAI's actual results and could cause future events or circumstances to
differ materially from those expressed in any forward-looking statements made
by or on behalf of LAI. Other factors besides those discussed here could also
affect LAI's actual results.
Dependence on Attracting and Retaining Qualified Executive Search
Consultants. LAI's success depends upon its ability to attract and retain
qualified executive search consultants who possess the skills and experience
necessary to fulfill its clients' executive search needs. Competition for
qualified consultants is intense and many firms in LAI's industry have
experienced high consultant turnover rates. There can be no assurance that LAI
will continue to be successful in identifying and hiring consultants with
substantial experience and established client relationships. The majority of
LAI's executive search consultants are not subject to any employment,
non-competition or similar agreement. LAI's consultant turnover in fiscal 1999
was higher than had been experienced in prior years. Any continuing impairment
17
<PAGE> 18
of LAI's ability to retain existing or attract additional qualified consultants
could have a material adverse effect on LAI's business, financial condition and
results of operations.
Portability of Client Relationships. LAI's success depends upon the
ability of its executive search consultants to develop and maintain strong,
long-term relationships with its clients. 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 failure to retain its most productive consultants or maintain the quality
of service to which its 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 LAI's business, financial condition and results of
operations.
Proposed Acquisition by TMP. The Merger Agreement between LAI and TMP
restricts to some degree the manner in which LAI currently operates its
business. Since the execution of the Merger Agreement, LAI's senior management
has focused its efforts on taking those steps believed by management necessary
to successfully close the acquisition. In addition, the Merger Agreement's
terms require LAI to obtain TMP's approval before entering into certain
transactions. As a result, since mid-March, management has worked more to
preserve its current professional staff and existing client base rather than
promote growth of its professional staff or client roster. Prior to the
execution of the Merger Agreement, these had each been key elements of LAI's
operating strategy. LAI is obligated under the Merger Agreement to use its best
reasonable efforts to obtain the approval of its stockholders and to work
towards the successful consummation of the transactions contemplated by the
Merger Agreement. Despite LAI's best efforts, the acquisition might not be
approved by LAI's stockholders or, even if approved by LAI's stockholders,
might not close for some other reason. If the acquisition fails to close,
regardless of the reason, LAI could be adversely affected as it refocuses its
business and operational efforts on operating as an independent company. In
addition, the uncertainty in the marketplace regarding the completion of the
acquisition may adversely affect LAI's near term ability to attract, hire and
retain qualified search consultants and to compete effectively for search
assignments.
Difficulties in Managing Growth. During the three fiscal years ended
February 28, 1999, LAI has grown rapidly both in terms of the number of
consultants and the volume of its business. The number of consultants increased
principally as the result of new hires in fiscal 1997 and fiscal 1998. In
fiscal 1999, the number of consultants increased principally as the result of
two acquisitions effected in the fourth quarter of fiscal 1998. After
experiencing losses in its international operations in fiscal 1999, LAI
determined to significantly reduce the pace of its growth efforts and to
suspend its international expansion activities. The reduction in the rate of
growth could adversely affect LAI's ability to attract and retain qualified
search consultants or secure new search assignments from current or new
clients.
First Quarter Charge. In the fourth quarter of fiscal 1999, LAI
substantially curtailed its international operations, particularly in its
London office. Certain restructuring charges associated with these actions are
reflected in LAI's 1999 financial statements. In March 1999, after a second
review of the results of and prospects for international operations, LAI closed
its international offices. Restructuring charges for these closures will be
reflected in LAI's first quarter financial statements.
Competition. The executive search industry is extremely competitive
and highly fragmented. There can be no assurance that LAI will be able to
continue to compete effectively with existing or potential competitors or that
significant clients or prospective clients of LAI will not decide to perform
search services using in-house personnel.
Blocking Arrangements. Executive search firms frequently agree to
refrain, for a specified period of time, from recruiting employees of a client
and possibly affiliates of such client, when conducting searches on behalf of
other clients (a "blocking" arrangement). As LAI's client base grows and as LAI
18
<PAGE> 19
acquires additional executive search firms, blocking arrangements increasingly
may impede LAI's growth or its ability to attract and serve new clients, which
could have a material adverse effect on LAI's business, financial condition and
results of operations.
Reliance on Information Processing Systems. LAI's success depends in
large part upon its ability to gather, store, retrieve and process substantial
amounts of information. To achieve its operational goals and to remain
competitive, LAI believes that it must continue to automate its search
execution process and further improve its information processing system. If LAI
does not maintain an information processing system that provides the
capabilities necessary for LAI to compete effectively, LAI's business,
financial condition and results of operations could be materially adversely
affected.
Year 2000 Compliance Issues. LAI's situation regarding Year 2000
issues is discussed in "Management's Discussion and Analysis of Results of
Operations -- Year 2000 Compliance."
Development of LAI Compass.com. In April 1999, launched LAI
Compass.com ("Compass"), an Internet based selection and assessment system
principally serving positions in the $70,000 to $140,000 annual salary range.
LAI anticipates expending significant amounts of its financial and personnel
resources to fully implement Compass. LAI has not previously derived a
significant portion of its revenues or profits from search activities in the
selection salary range and LAI had no previous experience with Internet based
evaluation and assessment software of the type utilized by LAI Compass. The
Website and software have been developed in cooperation with a third party. LAI
may not be successful in developing and implementing Compass. For additional
information regarding LAI Compass, see "Business -- Services."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LAI does not have any material exposure associated with activities in
derivative financial instruments, other financial instruments or derivative
commodity instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements, including Notes thereto and certain reports on
portions thereof by independent certified public accountants (collectively,
"Financial Statements"), are included in this Report beginning on Page 38 and
are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The following table sets forth certain information regarding LAI's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Robert L. Pearson 60 Chairman of the Board of Directors and
Chief Executive Officer
Patrick J. McDonnell 55 President and Chief Operating Officer, Director
Philip R. Albright 29 Vice President and Chief Financial Officer
Richard L. Baird 42 Corporate Vice President and President LAI Compass, Inc.
</TABLE>
DIRECTORS
The following table sets forth certain information regarding LAI's directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Robert L. Pearson (2) 60 Chairman of the Board of Directors and
Chief Executive Officer
Patrick J. McDonnell (3) 55 President and Chief Operating Officer, Director
Joe D. Goodwin (3) 53 Executive Vice President, Director
Roderick C. Gow (1) 51 Executive Vice President, Director
John F. Johnson (2) 57 Senior Chairman of the Board of Directors
Neal L. Maslan (3) 58 Senior Partner, Director
John S. Rothschild (1) 46 Executive Vice President, Director
Ray J. Groves (2) 63 Director
Richard W. Pogue (1) 71 Director
John C. Pope (3) 50 Director
</TABLE>
- -----------------------
(1) Term expires in 1999.
(2) Term expires in 2000.
(3) Term expires in 2001.
LAI's directors are divided into three classes elected for three-year
terms, which are staggered so that the term of one class of directors expires
each year.
Robert L. Pearson joined LAI in 1984 and was named Chairman of the
Board of Directors in 1998 in addition to his duties as Chief Executive
Officer. Mr. Pearson served as President and Chief Executive Officer and as a
Director of LAI from 1995 until 1998. Prior to joining LAI, Mr. Pearson
20
<PAGE> 21
served as Executive Director with Russell Reynolds Associates, Inc. from 1982
until 1984. He owned and was President of Pearson, Inc., an equipment
manufacturing company, from 1971 until 1982; was Vice President, Corporate
Finance, of R. J. Financial Corporation, a financial services holding company,
from 1968 until 1970; and was an engagement manager and management consultant
with McKinsey & Company, Inc. from 1964 until 1968. Mr. Pearson holds an M.S.
in Industrial Management from Massachusetts Institute of Technology and a
B.S.E.E. from Michigan State University.
Patrick J. McDonnell joined LAI in 1998 as President and Chief
Operating Officer. Previously, Mr. McDonnell was the Global Assurance Leader at
PricewaterhouseCoopers since it was created through the merger of Price
Waterhouse and Coopers & Lybrand in 1997. Before that he had spent nearly three
decades with Coopers & Lybrand where, since 1993, he was Vice Chairman,
Business Assurance. Previous positions with Coopers & Lybrand included Vice
Chairman for the firm's Midwest region, Vice Chairman for client service and
relationship management, Chairman of the firm's international accounting and
audit board, Managing Partner for the firm's Hartford, CT and Chicago, IL
offices, and Engagement Partner for a variety of worldwide clients. Mr.
McDonnell holds a Master's Degree in Business Administration from the
University of Michigan and a Bachelor's Degree in Business from the University
of Notre Dame.
Philip R. Albright joined LAI in 1997 and was appointed Chief
Financial Officer in 1999. Mr. Albright was named LAI's Vice President-Finance
and Chief Accounting Officer in 1998. He joined LAI as Controller. Mr.
Albright, a certified public accountant, was employed by Arthur Andersen LLP
from 1992 until 1997. He holds a M.Acc. and a B.S.Acc. from the University of
Florida.
Richard L. Baird joined LAI in 1998 as corporate Vice President and
President of LAI Compass, Inc., a wholly owned subsidiary of LAI Worldwide.
Prior to joining LAI, Mr. Baird was Operations Leader-Americas, for Audit and
Business Advisory Services at PricewaterhouseCoopers. Before that, he spent 17
years with Coopers & Lybrand where, since 1993, he was Human Resources Partner,
National Business Assurance, responsible for providing human resources and
operational support. Mr. Baird received his Bachelor of Arts degree from Albion
College.
Joe D. Goodwin joined LAI in 1991, and was named Executive Vice
President and Regional Managing Partner of LAI's Southeast Region in 1998. Mr.
Goodwin has been a Director since July 1997 and served as Managing Partner of
LAI's Atlanta and Tampa offices from 1992 until 1998. Mr. Goodwin held various
positions, including Partner and Managing Director, with Spencer Stuart &
Associates from 1982 until 1991. Mr. Goodwin also held various executive
positions with McKinnis & Goodwin, an executive search firm, from 1979 until
1982; with Burger King Corporation from 1978 until 1979; and with Xerox
Corporation from 1969 until 1978. Mr. Goodwin holds a B.S. in Commerce and
Business Administration from the University of Alabama.
Roderick C. Gow joined LAI in 1995, and was named Executive Vice
President and Regional Managing Partner of LAI's Northeast Region in 1998. Mr.
Gow has been a Director since July 1997 and served as Managing Partner of LAI's
New York office from 1995 until 1998. Mr. Gow held various positions, including
Managing Director, with Russell Reynolds Associates, Inc., an executive search
firm, from 1983 until 1991 and then again from 1994 until 1995. Mr. Gow was
Chief Executive Officer of GKR Group, an executive search firm based in the
United Kingdom, from 1991 until 1994; was Vice President with Barclays Bank Plc
from 1978 until 1983; and prior to that time served with the British Army. Mr.
Gow holds an M.A. and a B.A. from Trinity College, Cambridge University.
John F. Johnson joined LAI in 1976 and was named Senior Chairman of
the Board of Directors in 1998. Mr. Johnson served as Chairman of the Board
from 1995 until 1998. He previously served as Executive Vice President and
President and Chief Executive Officer of LAI, as well as Chairman of
21
<PAGE> 22
Amrop International. Mr. Johnson held various positions, including Manager of
Organization and Manpower, with General Electric Company from 1967 until 1976;
and Industrial Relations Analyst with Ford Motor Company from 1964 until 1967.
Mr. Johnson holds an M.B.A. from Columbia University and a B.A. in Economics
from Tufts University.
Neal L. Maslan joined LAI in February 1998 in connection with the
acquisition by LAI of Ward Howell International, Inc. ("WHI"). Mr. Maslan was
elected a Director of LAI in September 1998 and has served as a Senior Partner
and Leader of the Health Care and Pharmaceuticals Practice Group since joining
LAI. Mr. Maslan was an executive search consultant with WHI specializing in
senior-level health care search from 1988 until 1998. Previously, Mr. Maslan
was Vice President of Paul R. Ray & Company: Senior Vice President of American
Medical International, Inc.; Executive Vice President of Hyatt Corporation and
Executive Vice President of Cenco Hospital and Convalescent Homes Corporation.
Mr. Maslan earned a Master's degree from Yale University and a Bachelor's
degree from the University of Virginia.
John S. Rothschild joined LAI in 1996, and was named Executive Vice
President and Leader of the Technology Practice Group in 1998. Mr. Rothschild
has been a Director since July 1997 and Managing Partner of LAI's Chicago
office since 1996. Mr. Rothschild held various positions, including Partner and
Director, with Heidrick & Struggles, Inc., an executive search firm, from 1989
until 1996. Mr. Rothschild held positions, including National Director, Human
Resources and Director, Human Resources Consulting Practice, with Grant
Thornton from 1981 until 1989. He served in various executive positions with
American Hospital Supply Corporation from 1978 until 1981; and with GATX
Corporation from 1975 until 1978. Mr. Rothschild holds an M.S. in Industrial
Relations from Loyola University and a B.A. in Political Science from Lake
Forest College.
Ray J. Groves has been a Director since July 1997. Mr. Groves served
as Chairman and Chief Executive Officer of Ernst & Young, an international
accounting and financial consulting firm, for 17 years prior to his retirement
in 1994. Mr. Groves also serves as Chairman of Legg Mason Merchant Banking,
Inc., and as a Director of Allegheny Teledyne, Incorporated, American Water
Works Company, Inc., Consolidated Natural Gas Company, Electronic Data Systems
Corporation, Marsh & McLennan Companies, Inc. and RJR Nabisco, Inc. Mr. Groves
holds a B.S. from The Ohio State University.
Richard W. Pogue served as an advisor to LAI's Board of Directors from
1995 until he became a Director in July 1997. Mr. Pogue has served as Senior
Advisor to Dix & Eaton, a public relations firm, since 1994. Mr. Pogue held
various positions with the law firm of Jones, Day, Reavis & Pogue, from 1957
until retiring from his position as Senior Partner in 1994. Mr. Pogue also
serves as a Director of Derlan Industries Ltd., Continental Airlines, Inc., IT
Group, M.A. Hanna Company, Rotek Incorporated, KeyCorp and TRW Inc. Mr. Pogue
holds a Law degree from the University of Michigan and a Bachelor's degree from
Cornell University.
John C. Pope served as an advisor to LAI's Board of Directors from
1995 until he became a Director in July 1997. Mr. Pope held various positions,
including President and Chief Operating Officer, of UAL Corporation, owner of
United Airlines, from 1988 until his retirement in 1994. Prior to that time Mr.
Pope spent 11 years with AMR Corporation in various financial capacities,
including Chief Financial Officer. Mr. Pope also serves as Chairman of the
Board of Directors of MotivePower Industries, Incorporated and as a Director of
Federal Mogul Corporation, Medaphis Corporation, Wallace Computer Services,
Inc., Waste Management, Inc. and Dollar Thrifty Automotive Group, Inc. He holds
an M.B.A from Harvard Business School and a Bachelor's degree from Yale
University.
22
<PAGE> 23
COMMITTEES OF THE BOARD OF DIRECTORS
LAI's Board of Directors has the following standing committees:
Compensation and Management Development Committee. The Compensation
and Management Development Committee (the "Compensation Committee") is
responsible for establishing and recommending to the Board of Directors LAI's
compensation philosophy, including general compensation, severance and change
in control arrangements for consultants, Managing Partners, Practice Group
Leaders and executive officers. The Compensation Committee also establishes and
recommends to the Board of Directors LAI's stock option philosophy, including
granting of awards under all equity-based incentive plans and recommendations
for adoption of new plans. The Compensation Committee sets executive officer
compensation, including annual reviews, and negotiates and approves all
executive officer employment agreements. The Compensation Committee reviews all
existing compensation plans and programs and all amendments thereto, and
recommends the adoption of any new plans. In addition, the Compensation
Committee reviews and coordinates with the full Board of Directors LAI's senior
leadership structure and helps to identify personnel for the next generation of
LAI's leadership. The Compensation Committee's three members are Messrs.
Groves, Pogue and Pope (Chairman), all of whom are "Non-Employee Directors," as
defined under the Securities Exchange Act of 1934.
Audit Committee. The Audit Committee is responsible for reviewing with
management the financial controls, accounting and audit and reporting
activities of LAI. The Audit Committee annually recommends to the Board of
Directors LAI's independent auditors, meets with the independent auditors
before and after the annual audit to review the results of the audit and the
performance of management in implementing the auditors' recommendations,
reviews significant changes in accounting practices and LAI's implementation of
new accounting rules and evaluates annual audit fees. In addition, the Audit
Committee reviews each Annual Report on Form 10-K, including a review of LAI's
financial statements and the related management's discussion and analysis of
financial condition and results of operations. The Audit Committee's three
members are Messrs. Groves (Chairman), Pogue and Pope, all of whom are
Non-Employee Directors.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is responsible for recommending to the Board of
Directors management's nominees for election to the Board of Directors. This
Committee establishes criteria for qualification and selection of directors,
establishes Board Committees by function, size and responsibilities and
recommends the same to the Board of Directors for adoption and membership
determination, and coordinates responses to stockholder proposals in
conjunction with management and counsel. The Nominating and Corporate
Governance Committee's four members are Messrs. Johnson, Pearson, Pogue and
Pope.
Executive Committee. The Executive Committee has been granted
authority, subject to the limitations specified in the Florida Business
Corporation Act, to act in the place and stead of the full Board of Directors,
including when it is inconvenient or impossible to convene a meeting of the
full Board or when specific tasks have been assigned to the Executive
Committee. The Executive Committee's four members are Messrs. Johnson, Pearson,
Pogue and Pope.
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<PAGE> 24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to LAI's initial public offering, the Board of Directors did not
have a Compensation Committee and the functions of the Compensation Committee
previously had been performed by the entire Board of Directors. Since
completion of the Initial Public Offering in July 1997, the Compensation
Committee's three members have been Messrs. Groves, Pogue and Pope (Chairman),
all of whom are Non-Employee Directors. See -"Committees of the Board of
Directors -- Compensation and Management Development Committee."
DIRECTOR COMPENSATION
Non-Employee Directors receive $1,000 for each meeting of the Board of
Directors attended and $1,000 for each meeting of a committee of the Board of
Directors attended. Non-Employee Directors who serve as Chairman of a committee
of the Board of Directors receive an additional $500 for each meeting chaired.
In addition, Non-Employee Directors receive an annual retainer fee of $12,000,
paid quarterly. Non-Employee Directors may make an annual election to defer
receipt of all or a portion of the retainer and meeting fees and to have such
deferral credited in the form of either cash or "units," the value of which is
based on the value of LAI's Common Stock, in accordance with LAI's Directors'
Deferral Plan (the "Directors' Deferral Plan"). Directors who opt for the stock
unit alternative receive a 25% premium in initial value. Fees deferred under
the cash deferral alternative earn interest as determined under the Directors'
Deferral Plan. Directors also are reimbursed for reasonable travel expenses to
and from meetings of the Board of Directors and committees. Directors who are
employees of LAI do not receive compensation for serving as Directors.
LAI grants to each Non-Employee Director, upon initial appointment to
the Board of Directors, a stock option to purchase 5,000 shares of Common Stock
pursuant to LAI's Non-Employee Directors' Stock Plan (the "Directors' Stock
Plan"). In addition, as of the date of each annual meeting of LAI's
stockholders, LAI grants to each Non-Employee Director who is then reelected or
who is continuing as a member of the Board of Directors a stock option to
purchase 5,000 shares of Common Stock. The exercise price of each such stock
option is equal to the closing price of Common Stock on the date the stock
option is granted. Stock options issued under the Directors' Stock Plan
generally vest fully on the first anniversary of the date of grant and expire
after ten years. Stock options to purchase an aggregate of up to 30,000 shares
of Common Stock are outstanding under the Directors' Stock Plan, and an
aggregate of 80,000 shares of Common Stock (including the shares covered by
such outstanding stock options) are reserved for issuance under the Directors'
Stock Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Several option grants and other transactions, exclusively pursuant to
LAI's previously disclosed stock-based incentive and benefit arrangements and
not involving any market transactions, were not timely reported as required
under Section 16(a) of the Securities Exchange Act, including one form by each
of the following directors and officers relating to the indicated number of
transactions: Messrs. Baird, Maslan and McDonnell, one transaction, and also
Mr. Baird's initial report upon becoming an officer; Messrs. Groves, Pogue and
Pope, two transactions; Messrs. Goodwin, Gow, Johnson, Pearson and Rothschild,
three transactions; Mr. Albright, four transactions. See "Executive
Compensation -- Summary Compensation Table," "Executive Compensation -- Option
Grants Table" and -- Director Compensation."
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for fiscal 1997, 1998 and 1999 of LAI's executive officers during
such periods (the "Named Executive Officers," as defined under applicable
Securities and Exchange Commission rules).
24
<PAGE> 25
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS
----------------------------
ANNUAL COMPENSATION SHARES OF
FISCAL --------------------------------------- RESTRICTED COMMON STOCK
------ OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS($) OPTIONS(#) COMPENSATION( )
- --------------------------- ---- ------ ------- --------------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Pearson 1999 $525,000 $ -- $ 9,235 $ -- 67,900 (4) $ --
Chief Executive Officer 1998 525,000 420,240 8,526 364,189 (5) 97,000 (6) 12,800
1997 250,000 902,238 8,465 -- -- 22,500
Patrick J. McDonnell 1999 208,333 535,417 (7) -- -- 200,000 --
President and Chief
Operating Officer
Philip R. Albright 1999 138,077 35,000 2,840 -- 42,000 (8) --
Chief Financial Officer
Richard L. Baird 1999 93,461 100,000 (9) -- -- 100,000 --
President of
LAI Compass, Inc.
