-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CGHDXJbkZGxTUAWNCIOoWVN8j+geC+mipl79PclNMkki2xMAk9/UpuTwQuPSbLvJ 9tVIC4CoEM6oOsCVRRs2XA== /in/edgar/work/20000915/0000912057-00-041595/0000912057-00-041595.txt : 20000923 0000912057-00-041595.hdr.sgml : 20000923 ACCESSION NUMBER: 0000912057-00-041595 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20000915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TMP WORLDWIDE INC CENTRAL INDEX KEY: 0001020416 STANDARD INDUSTRIAL CLASSIFICATION: [7311 ] IRS NUMBER: 133906555 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-41996 FILM NUMBER: 724023 BUSINESS ADDRESS: STREET 1: 622 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2129774200 MAIL ADDRESS: STREET 1: 1633 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 POS AM 1 a2025293zposam.txt POS AM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 2000 REGISTRATION NO. 333-41996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- TMP WORLDWIDE INC. (Exact name of registrant as specified in its charter) DELAWARE 7311 13-3906555 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
-------------------------- 622 THIRD AVENUE NEW YORK, NEW YORK 10017 (212) 351-7000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ ANDREW J. MCKELVEY CHAIRMAN OF THE BOARD AND CEO TMP WORLDWIDE INC. 622 THIRD AVENUE NEW YORK, NEW YORK 10017 (212) 351-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ Copies of all communications, including all communications sent to the agent for service, should be sent to: GREGG BERMAN, ESQ. FULBRIGHT & JAWORSKI L.L.P. 666 FIFTH AVENUE NEW YORK, NEW YORK 10103 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ------------------ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ------------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE Common Stock, $.001 par value per share...... 3,319,736 (1) $259,058,855 $68,392(2)
(1) The price is estimated in accordance with Rule 457(c) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee and (i) is $78.25, the average of the high and low prices of the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock Market on July 17, 2000 with respect to 3,234,851 registered shares and (ii) is $69.88, the average of the high and low prices of the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock Market September 11, 2000 with respect to 84,885 registered shares. (2) $66,826 of the registration fee has previously been paid. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. TMP WORLDWIDE INC. 2,553,504 SHARES OF COMMON STOCK ------------------------ The stockholders of TMP Worldwide Inc. ("TMP" or the "Company") listed in this prospectus are offering and selling an aggregate of 2,553,504 shares of TMP's common stock under this prospectus. These selling stockholders obtained their shares of TMP stock in connection with TMP's acquisitions of companies owned by these selling stockholders. TMP will not receive any part of the proceeds from the sale by the selling stockholders. ------------------------ The selling stockholders may offer their TMP stock through public or private transactions, on or off the United States exchanges, at prevailing market prices or at privately negotiated prices. TMP Worldwide Inc.'s common stock trades on the Nasdaq National Market under the ticker symbol "TMPW." On September 13, 2000, the closing sale price of one share of TMP's stock was $73.36. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING SOLD WITH THIS PROSPECTUS. --------------------- THE TMP STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is September , 2000 TABLE OF CONTENTS
PAGE -------- Our Company................................................. 3 Summary Consolidated Financial Information.................. 7 Special Note Regarding Forward-Looking Information.......... 9 Risk Factors................................................ 9 Use of Proceeds............................................. 16 Dividend Policy............................................. 16 Price Range of Common Stock................................. 16 Selected Consolidated Financial Information................. 17 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 19 Business.................................................... 37 Management.................................................. 47 Certain Transactions........................................ 53 Principal Stockholders...................................... 54 Selling Stockholders........................................ 56 Description of Capital Stock................................ 63 Plan of Distribution........................................ 65 Legal Opinion............................................... 65 Experts..................................................... 66 Index to Financial Statements............................... F-1
AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934 and we file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information filed by us may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the SEC at Room 1024. Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, material filed by us can be inspected at the offices of the NASDAQ National Market at 1735 K Street, N.W., Washington, D.C. 20006-1506. We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act of 1933 with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedule filed as a part thereof, as permitted by the rules and regulations of the SEC. For further information with respect to TMP and the Common Stock, reference is hereby made to such Registration Statement, including the exhibits and schedule filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or other documents referred to herein are not necessarily complete and where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made for a full statement of the provisions thereof. The Registration Statement, including the exhibits filed as a part thereof, may be inspected without charge at the public reference facilities maintained by the SEC as set forth in the preceding paragraph. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from our website at www.tmp.com or at the SEC's website at http:// www.sec.gov. 2 OUR COMPANY THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, "GROSS BILLINGS" REFERS TO BILLINGS FOR ADVERTISING PLACED ON THE INTERNET, ON OUR CAREER WEB SITES, IN NEWSPAPERS AND IN TELEPHONE DIRECTORIES BY OUR CLIENTS, AND ASSOCIATED FEES FOR RELATED SERVICES AND FEES FOR SEARCH AND SELECTION AND TEMPORARY CONTRACTING SERVICES. WE EARN COMMISSIONS BASED ON A PERCENTAGE OF THE BILLING FOR MEDIA ADVERTISING PURCHASED IN TRADITIONAL MEDIA AS WELL AS ON THIRD PARTY WEB SITES AT A RATE ESTABLISHED BY THE RELATED PUBLISHER AND ASSOCIATED FEES FOR RELATED SERVICES. AS A RESULT, THE TRENDS IN OUR GROSS BILLINGS DIRECTLY AFFECT OUR COMMISSIONS AND FEES. DURING THE PERIOD OF JANUARY 1, 2000 THROUGH MARCH 31, 2000, WE AND OUR SUBSIDIARIES CONSUMMATED MERGERS WITH THE FOLLOWING COMPANIES IN TRANSACTIONS THAT PROVIDED FOR THE EXCHANGE OF ALL OF THE OUTSTANDING STOCK OF EACH ENTITY FOR A TOTAL OF 1,699,123 SHARES OF TMP COMMON STOCK. SUCH TRANSACTIONS WERE ACCOUNTED FOR AS POOLINGS OF INTERESTS (THE "FIRST QUARTER 2000 MERGERS"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ --------------------------------- ----------------- ----------------- HW GROUP PLC.............. SELECTION & TEMPORARY CONTRACTING FEBRUARY 16, 2000 715,769 MICROSURF, INC............ INTERACTIVE FEBRUARY 16, 2000 684,462 BURLINGTON WELLS, INC..... SELECTION & TEMPORARY CONTRACTING FEBRUARY 29, 2000 52,190 ILLSLEY BOURBONNAIS....... EXECUTIVE SEARCH MARCH 1, 2000 246,702