John S. Rothschild (10) 1999 150,000 496,000 24,383 -- 17,500 (11) --
Executive Vice President
Joe D. Goodwin (10) 1999 150,000 411,360 26,262 -- 24,500 (11) --
Executive Vice President
</TABLE>
- ---------------
(1) Consists of performance-based bonuses based upon individual
achievement and LAI financial performance for the indicated fiscal
years.
(2) Consists of above-market interest on deferred compensation, fees for
professional tax services, payments for participation in certain
management team meetings, payments for unused sick time and life
insurance premiums.
(3) Consists of contributions made by LAI to its Profit Sharing Plan.
See -- "Incentive and Benefit Plans."
(4) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. Mr. Pearson exchanged all of his eligible outstanding
options for new options at an exercise price exceeding the market
price on the date of grant at a ratio of 70 new shares for every 100
shares exchanged. Of the new options granted, 10,500 are subject to a
new three-year cliff vesting schedule. The remaining 57,400 options
retain the original six year vesting schedule or price performance
criteria. See Note 8 to the accompanying Consolidated Financial
Statements for more information on the Option Exchange Program.
(5) On April 15, 1998, LAI granted Mr. Pearson 16,939 shares of restricted
Common Stock in lieu of a portion of the compensation he earned in
fiscal 1998. Such shares vest 25% over the four years after the grant
date and may be subject to forfeiture upon termination of his
employment under certain circumstances.
(6) These options were exchanged pursuant to the Option Exchange Program.
See footnote 4.
(7) Consists of sign on bonus of $525,000 and pro rata installments of a
$25,000 bonus paid pursuant to the terms of Mr. McDonnell's employment
agreement. See - "Executive Employment Arrangements."
(8) Of this amount, 7,000 options were issued pursuant to LAI's Option
Exchange Program approved by the Compensation Committee of the Board
of Directors on October 8, 1998. Mr. Albright exchanged his eligible
outstanding options which had been granted originally in April 1998
for new options at an exercise price exceeding the market price on the
date of grant at a ratio of 70 new shares for every 100 shares
exchanged and subject to a new three year cliff vesting schedule. See
Note 8 to the accompanying Consolidated Financial Statements for more
information on the Option Exchange Program.
(9) Consists of sign on benefit paid pursuant to the terms of Mr. Baird's
employment agreement. See "Executive Employment Arrangements."
(10) Currently and at February 28, 1999, LAI's executive officers (within
the meaning of Securities and Exchange Commission Rule 3b7 under the
Securities Act of 1934) consisted of Messrs. Pearson, McDonnell,
Albright and Baird. Messrs. Rothschild and Goodwin were not executive
officers at February 28, 1999. Information regarding compensation of
Messrs. Rothschild and Goodwin is included as required by Section
402(a)(3)(iii) of Securities and Exchange Commission Regulation S-K.
(11) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. The individuals exchanged all their eligible
outstanding options, including options which had been granted
originally in July 1998, for new options at an exercise price
exceeding the market price on the date of grant at a ratio of 70 new
shares for every 100 shares exchanged and subject to a new three year
cliff vesting schedule. See Note 8 to the accompanying Consolidated
Financial Statements for more information on the Option Exchange
Program.
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<PAGE> 26
OPTION GRANTS TABLE
The following table shows information concerning outstanding stock
options granted during fiscal 1999 for the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
- ----- ------- ------------ ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Pearson 10,500 (2) .92% $ 10.00 10/8/2008 $ 10,448 $ 78,831
57,400 (2) 5.06% 10.00 7/29/2007 57,115 430,946
Patrick J. McDonnell 200,000 17.62% 5.625 10/7/2008 707,506 1,792,960
Philip R. Albright (3) 5,000 0.44% 5.625 10/7/2008 17,688 44,824
7,000 (2) 0.62% 10.00 10/8/2008 6,965 52,554
30,000 2.64% 6.25 2/1/2009 117,918 298,827
Richard L. Baird 100,000 8.81% 8.939 11/9/2008 562,106 1,424,487
John S. Rothschild (4) 17,500 (2) 1.54% 10.00 10/8/2008 17,413 131,386
Joe D. Goodwin (4) 24,500 (2) 2.16% 10.00 10/8/2008 24,378 183,940
</TABLE>
- ---------------
(1) Options originally granted in fiscal 1999 which were exchanged
pursuant to LAI's Option Exchange Program during fiscal 1999 are
excluded from the total options granted to employees for purposes of
this calculation.
(2) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. The individuals exchanged all or a portion of
eligible outstanding options for new options at an exercise price
exceeding the market price on date of grant at a ratio of 70 new
shares for every 100 shares exchanged. See footnotes 4, 7 and 10 to
"Summary Compensation Table" above and Note 8 to the accompanying
Consolidated Financial Statements for more information on the Option
Exchange Program.
(3) Excludes 10,000 options granted on April 15, 1998, at an exercise
price of $21.50 which were exchanged pursuant to the Option Exchange
Program on October 8, 1998.
(4) Excludes 25,000 options granted on July 7, 1998, at an exercise price
of $18.25 which were exchanged pursuant to the Option Exchange Program
on October 8, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
No stock options were exercised by any of LAI's directors or executive
officers during fiscal 1999. The following table shows information concerning
values as of the end of fiscal 1999 of stock options to purchase shares of
Common Stock held by each Named Executive Officer.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF IN-THE-MONEY
OPTIONS EXERCISABLE/ OPTIONS EXERCISABLE/
NAME UNEXERCISABLE (#) UNEXERCISABLE ($) (1)
- ---------------------- ---------------------- ----------------------
<S> <C> <C>
Robert L. Pearson -0-/ 67,900 -0-/ $ -0-
Patrick J. McDonnell -0-/ 200,000 -0-/ 350,000
Philip R. Albright 2,500/ 49,500 -0-/ 42,500
Richard L. Baird -0-/ 100,000 -0-/ -0-
John S. Rothschild -0-/ 17,500 -0-/ -0-
Joe D. Goodwin -0-/ 24,500 -0-/ -0-
</TABLE>
- ---------------
(1) No value has been ascribed to exercisable or unexercisable options
outstanding for which the exercise price exceeds the closing price of
LAI's stock on February 26, 1999.
26
<PAGE> 27
INCENTIVE AND BENEFIT PLANS
1997 and 1998 Omnibus Stock and Incentive Plans. LAI has two stock
option and incentive plans, the 1997 Omnibus Stock and Incentive Plan (the
"1997 Employee Stock Plan") and the 1998 Omnibus Stock and Incentive Plan (the
"1998 Employee Stock Plan" and, collectively, the "Employee Stock Plans").
Under the Employee Stock Plans, incentive stock options, nonqualified stock
options, stock appreciation rights, performance units, performance shares,
restricted stock, restricted stock units and stock not subject to restrictions
may be granted from time to time upon hiring of new personnel, as incentive
compensation or to reward employees for outstanding performance; however, such
incentives are not routinely granted as part of annual consultant compensation,
which continues to be predominantly cash-based. The Compensation Committee
administers the Employee Stock Plans and determines all awards granted
thereunder. The exercise price of a stock option granted may be less than the
market price of Common Stock on the date of grant. Generally, incentive stock
options, nonqualified stock options, restricted stock and restricted stock
units vest each year beginning on the first anniversary of the date of grant at
20-25% per year and expire after 10 years. The Compensation Committee may
condition awards upon satisfaction of performance targets. Up to 950,000 shares
of Common Stock may be issued under the 1997 Employee Stock Plan, including, as
of April 30, 1999, up to 666,215 shares upon exercise of stock options already
granted and outstanding under the 1997 Employee Stock Plan. Up to 1,500,000
shares of Common Stock may be issued under the 1998 Employee Stock Plan,
including, as of April 30, 1999, 160,173 shares of Common Stock already issued
and outstanding as restricted stock awards and up to 872,673 additional shares
upon exercise of stock options already granted and outstanding under the 1998
Employee Stock Plan.
Profit Sharing Plan. LAI maintains a profit sharing plan (the "Profit
Sharing Plan"), a defined contribution plan established pursuant to and under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Each year, the Board of Directors determines the amount that LAI will
contribute to the Profit Sharing Plan for that plan year. Such contributions
are allocated to participants' accounts in proportion to their total
compensation, subject to limitations imposed by the Code. During the second
quarter of fiscal 1999, the Profit Sharing Plan was amended to include a cash
or deferred arrangement feature that qualifies for deferred tax treatment under
Section 401(k) of the Code, pursuant to which participants may make elective
contributions of up to 15% of their compensation, as defined in the Profit
Sharing Plan. Each year, the Board of Directors will determine the amount that
LAI will contribute to the Profit Sharing Plan as a matching contribution on
participants' elective contributions. Participants' elective contributions will
be 100% vested at all times, while LAI's contributions will vest 25% per year
after completion of one year of service. Participants may elect among several
investment vehicles selected by the plan administrator as to how their accounts
under the Profit Sharing Plan will be invested, including LAI's Common Stock.
Deferred Compensation Plan. LAI maintains a deferred compensation plan
(the "Deferred Compensation Plan") for its executive employees. The Board of
Directors or a Committee appointed by the Board determines the persons eligible
to participate in the Deferred Compensation Plan, although historically all
consultants have been eligible to participate. Under the terms of the Deferred
Compensation Plan, eligible participants may elect, on a calendar year basis,
to defer a specified amount or percentage of their compensation for payment at
a specified future date or upon termination of employment with or retirement
from LAI, as directed by each participant. Effective January 1, 1999, the
Deferred Compensation Plan was amended to prohibit further deferrals of
compensation. LAI pays interest on amounts deferred under the Deferred
Compensation Plan at a rate, currently 6.25% per annum, established each year
by the Board of Directors in its discretion. Participants are fully vested in
their accounts. LAI does not match employee contributions to the Deferred
Compensation Plan. See Note 7 to the accompanying Consolidated Financial
Statements.
27
<PAGE> 28
1997 Employee Stock Purchase Plan. LAI maintains the 1997 Employee
Stock Purchase Plan (the "ESPP"). Under the ESPP, which is intended to qualify
under the provisions of Section 423 of the Code, eligible employees are given
the right to purchase shares of Common Stock generally two times a year. The
per share purchase price under the ESPP is 85% of the market price of the
Common Stock immediately prior to the first day of each exercise period or,
during the first exercise period, 85% of the lesser of the market price
immediately prior to the first day of such exercise period or the market price
at the close of such period. During each exercise period, an eligible employee
will be entitled to purchase up to that number of shares of Common Stock the
aggregate purchase price of which under the ESPP does not exceed 3% of the
employee's annual compensation. As of February 28, 1999, an aggregate of
200,000 shares of Common Stock has been reserved for issuance under the ESPP,
of which 42,586 shares have been issued. Shares issued under the ESPP may be
newly issued shares or shares purchased by LAI in the open market. The second
purchase window for calendar year 1999 will be suspended due to the merger
agreement with TMP. See "Business-Merger Agreement with TMP Worldwide, Inc."
EXECUTIVE EMPLOYMENT ARRANGEMENTS
LAI has entered into employment agreements with each of the persons
currently serving as executive officers, Messrs. Pearson, McDonnell, Baird and
Albright.
Robert L. Pearson. LAI and Mr. Pearson entered into his employment
agreement in 1997, engaging Mr. Pearson to act as LAI's Chief Executive
Officer. The current term of Mr. Pearson's agreement expires February 28, 2002;
however, the agreement provides that, on the last day of each February, the
term of Mr. Pearson's employment shall be extended for an additional one year
period, such that the remaining term of the agreement is restored annually to
three years, unless either LAI or Mr. Pearson gives notice not less than 90
days prior to any extension date of an intention not to extend. Under his
employment agreement, Mr. Pearson is entitled to receive an annual base salary
of not less than $525,000, and is eligible to earn annual incentive bonuses
based upon such plans and criteria as may be established from time to time by
the Compensation Committee. Under the plan currently in effect, Mr. Pearson is
eligible to earn a target bonus equal to 80% of his base salary and a maximum
bonus equal to 160% of his base salary.
Mr. Pearson may terminate his employment agreement upon 90 days prior
written notice. Mr. Pearson is entitled to receive certain severance benefits
if his employment is terminated by LAI "without good cause" or by Mr. Pearson
following a "change of control" (each as defined in the employment agreement).
In the event of termination "without good cause," Mr. Pearson will receive his
base salary for the remainder of the unexpired term of the employment agreement
(not to exceed 36 months) or 24 months, whichever is greater, and an amount
equal to not less than the target bonus for the year of termination multiplied
by the number of years and fractions thereof in the unexpired term of the
agreement or, if greater, two. Mr. Pearson may terminate the agreement during
the 60 day period commencing six months after a "change of control," whereupon
he would be entitled to receive a lump sum payment equal to three times his
annual base salary plus an amount not less than three times the target bonus
for the year of termination. The agreement requires LAI to use its good faith
efforts, during the term, to nominate Mr. Pearson to LAI's Board of Directors.
Mr. Pearson has agreed to not compete with LAI during the term of his
employment and, if his employment is terminated by LAI without good cause or
following a change of control, for so long as he continues to receive payments
under the agreement.
28
<PAGE> 29
In addition, upon any termination of Mr. Pearson's employment "without
good cause" or following a "change of control," all vesting or performance
requirements with respect to any stock options or other similar equity-based
compensation awards shall be deemed to have been satisfied. With respect to any
payments under his employment agreement upon death, disability, or termination
"without good cause" or following a "change of control", Mr. Pearson would
receive additional cash payments in an amount necessary to pay any federal
excise taxes. Mr. Pearson's employment agreement is also subject to voluntary
termination by Mr. Pearson or termination by LAI "for cause."
Patrick J. McDonnell. LAI and Mr. McDonnell entered into his
employment agreement in September 1998, engaging Mr. McDonnell as LAI's Chief
Operating Officer. The current term of Mr. McDonnell's agreement expires
September 14, 2001; however, the agreement provides that, on September 15, 2001
(and each succeeding September 15th), the term of Mr. McDonnell's employment
shall be extended for an additional one year period, such that the remaining
term of the agreement is then two years, unless either LAI or Mr. McDonnell
gives notice not less than 90 days prior to any extension date of an intention
not to extend. Under his employment agreement, Mr. McDonnell is entitled to
receive an annual base salary of not less than $500,000, and is eligible to
earn annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the Compensation Committee. Under the plan
currently in effect, Mr. McDonnell is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary.
The agreement requires LAI to pay a $25,000 bonus to Mr. McDonnell in equal pro
rata installments during the first year of his employment.
Mr. McDonnell may terminate his employment agreement upon 90 days
prior written notice. Mr. McDonnell is entitled to receive certain severance
benefits if his employment is terminated by LAI "without good cause" or by Mr.
McDonnell following a "change of control" (each as defined in the employment
agreement). In the event of termination "without good cause," Mr. McDonnell
will receive his base salary for two years after termination and an amount
payable over the two years equal to two times the target bonus for the year of
termination. Mr. McDonnell may terminate the agreement during the 60 day period
commencing six months after a "change of control," whereupon he would be
entitled to receive a lump sum payment equal to two times his annual base
salary plus an amount not less than two times the target bonus for the year of
termination. Mr. McDonnell has agreed to not compete with LAI during the term
of his employment and, if his employment is terminated by LAI without good
cause or following a change of control, for so long as he continues to receive
payments under the agreement.
In connection with the negotiation of his employment agreement, the
Compensation Committee awarded Mr. McDonnell stock options to purchase 200,000
shares of LAI Common Stock with an initial exercise price of $5.625 per share.
LAI also paid Mr. McDonnell a cash sign on bonus of $525,000. If before
September 15, 2001 Mr. McDonnell voluntarily terminates his employment or LAI
terminates his employment for "good cause," Mr. McDonnell must repay part or
all of the sign on bonus, as follows: (1) if termination is between September
15, 1998 and September 14, 1999, 100% of the sign on bonus; (2) if termination
is between September 15, 1999 and September 15, 2000, 66 2/3% of the sign on
bonus and (3) if termination is between September 15, 2000 and September 14,
2001, 33 1/3% of the sign on bonus. In addition, under the employment
agreement, LAI is required to provide Mr. McDonnell with a $1 million life
insurance policy.
In addition, upon any termination of Mr. McDonnell's employment
"without good cause" or following a "change of control," all vesting or
performance requirements with respect to any stock options or other similar
equity-based compensation awards shall be deemed to have been satisfied. With
respect to any payments under his employment agreement upon death, disability,
or termination "without good cause" or following a "change of control", Mr.
McDonnell would receive additional cash payments in an amount necessary to pay
any federal excise taxes. Mr. McDonnell's employment agreement is also subject
to voluntary termination by Mr. McDonnell or termination by LAI "for cause."
29
<PAGE> 30
Philip R. Albright. LAI and Mr. Albright entered into his employment
agreement effective February 1, 1999, engaging Mr. Albright as LAI's Chief
Financial Officer. The agreement provides for an at will employment
relationship. Under his employment agreement, Mr. Albright is entitled to
receive an annual base salary of not less than $175,000, and is eligible to
earn annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the Compensation Committee. Under the plan
currently in effect, Mr. Albright is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary.
The agreement required LAI to pay a $30,000 bonus to Mr. Albright upon
execution.
In connection with the negotiation of his employment agreement, the
Compensation Committee awarded Mr. Albright stock options to purchase 30,000
shares of LAI Common Stock with an initial exercise price of $6.25 per share.
In addition, under his employment agreement, LAI is required to provide Mr.
Albright with a $1 million life insurance policy. During fiscal 1999, the
Compensation Committee also awarded Mr. Albright stock options to purchase
7,000 shares of LAI common stock with an exercise price of $10.00 per share
(after giving effect to participation in the Option Exchange Program). Such
options are subject to a three-year cliff vesting schedule.
Mr. Albright is entitled to receive certain severance benefits if his
employment is terminated by LAI for any reason other than "good cause" or by
Mr. Albright following a "change of control" (each as defined in the employment
agreement). In the event of termination by LAI other than for "good cause," Mr.
Albright will receive a cash payment equal to the sum of one year's base salary
and the target bonus for the year of termination.
In addition, upon any termination of Mr. Albright's employment
"without good cause" or following a "change of control," all vesting or
performance requirements with respect to any stock options or other similar
equity-based compensation awards shall be deemed to have been satisfied. With
respect to any payments under his employment agreement upon death, disability,
or termination "without good cause" or following a "change of control", Mr.
Albright would receive additional cash payments in an amount necessary to pay
any federal excise taxes.
Richard L. Baird. LAI and Mr. Baird entered into his employment
agreement effective November 9, 1998, engaging Mr. Baird as an LAI Executive
Vice President and as President of LAI Compass, Inc., the selection services
subsidiary. The current term of Mr. Baird's agreement expires November 8, 2000;
however, the agreement provides that, on November 9, 2000 (and each succeeding
November 9th), the term of Mr. Baird's employment shall be extended for an
additional one year period, such that the remaining term of the agreement is
then one year, unless either LAI or Mr. Baird gives notice not less than 90
days prior to any extension date of an intention not to extend. Under his
employment agreement, Mr. Baird is entitled to receive an annual base salary of
not less than $300,000, and is eligible to earn annual incentive bonuses based
upon such plans and criteria as may be established from time to time by the
Compensation Committee. Under the plan currently in effect, Mr. Baird is
eligible to earn a target bonus equal to 60% of his base salary and a maximum
bonus equal to 120% of his base salary. For LAI's 2000 fiscal year, the
agreement requires LAI to pay a $100,000 minimum bonus to Mr. Baird.
Mr. Baird may terminate his employment agreement upon 90 days prior
written notice. Mr. Baird is entitled to receive certain severance benefits if
his employment is terminated by LAI "without good cause" (as defined in the
employment agreement). In the event of termination "without good cause," Mr.
Baird will receive his base salary for one year after termination and an amount
payable over the one year equal to the target bonus for the year of
termination.
30
<PAGE> 31
In connection with the negotiation of his employment agreement, the
Compensation Committee awarded Mr. Baird stock options to purchase 100,000
shares of LAI Common Stock with an initial exercise price of $8.939 per share.
LAI also loaned Mr. Baird of $100,000 as a sign on benefit. LAI forgave the
loan and accrued interest on February 28, 1999. If before November 8, 2000, Mr.
Baird voluntarily terminates his employment or LAI terminates his employment
for "good cause," Mr. Baird must pay to LAI as liquidated damages cash equal to
part or all of the sign on bonus, as follows: (1) if termination is between
November 9, 1998 and November 8, 1999, $100,000 and (2) if termination is
between November 9, 1999 and November 8, 2000, $50,000.
In addition, upon any termination of Mr. Baird's employment "without
good cause" or following a "change of control," all vesting or performance
requirements with respect to any stock options or other similar equity-based
compensation awards shall be deemed to have been satisfied. With respect to any
payments under his employment agreement upon death, disability, or termination
"without good cause" or following a "change of control", Mr. Baird would
receive additional cash payments in an amount necessary to pay any federal
excise taxes. Mr. Baird's employment agreement is also subject to voluntary
termination by Mr. Baird or termination by LAI "for cause."
Joe D. Goodwin. LAI has also entered into an agreement with Mr.
Goodwin, who is not currently serving as an executive officer, on January 28,
1999. Pursuant to that agreement, Mr. Goodwin is guaranteed annual compensation
at the rate of $500,000 for a one year period. In addition, if Mr. Goodwin
leaves LAI after April 30, 1999, he is entitled to $125,000 as severance pay,
plus medical and dental insurance benefits for the remainder of the one year
term of the agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, the number of
shares of LAI's Common Stock beneficially owned by (i) each person known to LAI
as having beneficial ownership of more than 5% of LAI's Common Stock together
with such person's address, (ii) each of its directors and nominees to become a
director, (iii) each Named Executive Officer (as defined herein under
"Executive Compensation" and pursuant to Securities and Exchange Commission
rule) and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OR NUMBER IN GROUP OWNERSHIP (1) OF CLASS
- ------------------------------------------- ------------- --------
<S> <C> <C>
Robert L. Pearson (2) 175,210 2.18%
Patrick J. McDonnell 15,000 *
Philip R. Albright (3) 3,752 *
Richard L. Baird (4) 139 *
Joe D. Goodwin (5) 83,457 1.04
Roderick C. Gow (6) 97,780 1.22
John F. Johnson (7) 166,124 2.07
Neal L. Maslan (8) 23,633 *
John S. Rothschild (9) 82,423 1.03
Ray J. Groves (10), (13) 5,000 *
Richard W. Pogue (11), (13) 13,000 *
John C. Pope (12), (13) 13,000 *
All Directors and Executive Officers as a Group (12 persons) 678,518 8.46
Wellington Management Company, LLP (14) 768,000 9.57
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OR NUMBER IN GROUP OWNERSHIP (1) OF CLASS
- ------------------------------------------- ------------- --------
<S> <C> <C>
Heartland Advisors, Inc. (15) 610,000 7.60
FMR Corp. (16) 496,500 6.19
Cannell Capital Management (17) 414,100 5.16
Bricoleur Capital Management LLC (18) 410,800 5.12
</TABLE>
- --------------------
(*) Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares
as to which a person has or shares sole voting power and/or investment
power.
(2) Includes 7,026 shares of Common Stock held in the Profit Sharing Plan;
6,408 shares held as trustee for the benefit of certain family
members, which Mr. Pearson is deemed to beneficially own; and 16,939
restricted shares subject to a risk of forfeiture.
(3) Includes 252 shares of Common Stock held in the Profit Sharing Plan
and 2,500 shares underlying currently exercisable stock options deemed
beneficially owned.
(4) Includes 139 shares of Common Stock held in the Profit Sharing Plan
(5) Includes 1,364 shares of Common Stock held in the Profit Sharing Plan,
and 2,093 restricted shares subject to a risk of forfeiture.
(6) Includes 435 shares of Common Stock held in the Profit Sharing Plan,
and 20,930 restricted shares subject to a risk of forfeiture.
(7) Includes (i) 16,702 shares of Common Stock held in the Profit Sharing
Plan, (ii) 5,682 restricted shares subject to a risk of forfeiture,
(iii) 5,000 shares held by Mr. Johnson's wife, which Mr. Johnson may
be deemed to beneficially own, and (iv) 200 shares held by Mr.
Johnson's children, which Mr. Johnson may be deemed to beneficially
own. Does not include 100 shares held by Mr. Johnson's brother, as to
which Mr. Johnson disclaims beneficial ownership.
(8) Includes 1,099 restricted shares subject to a risk of forfeiture and
5,500 shares underlying currently exercisable stock options deemed
beneficially owned.
(9) Includes (i) 2,000 shares of Common Stock held by two of Mr.
Rothschild's children, which Mr. Rothschild is deemed to beneficially
own, (ii) 3,000 shares held by Mr. Rothschild's spouse, which Mr.
Rothschild may be deemed to beneficially own, and (iii) 5,581
restricted shares subject to a risk of forfeiture.
(10) Includes 5,000 shares underlying currently exercisable stock options
deemed beneficially owned.
(11) Includes 8,000 shares of Common Stock held by a revocable trust which
Mr. Pogue, as trustee, is deemed to beneficially own and 5,000 shares
underlying currently exercisable stock options deemed beneficially
owned.
(12) Includes 5,000 shares underlying currently exercisable stock options
deemed beneficially owned.
(13) Each of Messrs. Groves, Pogue and Pope has elected to defer certain
retainer and meeting fees and to have such deferral credited in the
form of stock deferral "units" pursuant to the Directors' Deferral
Plan. The number of units credited is determined December 31st of each
year based on average month-end stock values during the year. Using
the actual 1998 average month-end stock values and the month-end stock
values for the first three months of calendar 1999, Messrs. Grove,
Pogue and Pope would be credited with 6,825 units, 4,837 units, and
7,982 units, respectively. Each unit is equal in value to one share of
Common Stock.
(14) This information is derived from a Schedule 13G dated February 9,
1999, filed with the Securities and Exchange Commission (the
"Commission") by Wellington Management Company, LLP ("Wellington").
Wellington possesses shared dispositive power with respect to all
768,000 shares and shared voting power with respect to 425,000 shares.
Wellington's address is 75 State Street, Boston, Massachusetts 02109.
(15) This information is derived from a Schedule 13G dated February 9,
1999, filed with the Commission by Heartland Advisors, Inc.
("Heartland"). Heartland possesses sole dispositive power with respect
to all 610,000 shares and no voting power with respect to these
shares. Heartland's address is 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202.
(16) This information is derived from a Schedule 13G dated February 18,
1999, filed with the Commission by FMR Corp ("FMR"). FMR possesses
sole dispositive power with respect to all 496,500 shares and no
voting power with respect to these shares. FMR's address is 82
Devonshire Street, Boston, Massachusetts 02109.
(17) This information is derived from a Schedule 13G dated January 29,
1999, filed with the Commission by J. Carlo Cannell D/B/A Cannell
Capital Management ("Cannell"), Tonga Partners, LP ("Tonga"), Pleiades
Investment Partners, LP ("Pleiades"), Goldman Sachs Performance
Partners (Offshore), LP, ("Offshore"), and Goldman Sachs Performance
Partners, L.P. ("Partners"). Cannell possesses shared voting and
dispositive power with respect to all 414,100 shares. Tonga, Pleiades,
Offshore and Partners possess sole voting and dispositive power with
respect to 183,700, 89,000, 61,000 and 80,400 shares, respectively.
Cannell's address is 600 California Street, Floor 14, San Francisco,
California 94108.
32
<PAGE> 33
(18) This information is derived from a Schedule 13G dated February 2,
1999, filed with the Commission by Bricoleur Capital Management LLC
("Bricoleur"), Bricoleur Partners I, L.P. ("Partners"), Daniel P.
Wimsatt ("Wimsatt"), and Robert M. Poole. ("Poole"). Bricoleur has
sole voting and dispositive power with respect to all 410,800 shares.
Partners, Wimsatt and Poole have shared voting and dispositive power
with respect to all 410,800 shares. Bricoleur's address is 8910
University Center Lane, Suite 570, San Diego, California 92122.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1997, LAI made a non-interest bearing loan of $105,000 to
John S. Rothschild, the proceeds of which were used to pay certain initiation
fees for a country club joined by Mr. Rothschild in connection with his
employment responsibilities. So long as Mr. Rothschild does not voluntarily
terminate his employment with LAI, 20% of the principal amount of the loan will
be forgiven on July 1 of each year, commencing July 1, 1998. LAI also has
agreed to pay Mr. Rothschild the amount of any tax on income that may be
imputed to him as a result of such forgiveness.
LAI's Bylaws provide that LAI shall have the power, but generally not
the obligation, to indemnify directors and officers to the fullest extent
permitted by the laws of the State of Florida. LAI has entered into
indemnification agreements with all of its executive officers and directors
creating certain indemnification obligations on LAI's part in favor of the
directors and executive officers. These indemnification agreements clarify and
expand the circumstances under which a director or executive officer will be
indemnified.
33
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements beginning on Page 38 of this Report, as
follows:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants 38
Consolidated Balance Sheets 39
Consolidated Statements of Operations 40
Consolidated Statements of Stockholders' Equity 41
Consolidated Statements of Comprehensive Income 41
Consolidated Statements of Cash Flows 42
Notes to Consolidated Financial Statements 43
2. Financial Statement Schedules
Report of Independent Certified Public Accountants 60
Schedule II: Valuation and Qualifying Accounts 61
3. Exhibits.
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 (4) -- Agreement and Plan of Merger dated February 27, 1998, by and among Lamalie Associates, Inc.,
LAI Mergersub, Inc. and Ward Howell International, Inc.
2.2 (4) -- Asset Purchase Agreement dated December 29, 1997, by and among Lamalie Associates, Inc.,
Chartwell Partners International, Inc. and David M. DeWilde
2.3 (6) -- Agreement and Plan of Merger dated December 23, 1998, by and among Lamalie Associates, Inc.,
Registrant and LAI MergerSub, Inc.
2.4 (8) -- Agreement and Plan of Merger dated March 11, 1999, by and among LAI Worldwide, Inc., TMP
Worldwide, Inc. and TMP Florida Acquisition Corp.
3.1 (6) -- Articles of Incorporation of the Registrant as now in effect
3.2 (6) -- Bylaws of the Registrant as now in effect
4.1 (6) -- Form of Common Stock Certificate
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.2 (6) -- Stockholder Rights Agreement dated December 30, 1998, between Registrant and ChaseMellon
Shareholder Services, L.L.C.
4.3 (8) -- Amendment to Stockholder Rights Agreement
10.1 (6) -- 1997 Omnibus Stock and Incentive Plan as now in effect
10.2 (6) -- Non-Employee Directors' Stock Option Plan as now in effect
10.3 (6) -- Profit Sharing and Savings Plan as now in effect
10.4 (6) -- 1997 Employee Stock Purchase Plan as now in effect
10.5 (1) -- Form of Agreement for Deferred Compensation Plan
10.6 (1) -- Managing Partners' Compensation Plan +
10.7 (1) -- Partners' Compensation Plan +
10.8 (1) -- Employment Agreement for Mr. Gow +
10.9 (6) -- 1998 Omnibus Stock and Incentive Plan as now in effect
10.10 (1) -- Employment Agreement for Mr. Rothschild +
10.11 (2) -- Form of Indemnification Agreement entered into with Messrs. Philip R. Albright, Richard L.
Baird, Michael Brenner, Arthur J. Davidson, Mark P. Elliott, David W. Gallagher, Joe D.
Goodwin, Roderick C. Gow, Ray J. Groves, Harold E. Johnson, John F. Johnson, Patrick J.
McDonnell, Robert L. Pearson, Richard W. Pogue, John C. Pope, John S. Rothschild, Thomas M.
Watkins III, Jack P. Wissman
10.12 (6) -- Directors' Deferral Plan as now in effect
10.13 (3) -- Employment Agreement with Robert L. Pearson dated October 8, 1997
10.14 (4) -- Form of Employment Agreement for Former Ward Howell International, Inc. Shareholders
10.15 (5) -- Employment Agreement with Patrick J. McDonnell dated September 15, 1998
10.16 (7) -- Letter Agreement with Philip R. Albright dated November 9, 1998
10.17 (7) -- Credit Agreement with NationsBank, including amendment thereto
10.18 -- Employment Agreement with Richard L. Baird dated January 18, 1999
10.19 -- Letter Agreement with Joe D. Goodwin dated January 28, 1999
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.20 -- Letter Agreement with Philip R. Albright dated February 25, 1999
10.21 -- Settlement Agreement with former Ward Howell International, Inc. Shareholders dated April 14,
1999
10.22 -- Co-op Advertising Agreement between TMP Interactive, Inc. and LAI Worldwide, Inc. dated May 7,
1999
10.23 -- Advertising Agreement between TMP Interactive, Inc. and LAI Worldwide Inc. dated May 7, 1999
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant=s Registration Statement on Form S-1 (File No.
333-26027), originally filed April 29, 1997, as amended and as
effective July 1, 1997.
(2) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997, filed on August 8, 1997.
(3) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1997, filed on January 13, 1998.
(4) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed March 13, 1998.
(5) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1998, filed on October 14, 1998.
(6) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed January 5, 1999.
(7) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 31, 1998, filed on January 11, 1998.
(8) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed on March 22, 1999.
+ Confidential treatment has been granted with respect to
portions of this Exhibit.
(b) Reports on Form 8-K.
36
<PAGE> 37
On January 5, 1999, LAI filed a Form 8-K reporting the reorganization
of Lamalie Associates, Inc. ("Lamalie") into a holding company structure whereby
LAI Worldwide, Inc. became the holding company and Lamalie became a wholly-owned
subsidiary of LAI Worldwide, Inc. See "Business--Reorganization."
On November 6, 1998, LAI filed a Form 8-K reporting the declaration of
a dividend distribution of one preferred stock purchase right for each share of
Common Stock of LAI outstanding at the close of business on November 16, 1998,
pursuant to the terms of a Stockholder Right Agreement dated November 6, 1998,
between LAI and ChaseMellon Shareholder Services, L.L.C. as Rights Agent.
On March 22, 1999, LAI filed a Form 8-K reporting that LAI entered
into an Agreement and Plan of Merger with TMP Worldwide, Inc. ("TMP") pursuant
to which TMP will acquire LAI in a pooling of interests transaction.
See "Business--Merger Agreement with TMP Worldwide, Inc."
ANY LAI STOCKHOLDER MAY RECEIVE A COPY OF LAI'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999, INCLUDING FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION (WITHOUT EXHIBITS), A COPY OF LAI'S ANNUAL REPORT TO
STOCKHOLDERS AND OTHER INFORMATION REGARDING LAI, ALL AT NO CHARGE, UPON
REQUEST DIRECTED TO LAI INVESTOR RELATIONS, METRO CENTER, ONE STATION PLACE,
STAMFORD, CT 06902, (203) 326-4650. EXHIBITS TO THE FORM 10-K ARE AVAILABLE,
UPON REQUEST TO THE SAME ADDRESS, UPON PAYMENT OF LAI'S REASONABLE EXPENSES IN
FURNISHING SUCH EXHIBITS. INFORMATION ALSO MAY BE ACCESSED ON LAI'S WEB SITE AT
WWW.LAIX.COM.
37
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of LAI Worldwide,
Inc. (a Florida corporation) and subsidiaries as of February 28, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity,
comprehensive income and cash flows for each of the three years in the period
ended February 28, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 7, 1999
38
<PAGE> 39
LAI WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AS OF FEBRUARY 28,
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 23,780 $ 29,899
Accounts receivable, less allowance of $2,120 and $3,250,
respectively 22,950 22,419
Prepaid expenses 689 628
Refundable income taxes 1,822 3,591
Current deferred tax assets 486 2,438
-------- ---------
Total current assets 49,727 58,975
-------- ---------
Property and equipment, net 5,612 9,521
Deferred tax assets 3,699 4,927
Goodwill, net 24,790 22,492
Cash value of life insurance 4,363 5,823
Other assets 725 2,085
-------- ---------
Total assets $ 88,916 $ 103,823
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities $ 7,191 $ 6,027
Payable to former WHI stockholders 8,592 --
Accrued compensation 20,573 8,234
Current maturities of long-term debt 3,070 3,004
Accrued restructuring charges -- 577
-------- ---------
Total current liabilities 39,426 17,842
-------- ---------
Accrued rent 1,013 1,279
Deferred compensation 6,951 8,239
Long-term debt, less current maturities 6,055 2,903
-------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock; $0.01 par value; 35,000,000 shares authorized; 5,576,446
and 8,112,927 shares issued, respectively, and
5,576,446 and 8,082,953 shares outstanding, respectively 56 82
Additional paid-in capital 32,873 78,065
Unamortized stock-based compensation -- (2,732)
Common stock in treasury, at cost; 29,974 shares at
February 28, 1999 -- (196)
Cumulative translation adjustments -- 37
Retained earnings (accumulated deficit) 2,542 (1,696)
-------- ---------
Total stockholders' equity 35,471 73,560
-------- ---------
Total liabilities and stockholders' equity $ 88,916 $ 103,823
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
39
<PAGE> 40
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Fee revenue, net $ 46,437 $ 61,803 $ 86,811
Operating expenses:
Compensation and benefits 39,928 46,513 66,897
General and administrative 6,685 8,663 21,628
Goodwill amortization -- 17 776
Restructuring charges -- -- 3,543
-------- -------- --------
Total operating expenses 46,613 55,193 92,844
-------- -------- --------
Operating income (loss) (176) 6,610 (6,033)
-------- -------- --------
Interest income 125 887 1,806
Interest expense (501) (690) (1,188)
Foreign currency transaction losses -- -- (329)
Other -- -- (41)
-------- -------- --------
Other income (expense) (376) 197 248
-------- -------- --------
Income (loss) before income taxes (552) 6,807 (5,785)
Income tax expense (benefit) 15 2,927 (1,547)
-------- -------- --------
Net income (loss) $ (567) $ 3,880 $ (4,238)
======== ======== ========
Basic net income (loss) per common share $ (0.18) $ 0.85 $ (0.58)
======== ======== ========
Weighted average common shares 3,199 4,573 7,346
======== ======== ========
Diluted net income (loss) per common and common
equivalent share $ (0.18) $ 0.82 (0.58)
======== ======== ========
Weighted average common and common equivalent shares 3,199 4,751 7,346
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
40
<PAGE> 41
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNAMORTIZED SUBSCRIP-
----------------- PAID-IN STOCK-BASED TIONS TREASURY TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE STOCK ADJUSTMENTS
------ ------ ---------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF FEBRUARY 29, 1996 2,790 $ 28 $ 3,652 $ -- $ (399) $ -- $ --
Redemption of common stock (345) (3) (509) -- -- -- --
Issuance of common stock 630 6 944 -- (950) -- --
Reduction of subscriptions
receivable from stockholders -- -- -- -- 1,196 -- --
Net loss -- -- -- -- -- -- --
------ ------ ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1997 3,075 31 4,087 -- (153) -- --
Redemption of common stock (50) (1) (76) -- -- -- --
Initial public offering of
common stock 2,300 23 24,628 -- -- -- --
Other issuance of common stock 251 3 4,183 -- -- -- --
Reduction of subscriptions
receivable from shareholders -- -- -- -- 153 -- --
Amortization of discounted
options -- -- 51 -- -- -- --
Net income -- -- -- -- -- -- --
------ ------ ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1998 5,576 56 32,873 -- -- -- --
Secondary public offering of
common stock 2,265 23 41,365 -- -- -- --
Other issuance of common stock 272 3 4,072 (3,900) -- -- --
Amortization of discounted
options and stock-based
compensation -- -- 151 576 -- -- --
Acquisition of treasury stock (30) -- (396) 592 -- (196) --
Translation adjustments -- -- -- -- -- -- 37
Net loss -- -- -- -- -- -- --
------ ------ ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1999 8,083 $ 82 $ 78,065 $ (2,732) $ -- $ (196) $ 37
====== ====== ========== =========== ========== ======== ===========
<CAPTION>
RETAINED
EARNINGS/ TOTAL
(ACCUMULATED STOCKHOLDERS'
DEFICIT) EQUITY
------------ ------------
<S> <C> <C>
BALANCE AS OF FEBRUARY 29, 1996 $ (771) $ 2,510
Redemption of common stock -- (512)
Issuance of common stock -- --
Reduction of subscriptions
receivable from stockholders -- 1,196
Net loss (567) (567)
----------- ------------
BALANCE AS OF FEBRUARY 28, 1997 (1,338) 2,627
Redemption of common stock -- (77)
Initial public offering of
common stock -- 24,651
Other issuance of common stock -- 4,186
Reduction of subscriptions
receivable from shareholders -- 153
Amortization of discounted
options -- 51
Net income 3,880 3,880
----------- ------------
BALANCE AS OF FEBRUARY 28, 1998 2,542 35,471
Secondary public offering of
common stock -- 41,388
Other issuance of common stock -- 175
Amortization of discounted
options and stock-based
compensation -- 727
Acquisition of treasury stock -- --
Translation adjustments -- 37
Net loss (4,238) (4,238)
----------- ------------
BALANCE AS OF FEBRUARY 28, 1999 $ (1,696) $ 73,560
=========== ============
</TABLE>
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
----------------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Net income (loss) $ (567) $ 3,880 $ (4,238)
Other comprehensive income, net of tax:
Cumulative translation adjustments -- -- 37
-------- --------- ----------
Comprehensive income $ (567) $ 3,880 $ (4,201)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
41
<PAGE> 42
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (567) $ 3,880 $ (4,238)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 768 885 1,620
Write-down of property and equipment -- -- 1,385
Amortization of goodwill -- 17 776
Write-down of goodwill -- -- 1,522
Gain on short-term investments -- -- (776)
Amortization of discounted options and stock-based
compensation -- 51 727
Deferred income taxes (276) (897) (3,180)
Changes in assets and liabilities
Accounts receivable, net (4,679) (1,718) 531
Prepaid expenses (331) 32 61
Refundable income taxes (1,146) (1,707) (1,769)
Accounts payable and accrued liabilities (155) 361 (1,164)
Accrued compensation 3,376 (493) (12,339)
Accrued rent 531 (25) 266
Deferred compensation 1,862 3,079 1,288
Accrued restructuring charges -- -- 577
Other (36) (532) (1,060)
------- -------- --------
Net cash provided by (used in) operating
activities (653) 2,933 (15,773)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments -- -- (38,271)
Proceeds from short-term investments -- -- 39,047
Investment in life insurance (1,048) (2,109) (1,968)
Purchases of property and equipment (1,825) (2,187) (6,914)
Acquisition of WHI -- 1,318 (8,384)
Acquisition of CPI -- (1,387) --
------- -------- --------
Net cash used in investing activities (2,873) (4,365) (16,490)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 3,995 -- 2,221
Repayments of debt (2,262) (1,783) (5,439)
Proceeds from public offering of common stock 1,197 25,410 41,388
Other issuances of common stock -- -- 175
Payments to redeem common stock (271) (77) --
------- -------- --------
Net cash provided by financing activities 2,659 23,550 38,345
------- -------- --------
Net increase (decrease) in cash and cash
equivalents (867) 22,118 6,082
Cash and Cash Equivalents, at beginning of period 2,529 1,662 23,780
Cumulative translation adjustment -- -- 37
------- -------- --------
Cash and Cash Equivalents, at end of period $ 1,662 $ 23,780 $ 29,899
======= ======== ========
Supplemental disclosures of cash flow information --
Cash paid for interest $ 204 $ 145 $ 466
Cash paid for income taxes 1,437 4,691 2,526
Supplemental disclosures of non-cash activities --
Debt issued in connection with acquisitions -- 8,802 --
Equity issued in connection with acquisitions -- 3,580 --
Payable in connection with acquisitions -- 8,592 (208)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
42
<PAGE> 43
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
LAI Worldwide, Inc. and its wholly-owned subsidiaries ("LAI" or the
"Company") provide consulting services aimed specifically at solving its
clients' leadership needs by identifying, evaluating and recommending qualified
candidates for senior level positions. LAI provides executive search services
exclusively on a retained basis primarily in the United States.