DURING THE PERIOD OF APRIL 1, 2000 THROUGH JUNE 30, 2000, WE CONSUMMATED MERGERS WITH THE FOLLOWING COMPANIES IN TRANSACTIONS THAT PROVIDED FOR THE EXCHANGE OF ALL OF THE OUTSTANDING STOCK OF EACH ENTITY FOR A TOTAL OF 3,117,169 SHARES OF TMP COMMON STOCK. SUCH TRANSACTIONS WERE ACCOUNTED FOR AS POOLINGS OF INTERESTS (THE "SECOND QUARTER 2000 MERGERS"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ --------------------------------- ----------------- ----------------- SYSTEM ONE SERVICES, INC..................... SELECTION & TEMPORARY CONTRACTING APRIL 3, 2000 1,022,257 GTR ADVERTISING........... RECRUITMENT ADVERTISING APRIL 4, 2000 54,041 VIRTUAL RELOCATION.COM, INC..................... INTERACTIVE MAY 9, 2000 947,916 BUSINESS TECHNOLOGIES LTD..................... INTERACTIVE MAY 17, 2000 205,703 SIMPATIX, INC............. INTERACTIVE MAY 31, 2000 152,500 ROLLO ASSOCIATES, INC..... EXECUTIVE SEARCH MAY 31, 2000 110,860 WEB TECHNOLOGY PARTNERS, INC..................... INTERACTIVE MAY 31, 2000 623,892
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 HAVE BEEN RETROACTIVELY RESTATED TO REFLECT THE FIRST QUARTER 2000 MERGERS AND THE SECOND QUARTER 2000 MERGERS (COLLECTIVELY, THE "FIRST HALF 2000 MERGERS"), AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 HAVE BEEN RETROACTIVELY RESTATED TO REFLECT THE FIRST HALF 2000 MERGERS, AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. AS A RESULT, THE FINANCIAL POSITION, AND STATEMENTS OF INCOME (LOSS), COMPREHENSIVE INCOME (LOSS) AND CASH FLOWS ARE PRESENTED AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. IN ADDITION, THE CONSOLIDATED AND CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY REFLECT OUR ACCOUNTS AS IF THE ADDITIONAL COMMON STOCK ISSUED IN CONNECTION WITH EACH OF THE AFOREMENTIONED COMBINATIONS INCLUDED IN THE FIRST HALF 2000 MERGERS HAD BEEN ISSUED FOR ALL PERIODS WHEN EACH OF THE RELATED COMPANIES HAD ISSUED SHARES AND FOR THE AMOUNTS THAT REFLECT THE EXCHANGE RATIOS OF THE MERGERS. IN THE CONSOLIDATED CONDENSED BALANCE SHEET AND THE CONSOLIDATED BALANCE SHEETS, THE BALANCE SHEETS OF TMP AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND 1998 HAVE BEEN COMBINED WITH THOSE OF THE FIRST HALF 2000 MERGERS, ALL AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND 1998, RESPECTIVELY EXCEPT FOR THE FOLLOWING: ILLSLEY BOURBONNAIS, FOR WHICH THE BALANCE SHEETS AS OF JANUARY 31, 2000 AND 1999 ARE COMBINED WITH THOSE OF TMP AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY; BUSINESS TECHNOLOGIES LTD. ("BTL"), FOR WHICH THE BALANCE SHEETS AS OF JULY 31, 1999 AND 1998 ARE COMBINED WITH THOSE OF TMP AS OF DECEMBER 31, 1999 AND 3 1998, RESPECTIVELY; HW GROUP PLC ("HW"), FOR WHICH THE BALANCE SHEET AS OF MARCH 31, 1999 IS COMBINED WITH THAT OF TMP AS OF DECEMBER 31, 1998. THE CONSOLIDATED STATEMENTS OF INCOME (LOSS) COMBINE THE RESULTS OF TMP FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND EACH YEAR IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1999 WITH THOSE OF THE FIRST HALF 2000 MERGERS ALL FOR THE SAME PERIODS EXCEPT FOR THE FOLLOWING: ILLSLEY BOURBONNAIS, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY; BTL, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY; HW, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, RESPECTIVELY. THE RESULTS OF ILLSLEY BOURBONNAIS FOR THE MONTH ENDED JANUARY 31, 2000 ARE INCLUDED IN BOTH THE CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999 AND IN THE CONSOLIDATED CONDENSED STATEMENT OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 2000. THEREFORE, THE FOLLOWING AMOUNTS HAVE BEEN INCLUDED IN BOTH PERIODS: (A) COMMISSIONS AND FEES OF $1.0 MILLION AND (B) NET INCOME OF $285 THOUSAND, WITH NO IMPACT ON NET INCOME (LOSS) PER SHARE. ADDITIONALLY, DUE TO IMMATERIALITY, THE RESULTS OF BTL FOR THE PERIOD AUGUST 1, 1999 THROUGH DECEMBER 31, 1999 OF $314 THOUSAND, IN COMMISSIONS AND FEES AND $50 THOUSAND, IN NET INCOME HAVE NOT BEEN INCLUDED IN THE CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999 BECAUSE THE RESULTS OF BTL FOR THE FISCAL YEAR ENDED JULY 31, 1999 WERE COMBINED WITH OUR CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999. IN ADDITION, THE RESULTS OF HW, FOR THE THREE MONTHS ENDED MARCH 31, 1999 ARE INCLUDED IN THE CONSOLIDATED STATEMENTS OF INCOME (LOSS) IN BOTH YEARS ENDED DECEMBER 31, 1999 AND 1998, AND THE EFFECTS ON BOTH PERIODS ON (A) COMMISSIONS AND FEES WAS $11.1 MILLION, (B) NET INCOME WAS $1.9 MILLION AND (C) DILUTED EARNINGS PER SHARE WAS $0.02. ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN OUR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND OUR CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND OUR CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN UNLESS OTHERWISE INDICATED. "WE," "US" AND "OUR," WHEN USED IN THIS PROSPECTUS, REFER TO TMP WORLDWIDE INC. AND ITS SUBSIDIARIES. We have built Monster.com(SM) (http://www.monster.com) into the Internet's leading career destination portal. We are also one of the world's largest recruitment advertising agencies and one of the world's largest executive search and selection firms. In addition to offering these career solutions, we are the world's largest yellow page advertising agency. We have more than 31,000 clients, including over 90 of the Fortune 100 and over 480 of the Fortune 500 companies. Job seekers look to manage their careers through us by posting their resumes on Monster.com(SM), by searching Monster.com's(SM) database of over 415,000 paid job postings, either directly or through the use of customized job search agents, and by utilizing our extensive career resources. In addition, employers who are our clients, look to us to help them find the right employee, whether they are searching for an entry level candidate or a CEO, which we refer to as our "intern to CEO" strategy. We believe the Internet offers a substantial opportunity for us to grow our revenue. We believe our growth will primarily come from strengthening our leadership position in the online recruitment market, which is estimated by Forrester Research to grow from $411 million in 1999 to $3.2 billion in 2004, with additional revenue growth opportunities from the $8 billion executive search and selection market, the $13 billion global recruitment advertising market, the $130 billion temporary contracting market and the more than $100 billion which third parties estimate corporations spend on unassisted recruiting activities. Our strategies to address this opportunity are to: - continue to promote the Monster.com(SM) brand through online and traditional advertising and select alliances or affiliations - leverage our more than 5,100 client service, marketing and creative personnel to expand Monster.com(SM) - continue to pursue strategic acquisitions 4 OUR SERVICES MONSTER.COM(SM). Monster.com(SM) (http://www.monster.com), the flagship of our Internet properties, is the nucleus of our intern to CEO strategy. In July 2000: - Neilson I/Pro reported that Monster.com(SM) attracted more than 15.3 million visitors who spent an average of over 16.0 minutes per visit - Media Metrix reported that 5.8% of the U.S. Internet population visited Monster.com(SM) and that an average of 31.1 unique pages were viewed by each visitor - Based on Media Metrix statistics, Monster.com(SM) reported a power ranking of 180.4 (reach of 5.8 multiplied by average page views of 31.1), compared to 29.9 for its closest competitor and 105.2 for its six closest competitors combined We believe that the power ranking is significant because, by taking into account reach and page views, it indicates the products' recognition by and usefulness to job seekers. As a result, through Monster.com(SM), our clients have access to over 4.7 million unique resumes of which 3.3 million are active, and our resume database is growing by an average of more than 13,000 resumes daily. To attract job seekers to Monster.com(SM), we continue to refine and refresh the site by introducing value-added features. For example, we have 3.6 million job search agents, which allow our job seekers to express their specific job preferences and receive e-mail notification of job matches, and 8.7 million My Monster job seeker accounts, which allow job seekers to manage their careers online. We have also recently introduced Monster Talent Market, which allows independent contractor professionals to offer their services to the highest bidder. We believe our clients have recognized the value of online recruitment, as evidenced by the more than 415,000 paid job postings currently on Monster.com(SM). We continually look for ways to drive and retain site traffic. To that end, in December 1999, we entered into a content and marketing agreement with America Online, Inc. ("AOL") whereby, for the payment of $100 million over four years, Monster.com(SM) will be the exclusive provider for four years in the United States and Canada of career search services to 21 million AOL users across seven AOL brands: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. We believe that this agreement has the potential to drive a substantial amount of increased traffic and new users to Monster.com-SM-. We also customize Monster.com(SM), in both language and content, for other countries. Currently, local versions of Monster.com(SM) operate in Canada, the United Kingdom, the Netherlands, Australia, Belgium, France, Singapore, New Zealand, Hong Kong, Germany and Ireland. For the six months ended June 30, 2000, Monster.com(SM) generated approximately $136.4 million in gross billings and $135.0 million in commissions and fees. Our total Internet gross billings and Internet commissions and fees for this period were $183.2 million and $163.0 million, respectively, reflecting the inclusion of commissions and fees from MonsterMoving.com, which were $4.2 million, and from Internet related services from our traditional recruitment and yellow page advertising clients, as well as from searches for permanent employees and temporary contracting services identified and screened through the Internet, which were $12.7 million, $5.0 million and $6.2 million, respectively. RECRUITMENT ADVERTISING. We prospect talent for our clients through traditional recruiting programs that sell, market and brand employers to job seekers searching for entry level positions to positions paying up to $100,000, annually. We provide a broad range of recruitment advertising services including: - planning and producing advertising campaigns - media research, planning and buying in both traditional media and on the Internet - planning and executing on-campus recruitment programs EXECUTIVE SEARCH. We offer an advanced and comprehensive range of executive search services aimed at identifying the appropriate executive for our clients. Our executive search service identifies senior executives who typically earn in excess of $250,000 annually. We entered the executive search field in 1998 because recruitment and online advertising traditionally did not target the senior executive candidate. 5 SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business fills a critical niche in our "intern to CEO" strategy by identifying for our clients those professionals, below the CEO level, who typically earn between $50,000 and $150,000. We believe that Monster.com-SM- is an excellent resource for serving this market and we are building a large database of mid-market resumes. We have also identified a suite of products geared toward this market which seek to predict whether a candidate will be successful in a given role. Temporary contracting supplements our selection services. We place employees, ranging from executives to clerical workers, in temporary situations for as little as one day to over 12 months. Contractors can be used for emergency support or to complement the skills of a client's own staff. Temporary contracting can also be linked to permanent placement with the client employing a "try before you buy" strategy. YELLOW PAGE ADVERTISING. We develop yellow page marketing programs for national accounts, which are clients who sell products or services in multiple markets. The national segment of the U.S. yellow page advertising market was approximately $2.0 billion in 1999. During the period of 1990 through 1999, the market grew at a compound annual rate of approximately 6.4%. Yellow page advertising is a complex process involving the creation of effective imagery and message, and the development of media plans which evaluate approximately 7,000 yellow page directories, of which our larger accounts utilize over 2,000. Coordinating the placement of advertisements in this number of directories requires an extensive effort at the local level, and our yellow page sales, marketing and customer service staff of approximately 850 people provides an important competitive advantage in marketing and executing yellow page advertising programs. We take a proactive approach to yellow page advertising by undertaking original research on the efficacy of the medium, and by working to quantify the effectiveness of individual advertising campaigns. We also have a rigorous quality assurance program designed to ensure client satisfaction. We believe that this program has enabled us to maintain a yellow page client retention rate, year to year, in excess of 90%. MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize on the relationship between recruitment and relocation. By featuring information that addresses the entire moving process, such as mortgages, insurance, utilities and education, we offer our clients the ability to research a prospective move online. We are combining these tools into a Moving Center which will be integrated into Monster.com-SM-, thus extending the Monster.com-SM- brand into the moving services marketplace. For the year ended December 31, 1999 and the six months ended June 30, 2000, respectively, our gross billings were $1.972 billion and $1.152 billion, total commissions and fees were $869.2 million and $558.1 million, net income (loss) was $(9.1) million and $11.6 million and EBITDA was $57.8 million and $52.3 million. Our executive offices are located at 622 Third Avenue, New York, New York 10017, our telephone number is (212)-351-7000 and our Internet address is http://www.tmpw.com. 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION SELECTED CONSOLIDATED FINANCIAL INFORMATION