PUBLIC OFFERINGS & REINCORPORATION
The Company completed its initial public offering (the "IPO") of 2.3
million shares of common stock on July 1, 1997. The proceeds of $24.7 million,
net of underwriters' discounts and other offering costs, were used to repay
outstanding indebtedness under the Company's credit facilities, to finance
business acquisitions and to provide additional working capital. On June 3,
1997, in connection with the IPO, the Company reincorporated from Delaware to
Florida.
On June 9, 1998, the Company completed a secondary public offering of
3.2 million shares of common stock, approximately 2.3 million of which were
offered by the Company with the balance being offered by certain stockholders
of the Company. The proceeds to the Company of approximately $41.4 million, net
of underwriters' discounts and other offering costs, were used to support the
Company's international expansion efforts, to pursue strategic acquisitions, to
support continued enhancements to the Company's technology-based infrastructure
and to provide additional working capital.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie
Associates, Inc., a Florida corporation, reorganized into a holding company
structure in which LAI Worldwide, Inc., a Florida corporation, became the new
holding company.
STOCK SPLIT
On June 3, 1997, in connection with the IPO, the Company effected a
1,000 for one stock split of each outstanding share of common stock. All share
related data in these consolidated financial statements have been adjusted
retroactively to give effect to this event as if it had occurred at the
beginning of the earliest period presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial position
and results of operations of the Company and its wholly-owned subsidiaries. All
material intercompany profits, transactions and balances have been eliminated.
43
<PAGE> 44
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investment instruments with
original maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
assets' estimated useful lives of 7 years for office furniture and equipment
and 5 years for software. Leasehold improvements are stated at cost less
accumulated amortization using the straight-line method over the related
remaining lease terms which range from 1 to 15 years. Repair and maintenance
costs which do not extend the useful lives of the assets are expensed as
incurred.
GOODWILL
Goodwill relates to acquisitions made during the year ended February
28, 1998, (see Note 3) and is being amortized on a straight-line basis over
thirty years. During the year ended February 28, 1999, the Company finalized
its analysis of the fair market value of assets acquired and the acquisition
reserves and, accordingly, decreased goodwill by approximately $1.5 million.
Accumulated amortization as of February 28, 1998 and 1999, was approximately
$17,000 and $793,000, respectively.
At each balance sheet date, the Company evaluates the realizability of
its goodwill based upon expectations on non-discounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at February 28, 1999.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from fees for
professional services, which are recognized as fee revenue as clients are
billed, generally over a 60- to 90-day period commencing with the initial
acceptance of a search. Fee revenue is presented net of adjustments to original
billings.
44
<PAGE> 45
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from
activities of the Company's international operations. Results of operations are
translated using the average exchange rates during the period, while assets and
liabilities are translated into U.S. dollars using current rates. Resulting
foreign currency translation adjustments are recorded in stockholders' equity
and foreign currency transaction gains or losses are recorded in the
consolidated statements of operations.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates applicable to
the future years in which the related deferred tax assets or liabilities are
expected to be settled or realized. Income tax expense (benefit) consists of
the taxes payable for the current period and the change during the period in
deferred tax assets and liabilities.
The Company's United Kingdom subsidiary is treated as a branch
operation for tax purposes.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share was determined by dividing
the net income (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted net income (loss) per common and common
equivalent share was determined by dividing the net income (loss) by the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options using the treasury stock method and
from the convertible debt assuming conversion upon issuance (see Note 9).
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares of common stock issued by the Company during the 12
months preceding the IPO have been included in the calculation of weighted
average shares of common stock outstanding as if the shares were outstanding
for all periods presented.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentration of credit risk consist primarily of accounts receivable. Credit
risk arising from receivables is minimal due to the large number of clients
comprising the Company's customer base, which is concentrated primarily in the
U.S. Credit losses in the past have not been material.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments as of
February 28, 1998 and 1999, approximate fair value.
45
<PAGE> 46
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company has
implemented SFAS 130 for the year ended February 28, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way companies report information about operating
segments including the related disclosures about the different economic
environments in which it operates. The Company has implemented SFAS 131 for the
year ended February 28, 1999 (see Note 10).
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998.
The Company has implemented SOP 98-1 for the year ended February 28, 1999.
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Management believes the effect of adopting SFAS 133 would not have a
material impact on the accompanying consolidated financial statements.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform
to the current year financial statement presentation.
(2) RESTRUCTURING CHARGES
During the first and second quarters of fiscal 1999, the Company
focused its growth strategy on international expansion, opening offices in
London, England and Wanchai, Hong Kong. This expansion involved the hiring of
15 executive search consultants and 47 support staff, principally in London.
Due to economic conditions and the inherent difficulties in establishing
start-up operations, revenues from international operations were less than
projected, resulting in substantial losses from this business segment. As a
result, in December 1998, the Company decided to significantly reduce the size
and scope of its London office.
46
<PAGE> 47
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the year ended February 28, 1999,
include a restructuring charge of approximately $3.5 million. This charge
included approximately $2.1 million for write-downs of abandoned assets,
approximately $925,000 of severance benefits payable to 28 employees whose
positions were eliminated and approximately $500,000 of legal and other costs
directly related to the restructuring. Approximately $577,000 of accrued
expenses related to the above charges were payable as of February 28, 1999, and
are accrued for in the accompanying consolidated balance sheets.
(3) ACQUISITIONS
On February 27, 1998, the Company completed the acquisition by merger
of Ward Howell International, Inc. ("WHI"). WHI and its subsidiary were merged
into a wholly-owned subsidiary of the Company and WHI was the surviving
corporation in the merger. The purchase price was approximately $19.5 million
including $7.6 million in notes payable and approximately 190,000 shares or
$3.1 million of common stock. The remaining $8.8 million of the purchase
consideration was payable to the former WHI stockholders as of February 28,
1998, and is accrued for in the accompanying consolidated balance sheets. The
acquisition was accounted for as a purchase with goodwill being recognized for
the excess of the purchase amount over the fair market value of the assets
acquired.
On January 2, 1998, the Company acquired Chartwell Partners
International, Inc. ("CPI"). The acquisition cost was approximately $3.1
million and consisted of approximately $1.4 million cash, a $1.25 million
convertible subordinated note payable, and approximately 26,000 shares or
$424,000 of common stock. The acquisition was accounted for as a purchase with
goodwill being recognized for the excess of the purchase amount over the fair
market value of the assets acquired.
Had the acquisitions of WHI and CPI been completed on March 1, 1996
and 1997, respectively, the combined proforma unaudited results of operations
would have been as follows for the year ended February 28:
<TABLE>
<CAPTION>
1997 1998
------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Fee revenue, net $74,193 $91,730
Net income 2,943 4,485
Basic net income per common share 0.86 0.94
Diluted net income per common and common equivalent share 0.86 0.90
</TABLE>
The unaudited pro forma combined results of operations for the year
ended February 28, 1997 and 1998 were prepared using the financial statements
of WHI and CPI for the years ended December 31, 1996 and 1997, respectively.
47
<PAGE> 48
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of February 28:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Office furniture and equipment $ 3,934 $ 6,419
Leasehold improvements 2,614 4,209
Software 1,672 3,121
-------- --------
8,220 13,749
Less: accumulated depreciation and amortization (2,608) (4,228)
-------- --------
$ 5,612 $ 9,521
======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following as of February 28:
<TABLE>
<CAPTION>
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to former WHI stockholders dated February 27, 1998, payable
in three equal annual installments plus accrued interest
bearing interest at 5.0% $ 7,552 $ 4,892
Convertible subordinated promissory note to a former CPI stockholder,
dated January 2, 1998, payable in three equal annual installments
plus accrued interest, bearing interest at 6.75%, and convertible into
shares of common stock at each anniversary date at prices specified
in the asset purchase agreement 1,250 833
Notes payable due to former LAI stockholders, non-interest bearing
(interest imputed at 6.5%), payable in three equal annual
installments maturing through April 2000 254 140
Notes payable to former WHI stockholders bearing interest from 5.8% to
9.5% maturing through February 2003
69 42
------- -------
9,125 5,907
Less: current maturities of long-term debt (3,070) (3,004)
------- -------
$ 6,055 $ 2,903
======= =======
</TABLE>
48
<PAGE> 49
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
February 29, 2000 $3,004
February 28, 2001 2,889
February 28, 2002 7
February 28, 2003 7
------
$5,907
======
</TABLE>
The Company maintains a line of credit which provides for maximum
borrowings of $25 million bearing interest at various rates based on either a
LIBOR index or the bank's prime lending rate (7.75% at February 28, 1999) as
determined at the Company's option. Interest is payable monthly and the
principal balance is due upon demand. The line of credit is collateralized by
accounts receivable with borrowings limited to 75% of qualifying receivables.
Additionally, the Company is required to comply with certain working capital and
liquidity covenants. The Company was in compliance with or has obtained waivers
for the terms and covenants of its debt agreements as of February 28, 1998 and
1999. No amounts were outstanding under the line of credit as of February 28,
1998 or 1999.
(6) INCOME TAXES
Significant components of the income tax expense (benefit) are summarized
as follows as of February 28:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 235 $ 2,931 $ 485
State 56 893 272
------- ------- -------
291 3,824 757
------- ------- -------
Deferred:
Federal (220) (683) (1,377)
State (56) (214) (829)
Foreign -- -- (98)
------- ------- -------
(276) (897) (2,304)
------- ------- -------
$ 15 $ 2,927 $(1,547)
======= ======= =======
</TABLE>
49
<PAGE> 50
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax expense (benefit) differs from the amount computed by
applying the U.S. federal corporate tax rate to income (loss) before income tax
expense (benefit) as follows as of February 28:
<TABLE>
<CAPTION>
1997 1998 1999
----- ---- -----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0 % 34.0% (34.0)%
Meals, entertainment and dues (31.2) 2.1 4.9
Keyperson life insurance premiums (3.8) .5 .6
Nondeductible goodwill -- -- 4.7
Stock-based compensation -- -- 3.5
Foreign operations -- -- (1.7)
State taxes, net of federal benefit (2.8) 6.4 (6.0)
Other -- -- 1.3
----- ---- -----
Effective income tax rate (2.8)% 43.0% (26.7)%
===== ==== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the corresponding amounts used for income tax reporting
purposes. As of February 28, 1998, the Company changed its method of reporting
for income taxes from the cash basis to the accrual basis. Significant
components of the Company's deferred tax assets and liabilities as of February
28, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued liabilities $ 124 $ 2,129
Accrued rent 408 499
Allowance for uncollectible accounts 595 1,137
Deferred compensation 2,798 3,213
Net operating loss carryforward 2,207 2,122
Stock-based compensation -- 83
Other 35 74
------- -------
Total deferred tax assets 6,167 9,257
------- -------
Deferred tax liabilities:
Accrued compensation (117) (418)
Liability for change in tax method (1,241) (860)
Property and equipment, net (623) (569)
Other (1) (45)
------- -------
Total deferred tax liabilities (1,982) (1,892)
------- -------
Net deferred tax asset $ 4,185 $ 7,365
======= =======
</TABLE>
During the year ended February 28, 1999, the Company increased its
deferred tax assets related to the WHI purchase and decreased goodwill
accordingly (see Note 1).
The Company has net operating loss carryforwards of approximately $6.0
million, expiring in 2018. Approximately $4.3 million of this amount relates to
the acquisition of WHI (see Note 3). These losses are limited to approximately
$1.0 million each year in accordance with IRC Section 382.
50
<PAGE> 51
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND SAVINGS PLAN
The Company maintains a defined contribution profit sharing plan
covering substantially all employees. In August 1998, the plan was amended to
add a 401(k) savings and Company matching feature. Company profit sharing and
matching contributions are discretionary and are funded annually as approved by
the Board of Directors. As of February 28, 1998, the Company had accrued for
contributions totaling approximately $1.6 million, which is included in accrued
compensation in the accompanying consolidated balance sheets. No amount was
accrued as of February 28, 1999.
DEFERRED COMPENSATION PLAN
The Company has deferred compensation agreements with 69 employees and
former employees. Under the terms of the agreements, employees are eligible to
make annual elections, on a calendar year basis, to defer a portion of their
compensation. This compensation, together with accrued interest, is paid upon
termination of the agreements, as defined. Effective January 1, 1999, the plan
was amended to prohibit future deferrals of compensation to the plan. The
present value of the obligation is recorded as deferred compensation in the
accompanying consolidated balance sheets. Interest is earned on deferred amounts
at a rate determined annually by the Company (6.25% at February 28, 1999).
The Company is the beneficiary of whole life insurance policies with an
aggregate cash surrender value of approximately $4.4 million and $5.8 million,
and an aggregate face amount of $13.5 million and $22.3 million, as of February
28, 1998 and 1999, respectively. Proceeds from the policies are intended to fund
the deferred compensation agreements.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan (the "ESPP")
covering all eligible employees meeting length of service requirements as
specified in the ESPP. An aggregate of 200,000 shares of common stock is
reserved for issuance under the ESPP. Eligible employees are given the right to
purchase shares of common stock two times a year at a price equal to 85% of the
then current market price of the common stock. The second purchase window for
calendar year 1999 will be suspended due to the pending transaction with TMP
Worldwide, Inc. (see Note 13).
(8) STOCK OPTION PLANS
The Company has two employee stock option plans, the 1997 Omnibus Stock
and Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive
Plan (the "1998 Plan"). Under the 1997 Plan and the 1998 Plan, incentive stock
options, nonqualified stock options, stock appreciation rights, performance
units, performance shares, restricted stock, restricted stock units and stock
not subject to restrictions may be granted to employees of the Company at prices
determined at the time of grant. Generally, incentive stock options,
nonqualified stock options, restricted stock and restricted stock units will
vest each year beginning on the first anniversary of the date of grant at 20-25%
per year and will expire after 10 years. An aggregate of 950,000 and 1,500,000
shares of common stock is reserved for
51
<PAGE> 52
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance under the 1997 Plan and the 1998 Plan, respectively. Certain options
under the 1997 Plan and the 1998 Plan which have been granted to executive
officers of the Company vest immediately upon the Company's stock price
exceeding specified closing prices for a specified length of time as determined
by the Board of Directors. If the specified criteria are not met, the options
become 100% exercisable six years from the date of grant.
The Company also maintains a non-employee directors' stock plan (the
"Directors' Stock Plan"). An aggregate of 80,000 shares of common stock is
reserved for issuance under the Directors' Stock Plan. Among other provisions,
outside directors will annually receive options to purchase 5,000 shares of
common stock at an exercise price equal to the market price of the common stock
on the date of grant. The options will vest fully on the first anniversary of
the date of grant and expire after ten years.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25 ("APB 25"), under which approximately
$51,000 and $151,000 of compensation expense has been recognized for options
with an exercise price less than the market price on the date of grant for the
years ended February 28, 1998 and 1999, respectively. In October 1995, the FASB
issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
which was effective for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of APB 25, but
requires pro forma disclosure of net income and earnings per share for the
effects on compensation expense had the accounting guidance of SFAS 123 been
adopted.
The Company adopted SFAS 123 for disclosure purposes during the year
ended February 28, 1998. For SFAS 123 purposes, the fair value of each option
grant has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumption: risk-free interest
rates ranging from 4.2 to 6.4 percent, depending on the date of grant, expected
life of 7 years, dividend rate of zero percent, and expected volatility of 45
percent and 66 percent for the years ended February 28, 1998 and 1999,
respectively. Using these assumptions, the fair value of the stock options
granted in the years ended February 28, 1998 and 1999, is approximately $10.9
million and $5.9 million, respectively. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income (loss) and net income (loss) per share, as reported would
have been the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS EXCEPT PER SHARE DATE)
<S> <C> <C>
Net income (loss)
As reported $ 3,880 $ (4,238)
Pro forma 3,399 (5,938)
Basic net income (loss) per common stare
As reported $ 0.85 $ (0.58)
Pro forma 0.74 (0.81)
Diluted net income (loss) per common and
common equivalent share
As reported $ 0.82 $ (0.58)
Pro forma 0.72 (0.81)
</TABLE>
52
<PAGE> 53
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option plans' activity for the years
ended February 28, 1998 and 1999 and a status of the Company's stock option
plans as of February 28, 1999, is presented in the table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Options outstanding at February 28, 1997 -- $ --
Option activity:
Granted 1,211,615 15.97
Exercised -- --
Cancelled or expired -- --
---------- --------
Options outstanding at February 28, 1998 1,211,615 15.97
Option activity:
Granted 1,652,740 11.30
Exercised (5,750) 12.00
Cancelled or expired (1,224,267) 16.35
---------- --------
Options outstanding at February 28, 1999 1,634,338 10.99
========== ========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------------
NUMBER WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE AVERAGE
AS OF REMAINING EXERCISE
RANGE OF EXERCISE PRICES FEBRUARY 28, 1999 CONTRACTUAL LIFE PRICE
- ------------------------ ----------------- ---------------- ---------
<S> <C> <C> <C>
$ 5.63 - 8.00 838,315 10 years $ 7.11
$ 8.50 - 12.00 372,850 9 years 10.11
$17.88 - 21.50 423,173 9 years 19.44
</TABLE>
As of February 28, 1998 and 1999, options to purchase an aggregate of
1,211,615 and 1,634,338 shares, respectively, were outstanding with a weighted
average fair value of $9.02 and $6.25, respectively. Of the options outstanding
at February 28, 1999, 136,380 were immediately exercisable with a weighted
average exercise price of $15.74. No options were exercisable as of February 28,
1998. No options were granted during the year ended February 28, 1997.
On October 8, 1998, the Compensation and Management Development
Committee (the "Compensation Committee") of the Board of Directors approved a
program to permit the exchange of certain outstanding options to purchase LAI
common stock for a smaller number of newly issued options with lower exercise
prices (the "Option Exchange Program"). The Option Exchange Program applied to
options issued under the 1997 Plan and 1998 Plan with initial exercise prices of
$12.00 per share or higher. Under the Option Exchange Program, such options were
exchanged for options with initial exercise prices of $8.00 or $10.00. The
closing price of the Company's common stock as reported on the Nasdaq Stock
Market on October 8, 1998, was $6.75. A total of 943,175 options were exchanged
for 632,640 newly granted options. These options are included in the option
activity as cancelled or expired and granted, respectively.
53
<PAGE> 54
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) NET INCOME (LOSS) PER SHARE
The Company adopted SFAS 128, "Earnings per Share" during the year
ended February 28, 1998. Accordingly, basic and diluted earnings per share
("EPS") are shown on the face of the accompanying consolidated statements of
operations. The following is a reconciliation of the numerator and denominator
of basic EPS to diluted EPS.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28,
----------------------------------------------------------------------------------
1997 1998
----------------------------------------------------------------------------------
INCOME (LOSS) SHARES PER SHARE INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available to
common stockholders $ (567) 3,199 $(0.18) $ 3,880 4,573 $ 0.85
EFFECT OF DILUTIVE
SECURITIES
Options -- -- -- 121
Convertible
promissory
note -- -- 14 57
------- ------- ------ ------- ------- -------
DILUTED EPS
Income (loss) available to
common stockholders +
assumed conversions $ (567) 3,199 $(0.18) $ 3,894 4,751 $ 0.82
======= ======= ====== ======= ======= =======
<CAPTION>
FOR THE YEARS ENDED FEBRUARY 28,
----------------------------------------
1999
----------------------------------------
INCOME(LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -------
<S> <C> <C> <C>
BASIC EPS
Income (loss) available to
common stockholders $(4,238) 7,346 $(0.58)
EFFECT OF DILUTIVE
SECURITIES
Options -- -- --
Convertible
promissory
note -- -- --
------- ------- ------
DILUTED EPS
Income (loss) available to
common stockholders +
assumed conversions $(4,238) 7,346 $(0.58)
======= ======= ======
</TABLE>
Options to purchase 605,615 shares of common stock at prices ranging
from $19.13 to $19.56 per share and options to purchase 1,634,338 shares of
common stock at prices ranging from $5.63 to $21.50 and $833,000 of debt
convertible into 32,829 shares of common stock were outstanding as of February
28, 1998 and 1999, respectively, but were not included in the computation of
diluted EPS because the effect would be antidilutive.
(10) SEGMENT REPORTING
During March 1999, the Company closed both its London and Hong Kong
offices (see Note 13). Prior to that time, the Company was divided into two
operating segments, domestic and international. Domestic operations were, and
continue to be, conducted from offices located in most major cities throughout
the United States. International operations were conducted from offices in
London and Hong Kong. Both segments provided consulting services aimed
specifically at solving their clients' leadership needs by identifying,
evaluating, and recommending qualified candidates for senior executive positions
primarily at Fortune 500 and large private companies exclusively on a retained
basis.