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Commissions and fees....................... $343,584 $447,605 $610,762 $744,517 $869,207 $402,090 $558,137 Operating expenses: Salaries & related....................... 197,068 258,389 344,956 430,316 496,926 241,430 308,638 Office & general......................... 95,817 123,891 160,027 184,905 205,165 98,649 127,883 Marketing & promotion.................... 5,079 8,414 13,665 29,737 74,647 29,564 67,702 Merger & integration..................... -- -- -- 22,412 63,054 11,454 22,323 Restructuring............................ -- -- -- 3,543 2,789 2,789 -- Amortization of intangibles.............. 3,410 4,786 6,913 11,070 12,532 6,167 7,540 Special compensation and CEO bonus(1).... -- 52,019 1,500 1,250 -- -- -- Total operating expenses................... 301,374 447,499 527,061 683,233 855,113 390,053 534,086 Operating income........................... 42,210 106 83,701 61,284 14,094 12,037 24,051 Other income (expense): Interest income (expense), net(2)........ (10,475) (14,573) (10,502) (12,876) (12,927) (6,226) 7,290 Other, net............................... (816) (341) 814 (2,057) (2,906) (1,511) (582) Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates............................... 30,919 (14,808) 74,013 46,351 (1,739) 4,300 30,759 Provision (benefit) for income taxes....... 10,499 11,478 22,805 16,884 6,908 1,488 19,528 Net income (loss) applicable to common and Class B common stockholders.............. 19,124 (27,399) 50,756 29,043 (9,054) 2,505 11,555 Net income (loss) per common and Class B common share: Basic.................................... $ 0.30 $ (0.43) $ 0.67 $ 0.36 $ (0.11) $ 0.03 $ 0.12 Diluted.................................. $ 0.30 $ (0.43) $ 0.66 $ 0.35 $ (0.11) $ 0.03 $ 0.11 Weighted average shares outstanding: Basic.................................... 63,071 64,198 75,857 81,638 84,250 83,380 94,048 Diluted.................................. 64,337 64,198 77,134 83,494 84,250 87,318 101,078
7
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ --------------------- 1995 1996 1997 1998 1999 1999 2000 -------- ---------- ---------- ---------- ---------- -------- ---------- (IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES) OTHER DATA: Gross Billings: Interactive (3)...... $ 392 $ 7,099 $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230 Recruitment Advertising........ 239,365 381,089 659,467 869,302 831,624 426,820 444,455 Selection & Temporary Contracting (4).... 108,124 142,750 181,332 209,227 271,910 124,445 168,321 Executive Search..... 101,521 127,893 168,107 195,268 173,558 84,230 87,352 Yellow Page Advertising........ 442,287 466,230 497,848 520,129 532,258 257,112 268,869 -------- ---------- ---------- ---------- ---------- -------- ---------- Total Gross Billings... $891,689 $1,125,061 $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227 ======== ========== ========== ========== ========== ======== ========== Total operating expenses as a percentage of commissions and fees................. 87.7% 100.0% 86.3% 91.8% 98.4% 97.0% 95.7% Number of employees.... 2,973 4,315 6,139 6,895 7,212 6,762 8,241 Number of offices...... 143 191 253 298 304 292 290
DECEMBER 31, ------------------------------------------------------ JUNE 30, 1995 1996 1997 1998 1999 2000 -------- -------- -------- -------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets........................ $280,584 $347,185 $479,635 $517,980 $ 612,845 $1,137,037 Current liabilities................... 272,701 341,875 440,787 457,414 604,608 669,125 Total assets.......................... 383,989 520,109 804,516 895,681 1,053,228 1,643,239 Long-term liabilities, less current portion............................. 94,110 104,585 167,208 172,574 130,824 37,457 Minority interests.................... 3,639 3,705 431 509 9 -- Redeemable preferred stock............ 2,000 2,000 -- -- -- -- Total stockholders' equity............ 11,539 67,944 196,090 265,184 317,787 936,657
- -------------------------- (1) Special compensation consists of a non-cash, non-recurring charge of approximately $52.0 million for special management compensation in 1996 resulting from the issuance of approximately 7.2 million shares of Common Stock of the Company to stockholders of predecessor companies of the Company in exchange for their shares in those companies which they had received for nominal or no consideration, as employees or as management of businesses financed substantially by the principal stockholder of the company and, accordingly, were not considered to have made substantive investments for their minority shares. The CEO bonus for the year ended December 31, 1997 and the year ended December 31, 1998 consists of a mandatory bonus of $375 thousand per quarter payable to Andrew J. McKelvey, the Company's CEO and Principal Stockholder, as provided for in the Principal Stockholder's then existing employment agreement. Receipt of these bonus amounts was permanently waived by the Principal Stockholder, and accordingly, since they were not paid, are also accounted for as a contribution to Additional Paid-in Capital. (2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring charge to reflect the exercise of a warrant issued in connection with the Company's financing agreement. (3) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (4) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. 8 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION This prospectus includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by our use of the words "believes," "anticipates," "plans," "expects," "may," "will," "would," "intends," "estimates," and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements in this prospectus, particularly under the heading "Risk Factors," that we believe could cause our actual results to differ materially from the forward-looking statements that we make. The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any forward-looking statement we make. RISK FACTORS BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK. WE MAY NOT BE ABLE TO MANAGE OUR GROWTH Our business has grown rapidly in recent periods. As an example, we completed 93 mergers and acquisitions from January 1, 1997 through June 30, 2000. We entered the executive search field in 1998 and we believe that our acquisition of LAI Worldwide, Inc. has made us one of the largest executive search firms in the world. This growth of our business has placed a significant strain on our management and operations. Our expansion has resulted, and is expected in the future to result, in substantial growth in the number of our employees. In addition, this growth is expected to result in increased responsibility for both existing and new management personnel and incremental strain on our existing operations, financial and management information systems. Our success depends to a significant extent on the ability of our executive officers and other members of senior management to operate effectively both independently and as a group. If we are not able to manage existing or anticipated growth, our business, financial condition and operating results will be materially adversely affected. OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, PARTICULARLY MONSTER.COM(SM) Our success depends on our brands and their value. Our business would be adversely affected if we were unable to adequately protect our brand names, particularly Monster.com(SM). We are also susceptible to others imitating our products, particularly Monster.com(SM), and infringing our intellectual property rights. We may not be able to successfully protect our intellectual property rights, upon which we are materially dependent. In addition, the laws of many foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Imitation of our products, particularly Monster.com(SM), or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect our revenues. TRADITIONAL MEDIA IS IMPORTANT TO US A substantial portion of our total commissions and fees comes from designing and placing recruitment advertisements in traditional media such as newspapers and trade publications. This business constituted approximately 20.8% and 17.1% of our total commissions and fees for the year ended December 31, 1999 and the six months ended June 30, 2000, respectively. We also receive a substantial portion of our commissions and fees from placing advertising in yellow page directories. This business constituted approximately 11.7% and 8.3% of total commissions and fees for the year ended December 31, 1999 and 9 the six months ended June 30, 2000, respectively. We cannot assure you that the total commissions and fees we receive in the future will equal the total commissions and fees which we have received in the past. In addition, new media, like the Internet, may cause yellow page directories and other forms of traditional media to become less desirable forms of advertising media. If we are not able to generate Internet advertising fees to offset any decrease in commissions from traditional media, our business, financial condition and operating results will be materially adversely affected. WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY, INCLUDING THE INTERNET The market for Internet products and services is characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging character of these products and services and their rapid evolution will require our continuous improvement in performance, features and reliability of our Internet content, particularly in response to competitive offerings. We cannot assure you that we will be successful in responding quickly, cost effectively and sufficiently to these developments. In addition, the widespread adoption of new Internet technologies or standards could require us to make substantial expenditures to modify or adapt our Web sites and services. This could affect our business, financial condition and operating results. New Internet services or enhancements which we have offered or may offer in the future may contain design flaws or other defects that could require expensive modifications or result in a loss of client confidence. Any disruption in Internet access or in the Internet generally could have a material adverse effect on our business, financial condition and operating results. WE ARE VULNERABLE TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US BY OTHERS Successful intellectual property infringement claims against us could result in monetary liability or a material disruption in the conduct of our business. We cannot be certain that our products, content and brand names do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We expect that infringement claims in our markets will increase in number as more participants enter the markets. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS Computer viruses may cause our systems to incur delays or other service interruptions and could damage our reputation and have a material adverse effect on our business, financial condition and operating results. The inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Moreover, if a computer virus affecting our system is highly publicized, our reputation could be materially damaged and our visitor traffic may decrease. Internet users can freely navigate and instantly switch among a large number of Web sites, many of which offer original content. It is difficult for us to distinguish our content and attract users. In addition, many other Web sites offer very specific, highly targeted content. These sites could have greater appeal than our sites to particular groups within our target audience. WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY We expect our growth to continue, in part, by acquiring businesses. The success of this strategy depends upon several factors, including: - the continued availability of financing; 10 - our ability to identify and acquire businesses on a cost-effective basis; - our ability to integrate acquired personnel, operations, products and technologies into our organization effectively; and - our ability to retain and motivate key personnel and to retain the clients of acquired firms. We cannot assure you that financing for acquisitions will be available on terms we find acceptable, or that we will be able to identify or consummate new acquisitions, or manage and integrate our recent or future expansions successfully. Any inability to do so would materially adversely affect our business, financial condition and operating results. We also cannot assure you that we will be able to sustain the rates of growth that we have experienced in the past. OUR MARKETS ARE HIGHLY COMPETITIVE The markets for our services are highly competitive. They are characterized by pressures to: - reduce prices; - incorporate new capabilities and technologies; and - accelerate job completion schedules. Furthermore, we face competition from a number of sources. These sources include: - national and regional advertising agencies; - Internet portals; - specialized and integrated marketing communication firms; - traditional media companies; - executive search firms; and - search and selection firms. In addition, many advertising agencies and publications have started either to internally develop or acquire new media capabilities, including Internet. We are also competing with established companies that provide integrated specialized services like Web advertising services or Web site design, and are technologically proficient. Many of our competitors or potential competitors have long operating histories, and some may have greater financial, management, technological development, sales, marketing and other resources than we do. In addition, our ability to maintain our existing clients and attract new clients depends to a large degree on the quality of our services and our reputation among our clients and potential clients. We have no significant proprietary technology that would preclude or inhibit competitors from entering the online advertising, executive search, recruitment advertising, or yellow page advertising markets. We cannot assure you that existing or future competitors will not develop or offer services and products which provide significant performance, price, creative or other advantages over our services. This could have a material adverse effect on our business, financial condition and operating results. OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER Our quarterly operating results have fluctuated in the past and may fluctuate in the future. These fluctuations are a result of a variety of factors, including: - the timing of acquisitions; - the timing of yellow page directory closings, the largest number of which currently occur in the third quarter; and 11 - the receipt of additional commissions from yellow page publishers for