The Company evaluates each segment's performance based on its operating
profit or loss. The Company did not have international operations for the years
ended February 28, 1997 and 1998. Information concerning the operations of the
Company's reportable segments for the year ended February 28, 1999, is as
follows:
54
<PAGE> 55
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CONSOLIDATED
-------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fee revenue, net $ 83,449 $ 3,362 $ 86,811
Depreciation and amortization (2,155) (241) (2,396)
Restructuring charges -- (3,543) (3,543)
Operating income (loss) 6,531 (12,564) (6,033)
Interest income 1,799 7 1,806
Interest expense (1,188) -- (1,188)
Income tax (expense) benefit (3,453) 5,000 1,547
Purchases of property and equipment 3,823 3,091 6,914
Total assets 95,980 7,843 103,823
</TABLE>
(11) EQUITY TRANSACTIONS
On November 16, 1998, the Company announced that it had adopted a
Stockholder Rights Agreement. To implement this plan, the Company declared
a dividend of one Preferred Stock Purchase Right on each outstanding share
of the Company's common stock. The dividend distribution was payable to
stockholders of record on November 16, 1998. The rights will be exercisable
for fractions of a share of the Company's Series A Junior Participating
Preferred Stock only if a person or group of persons acquires 20 percent or
more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of
persons of 20 percent or more of the common stock.
Subsequent to year end, the Company amended the Stockholder Rights
Agreement to exclude TMP Worldwide, Inc. ("TMP") as an Acquiring Person, as
defined in the agreement (see Note 13).
(12) COMMITMENTS AND CONTINGENCIES
Future minimum lease payments, net of sublease income, under these leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
(IN THOUSANDS)
<S> <C>
February 29, 2000 $ 5,921
February 28, 2001 5,795
February 28, 2002 4,861
February 28, 2003 4,470
February 29, 2004 3,731
Thereafter 17,140
-------
$41,918
=======
</TABLE>
55
<PAGE> 56
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense totaled approximately $2.9, $3.4 and $7.7 million during
the years ended February 28, 1997, 1998 and 1999, respectively. Certain real
property leases provide for periods of free rent or escalating lease payments
throughout the lease term. In accordance with generally accepted accounting
principles, rent expense is recognized ratably over the term of the agreement.
LETTERS OF CREDIT
As of February 28, 1999, the Company has four standby letters of credit
totaling approximately $2.6 million at February 28, 1999. The letters of credit,
which are required by certain lessors as security deposits, expire between
August and December 1999.
LITIGATION
The Company is involved in various legal actions arising in the normal
course of business. While it is not possible to determine with certainty the
outcome of these matters, in the opinion of management, the eventual resolution
of these claims and actions outstanding will not have a material adverse effect
on the Company's financial position or results of operations.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain
executive officers which provide for minimum compensation under certain
circumstances. The agreements also provide for a payment of amounts up to three
times their annual salary if a change in control, as defined, of the Company
occurs and include a covenant against competition with the Company which extends
for two to three years after termination. In the event all the covered
executives elected to terminate their employment during a specified period
following a change in control, the Company's maximum liability would be
approximately $5.2 million.
(13) SUBSEQUENT EVENTS
ACQUISITION BY TMP WORLDWIDE, INC.
Effective as of March 11, 1999, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with TMP Worldwide, Inc. ("TMP"),
pursuant to which TMP is to acquire LAI in a pooling of interests transaction.
Under the terms of the Agreement, each share of LAI common stock or option to
purchase LAI common stock will be exchanged for a specified number of shares of
TMP common stock or options to purchase TMP common stock, respectively. The
Merger Agreement is subject to customary closing conditions, including approval
by the shareholders of LAI.
56
<PAGE> 57
INTERNATIONAL OPERATIONS
In March 1999, the Company completed a second review of its
international operations and assessed the impact of the actions taken as a
result of the decision made in December 1998, to significantly reduce the size
and scope of its London office (see Note 2). The Company determined that
projections for revenues from international operations were not being met.
Consistent with its previously stated intentions to prevent further operating
losses from international operations in fiscal 2000, the Company determined to
immediately enact a plan of closure for its two international offices. In
accordance with this plan, both the London and Hong Kong offices were closed
during the first quarter of fiscal 2000. The Company expects that the office
closures will result in further restructuring charges which will be recorded in
the first quarter of fiscal 2000.
57
<PAGE> 58
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, as of the 25th day of
May, 1999.
LAI WORLDWIDE, INC.
By: /s/ ROBERT L. PEARSON
------------------------------------
Robert L. Pearson,
Chairman and Chief Executive Officer
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
--------- ----- ----
<S> <C> <C>
/s/ ROBERT L. PEARSON Chief Executive Officer May 25, 1999
- ------------------------------------------------------ and Director (Principal Executive
Robert L. Pearson Officer)
/s/ PATRICK J. MCDONNELL President, Chief Operating May 25, 1999
- ------------------------------------------------------ Officer and Director
Patrick J. McDonnell
/s/ PHILIP R. ALBRIGHT Vice President, Chief May 25, 1999
- ------------------------------------------------------ Financial Officer
Philip R. Albright (Principal Accounting Officer)
/s/ RICHARD L. BAIRD Executive Vice President May 25, 1999
- ------------------------------------------------------
Richard L. Baird
/s/ JOE D. GOODWIN Director May 25, 1999
- ------------------------------------------------------
Joe D. Goodwin
/s/ RODERICK C. GOW Director May 25, 1999
- ------------------------------------------------------
Roderick C. Gow
/s/ JOHN F. JOHNSON Director May 25, 1999
- ------------------------------------------------------
John F. Johnson
/s/ NEAL L. MASLAN Director May 25, 1999
- ------------------------------------------------------
Neal L. Maslan
/s/ JOHN S. ROTHSCHILD Director May 25, 1999
- ------------------------------------------------------
John S. Rothschild
/s/ RAY J. GROVES Director May 25, 1999
- ------------------------------------------------------
Ray J. Groves
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD W. POGUE Director May 25, 1999
- ------------------------------------------------------
Richard W. Pogue
/s/ JOHN C. POPE Director May 25, 1999
- ------------------------------------------------------
John C. Pope
</TABLE>
59
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of LAI Worldwide, Inc. included in this Form
10-K and have issued our report thereon dated April 7, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index in Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 7, 1999
60
<PAGE> 61
SCHEDULE II
LAI WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO AMOUNT ADDED BALANCE AT
BEGINNING COST AND THROUGH END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
--------- -------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1997
Allowance for doubtful accounts $ 625 $ 225 $ -- $ -- $ 850
Accrued restructuring charges -- -- -- -- --
Year ended February 28, 1998
Allowance for doubtful accounts 850 450 820 -- 2,120
Accrued restructuring charges -- -- -- -- --
Year ended February 28, 1999
Allowance for doubtful accounts 2,120 1,130 -- -- 3,250
Accrued restructuring charges -- 3,543 -- 2,966 577
</TABLE>
61
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this ___ day of
January, 1999, by and between LAMALIE ASSOCIATES, INC., a Florida corporation
(the "Company"), and RICHARD L. BAIRD, residing at 346 Drovers Lane, Palatine,
IL 60067 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, upon the terms and subject to the conditions set forth
in this Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall be effective as of November 9,
1998 and shall continue through November 8, 2000; provided, however, that
beginning on November 9, 2000 and on each November 9 thereafter (each such date
being referred to as a "Renewal Date"), the term of this Agreement shall
automatically be extended for an additional one year, unless either party gives
the other written notice of non-renewal at least ninety (90) days prior to any
such Renewal Date.
3. COMPENSATION
(a) Base Salary. The Company shall pay to the Executive a salary of
$300,000 per year, or such other sum in excess of that amount as the parties
may agree on from time to time (as in effect from time to time, the "Base
Salary"), payable monthly or in other more frequent installments, as determined
by the Company.
(b) Sign On Benefit. (i) Upon the execution of this Agreement, the
Executive shall receive from the Company as a sign on benefit a loan in the
amount of $100,000, to be evidenced by a Promissory Note bearing interest at
the rate of 10%, to be forgiven by the Company on February 28, 1999 if
Executive is still employed by the Company on that date.
(ii) If the Executive's employment hereunder is terminated either
by the Executive voluntarily pursuant to Section 8(a)(i) hereof or by the
Company for Good Cause pursuant to Section 8(b)(i) hereof at any time prior to
November 8, 2000, the Executive is obligated to pay to the Company immediately
upon termination as liquidated damages, and not as a penalty, $100,000 if
employment is terminated between November 9, 1998 and November 8, 1999, and
$50,000 if employment is terminated between November 9, 1999 and November 8,
2000. Any such repayment obligations shall accrue interest at the rate of 10%
per annum from the date of such termination. The Executive shall bear all the
costs and fees of any arbitration or other action which must be begun by the
Company to collect the liquidated damages from the Executive pursuant to this
Section 3(b) (including reasonable attorneys' fees, arbitrator's fees, and
administrative fees). Further, no delay or failure on the part of the Company
in exercising
<PAGE> 2
any right to collect the liquidated damages pursuant to this Section 3(b) shall
operate as a waiver of any such right, nor shall any partial exercise of such
right preclude further exercise of such right.
(c) Performance Bonus. In addition to the Base Salary to be paid
pursuant to Section 3(a) of this Agreement, during the term of this Agreement
or any renewal or extension hereof, the Company shall pay to the Executive as
incentive compensation an annual performance bonus (the "Performance Bonus") in
accordance with the incentive bonus plan(s) adopted from time to time by the
Compensation and Management Development Committee (the "Committee") of the
Board of Directors of the Company (the "Board"). The Committee shall establish
criteria for such Performance Bonus at the beginning of each fiscal year, and
Executive's bonus criteria shall be established based upon input from
Executive, the Chief Executive Officer and the Chief Operating Officer, and
shall be tied to the gross revenues and profitability of the Company's
selection business unit. Initially, such plan shall provide for a Performance
Bonus equal to between 0% and 120% of Base Salary, with a "Target Bonus" equal
to 60% of Base Salary and a "Maximum Bonus" equal to 120% of the Base Salary.
Except as otherwise specifically provided in this Agreement, to receive a
Performance Bonus, the Executive must be employed by the Company on the last
day of the year to which the Performance Bonus relates. For the Company's
fiscal year ending February 28, 1999, no Performance Bonus shall be due to
Executive. For the Company's fiscal year ending February 29, 2000, the
Executive's minimum Performance Bonus shall be $100,000.
(d) Stock Option Award. The Executive shall participate in the
Company's 1998 Omnibus Stock and Incentive Plan (the "Omnibus Plan"), in
accordance with the terms thereof, through the grant effective on November 9,
1998 by the Committee of options to purchase 100,000 shares of the Company's
common stock (the "Options"). The initial exercise price for the Options is
$8.938, the closing price for the Company's stock on the Nasdaq Stock Market
(NMS) on the date of grant. The Options shall be subject to the terms of the
Omnibus Plan. Attached hereto as Exhibit A is a Stock Option Certificate in the
form to be issued to evidence the Options.
(e) Reimbursement. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, reasonably satisfactory to the
Company, in substantiation of such expenditures.
(f) Other Benefits. The Executive shall be entitled to such fringe
benefits including, but not limited to, medical and other insurance benefits as
may be provided from time to time by the Company to other members of senior
management of the Company.
(g) Other Incentive and Benefit Plans. The Executive shall be eligible
to participate, in accordance with the terms of such plans as they may be
adopted, amended and administered from time to time, in incentive, bonus,
benefit or similar plans, including without limitation, any stock option, bonus
or other equity ownership plan, any short, mid or long term incentive plan and
any other bonus, pension or profit sharing plans established by the Company
from time to time for its senior management.
2
<PAGE> 3
(h) Deferral of Certain Compensation; Alternative Compensation.
Notwithstanding any other provisions of this Agreement to the contrary, any
portion of the Executive's compensation otherwise payable to the Executive
under this Agreement shall not be paid currently in cash to the Executive
hereunder if pursuant to the provisions of Section 162(m) of the Internal
Revenue Code of 1986, as amended, or any successor provision ("Section
162(m)"), the Company would not be entitled to a current deduction for federal
income tax purposes in respect of the payment of such portion of the cash
compensation (any such compensation being referred to as "Section 162(m)
Non-Deductible Compensation"). The payment of any such Section 162(m)
Non-Deductible Compensation shall be deferred and, in place of the current
payment thereof, the amount of the Non-Deductible Compensation shall be paid to
the Executive no later than 90 days after the close of the fiscal year to which
such compensation relates in a form (including, but not limited to, awards of
stock options, phantom stock or restricted stock) and in an amount that: (1)
reasonably reflects the parties' mutual good faith estimate of the current
value of the Non-Deductible Compensation, (2) is not treated as current
compensation for purposes of calculating the Section 162(m) limits and (3) is
otherwise mutually acceptable to the Executive and the Committee (the
"Alternative Compensation"). The parties agree to use their reasonable best
efforts to reach mutual agreement on a timely basis with respect to the form
and amount of any Alternative Compensation. The obligations of the parties
under this Section 3(h) shall terminate when Section 162(m) no longer applies
to the Executive's compensation.
4. DUTIES
The Executive shall serve initially as the Vice President - Selection
of the Company and as the President of LAI Compass. In addition, at the request
of the Board, the Executive shall serve in the same or similar positions in any
wholly owned subsidiary, joint venture or affiliate of the Company, without any
additional compensation. The Executive shall report directly to the Chief
Operating Officer. The Executive's duties and responsibilities shall be
commensurate with the head of the Company's selection activities, with such
specific duties and powers as shall be assigned by the Chief Operating Officer
or the Chief Executive Officer. The Executive's duties and responsibilities may
be changed from time to time in the reasonable discretion of the Chief
Operating Officer or the Chief Executive Officer.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) Extent of Services. During the term of the Executive's employment
under this Agreement, except during customary vacation periods and periods of
illness, the Executive shall devote full-time energy and attention during
regular business hours to the benefit and business of the Company as may be
reasonably necessary in performing the Executive's duties pursuant to this
Agreement. Notwithstanding the foregoing, the Executive may (i) serve on
corporate, trade association, civic, religious or charitable boards or
committees, (ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (iii) manage personal investments, so long as such
activities do not interfere with the performance of the Executive's duties and
responsibilities and do not create a conflict of interest.
3
<PAGE> 4
(b) Vacations. The Executive shall be entitled to vacations with pay
and to such personal and sick leave with pay in accordance with the policy of
the Company as may be established from time to time by the Company and applied
to other members of senior management of the Company.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office
in Chicago, Illinois. The facilities of the Company shall be generally
available to the Executive in the performance of the Executive's duties
pursuant to this Agreement, it being understood and contemplated by the parties
that all equipment, supplies and office personnel required in the performance
of the Executive's duties under this Agreement shall be provided by and at the
sole expense of the Company in Chicago, Illinois.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) Death. If the Executive dies during the term of the Executive's
employment, the Company shall pay to the estate of the Executive within 30 days
after the date of death such Base Salary as would otherwise have been payable
to the Executive up to the end of the month in which the Executive's death
occurs. After receiving the payment provided in this Section 7(a), the
Executive and the Executive's estate shall have no further rights under this
Agreement (other than those rights already vested or accrued).
(b) Disability. (i) The Executive's employment shall terminate
immediately upon the Executive's "Permanent Disability" (as defined below).
Upon such termination, the Company shall pay to the Executive for a period of
one year after termination a monthly payment (the "Disability Payment") equal
to the (i) sum of (A) the Base Salary paid in the same monthly or other period
installments as in effect at the time of the Executive's Permanent Disability
plus (B) an equal monthly pro rata portion of an amount of cash equal to the
greater of (x) the Target Bonus payable to the Executive under Section 3(c) of
this Agreement in respect of the year in which such termination occurs (subject
to any upward adjustment provided in Section 8(c)(ii) of this Agreement, the
"Termination Target Bonus") or (y) the minimum amount of any similar bonus or
incentive plans or programs then in effect if greater than the Target Bonus in
respect of the fiscal year during which the Executive's termination as a result
of Permanent Disability occurs (ii) reduced by the amount of any monthly
payments under any policy of disability income insurance paid for by the
Company which payments are received during the time when any Disability Payment
is being made to the Executive following the Executive's Permanent Disability.
The Disability Payment shall be paid by the Company to the Executive in
substantially equivalent installments at the substantially same time or times
as would have been the case for payment of Base Salary under this Agreement if
the Executive had not become permanently disabled and had remained employed by
the Company hereunder. Except as
4
<PAGE> 5
provided in this Section 7(b), all rights of the Executive under this Agreement
(other than rights already vested or accrued) shall terminate upon the
termination of the Executive's employment under this Agreement as a result of
the Executive's "Permanent Disability" (as that term is defined in Section
7(b)(ii) below).
(ii) The term "Permanent Disability" as used in this Agreement
shall have the same meaning as provided in any disability insurance policy
provided or paid for by the Company covering the Executive at such time as such
policy is in full force and effect. If no such disability policy is so
maintained at such time and is then in full force and effect, the term
"Permanent Disability" shall mean the inability of the Executive, as reasonably
determined by the Board by reason of physical or mental disability to perform
the duties required of him under this Agreement for a period of one hundred and
twenty (120) days in any one-year period. Successive periods of disability,
illness or incapacity will be considered separate periods unless the later
period of disability, illness or incapacity is due to the same or related cause
and commences less than three months from the ending of the previous period of
disability. Upon such determination, the Board may terminate the Executive's
employment under this Agreement upon ten (10) days' prior written notice. If
any determination of the Board with respect to permanent disability is disputed
by the Executive, the parties hereto agree to abide by the decision of a panel
of three physicians. The Executive and Company shall each appoint one member,
and the third member of the panel shall be appointed by the other two members.
The Executive agrees to make himself available for and submit to examinations
by such physicians as may be directed by the Company. Failure to submit to any
such examination shall constitute a breach of a material part of this
Agreement.
8. OTHER TERMINATIONS
(a) By the Executive. The Executive may terminate the Executive's
employment hereunder at any time upon giving at least ninety (90) days' prior
written notice. If the Executive gives notice pursuant to this Section 8(a),
the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid as would otherwise have been payable to the Executive up to
the expiration of the 90 day notice period. If the Executive gives notice
pursuant to this Section 8(a), upon receiving the payment provided for under
this Section 8(a), all rights of the Executive to receive compensation or other
payments or benefits under this Agreement (other than rights already vested or
accrued) shall terminate.
(b) Termination for "Good Cause". (i) Except as otherwise provided in
this Agreement, the Company may terminate the employment of the Executive
hereunder only for "Good Cause," which shall mean (a) any material failure of
the Executive to perform his duties with the
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<PAGE> 6
Company to the extent of his ability to do so (other than any failure due to
physical or mental incapacity), (b) misconduct materially and demonstrably
injurious to the Company, financially or otherwise, in each case, as determined
in the reasonable discretion of the Chief Operating Officer or the Chief
Executive Officer, (c) conviction of a felony or conviction of any crime in
connection with Executive's employment by the Company which causes the Company
a substantial detriment (other than traffic offenses); (d) material unjustified
failure to meet mutually agreed upon business objectives (including production
goals); (e) dependence on alcohol, or any narcotic drug or other controlled or
illegal substance; or (f) a breach by the Executive of a material provision of
this Agreement.
(ii) If the employment of the Executive is terminated for Good
Cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination
specified by the Board but not yet paid. Under such circumstances, such payment
shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already vested or accrued).
(iii) Termination by the Company of the employment of the
Executive other than as expressly specified above in Section 8(b)(i) for Good
Cause shall be deemed to be a termination of employment by the Company "Without
Good Cause."
(c) Termination Without Good Cause. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If the Company shall terminate the employment of the Executive
Without Good Cause effective on a date earlier than the termination date
provided for in Section 2 (with the effective date of termination as so
identified by the Company being referred to herein as the "Accelerated
Termination Date"), the Executive, until the date which is one (1) year after
the Accelerated Termination Date, shall continue to receive (1) the Base
Salary, paid in the same monthly or other periodic installments as in effect
prior to the Accelerated Termination Date, plus (2) an equal monthly pro rata
portion of an amount of cash equal to the greater of (x) the Target Bonus
payable to the Executive under Section 3(c) of this Agreement (subject to any
upward adjustment as provided in Section 8(c)(ii) of this Agreement, the
"Termination Target Bonus") or (y) the minimum amount of any similar bonus or
incentive plans or programs then in effect if greater than the Target Bonus in
respect of the fiscal year during which the Executive's termination Without
Good Cause occurs; provided that, the Company shall have the right (but not the
obligation) to relieve the Executive, in whole or in part, of the Executive's
duties under this Agreement, or direct the Executive to no longer perform such
duties, or direct that the Executive no longer be required to report to work,
or any combination of the foregoing.
(ii) The Termination Target Bonus shall be increased to an amount
in excess of the Target Bonus for the year in which the Executive's employment
is terminated if such Target Bonus is less than the amount of the bonus that
otherwise would have been payable to the Executive in respect of the Company's
full fiscal year if the Executive had remained employed by the Company for the
entire fiscal year. Any such increase shall be determined by the Committee in
its reasonable discretion no later than 90 days after the close of the fiscal
year
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<PAGE> 7
during which the Executive's employment terminates. If the Termination Target
Bonus increases as a result of application of the first sentence of this
Section 8(c)(ii), the amount of such increase shall be paid pro rata over the
remaining period of time during which payments are to be made to the Executive
under Section 8(c)(i).
(iii) The parties agree that, because there can be no exact
measure of the damage that would occur to the Executive as a result of a
termination by the Company of the Executive's employment Without Good Cause,
the payments and benefits paid and provided pursuant to this Section 8(c), in
addition to being consideration for the release required to be delivered
pursuant to Section 8(d) of this Agreement, also shall be deemed to constitute
full consideration for any such damages and shall be considered as liquidated
damages and not a penalty for the Company's termination of the Executive's
employment Without Good Cause.
(d) Release. Payment of any compensation to the Executive under this
Section 8 following termination of employment shall be conditioned upon the
prior receipt by the Company of a release executed by the Executive in
substantially the form attached to this Agreement as Exhibit B.
(e) Effect on Certain Covenants. Notwithstanding any termination of
the Executive's employment, the Executive's covenants set forth in Section 10
and Section 11 are intended to and shall remain in full force and effect.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's
employment by the Company, the Executive will disclose and disclose only to the
Company all ideas, methods, plans, developments or improvements known by him
which relate directly or indirectly to the business of the Company, whether
acquired by the Executive before or during the Executive's employment by the
Company. Nothing in this Section 9 shall be construed as requiring any such
communication where the idea, plan, method or development is lawfully protected
from disclosure as a trade secret of a third party or by any other lawful
prohibition against such communication. The covenants of this Section 9 shall
not be violated by ordinary and customary communications with reporters,
bankers and securities analysts and other members of the investment community.
Further, any ideas, improvements, plans or concepts, development procedures,
products, formulas, inventions, methods and processes and all improvements and
modifications thereof regarding computer software programs (including, but not
limited to, source code, object code, documentation, programming objects,
algorithms, methods, functionality, routines and procedures, graphics, voice
and other sounds, screen layouts, and look and feel or the foregoing) known,
made or discovered by Executive or under his direction (the "Computer Work
Product") during the term of this Agreement, and each and every component
thereof, shall be and shall remain the sole and exclusive property, trade
secrets and proprietary information of the Company during the term of this
Agreement and upon its termination, and the Executive shall have no right or
interest therein. The foregoing shall be considered Computer Work Product
regardless of whether patentable, copyrightable or otherwise protectable.
Computer Work Product shall include not only information, but also all records
or
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<PAGE> 8
representations thereof, regardless of the form thereof or media on or in
which stored, including paper, mechanical, firmware, magnetic, optical or
otherwise, both digital and analog. Computer Work Product also shall include
all related materials, documentation, notes, drawings, and the like. Computer
Work Product does not include "off-the-shelf" software licensed from third
parties, but does include any ideas, plans, concepts, etc. relating to such
software.
10. CONFIDENTIALITY
The Executive agrees to keep in strict secrecy and confidence any and
all information the Executive assimilates or to which the Executive has access
during the Executive's employment by the Company and which has not been
publicly disclosed and is not a matter of common knowledge in the fields of
work of the Company, including but not limited to information regarding the
Company's focus account strategy both generally and as it may be directed at
particular existing and prospective clients, the Company's past, current and
future strategic plans and underlying data and confidential and proprietary
information regarding search and selection candidates and companies, including
but not limited to that available on the Company's CMS system and on any
software which may be utilized or developed by or for the use of LAI Compass
(collectively, the "Confidential Information"). The Executive agrees that both
during and after the term of the Executive's employment by the Company, the
Executive will not, without the prior written consent of the Company, disclose
any Confidential Information to any third person, partnership, joint venture,
company, corporation or other organization. The foregoing covenants shall not
be breached to the extent that any such confidential information becomes a
matter of general knowledge other than through a breach by a person with an
obligation to the Company to maintain such confidentiality, including but not
limited to the Executive's obligations to the Company under this Section 10.
11. NONCOMPETITION; NONSOLICITATION
(a) General. The Executive hereby acknowledges that, during and solely
as a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's business and other related matters,
and (2) access to confidential information and business and professional
contacts. In consideration of the special and unique opportunities afforded to
the Executive by the Company as a result of the Executive's employment, as
outlined in the previous sentence, the Executive hereby agrees to the
restrictive covenants in this Section 11.
(b) Noncompetition. (i) During the term of the Executive's employment,
whether pursuant to this Agreement, any automatic or other renewal hereof or
otherwise, and, except as may be otherwise herein provided, during the
"Noncompetition Period" (as that term is defined in Section 11(b)(ii) of this
Agreement), regardless of the reason for such termination, the Executive
8
<PAGE> 9
shall not, directly or indirectly, enter into, engage in, be employed by or
consult with any business which competes with the Company's retained executive
search consulting business (including but not limited to the selection business
to be developed by LAI Compass) or the retained executive search consulting
business of any of the Company's affiliates. The Executive shall not engage in
such prohibited activities, either as an individual, partner, officer,
director, stockholder, employee, advisor, independent contractor, joint
venturer, consultant, agent, or representative or salesman for any person,
firm, partnership, corporation or other entity so competing with the Company or
any of its affiliates. The restrictions of this Section 11 shall not be
violated by (i) the ownership of no more than 2% of the outstanding securities
of any company whose stock is traded on a national securities exchange or is
quoted on the Nasdaq Stock Market, or (ii) other outside business investments
that do not in any manner conflict with the services to be rendered by the
Executive for the Company and that do not diminish or detract from the
Executive's ability to render the Executive's required attention to the
business of the Company.
(ii) The Noncompetition Period shall be (1) any period of time
when the Company is obligated to make periodic payments under Section 8 to the
Executive following termination of the Executive's employment or (2) if longer
than the period of time which would apply under the preceding clause (1), the
period ending November 9, 2000.
(c) Nonsolicitation. During the Executive's employment with the
Company, whether pursuant to this Agreement, any automatic or other renewal or
extension hereof or otherwise, and, except as may be otherwise herein provided,
for a period of two (2) years following the termination of the Executive's
employment with the Company, regardless of the reason for such termination, the
Executive agrees the Executive will refrain from and will not, directly or
indirectly, as an individual, partner, officer, director, stockholder,
employee, advisor, independent contractor, joint venturer, consultant, agent,
representative, salesman for any person, firm, partnership, corporation or
other entity, or otherwise (i) solicit any of the current or former employees,
consultants, directors or officers of the Company or any of its affiliates to
terminate any business relationship with the Company or any of its affiliates
or (2) employ or retain as an independent contractor, consultant or agent any
of the current or former employees, consultants, directors or officers of the
Company or any of its affiliates, unless such persons have been separated from
any relationship with the Company or any of its affiliates for at least one (1)
year; unless any such employees, consultants, directors or officers of the
Company or any of its affiliates are or have been terminated by the Company or
any of its affiliates.
(d) Term Extended or Suspended. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) Essential Element. It is understood by and between the parties
hereto that the foregoing restrictive covenants set forth in Sections 11(a)
through (c) are essential elements of this Agreement, and that, but for the
agreement of the Executive to comply with such covenants, the Company would not
have agreed to enter into this Agreement. Such covenants by the Executive shall
be construed as agreements independent of any other provision in this
Agreement. The existence of any claim or cause of action of the Executive
against the Company,
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<PAGE> 10
whether predicated on this Agreement, or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants.
(f) Severability. It is agreed by the Company and Executive that if
any portion of the covenants set forth in this Section 11 are held to be
invalid, unreasonable, arbitrary or against public policy, then such portion of
such covenants shall be considered divisible both as to time and geographical
area. The Company and Executive agree that, if any court of competent
jurisdiction determines the specified time period or the specified geographical
area applicable to this Section 11 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against the Executive. The Company and the Executive agree that the
foregoing covenants are appropriate and reasonable when considered in light of
the nature and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient
remedy to the Company if the Executive violates the terms of Sections 9, 10 or
11 of this Agreement and that the Company would suffer irreparable damage as a
result of such violation. Accordingly, it is agreed that the Company shall be
entitled, upon application to a court of competent jurisdiction, to obtain
injunctive relief to enforce the provisions of such Sections, which injunctive
relief shall be in addition to any other rights or remedies available to the
Company.
13. ARBITRATION
(a) General. The parties agree that all actions, claims, controversies
or disputes of any kind (e.g. whether in contract or in tort, statutory or
common law) between them relating, directly or indirectly, to this Agreement,
whether now existing or hereafter arising ("Disputes"), are to be resolved by
arbitration as provided in this Agreement. This agreement to arbitrate will
survive the recision or termination of this Agreement. All arbitration will be
conducted pursuant to and in accordance with the following, in order of
priority (i) the terms of this Agreement, (ii) the Commercial Arbitration Rules
of the American Arbitration Association, (iii) the Federal Arbitration Act and
(iv) to the extent the foregoing are inapplicable, unenforceable or invalid,
the laws of the State of Florida. All Disputes arising shall be resolved
finally by a single arbitrator. Any hearing regarding arbitration will be held
in Atlanta, Georgia or at another location mutually acceptable to the Company
and the Executive. The arbitrator will use his or her best efforts to conduct
the arbitration hearing no later than three months from the service of the
statement of claim and demand for arbitration and will use his or her best
efforts to render a decision within four months from the service of the
statement of claim and demand.
(b) Effect of Arbitration; Enforcement. An arbitration proceeding
commenced pursuant to this Section 13 is a condition precedent to and is a
complete defense to the commencement of any suit, action or proceeding in any
court or before any tribunal with respect to any Dispute. Either party may
bring an action in court to compel arbitration. Any party who fails or refuses
to submit to binding arbitration following demand by the other party shall, if
the Dispute is within
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<PAGE> 11
the scope of this Section 13, bear all costs and expenses incurred by the
opposing party in compelling arbitration. The decision of the arbitrator shall
be final and binding upon the parties, and such decision shall be enforceable
as a judgment in a court of competent jurisdiction. Other than the Company's
right to seek specific performance by way of injunctive relief to enforce the
provisions of Sections 9, 10 and 11 set forth in Section 12 above, each party
to this Agreement covenants not to institute any suit or other proceeding in
any court with respect to any matter arising under or pursuant to or directly
or indirectly relating to this Agreement, the subject matter hereof or any
other agreements, documents and instruments delivered or required to be
delivered hereunder or in connection herewith unless the intended subject
matter thereof has first been submitted for arbitration in accordance with the
foregoing procedure and such arbitration proceeding has been completed. To the
extent permitted by applicable law, the arbitrator(s) will have the power to
award recovery of all costs and fees (including attorneys' fees, administrative
fees, and arbitrator's fees) to the prevailing party.
(c) Selection of Arbitrator. The arbitrator will be chosen by mutual
agreement of the Company and the Executive. If they cannot agree within 30 days
upon a single arbitrator, the party not electing to submit the matter to
arbitration (the "Non-Electing Party") shall provide to the other party (the
"Electing Party") a list of three proposed arbitrators, each of whom shall be
knowledgeable as to matters that are the subject of the dispute and each of
whom shall be completely independent of and with no prior affiliation or direct
or indirect relationship with any party or any of their affiliates. The
Electing Party shall then select the arbitrator from such list or, if all such
proposed arbitrators are reasonably unacceptable to such party, so advise the
Non-Electing Party, whereupon such party shall prepare a new list of three
proposed arbitrators and the selection process shall begin anew.
(d) Authority of Arbitrator. The arbitrator will have the sole
authority to resolve issues regarding whether Disputes are subject to
arbitration, including the applicability of any statute of limitations. The
choice of law provisions of Section 14(g) shall be applicable to any
arbitration under this Agreement. The statute of limitations applicable to any
Dispute shall be tolled upon the initiation of arbitration under this Agreement
and shall remain tolled until the arbitration process is completed.
(e) Confidentiality of Arbitration. In order to maintain the
confidentiality of the dispute intended to be resolved by arbitration as
provided in this Agreement as well as the information adduced and contentions
asserted in any such arbitration, the parties agree to maintain in strict
confidence and agree to neither make nor suffer any public disclosure of the
fact of, contentions or evidence, discovered, developed or introduced in and
the result of any such arbitration; provided, however, the foregoing to the
contrary notwithstanding, the Company may make public disclosures regarding the
existence of the arbitration, the nature of the dispute and the results thereof
as may be necessary or appropriate to satisfy the Company's disclosure
obligations under applicable securities or other laws.
14. MISCELLANEOUS
(a) Waiver of Breach. The waiver by either party to this Agreement of
a breach of
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<PAGE> 12
any of the provisions of this Agreement by the other party shall not be
construed as a waiver of any subsequent breach by such other party.
(b) Compliance With Other Agreements. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any agreement to which the Executive is a party or by which the
Executive is or may be bound.
(c) Binding Effect; Assignment. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. This Agreement is a personal
employment contract and the rights, obligations and interests of the Executive
hereunder may not be sold, assigned, transferred, pledged or hypothecated.
(d) Entire Agreement. This Agreement contains the entire agreement
and supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(e) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(f) Florida Law. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the application of such provision
would result in the application of the law of a state or jurisdiction other
than Florida).
(h) Venue; Process. To the extent it is necessary to resolve any
disputes arising under this Agreement, and the agreements and instruments and
documents contemplated hereby in a court and resolution by a court is
consistent with the provisions of Section 13, the parties to this Agreement
agree that jurisdiction and venue in any action brought pursuant to this
Agreement to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in the Circuit Court of the Thirteenth
Judicial Circuit of the State of Florida in and for Hillsborough County (the
"Circuit Court") or in the United States District Court for the Middle District
of Florida, Tampa Division. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful
service of process against them, without the necessity for service by any other
means provided by statute or rule of court. The parties agree that they will
not object that any action commenced in the foregoing jurisdictions is
commenced in a forum non conveniens.
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<PAGE> 13
(i) Severability. Any provision of this Agreement which is determined
pursuant to arbitration under Section 13 of this Agreement (or to the extent it
is necessary to resolve any disputes arising under this Agreement, and the
agreements and instruments and documents contemplated hereby in a court and
resolution by a court is consistent with the provisions of Section 13, by a
court of competent jurisdiction) to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, unenforceability or non-authorization
without invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
(j) Deduction for Tax Purposes. Subject to the provisions of Section
3(h), the Company's obligations to make payments under this Agreement are
independent of whether any or all of such payments are deductible expenses of
the Company for federal income tax purposes.
(k) Enforcement. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable
disbursements of counsel (during investigation prior to initiation of
litigation and at trial and in appellate proceedings if litigation ensues),
directly or indirectly resulting from or arising out of a breach by the other
party of their respective obligations hereunder. The parties' costs of
enforcing this Agreement shall include prejudgment interest. Additionally, if
any party incurs any out-of-pocket expenses in connection with the enforcement
of this Agreement, all such amounts shall accrue interest at 10% per annum (or
such lower rate as may be required to avoid any limit imposed by applicable
law) commencing 30 days after any such expenses are incurred.
(l) Certain Additional Payments. (i) The Company shall pay to the
Executive the additional payments necessary to discharge certain tax
liabilities as that term is defined below in Section 14(l)(ii) of this
Agreement (the "Gross Up").
(ii) If the Executive is to receive any (1) any benefit resulting
from the acceleration of the vesting schedule for the Options granted under the
Omnibus Plan as a result of the Executive's death or Permanent Disability,
termination of employment Without Good Cause or upon a "Change of Control" (as
that term is defined in the Omnibus Plan), (2) any benefit or payment under
Section 7 as a result of or following the death or Permanent Disability of the
Executive, or (3) any benefit or payment under Section 8(c) as a result of or
following any termination of employment hereunder Without Good Cause (such
sections being referred to as
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<PAGE> 14
the "Covered Sections" and the benefits and payments to be received thereunder
being referred to as the "Covered Payments"), the Executive shall be entitled
to receive the amount described below to the extent applicable: If any Covered
Payment(s) under any of the Covered Sections or by the Company under another
plan or agreement (collectively, the "Payments") are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from
time to time, the "Code"), or any successor or similar provision of the Code
(the "Excise Tax"), the Company shall pay the Executive an additional cash
amount (the "Gross Up") such that the net amount retained by the Executive
after deduction of any Excise Tax on the Payments (and other state or federal
income tax and Excise Tax on any amounts paid as Gross Up hereunder) shall be
equal to the Payments.
(ii) For purposes of determining the Gross Up, the Executive
shall be deemed to pay the federal income tax at the highest marginal rate of
taxation (currently 39.6%) in the calendar year in which the payment to which
the Gross Up applies is to be made. The determination of whether such Excise
Tax is payable and the amount thereof shall be made upon the opinion of tax
counsel selected by the Company and reasonably acceptable to the Executive. The
Gross Up, if any, that is due as a result of such determination shall be paid
to the Executive in cash in a lump sum within thirty (30) days of such
computation. If such opinion is not finally accepted by the Internal Revenue
Service upon audit or otherwise, then appropriate adjustments shall be computed
(without interest but with additional Gross Up, if applicable) by such tax
counsel based upon the final amount of the Excise Tax so determined; any
additional amount due the Executive as a result of such adjustment shall be
paid to the Executive by the Company in cash in a lump sum within thirty (30)
days of such computation, or if less than the Gross Up any amount due the
Company as a result of such adjustment shall be paid to the Company by the
Executive in cash in a lump sum within thirty (30) days of such computation.
(m) Executive's Expenses. The Company shall pay the reasonable out of
pocket legal expenses incurred by the Executive in connection with the
negotiation and preparation of this Agreement.
(n) Notices. All notices which are required or may be given under
this Agreement shall be in writing and shall be deemed to have been duly given
when received if personally delivered; when transmitted if transmitted by
telecopy or similar electronic transmission method; one working day after it is
sent, if sent by recognized expedited delivery service; and three days after it
is sent, if mailed, first class mail, certified mail, return receipt requested,
with postage prepaid. In each case notice shall be sent to:
To the Company: LAMALIE ASSOCIATES, INC.
Suite 220E
3903 Northdale Boulevard
Tampa, FL 33624
Attn: Chief Financial Officer
Fax: (813) 962-2138
To the Executive at the Executive's address herein first above
written, or to such other address as either party may specify by written notice
to the other.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
ATTEST: LAMALIE ASSOCIATES, INC.
(Corporate Seal)
By:
- ---------------------------------- ------------------------------------
Assistant Secretary Patrick J. McDonnell, President
EXECUTIVE
Witnesses:
- -------------------------------- ---------------------------------------
As to Executive RICHARD L. BAIRD
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EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH RICHARD BAIRD
DATED JANUARY 15, 1999
STOCK OPTION AGREEMENT
16
<PAGE> 17
LAI WORLDWIDE, INC.
1998 OMNIBUS STOCK AND INCENTIVE PLAN
STOCK OPTION CERTIFICATE
Date Granted: , 1998
---------------
Option Certificate No.: NISO - OPTION CERTIFICATE NUMBER
---------------------
NON-INCENTIVE STOCK OPTION TO PURCHASE # OF OPTIONS SHARES AT $XYZ PER SHARE
GRANTED TO:
---------------------
THIS IS TO CERTIFY THAT, pursuant to the provisions of the LAI
Worldwide, Inc. 1998 Omnibus Stock and Incentive Plan (the "Plan"), and
effective as of the date indicated above, LAI Worldwide, Inc. (the "Company")
hereby grants to the person named above (the "Optionee"), subject to the terms
and conditions of the Plan and subject further to the terms and conditions of
this Certificate, a Non-Incentive Stock Option affording to the Optionee the
right and option (the "Option") to purchase from the Company a total of shares
(the "Option Shares") of the common stock of the Company (the "Common Stock")
at a per share purchase price of $ XYZ (the "Option Price"), such option to be
exercised as provided in this Certificate.
1. EXERCISE PERIOD. The Option shall expire on ____________, 2008
(the "Scheduled Expiration Date"), except that the Option may expire prior to
the Scheduled Expiration Date upon termination of the Optionee's employment
with the Company, including by reason of death or disability, as provided in
Section 5. After the date of expiration of the Option (the "Final Expiration
Date"), whether the original Scheduled Expiration Date or an earlier date, the
Option may not be exercised in whole or in part. For the purposes of this
paragraph, the Optionee will be deemed employed by the Company if employed by a
Subsidiary of the Company.
2. VESTING SCHEDULE. The Optionee's rights under the Option shall
vest and become exercisable in accordance with the following schedule, reduced
by the number of Option Shares, if any, as to which the Option has then already
been exercised:
<TABLE>
<CAPTION>
PERCENTAGE AND (NUMBER) OF
OPTION SHARES CUMULATIVELY
VESTING DATES VESTED AND EXERCISABLE
--------------- --------------------------
<S> <C>
_________, 1999 25% ( )
_________, 2000 50% ( )
_________, 2001 75% ( )
_________, 2002 100% ( )
</TABLE>
Notwithstanding the foregoing schedule, the Optionee's rights under the Option
shall be fully vested and shall be exercisable as to all of the Option Shares
upon the occurrence of any of the following events which occurs during the
Optionee's employment with the Company: (i) the Optionee dies; (ii) the
Optionee's employment is terminated due to his or her "Permanent Disability" as
defined in the Optionee's employment agreement dated __________,1998 (the
"Employment Agreement") during the term of the Employment Agreement or,
thereafter, becomes totally and permanently disabled (as determined by the
Compensation and Management Development Committee of the Board of Directors
(the "Committee"); (iii) any termination of employment of the Optionee by the
Company, "Without Good Cause" (as defined in the Employment Agreement), during
the term of the Employment Agreement; or (iv) upon a "Change in Control" (as
defined in the Plan). For purposes of this paragraph, the "term of the
Employment Agreement" shall include any additional term provided by any renewal
or extension of the Employment Agreement.
3. EXERCISE OF OPTION.
(a) NOTICE. Subject to the limitations set forth in this
Certificate and in the terms of the Plan, the Option may be exercised (to the
extent then exercisable) by presenting this Certificate to the designated
representative of the
17
<PAGE> 18
Committee, together with written notice specifying the number of Option Shares
as to which the Option is being exercised and payment of the Option Price for
the number of Option Shares being purchased. This Certificate, together with
the notice and payment of the Option Price for the number of Option Shares
being purchased, shall be delivered in person or sent by U.S. registered or
certified mail, postage and fees prepaid, return receipt requested, to the
administrative executive offices of the Company at 3903 Northdale Boulevard,
Tampa, Florida 33624, attention: Stock Option Administrator. The exercise date
shall be the date on which this Certificate, notice of exercise and payment are
received by the Committee's designated representative.
(b) PAYMENT OF OPTION PRICE. The Option Price shall be paid in
full: (i) in United States dollars (in cash or by check, bank draft or money
order payable to the order of the Company); (ii) in the discretion and in the
manner determined by the Committee by the delivery of shares of Common Stock
already owned by the Optionee; (iii) by cashless exercise as permitted under
the Federal Reserve Board's Regulation T (subject to applicable legal
restrictions) or other legally permissible means acceptable to the Committee;
or (iv) in the discretion of the Committee through a combination of the
foregoing.