achieving a specified volume of advertising, which are typically reported in the fourth quarter. Generally our quarterly commissions and fees earned from recruitment advertising tend to be highest in the first quarter and lowest in the fourth quarter. Additionally, recruitment advertising commissions and fees tend to be more cyclical than yellow page commissions and fees. To the extent that a significant percentage of our commissions and fees are derived from recruitment advertising, our operating results may be subject to increased cyclicality. EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS Demand for our services is significantly affected by the general level of economic activity in the regions and industries in which we operate. When economic activity slows, many companies hire fewer permanent employees. Therefore, a significant economic downturn, especially in regions or industries where our operations are heavily concentrated, could have a material adverse effect on our business, financial condition and operating results. Further, we may face increased pricing pressures during such periods. There can be no assurance that during these periods our results of operations will not be adversely affected. WE DEPEND ON OUR CONSULTANTS The success of our executive search business depends upon our ability to attract and retain consultants who possess the skills and experience necessary to fulfill our clients' executive search needs. Competition for qualified consultants is intense. We believe that we have been able to attract and retain highly qualified, effective consultants as a result of our reputation and our performance-based compensation system. Consultants have the potential to earn substantial bonuses based on the amount of revenue they generate by: - obtaining executive search assignments; - executing search assignments; and - assisting other consultants to obtain or complete executive search assignments. Bonuses represent a significant proportion of consultants' total compensation. Any diminution of our reputation could impair our ability to retain existing or attract additional qualified consultants. Our inability to attract and retain qualified consultants could have a material adverse effect on our executive search business, financial condition and operating results. OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH CLIENTS The success of our executive search business depends upon the ability of our consultants to develop and maintain strong, long-term relationships with clients. Usually, one or two consultants have primary responsibility for a client relationship. When a consultant leaves an executive search firm and joins another, clients that have established relationships with the departing consultant may move their business to the consultant's new employer. The loss of one or more clients is more likely to occur if the departing consultant enjoys widespread name recognition or has developed a reputation as a specialist in executing searches in a specific industry or management function. Historically, we have not experienced significant problems in this area. However, a failure to retain our most effective consultants or maintain the quality of service to which our clients are accustomed could have a material adverse effect on our business, financial condition and operating results. Also, the ability of a departing consultant to move business to his or her new employer could have a material adverse effect on our business, financial condition and operating results. 12 WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND NAME Our ability to secure new executive search engagements and hire qualified professionals is highly dependent upon our overall reputation and brand name recognition as well as the individual reputations of our professionals. We obtain a majority of our new engagements from existing clients or from referrals by existing clients. Therefore, the dissatisfaction of any client could have a disproportionate, adverse impact on our ability to secure new engagements. Any factor that diminishes our reputation or the reputation of any of our personnel could make it more difficult for us to compete successfully for both new engagements and qualified consultants. This could have an adverse effect on our executive search business, financial condition and operating results. WE FACE RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS Either by agreement with clients or for marketing or client relationship purposes, executive search firms frequently refrain, for a specified period of time, from recruiting certain employees of a client, and possibly other entities affiliated with such client, when conducting executive searches on behalf of other clients. This is known as a "blocking" arrangement. Blocking arrangements generally remain in effect for one or two years following completion of an assignment. The actual duration and scope of any blocking arrangement, including whether it covers all operations of a client and its affiliates or only certain divisions of a client, generally depends on such factors as: - the length of the client relationship; - the frequency with which the executive search firm has been engaged to perform executive searches for the client; and - the number of assignments the executive search firm has generated or expects to generate from the client. Some of our executive search clients are recognized as industry leaders and/or employ a significant number of qualified executives who are potential candidates for other companies in that client's industry. Blocking arrangements with a client of this nature, or the awareness by a client's competitors of such an arrangement, may make it difficult for us to obtain executive search assignments from, or to fulfill executive search assignments for, competitors while employees of that client may not be solicited. As our client base grows, particularly in our targeted business sectors, blocking arrangements increasingly may impede our growth or ability to attract and serve new clients. This could have an adverse effect on our executive search business, results of operations and financial condition. WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS We conduct operations in various foreign countries, including Australia, Belgium, Canada, France, Germany, Japan, the Netherlands, New Zealand, Singapore, Spain and the United Kingdom. For the year ended December 31, 1999 and the six months ended June 30, 2000, approximately 46.5% and 44.4% of our total commissions and fees were earned outside of the United States. Such amounts are collected in the local currency. In addition, we generally pay operating expenses in the corresponding local currency. Therefore, we are at risk for exchange rate fluctuations between such local currencies and the dollar. We do not conduct any significant hedging activities. We are also subject to taxation in foreign jurisdictions. In addition, transactions between us and our foreign subsidiaries may be subject to United States and foreign withholding taxes. Applicable tax rates in foreign jurisdictions differ from those of the United States, and change periodically. The extent, if any, to which we will receive credit in the United States for taxes we pay in foreign jurisdictions will depend upon the application of limitations set forth in the Internal Revenue Code of 1986, as well as the provisions of any tax treaties which may exist between the United States and such foreign jurisdictions. 