(c) MINIMUM NUMBER OF SHARES; NO FRACTIONAL SHARES. To the extent
exercisable, the Option may be exercised in whole or in part. However, at no
time may the Option be exercised for fewer than one hundred (100) Option Shares
unless the number of Option Shares to be acquired by exercise of the Option is
the total number then purchasable under the Option. The Option may be exercised
only for whole (not fractional) shares.
4. TRANSFERABILITY. The Option is not transferable by the Optionee
except by will or by the laws of descent and distribution upon the death of the
Optionee. Accordingly, during the lifetime of the Optionee, and subject to the
condition that the Option shall not be exercisable in whole or in part after
the Final Expiration Date, the Option shall be exercisable only by the
Optionee. However, a Participant may transfer an Option to a trust, provided
that the Committee may require that the Participant submit a legal opinion that
such holding has no adverse tax or securities law consequences for the company.
After the Optionee's death and prior to the Final Expiration Date, the Option
may be exercised by the personal representative of the Optionee or by any
person or persons who shall have acquired the Option directly from the Optionee
by bequest or inheritance, but no other person.
5. EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Notwithstanding
Sections 1 and 2, if the employment of the Optionee by the Company terminates,
then: (i) after the effective date of such termination, the Option shall not
become further vested or exercisable, and the Optionee shall have no right to
exercise the Option except to the extent that the Option was vested and
exercisable on the effective date of such termination; and (ii) the Option
shall expire on the earlier of the Scheduled Expiration Date or the date ninety
(90) days (one (1) year if such termination is because of the death or
disability of the Optionee, or if the Optionee dies during such ninety (90) day
period) after the effective date of such termination. For the purposes of this
paragraph, the Optionee will be deemed employed by the Company if employed by a
Subsidiary of the Company.
6. NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder in the Company with respect to any Option Shares prior to the date
of issuance to the Optionee of such shares. The Optionee shall be under no
obligation to exercise the Option in whole or in part.
7. MODIFICATION; SURRENDER. Subject to the terms and conditions, and
within the limitations of the Plan, the Committee may modify the Option or
accept its whole or partial surrender by the Optionee at any time or from time
to time.
8. AUTHORITY OF THE COMMITTEE. The Committee shall have full
authority to interpret the terms of the Plan, the Option and this Certificate.
The decision of the Committee on any such matter of interpretation or
construction shall be final and binding.
9. NO EMPLOYMENT AGREEMENT. This Certificate and the Option do not,
and shall not be deemed to, confer upon the Optionee any right with respect to
continuance of employment by the Company, nor limit in any way the right of the
Company to terminate the Optionee's employment at any time.
10. WITHHOLDING. The Company shall have the right to withhold from any
payment or delivery of shares to the Optionee, or to require the Optionee to
remit to the Company, an amount (to be withheld or paid in the discretion of
18
<PAGE> 19
the Company in cash, Common Stock or otherwise) sufficient to satisfy any
federal, state or local withholding tax liability relating to the Option or the
Option Shares prior to or simultaneously with the delivery of any certificate
or certificates for Option Shares.
11. OPTIONEE BOUND BY THE PLAN, ETC. The Option and its terms and
provisions are subject to the terms and conditions of the Plan and subject
further to the terms and conditions of this Certificate. The Optionee hereby
acknowledges receipt of a copy of the Plan, agrees to be bound by all the terms
and provisions of the Plan and this Certificate, and understands that, in the
event of any conflict between the terms of the Plan and of this Certificate,
the terms of the Plan shall control.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed by the undersigned duly authorized officer.
LAI WORLDWIDE, INC.
By:
-----------------------------------
ACKNOWLEDGED AND ACCEPTED:
this ___ day of ___________, 1999.
- ----------------------------------
NAME
19
<PAGE> 20
EXHIBIT B
TO
EMPLOYMENT AGREEMENT WITH RICHARD BAIRD
DATED JANUARY __, 1999
RELEASE
WHEREAS, _______________________________ (the "Executive") is an
employee of Lamalie Associates, Inc. (the "Company") and is a party to the
Employment Agreement dated __________________ (the "Agreement");
WHEREAS, the Executive's employment has been terminated in accordance
with Section 8___ of the Agreement; and
WHEREAS, the Executive is required to sign this Release in order to
receive the payment of any compensation under Section 8 of the Agreement
following termination of employment.
NOW, THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound,
the Executive agrees as follows:
1. This Release is effective on the date hereof and will continue in
effect as provided herein.
2. In consideration of the payments to be made and the benefits to be
received by the Executive pursuant to the Agreement, which the Executive
acknowledges are in addition to payment and benefits to which the Executive
would be entitled to but for the Agreement, the Executive, for the Executive
and the Executive's dependents, successors, assigns, heirs, executors and
administrators (and the Executive and his and such persons' legal
representatives of every kind), hereby releases, dismisses, remises and forever
discharges the Company, its predecessors, parents, subsidiaries, divisions,
related or affiliated companies, officers, directors, stockholders, members,
employees, heirs, successors, assigns, representatives, agents and counsel
(collectively the "Released Party") from any and all arbitrations, claims,
including claims for attorney's fees, demands, damages, suits, proceedings,
actions and/or causes of action of any kind and every description, whether
known or unknown, which the Executive now has or may have had for, upon, or by
reason of any cause whatsoever ("claims"), against the Released Party,
including but not limited to:
(a) any and all claims arising out of or relating to Executive's
employment by or service with the Company and the Executive's
termination from the Company.
(b) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including,
specifically, but without limiting the generality of the foregoing,
any claims under the Age Discrimination in Employment Act, as amended,
Title VII of the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act; and
20
<PAGE> 21
(c) any and all claims of wrongful or unjust discharge or breach
of any contract or promise, express or implied.
3. The Executive understands and acknowledges that the Company does
not admit any violation of law, liability or invasion of any of the Executive
rights and that any such violation, liability or invasion is expressly denied.
The consideration provided for this Release is made for the purpose of settling
and extinguishing all claims and rights (and every other similar or dissimilar
matter) that the Executive ever had or now may have against the Company to the
extent provided in this Release. The Executive further agrees and acknowledges
that no representations, promises or inducements have been made that the
Company other than as appear in the Agreement.
4. The Executive further agrees and acknowledges that:
(a) The Release provided for herein releases claims to and
including the date of this Release;
(b) The Executive has been advised by the Company to consult with
legal counsel prior to executing this Release, has had an opportunity
to consult with and to be advised by legal counsel of the Executive's
choice, fully understands the terms of this Release, and enters into
this Release freely, voluntarily and intending to be found.
(c) The Executive has been given a period of 21 days to review and
consider the terms of this Release, prior to its execution and that
the Executive may use as much of the 21 day period as the Executive
desires; and
(d) The Executive may, within 7 days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of
revocation to the Chief Financial Officer at the Company. For such
revocation to be effective, written notice must be actually received
by the Chief Financial Officer at the Company no later than the close
of business on the 7th day after the Executive executes this Release.
If the Executive does exercise the Executive's right to revoke this
Release, all of the terms and conditions of the Release shall be of no
force and effect and the Company shall not have any obligation to make
payments or provide benefits to the Executive as set forth in Sections
8 of the Agreement.
5. The Executive agrees that the Executive will never file a lawsuit
or other complaint asserting any claim that is released in this Release.
6. The Executive waives and releases any claim that the Executive has
or may have to reemployment after ________________________.
IN WITNESS WHEREOF, the Executive has executed and delivered this
Release on the date set forth below.
21
<PAGE> 22
Dated:
--------------------------------- -------------------------------------
Executive
22
<PAGE> 1
EXHIBIT 10.19
January 28, 1999
PERSONAL AND CONFIDENTIAL
Mr. Joe D. Goodwin
1536 Stonegate Way
Atlanta, Georgia 30327
Dear Joe:
I believe we reached agreement on the following points:
1. LAI Worldwide ("the Company") will guarantee your annual compensation at
the rate of $500,000 per year for the next year payable ratably each
month.
2. If you leave the firm (but not before April 30, 1999), we will pay you
three months' severance pay.
3. During your employment, the firm will of course keep you and your
dependants on our group insurance plan covering medical and dental. If you
leave the firm (but not before April 30, 1999), we will continue to keep
you on our group insurance plan (at our cost) for the remainder of the
one-year term of your compensation guarantee.
4. In connection with any change of control of the Company (i.e., merger,
consolidation, sale of stock, sale of assets, change of more than one-half
of the Board of Directors), you will not be required to sign any contract
or agreement related to employment, non-competition, stock ownership or
otherwise, including, without limitation, with respect to any obligation
that you continue employment with any purchaser of the company.
5. If a change of control of the Company or a change in management of the
Company (i.e., change in who holds the title of Chairman, Chief Executive
Officer, President, or Chief Operating Officer of the Company) occurs
prior to April 30, 1999, you shall have the immediate right to terminate
your employment with the
<PAGE> 2
Mr. Joe D. Goodwin
January 28, 1998
Page 2
Company prior to April 30, 1999 by delivery of notice to the Company, upon
which early termination, we will honor items 2. and 3. of this letter,
even though termination took place prior to April 30, 1999.
6. The other terms you suggested (primarily the right to sell your stock and
the vesting of your options) in your letter to me are solely in the
purview of the Compensation Committee. However, as I said by phone,
everyone's options vest in the event of change of control. We have also
asked Richie to look into an early payout of the deferred compensation
plan for everyone.
I hope this is satisfactory and we can get back to business. If you need a
lawyer to go over and redraft this letter, that is fine as well. Let me know.
See you Monday.
Best regards,
Robert L. Pearson
Chairman and Chief Executive Officer
RLP/ds
<PAGE> 1
EXHIBIT 10.20
LAI WORLDWIDE, INC.
Suite 200E Northdale Plaza
3903 Northdale Boulevard
Tampa, FL 33624-1824
February 25, 1999
Mr. Philip R. Albright
2914 Bay Vista Avenue
Tampa, FL 33611
Dear Phil:
This letter confirms in writing our agreements with you regarding your
position as Chief Financial Officer ("CFO") of LAI Worldwide, Inc. (the
"Company").
1. Effective February 1, 1999 (the "Effective Date"), you became the
Chief Financial Officer ("CFO") of the Company.
2. In your capacity as CFO, you will perform duties and services
consistent with your position, as may reasonably be assigned to you by the
Chief Operating Officer. Your duties and responsibilities will be commensurate
with those customarily associated with the Chief Financial Officer of a
corporation comparable to the Company. You will report directly to the Chief
Operating Officer. You will be based and reside in Tampa, Florida. During your
employment with the Company, except during periods of vacation or other leave
permitted under this letter agreement, you shall devote your best reasonable
efforts and your full business time and attention during regular business hours
to the business and affairs of the Company as may be reasonably necessary in
performing your duties under this letter agreement. You shall not become
employed, engaged or involved, in any capacity, in any commercial or
professional endeavor or business other than the business and affairs of the
Company. Notwithstanding the foregoing, you may (i) serve on corporate, trade
association, civic, religious or charitable boards
<PAGE> 2
or committees, and (ii) manage personal investments, so long as such activities
do not interfere with the performance of your duties and responsibilities under
this letter agreement and do not create a conflict of interest with your duties
hereunder.
3. Commencing with the Effective Date, the Company shall pay you a
base salary at the rate of $175,000 per year (the "Base Salary") in bi-weekly
or such installments as is the Company's practice with respect to its senior
management.
4. You shall be eligible to earn as incentive compensation an annual
bonus based upon your performance as CFO (the "Performance Bonus") in
accordance with the incentive bonus plan(s) adopted from time to time by the
Compensation and Management Development Committee (the "Committee") of the
Board of Directors of the Company (the "Board"). The Committee shall establish
criteria for such Performance Bonus at the beginning of each fiscal year. Your
Performance Bonus for the Company's current fiscal year ending February 28,
1999 shall be paid in accordance with the terms of the letter agreement between
you and the Company dated November 9, 1998 regarding your employment as Interim
CFO of the Company (the "Interim CFO Letter Agreement"), which terms as to such
Performance Bonus are incorporated herein and made a part hereof. To receive
any Performance Bonus, you must be employed by the Company as of the last day
of the fiscal year with respect to which any such Performance Bonus relates.
For each fiscal year during the term of this letter agreement, unless the
Committee shall determine otherwise for fiscal years after February 28, 2000,
your Target Performance Bonus (the "Target Bonus") shall be equal to 65% of
your Base Salary, and your Maximum Performance Bonus (the "Maximum Bonus")
shall be equal to 120% of your Base Salary.
5. Immediately upon execution of this letter agreement, you shall
receive a bonus of $30,000 in cash in consideration of your appointment as CFO.
Also upon execution of this letter agreement, you waive all rights to Severance
Benefits as defined in Section 7 of the Interim CFO Letter Agreement.
<PAGE> 3
6. In the event of the termination of your employment (A) by the
Company for any reason other than "Good Cause" (as defined in Section 9 of this
letter agreement) or (B) by you at any time during the 60 day period which
occurs six months after a "Change in Control" (as that term is defined in
Section 2(d) of the Company's 1998 Omnibus Stock and Incentive Plan), (A) you
shall receive (i) a deferred bonus in cash in the amount of 100% of one year's
Base Salary plus (ii) 100% of one year's Target Bonus (the "Deferred Bonus"),
payable in a cash lump sum payment within ten days after such termination and
(B) the Company will continue, at its sole cost and expense, for a period of 18
months after such termination, the health and medical insurance provided to you
and your dependents immediately prior to such termination.
7. If you receive any payment under Section 6 hereof (a "Section 6
Payment"), and the Section 6 Payment, or any portion thereof, is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code 1986 (as
amended from time to time, the "Code"), or any successor or similar provision
of the Code (the "Excise Tax"), the Company shall pay you such additional cash
amount (the "Gross Up") such that the net amount retained by you after payment
of any Excise Tax on the Section 6 Payment (and other state or federal income
tax and Excise Tax on any amounts paid as Gross Up hereunder) shall be equal to
the Section 6 Payment. For purposes of determining the Gross Up, you shall be
deemed to pay the federal income tax at the highest marginal rate of taxation
(currently 39.6%) in the calendar year in which the payment to which the Gross
Up applies is to be made. The determination of whether such Excise Tax is
payable and the amount thereof shall be made upon the opinion of tax counsel
selected by the Company and reasonably acceptable to you. The Gross Up, if any,
that is due as a result of such determination shall be paid to you in cash in a
lump sum within thirty (30) days of such computation. If such opinion is not
finally accepted by the Internal Revenue Service upon audit or otherwise, then
appropriate adjustments shall be computed (without interest but with additional
Gross Up, if applicable) by such tax counsel based upon the amount of the
Excise Tax as finally determined by the internal Revenue Service or a court of
law. Any additional amount
<PAGE> 4
due you as a result of such adjustment shall be paid to you by the Company in
cash in a lump sum within thirty (30) days of such computation, or, if less
than the Gross Up, any amount due the Company as a result of such adjustment
shall be paid to the Company by you in cash in a lump sum within thirty (30)
days of such computation.
8. We confirm that as an additional inducement to your accepting the
position of CFO, on February 1, 1999, you were granted options to purchase
30,000 shares of the Company's stock, which options have an initial exercise
price of $6.25 per share (the closing price for the Company's stock on February
1, 1999). Attached hereto as Exhibit A is a Stock Option Certificate in the
form to be issued to evidence the options.
9. The Company may terminate your employment for "Good Cause," which
shall mean (A) conviction of a felony or conviction of any crime in connection
with your employment by the Company which causes the Company a substantial
detriment (other than traffic offenses); (B) your willful, substantial,
continued and unjustified refusal or failure to perform your duties with the
Company to the extent of your ability to do so (other than any failure due to
physical or mental incapacity); (C) your willful misconduct materially and
demonstrably injurious to the Company, financially or otherwise or (D) your
substantial dependence on alcohol, or any narcotic drug or other controlled or
illegal substance, provided that failure to submit to any medical examination
reasonably requested by the Company shall itself constitute a separate basis
for termination for "Good Cause."
With respect to each of the bases for termination specified in
Subsections (B), (C) or (D) of this Section 9, the Company may terminate your
employment only if (i) you have been provided with notice from the Company of
any assertion that there is a basis for termination for "Good Cause," which
notice shall specify in reasonable detail specific facts regarding any such
assertion, and you will have been given a reasonable period of time within
which to remedy or cure the problem or complaint (which period of time shall in
no event exceed 60 days after the receipt of such notice), and (ii) an
additional written notice is provided to you at least 10 days
<PAGE> 5
before this letter agreement is terminated for Good Cause.
10. If your employment is terminated as the result of your death, your
Base Salary will be paid to your estate until the end of the calendar month in
which the death occurs. If you voluntarily terminate your employment or the
Company terminates your employment for Good Cause, you shall be paid only your
Base Salary until the date of termination. All rights under this letter
agreement, other than those already accrued, terminate upon the termination of
your employment with the Company.
11. You will be eligible to participate in such employee health and
medical insurance, disability insurance, benefit plans and other fringe
benefits as the Company may from time to time provide or make available to its
senior management. In addition, the Company will provide to you, and maintain
at all times during the term of this letter agreement, at the Company's cost,
term life insurance in an amount not less than One Million Dollars
($1,000,000).
12. You will be entitled to vacations with pay and to such personal
and sick leave with pay in accordance with the policies of the Company as may
be established from time to time by the Company and applied to other members of
senior management of the Company.
13. The Company will provide you with a fully furnished office in
Tampa, Florida. The facilities of the Company will be generally available to
the you in the performance of your duties pursuant to this letter agreement, it
being understood and contemplated by the parties that all equipment, supplies
and office personnel required in the performance of your duties under this
letter agreement will be provided by and at the sole expense of the Company in
Tampa, Florida
14. The conditions of your employment as described in this letter
agreement may not be altered or otherwise amended except pursuant to an
instrument in writing signed by you and the Company.
<PAGE> 6
15. The Company will pay the reasonable fees and expenses of your
counsel assisting you in the negotiation and preparation of this letter
agreement.
16. You will be under no duty to mitigate any loss of income as result
of the termination of your employment hereunder and any payments due to you
upon termination of your employment will not be reduced in respect of any other
employment compensation received by you following such termination.
17. This letter agreement shall be construed pursuant to and governed
by the substantive laws of the State of Florida (except that any provision of
Florida law shall not apply if the application of such provision would result
in the application of the law of a state or jurisdiction other than Florida).
18. The Company shall reimburse you, in accordance with the Company's
policies and practices for senior management, for all reasonable expenses
incurred by you in the performance of your duties under this letter agreement;
provided, however, that you must furnish to the Company an itemized account,
reasonably satisfactory to the Company, in substantiation of such expenditures.
19. Except as provided in this letter agreement, and except as to
stock options previously granted by the Company to you, this letter contains
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements or understandings.
20. This letter agreement will inure to the benefit of and be binding
upon the parties hereto, and their respective heirs, successors and assigns,
including, without limitation, successors or assigns as a result of a Change of
Control, and any purchaser, assignee or
<PAGE> 7
transferee of all or substantially all of the assets of the Company.
21. All notices that are required or may be given pursuant to the
terms of this letter agreement must be in writing and will be sufficient in all
respects if given in writing and delivered personally or by a recognized
courier service or by registered or certified mail, postage prepaid, to a party
at the following address (or to the attention of such other person or to such
other address as any party shall provide to the other party by notice in
accordance with this Section):
If to the Company: Lamalie Associates, Inc.
3903 Northdale Blvd., Suite 220E
Tampa, FL 33624
If to Philip Albright: 2914 Bay Vista Avenue
Tampa, FL 33611
Any such notice under this Section shall be deemed to have been given and
received on the day it is personally delivered or delivered by a recognized
courier service or, if mailed, on the seventh day after it is mailed.
22. The Company will maintain, at all times, during the term of this
letter agreement, at the Company's cost, a directors' and officers' liability
insurance policy or policies, with substantially the same coverages and in
substantially the same policy amounts, as are in effect as of the date of this
letter agreement.
Please understand that while it is our hope and belief that our
relationship will be a long one, this is an offer of employment on an "at will"
basis. Nothing in this letter should be construed as creating any other type of
employment relationship.
<PAGE> 8
If this letter accurately reflects our understandings, please date and
sign both copies of this letter, keeping one copy for your records and
returning one fully executed copy to the undersigned.
LAI WORLDWIDE, INC.
By:
-----------------------------------
Patrick J. McDonnell, President
Accepted and Agreed to this
_____ day of February, 1999
- ---------------------------------------
Philip R. Albright
<PAGE> 1
EXHIBIT 10.21
SETTLEMENT AGREEMENT
AGREEMENT dated as of April 14,1999, by and among those former
stockholders of Ward Howell International, Inc., a Connecticut corporation
("Ward Howell") listed below who are signatories hereto (the "Consenting WH
Stockholders") and LAMALIE ASSOCIATES, INC., a Florida corporation with offices
at 3903 Northdale Boulevard, Tampa Florida 33624 ("LAI").