13 Other risks inherent in transacting foreign operations include changes in applicable laws and regulatory requirements, tariffs and other trade barriers and political instability. WE DEPEND ON OUR KEY PERSONNEL Our continued success will depend to a significant extent on our senior management, including Andrew J. McKelvey, our Chairman of the Board and CEO. The loss of the services of Mr. McKelvey or of one or more key employees could have a material adverse effect on our business, financial condition and operating results. In addition, if one or more key employees join a competitor or form a competing company, the resulting loss of existing or potential clients could have a material adverse effect on our business, financial condition and operating results. If we were to lose a key employee, we cannot assure you that we would be able to prevent the unauthorized disclosure or use of our procedures, practices, new product development or client lists. WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER Andrew J. McKelvey beneficially owns all of our outstanding Class B common stock and a number of shares of our common stock, which together with his Class B common stock ownership represents more than half of the combined voting power of all classes of our voting stock. Mr. McKelvey can direct the election of all of the members of our board. He can also exercise a controlling influence over our business and affairs. This includes any determinations with respect to mergers or other business combinations, the acquisition or disposition of our assets, whether or not we incur indebtedness, the issuance of any additional common stock or other equity securities and the payment of dividends with respect to common stock. Similarly, Mr. McKelvey may determine matters submitted to a vote of our stockholders without the consent of our other stockholders and he has the power to prevent a change of control. EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT OUR ACQUISITION Some of the provisions of our certificate of incorporation, bylaws and Delaware law could, together or separately: - discourage potential acquisition proposals; - delay or prevent a change in control; and - limit the price that investors might be willing to pay in the future for shares of our common stock. In particular, our board of directors may issue up to 800,000 shares of preferred stock with rights and privileges that might be senior to our common stock, without the consent of the holders of the common stock. Our certificate of incorporation and bylaws provide, among other things, for advance notice of stockholder proposals and director nominations. THERE MAY BE VOLATILITY IN OUR STOCK PRICE The market for our common stock has, from time to time, experienced extreme price and volume fluctuations. Factors such as announcements of variations in our quarterly financial results and fluctuations in advertising commissions and fees, including the percentage of our commissions and fees derived from Internet-based services and products could cause the market price of our common stock to fluctuate significantly. Further, due to the volatility of the stock market generally, the price of our common stock could fluctuate for reasons unrelated to our operating performance. The market price of our common stock is based in large part on professional securities analysts' expectations that our business will continue to grow and that we will achieve certain levels of net income. If our financial performance in a particular quarter does not meet the expectations of securities analysts, this may adversely affect the views of those securities analysts concerning our growth potential and future financial performance. If the securities analysts who regularly follow our common stock lower their ratings 14 of our common stock or lower their projections for our future growth and financial performance, the market price of our common stock is likely to drop significantly. WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION As an advertising agency which creates and places print and Internet advertisements, we are subject to Sections 5 and 12 of the U.S. Federal Trade Commission Act. These sections regulate advertising in all media, including the Internet, and require advertisers and advertising agencies to have substantiation for advertising claims before disseminating advertisements. The FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair advertising, and grants the Federal Trade Commission enforcement powers to impose and seek civil penalties, consumer redress, injunctive relief and other remedies upon advertisers and advertising agencies which disseminate prohibited advertisements. Advertising agencies like us are subject to liability under the FTC Act if the agency actively participated in creating the advertisement, and knew or had reason to know that the advertising was false or deceptive. In the event that any advertising that we have created is found to be false, deceptive or misleading, the FTC Act could potentially subject us to liability. The fact that the FTC has recently brought several actions charging deceptive advertising via the Internet, and is actively seeking new cases involving advertising via the Internet, indicates that the FTC Act could pose a somewhat higher risk of liability to the advertising distributed via the Internet. The FTC has never brought any actions against us. In addition, we cannot assure you that other current or new government laws and regulations, or the application of existing laws and regulations will not: - subject us to significant liabilities; - significantly dampen growth in Internet usage; - prevent us from offering certain Internet content or services; or - otherwise have a material adverse effect on our business, financial condition and operating results. WE HAVE NEVER PAID DIVIDENDS We currently intend to retain earnings, if any, to support our growth strategy. We do not anticipate paying dividends on our stock in the foreseeable future. In addition, payment of dividends on our stock is restricted by our financing agreement. 15 USE OF PROCEEDS TMP will not receive any proceeds from the sale of shares of TMP stock by the selling stockholders. DIVIDEND POLICY We have never declared or paid any cash dividends on our stock. We currently anticipate that all future earnings will be retained by TMP to support our growth strategy. Accordingly, we do not anticipate paying cash dividends on our stock for the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, contractual restrictions and general business conditions. Our financing agreement restricts the payment of dividends on our stock. PRICE RANGE OF COMMON STOCK Our stock is quoted on the Nasdaq National Market under the ticker symbol "TMPW." The stock was initially offered to the public on December 12, 1996 at $7.00 per share. The following table sets forth for the periods indicated the high and low reported closing sale prices per share for our stock as reported by Nasdaq. Effective February 29, 2000, a 2-for-1 stock split in the form of a stock dividend was paid, the share and per share amounts set forth in this section have been retroactively restated to give effect to the stock split.