WHEREAS, LAI acquired all of the outstanding stock of Ward Howell
pursuant to a merger agreement effective as of February 27, 1998 (the "Merger
Agreement") (capitalized terms used in this Agreement but not defined herein
have the meanings ascribed thereto in the Merger Agreement); and
WHEREAS, pursuant to the Merger Agreement, LAI entered into employment
agreements dated February 27, 1998 (the "Employment Agreements") with certain
of the former stockholders of Ward Howell, including those listed below; and
WHEREAS, pursuant to the Employment Agreements, LAI agreed not to
amend the LAI Partner Compensation Plan dated March 1, 1997 applicable to the
former stockholders of Ward Howell (the "Compensation Plan") without the
affirmative vote of holders of two thirds (2/3) or more of the shares of LAI
Common Stock held by former stockholders of Ward Howell who are employees of
LAI at the time of the amendment (excluding for this purpose the shares held by
Michael Corey, Patrick Corey, Paul Hanson and Thomas Moran) (a "2/3 Majority");
and
WHEREAS, the Consenting WH Stockholders constitute a 2/3 Majority; and
WHEREAS, LAI currently has outstanding promissory notes dated February
27, 1998 payable to the former stockholders of Ward Howell pursuant to the
Merger Agreement with payments due on February 27, 2000 and February 27, 2001
in the aggregate principal amount of approximately $7,962,000 bearing interest
at 5% per annum (the "LAI Notes"); and
WHEREAS, LAI has certain claims against the former stockholders of
Ward Howell pursuant to Sections 3 and 9 of the Merger Agreement, including
indemnity claims and adjustments to Merger Consideration (the "LAI Claim"),
which, under the terms of the Merger Agreement, would be offset against and
reduce the amount of the LAI Notes; and
WHEREAS, LAI and the Consenting WH Stockholders have concluded that it
is in the best interest of LAI and the former stockholders of Ward Howell to
settle the LAI Claim on the basis
<PAGE> 2
set forth herein and to consent to the proposed amendment in the Compensation
Plan on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties, intending to be bound, as to themselves and their successors and
assigns, hereby agree as follows:
1. Consent to Retroactive and Future Amendments to Compensation Plan.
(a) In accordance with the terms of the Employment Agreements, the
signatures of the Consenting WH Stockholders affixed hereto constitute the
affirmative vote of a 2/3 Majority to the amendment of the LAI Partner
Compensation Plan dated March 1, 1997, in accordance with the terms of the
confidential LAI Ward Howell Partner Compensation Plan Changes memorandum dated
October 2, 1998, and effective December 30, 1998 as set forth on Exhibit A
hereto.
(b) In addition, the affirmative vote set forth in the preceding
paragraph (a) is intended, and shall be construed, individually and
collectively, as a continuous and ongoing waiver of the provisions of Section 3
of the Employment Agreements and shall relieve LAI of the obligation to obtain
an additional 2/3 Majority consent to any future amendment of the LAI Partner
Compensation Plan or successor thereto.
(c) The provisions of LAI Partner Compensation Plan dated March 1,
1997, as amended in accordance with the terms of the confidential LAI Ward
Howell Partner Compensation Plan Changes memorandum dated October 2, 1998, and
effective December 30, 1998 as set forth on Exhibit A hereto shall apply to
each consenting WH Stockholder notwithstanding and in lieu of any other
compensation arrangement, rider, or side letter, except as agreed in writing by
LAI.
2. LAI Obligations.
(a) LAI hereby waives any reduction in the amount of Merger
Consideration on account of uncollected Non-LGO Accounts Receivable payable to
the Consenting WH Stockholders;
(b) LAI hereby irrevocably waives all past, present and future
claims against the Consenting WH Stockholders for indemnification or offset in
respect of representations, warranties, defaults or otherwise under the Merger
Agreement.
(c) LAI shall pay the full amount (with accrued interest) due
under the LAI Notes on February 27, 2000 to the Consenting WH
2
<PAGE> 3
Stockholders on April 19, 1999.
(d) Section 12(b) of the Employment Agreements of each of the
Consenting WH Stockholders who is employed by LAI as of the date hereof is
hereby amended to read in its entirety as follows:
12. REMEDIES
(b) Liquidated Damages. The Partner agrees that no exact measure
of the damage caused to the Company if this Agreement is terminated by
the Partner pursuant to Section 8(a) hereof or by the Company for Good
Cause as defined in Section 8(b) hereof can be determined, and,
therefore, for the purpose of liquidating the amount of damages and
not as a penalty, it is agreed that in the case of a termination of
this Agreement by the Partner pursuant to Section 8(a) hereof or by
the Company for Good Cause as defined in Section 8(b) hereof, and in
addition to the injunctive relief provided for by Section 12(a) above,
the damages caused shall be and are fixed, liquidated and determined
at an amount payable in cash, on February 27, 2001, equal to the
amount set forth opposite the Partner's name on the attached schedule;
provided, however, that this Section 12(b) shall not apply in the case
of termination of this Agreement by the Company for Good Cause as
defined in Section 8(b) hereof if such termination for Good Cause is
based on the Partner's failure to comply with the second or fourth
bullet points under "Professionalism", the sixth bullet point under
"Quality", or any of the bullet points under "Partnership" set forth
in the Partner Role Definition attached to this Agreement as Exhibit B.
3. Conditions Precedent. This Agreement shall not become effective or
binding unless and until it is:
(a) approved by the LAI Board of Directors (acting directly or
through its Executive Committee);
(b) executed by an executive officer of LAI under the authority of
the LAI Board of Directors (acting directly or through its Executive
Committee); and
(c) executed by a 2/3 Majority.
4. No Third Party Beneficiaries. Only those former Ward Howell
stockholders who are Consenting WH Stockholders shall be entitled to the
benefits hereof.
3
<PAGE> 4
5. Attorneys' Fees and Costs. LAI agrees that it shall be responsible
for the attorneys' fees and costs of Morrison Cohen Singer & Weinstein, LLP up
to $60,000 and the fees of Kenneth Lanno up to $10,000 incurred in the
negotiation and preparation of this Agreement, and agrees it will not seek from
the Consenting WH Stockholders reimbursement for such amounts.
6. Severability. Should any of the provisions of this Agreement be
rendered invalid by any tribunal of competent jurisdiction, it is agreed that
this shall not in any way or manner affect the enforceability of the other
provisions of this Agreement which shall remain in full force and effect.
7. Knowing and Voluntary Agreement; Merger. The parties acknowledge
that they are entering into this Agreement knowingly and voluntarily after
carefully reviewing it; that each has had the opportunity to review it with
counsel of their own choosing; that each understands its final and binding
effect; that the only promises made to obtain their respective agreement and
signature are those stated in this Agreement; that this Agreement supersedes
any and all prior oral or written agreements between the parties, and that this
document represents the complete terms of their agreement which may not be
amended or modified except in a writing signed by both parties. There are no
representations, inducements or promises not set forth herein on which either
party has relied or may rely.
8. Joint Participation in Preparation of Agreement. The parties hereto
participated jointly in the negotiation and preparation of this Agreement, and
each party has had the opportunity to obtain the advice of legal counsel and to
review, comment upon, and redraft it. Accordingly, it is agreed that no rule of
construction shall apply against any party in favor of any party. This
Agreement shall be construed as if the parties jointly prepared it, and any
uncertainty or ambiguity shall not be interpreted against any one party and in
favor of the other.
9. Choice of Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Florida.
10. Headings. The headings in this Agreement are used for ease of
reference only, and should not be used as aids in interpreting this Agreement.
11. Execution in Counterparts. This Agreement may be executed in
counterparts, which taken together shall constitute one document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date set forth above.
4
<PAGE> 5
LAMALIE ASSOCIATES, INC
By:
--------------------------------------
Robert L. Pearson, Chairman & CEO
CONSENTING WH STOCKHOLDERS
- --------------------------------------
Dana B. Ardi
- --------------------------------------
Robert C. Chandler
- --------------------------------------
Frederick A. Halstead
- --------------------------------------
Vance A. Howe
- --------------------------------------
A. Donald Ikle
- --------------------------------------
Jerry L. Kay
- --------------------------------------
Anthony W.G. Lord
5
<PAGE> 6
- --------------------------------------
Neal L. Maslan
- --------------------------------------
Stephen M. McPherson
- --------------------------------------
Catherine R. Nathan
- --------------------------------------
Richard E. Nosky
- --------------------------------------
Larry D. Poore
- --------------------------------------
Carrie L. Pryor
- --------------------------------------
William R. Robertson
- --------------------------------------
Martin B. Ross
- --------------------------------------
Henry J. Scherck, III
- --------------------------------------
Douglas M. Smith
6
<PAGE> 7
- --------------------------------------
F. Clawson Smith
- --------------------------------------
Ernest A. Taylor
- --------------------------------------
J. Ewing Walker
- --------------------------------------
David L. Witte
7
<PAGE> 8
WARD HOWELL INTERNATIONAL/LAI
EMPLOYMENT AGREEMENTS - SCHEDULE OF DAMAGES
STOCKHOLDER LIQUIDATED DAMAGE PAYMENT
Dana Ardi $90,000
Robert C. Chandler $70,000
Frederick A. Halstead $50,000
Vance A. Howe $50,000
A. Donald Ikle $80,000
Jerry L. Kay $40,000
Anthony W.G. Lord $70,000
Stephen M. McPherson $70,000
Neal L. Maslan $180,000
Catherine R. Nathan $80,000
Richard E. Nosky $40,000
Larry Poore $70,000
Carrie Pryor $90,000
William R. Robertson $50,000
Martin B. Ross $60,000
Henry J. Scherck, III $130,000
Douglas M. Smith $170,000
F. Clawson Smith $70,000
Michael A. Tappan $40,000
Ernest A. Taylor $80,000
John T. Thomas $40,000
J. Ewing Walker, Jr $60,000
David Witte $180,000
8
<PAGE> 1
EXHIBIT 10.22
May 7, 1999
LAI Worldwide, Inc.
Thanksgiving Tower, Suite 4150
1601 Elm Street
Dallas, TX 75201-4768
Attn: Robert L. Pearson
Chairman and Chief Executive Officer
Dear Bob:
This will confirm the understanding and agreement between TMP
Interactive Inc. ("TMP") and LAI Worldwide, Inc. ("LAI") relating to a co-op
advertising and promotional new business.
1. TMP agrees that for a period of four years from the date hereof
(the "Term"), LAI through its LAI Compass.com web site
(www.laicompass.com) or such other web site as LAI may designate
from time to time will be the exclusive provider of online
candidate personality assessment activities for mid-level
positions paying annual base salaries of between $70,000 and
$140,000 ("Selection") with a direct link from www.monster.com to
www.laicompass.com. During the Term, TMP will provide links to no
other executive search firm for Selection. During the Term, TMP
will provide no links on its home page or on the opening page of
any of its zones for any firm whose primary business involves the
placement of candidates with clients for mid-level positions
paying annual base salaries of between $70,000 and $140,000, other
than the link to the LAI Compass.com web site or to the web sites
of firms which are TMP "affiliates" (as that term is defined in
Rule 405 under the Securities Act of 1933).
2. LAI shall be responsible for the operation of www.laicompass.com
at no out-of-pocket cost or expense to TMP. LAI covenants and
agrees to use commercially reasonable efforts to ensure rapid
responsiveness to users' attempts to access www.laicompass.com and
to retrieve information therefrom. TMP is aware that
www.laicompass.com has only recently begun operations; LAI has
ordered scalability testing for its site and expects to be advised
of the results of testing in two to three weeks. At the present
time, the scalability of www.laicompass.com is not known.
3. TMP shall be responsible for the operation of www.monster.com at
no out-of-pocket cost or expense to LAI. TMP covenants and agrees
to use commercially reasonable efforts to ensure rapid
responsiveness to users' attempts to access www.monster.com, to
retrieve information therefrom and to directly link
<PAGE> 2
Mr. Robert L. Pearson
May 7, 1999
Page 2
to www.laicompass.com. TMP shall select and design a graphical
icon to link to www.laicompass.com from www.monster.com, the form
of which and placement on www.monster.com shall be reasonably
acceptable to LAI. The link for www.laicompass.com shall be
displayed prominently on the www.monster.com home page.
4. In consideration for TMP's obligations hereunder, during the Term
LAI shall promote www.laicompass.com and its availability at
www.monster.com. LAI further agrees that during each of the months
of May and June, 1999, it will contract and pay for $5,000,000 in
television commercials and other advertising promoting
www.laicompass.com and its availability at www.monster.com. It is
the parties' intent that up to an aggregate of $1,000,000 of the
total amount of such advertising and promotion expenditures shall
be in print or other media targeted at human resources or senior
executives in a position to engage LAI to execute Selection
assignments. In all advertising and promotion, LAI shall comply
with TMP's advertising policies and shall submit any and all
advertisements and promotions to TMP for approval no less than 10
days before they are proposed to be aired or published. TMP shall
promptly review any and all such proposed advertising and
promotion and promptly respond with its approval or changes
necessary to satisfy TMP's policies.
5. Either party may terminate this agreement for a material breach by
the other party which remains unremedied for a period of 15 days
after written notice. Either party may also terminate this
agreement upon no less than 10 days written notice effective
October 1, 1999 or thereafter for any other reason, or no reason
at all, provided, however, that in the event of a termination
under this sentence, TMP shall, as LAI's sole and exclusive remedy
other than interest and the costs of collection as provided in
paragraph 6 hereof, immediately reimburse LAI for any amounts
spent by LAI in May and June 1999 (or committed to be spent in
such months which commitments are not subject to refund upon
cancellation) pursuant to the provisions of paragraph 4 above,
pro-rated for the period of time elapsed (as of the effective date
of termination) between the date of this agreement and the fourth
anniversary of the date of this agreement (the "Reimbursement
Payment"). For example, if this letter agreement is terminated
effective October 1, 1999, the Reimbursement Payment would equal
89.58% of the covered expenditures (43 months/48 months). TMP's
obligations to make the Reimbursement Payment and any other
amounts due to LAI under this letter agreement shall be secured by
an irrevocable standby letter of credit in the amount of not less
than $10 million dollars, which standby letter of credit shall be
obtained by TMP Worldwide, Inc. ("TMP Worldwide") and shall be in
such form and include such terms and
<PAGE> 3
Mr. Robert L. Pearson
May 7, 1999
Page 3
conditions as are reasonably acceptable to LAI and TMP (the
"Standby Letter of Credit"). The Standby Letter of Credit shall be
issued by the Bank of New York, BNY Financial Corporation or a
domestic commercial bank or other similar domestic financial
institution reasonably satisfactory to LAI, the commercial paper
of which is rated P-3 or higher by Moody's or A-3 or higher
Standard & Poor's. LAI's obligations to make arrangements for the
advertising and promotional expenditures described in this letter
agreement shall not arise unless and until the Standby Letter of
Credit has been issued and delivered to LAI.
6. Neither party shall be liable under any legal theory for indirect,
special or consequential damages to the other party. Each party
(the "Indemnifying Party") shall defend, indemnify and hold
harmless the other party and the other party's affiliates from and
against any and all liabilities, losses, costs and expenses
(including but not limited to reasonable attorneys fees and costs)
arising out of or in connection with any breach by the
Indemnifying Party of its representations, warranties or covenants
hereunder. Any amount under this agreement which is not paid when
due shall bear interest from the due date until the date paid at a
rate of 10% per annum. It is understood that TMP has no control
over, nor responsibility for, products or services on
non-monster.com sites with links to www.monster.com, including but
not limited to any online candidate competency assessment tools
that may be available at such sites. The parties are independent
contractors. This agreement (i) constitutes the entire agreement
between the parties with respect to the subject matter hereof and
supersedes any previous oral or written arrangements, (ii) may be
signed in counterparts, (iii) may not be amended, terminated or
waived orally and (iv) shall be governed by the laws of the State
of Florida without giving effect to the provisions thereof
governing conflicts of law. In connection with any action, suit or
proceeding hereunder, each party (i) consents to non-exclusive
jurisdiction of any federal or state court located in the State of
Florida, and appropriate appellate courts therefrom, (ii) to
personal jurisdiction therein, and (iii) to waive any objection to
the venue of such proceedings for lack of personal jurisdiction.
Any and all amounts due to LAI hereunder shall be payable in
Tampa, Florida via wire transfer to the bank account designated by
LAI from time to time. No delay in enforcing the terms of this
letter agreement by any of the parties shall be construed as a
waiver of, or bar to, the right to subsequently enforce such
terms.
Please sign the additional originally executed copy of this letter in
the space provided for your signature below to indicate your acceptance and
agreement with the terms of this letter agreement and return one fully executed
original.
<PAGE> 4
Mr. Robert L. Pearson
May 7, 1999
Page 4
Very truly yours,
TMP WORLDWIDE INC.
By:
----------------------------------
Name: Andrew J. McKelvey
Title: Chairman
TMP INTERACTIVE INC.
By:
----------------------------------
Name: Andrew J. McKelvey
Title: Chairman
Accepted and Agreed This
____ day of May, 1999:
LAI WORLDWIDE, INC.
By:
----------------------------------
Name: Robert L. Pearson
Title: Chairman and Chief Executive
Officer
<PAGE> 1
EXHIBIT 10.23
May 7, 1999
LAI Worldwide, Inc.
Thanksgiving Tower, Suite 4150
1601 Elm Street
Dallas, TX 75201-4768
Attn: Robert L. Pearson
Chairman and Chief Executive Officer
Dear Bob:
This will confirm the understanding and agreement between TMP
Interactive Inc. ("TMP") and LAI Worldwide, Inc. ("LAI") relating to placement
by LAI of advertisements on www.monster.com.
1. LAI agrees that for a period of 20 months commencing May 1, 1999
(the "Term"), it will use commercially reasonable efforts to place
advertisements on www.monster.com for substantially all jobs with
initial annual base salaries of $140,000 or less that LAI is
endeavoring to fill on behalf of its clients, provided that LAI's
obligation to make any such placement shall be subject in all
cases to the consent of LAI's client(s) with respect to such
listing. Such advertisements shall be submitted to TMP in such
form and manner as reasonably requested by TMP from time to time
and the form and substance of all such advertisements as posted on
www.monster.com shall be reasonably satisfactory to LAI. Among
other things, all such advertisements shall direct the respondent
to LAI and shall provide a direct link to the LAI Compass.com web
site (www.laicompass.com) or such other web site as LAI may
designate from time to time, and provided further, that no such
listing on www.monster.com shall reveal the identity of the
prospective employer for the position, unless LAI provides
specific written instructions to the contrary. TMP will not charge
LAI for placing such advertisements on www.monster.com.
2. TMP agrees to pay LAI $52,100 per month, no later than the 10th of
each month, during each month of the Term, the first such payment
to be made no later than May 10, 1999, for a total of $1,042,000
in payments hereunder (the "Total Payments"). As you know, LAI and
TMP are parties to a letter agreement regarding certain
cooperative advertising and web site promotional activities
pursuant to which TMP has agreed to obtain a certain irrevocable
standby letter of credit to secure its obligations thereunder (the
"TMP Standby Letter of Credit"). Among other things, the TMP
Standby Letter of Credit shall also provide security for TMP's
obligations hereunder. Any and all amounts due to LAI hereunder
shall be payable in Tampa, Florida via wire transfer to the bank
account designated by LAI from time to time.
<PAGE> 2
Mr. Robert L. Pearson
May 7, 1999
Page 2
3. Either party may terminate this agreement for a material breach by
the other party which remains unremedied for a period of 15 days
after written notice. Upon any termination other than one which is
the direct result of an unremedied material breach by LAI, TMP
shall promptly pay to LAI in cash the difference between the Total
Payments and the amount of payments actually received by LAI
hereunder.
4. Neither party shall be liable under any legal theory for indirect,
special or consequential damages to the other party. The parties
are independent contractors. Any amount under this agreement which
is not paid when due shall bear interest from the due date until
the date paid at a rate of 10% per annum. This agreement (i)
constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes any previous oral or
written arrangements, (ii) may be signed in counterparts, (iii)
may not be amended, terminated or waived orally, and (iv) shall be
governed by the laws of the State of Florida without giving effect
to the provisions thereof governing conflicts of law. In
connection with any action, suit or proceeding hereunder, each
party (i) consents to non-exclusive jurisdiction of any federal or
state court located in the State of Florida, and appropriate
appellate courts therefrom, (ii) to personal jurisdiction therein,
and (iii) to waive any objection to the venue of such proceedings
for lack of personal jurisdiction or forum non conveniens. No
delay in enforcing the terms of this letter agreement by any of
the parties shall be construed as a waiver of, or bar to, the
right to subsequently enforce such terms.
Please sign the additional originally executed copy of this letter in
the space provided for your signature below to indicate your acceptance and
agreement with the terms of this letter agreement and return one fully executed
original.
Very truly yours,
TMP INTERACTIVE INC.
By:
----------------------------------
Name: Andrew J. McKelvey
Title: Chairman
Accepted and Agreed to
This ____ day of May, 1999:
LAI WORLDWIDE, INC.
By:
------------------------------------
Name: Robert L. Pearson
Title: Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
1. Lamalie Associates, Inc. (Florida), which is doing business as LAI
Worldwide.
2. LAI Ward Howell, Inc. (Connecticut), which is doing business as LAI
Worldwide.
3. LAI Compass, Inc. (Florida), which is doing business as LAIcompass.com.
4. LAI Nevada, Inc. (Nevada)
5. LAI International Holdings, Inc. (Florida)
6. LAI International, Ltd. (United Kingdom)
7. LAI Worldwide Asia Ltd. (Hong Kong)
8. WHI Subsidiary, Inc. (Delaware), which is inactive.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Registration Statement File Nos. 33-30903, 333-51463,
333-51467, 333-51469, 333-514991 and 333-65739.
ARTHUR ANDERSEN LLP
Tampa, Florida,
May 21, 1999
62
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LAI WORLDWIDE FOR THE YEAR ENDED FEBRUARY 28, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 29,899
<SECURITIES> 0
<RECEIVABLES> 25,669
<ALLOWANCES> 3,250
<INVENTORY> 0
<CURRENT-ASSETS> 58,975
<PP&E> 13,749
<DEPRECIATION> 4,228
<TOTAL-ASSETS> 103,823
<CURRENT-LIABILITIES> 17,842
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 73,478
<TOTAL-LIABILITY-AND-EQUITY> 103,823
<SALES> 0
<TOTAL-REVENUES> 86,811
<CGS> 0
<TOTAL-COSTS> 92,844
<OTHER-EXPENSES> 370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (618)
<INCOME-PRETAX> (5,785)
<INCOME-TAX> (1,547)
<INCOME-CONTINUING> (4,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,238)
<EPS-BASIC> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