YEAR ENDING DECEMBER 31, 2000 HIGH LOW - ----------------------------- ---------------- ---------------- First Quarter............................................ $ 92.38 $ 60.00 Second Quarter........................................... $ 78.25 $ 49.13 Third Quarter (through September 13)..................... $ 84.75 $ 64.81 YEAR ENDING DECEMBER 31, 1999 HIGH LOW - ----------------------------- ---------------- ---------------- First Quarter............................................ $ 34.94 $ 19.50 Second Quarter........................................... $ 44.69 $ 21.50 Third Quarter............................................ $ 32.81 $ 22.06 Fourth Quarter........................................... $ 80.15 $ 25.00 YEAR ENDED DECEMBER 31, 1998 HIGH LOW - ---------------------------- ---------------- ---------------- First Quarter............................................ $ 16.31 $ 10.62 Second Quarter........................................... $ 17.44 $ 12.75 Third Quarter............................................ $ 19.44 $ 13.94 Fourth Quarter........................................... $ 21.00 $ 10.25
There were approximately 1,800 stockholders of record of our Common Stock on September 13, 2000. On September 13, 2000, the last reported sale price of our stock as reported by Nasdaq was $73.36. 16 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected consolidated financial information set forth below as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999 has been derived from TMP's audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated information with respect to the Company's financial position as of December 31, 1997 has been derived from TMP's audited consolidated balance sheet as of December 31, 1997 not included herein. The selected consolidated financial information set forth below as of December 31, 1996 and 1995 and for the two years ended December 31, 1996 has been derived from our unaudited consolidated financial statements which are not included in this prospectus. The selected consolidated financial data as of June 30, 2000 and for the six months ended June 30, 2000 and 1999 has been derived from TMP's unaudited consolidated condensed financial statements, and in the opinion of TMP's management, has been prepared on the same basis as the audited consolidated financial statements and include all normal recurring adjustments necessary for a fair presentation of the financial information. The results for the six months ended June 30, 2000 are not necessarily indicative of future results. The following financial information should be read in conjunction with TMP's consolidated financial statements and related notes thereto and TMP's consolidated condensed financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The Other Data presented below has not been audited.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Commissions and fees....................... $343,584 $447,605 $610,762 $744,517 $869,207 $402,090 $558,137 Operating expenses: Salaries & related....................... 197,068 258,389 344,956 430,316 496,926 241,430 308,638 Office & general......................... 95,817 123,891 160,027 184,905 205,165 98,649 127,883 Marketing & promotion.................... 5,079 8,414 13,665 29,737 74,647 29,564 67,702 Merger & integration..................... -- -- -- 22,412 63,054 11,454 22,323 Restructuring............................ -- -- -- 3,543 2,789 2,789 -- Amortization of intangibles.............. 3,410 4,786 6,913 11,070 12,532 6,167 7,540 Special compensation and CEO bonus(1).... -- 52,019 1,500 1,250 -- -- -- Total operating expenses................... 301,374 447,499 527,061 683,233 855,113 390,053 534,086 Operating income........................... 42,210 106 83,701 61,284 14,094 12,037 24,051 Other income (expense): Interest income (expense), net(2)........ (10,475) (14,573) (10,502) (12,876) (12,927) (6,226) 7,290 Other, net............................... (816) (341) 814 (2,057) (2,906) (1,511) (582) Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates............................... 30,919 (14,808) 74,013 46,351 (1,739) 4,300 30,759 Provision (benefit) for income taxes....... 10,499 11,478 22,805 16,884 6,908 1,488 19,528 Net income (loss) applicable to common and Class B common stockholders.............. 19,124 (27,399) 50,756 29,043 (9,054) 2,505 11,555 Net income (loss) per common and Class B common share: Basic.................................... $ 0.30 $ (0.43) $ 0.67 $ 0.36 $ (0.11) $ 0.03 $ 0.12 Diluted.................................. $ 0.30 $ (0.43) $ 0.66 $ 0.35 $ (0.11) $ 0.03 $ 0.11 Weighted average shares outstanding: Basic.................................... 63,071 64,198 75,857 81,638 84,250 83,380 94,048 Diluted.................................. 64,337 64,198 77,134 83,494 84,250 87,318 101,078
17
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ --------------------- 1995 1996 1997 1998 1999 1999 2000 -------- ---------- ---------- ---------- ---------- -------- ---------- (IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES) OTHER DATA: Gross Billings: Interactive (3)...... $ 392 $ 7,099 $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230 Recruitment Advertising........ 239,365 381,089 659,467 869,302 831,624 426,820 444,455 Selection & Temporary Contracting (4).... 108,124 142,750 181,332 209,227 271,910 124,445 168,321 Executive Search..... 101,521 127,893 168,107 195,268 173,558 84,230 87,352 Yellow Page Advertising........ 442,287 466,230 497,848 520,129 532,258 257,112 268,869 -------- ---------- ---------- ---------- ---------- -------- ---------- Total Gross Billings... $891,689 $1,125,061 $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227 ======== ========== ========== ========== ========== ======== ========== Total operating expenses as a percentage of commissions and fees................. 87.7% 100.0% 86.3% 91.8% 98.4% 97.0% 95.7% Number of employees.... 2,973 4,315 6,139 6,895 7,212 6,762 8,241 Number of offices...... 143 191 253 298 304 292 290
DECEMBER 31, ------------------------------------------------------ JUNE 30, 1995 1996 1997 1998 1999 2000 -------- -------- -------- -------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets........................ $280,584 $347,185 $479,635 $517,980 $ 612,845 $1,137,037 Current liabilities................... 272,701 341,875 440,787 457,414 604,608 669,125 Total assets.......................... 383,989 520,109 804,516 895,681 1,053,228 1,643,239 Long-term liabilities, less current portion............................. 94,110 104,585 167,208 172,574 130,824 37,457 Minority interests.................... 3,639 3,705 431 509 9 -- Redeemable preferred stock............ 2,000 2,000 -- -- -- -- Total stockholders' equity............ 11,539 67,944 196,090 265,184 317,787 936,657
- -------------------------- (1) Special compensation consists of a non-cash, non-recurring charge of approximately $52.0 million for special management compensation in 1996 resulting from the issuance of approximately 7.2 million shares of Common Stock of the Company to stockholders of predecessor companies of the Company in exchange for their shares in those companies which they had received for nominal or no consideration, as employees or as management of businesses financed substantially by the principal stockholder of the company and, accordingly, were not considered to have made substantive investments for their minority shares. The CEO bonus for the year ended December 31, 1997 and the year ended December 31, 1998 consists of a mandatory bonus of $375 thousand per quarter payable to Andrew J. McKelvey, the Company's CEO and Principal Stockholder, as provided for in the Principal Stockholder's then existing employment agreement. Receipt of these bonus amounts was permanently waived by the Principal Stockholder, and accordingly, since they were not paid, are also accounted for as a contribution to Additional Paid-in Capital. (2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring charge to reflect the exercise of a warrant issued in connection with the Company's financing agreement. (3) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (4) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS AND THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE COMPANY APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 AND THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 INCLUDED ELSEWHERE IN THIS PROSPECTUS. During the period of January 1, 2000 through March 31, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock. Such transactions were accounted for as poolings of interest (the "First Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ ---------------------------------- ------------------ ----------------- HW Group PLC............. Selection & Temporary Contracting February 16, 2000 715,769 Microsurf, Inc. ......... Interactive February 16, 2000 684,462 Burlington Wells, Inc. .................. Selection & Temporary Contracting February 29, 2000 52,190 Illsley Bourbonnais...... Executive Search March 1, 2000 246,702
During the period of April 1, 2000 through June 30, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "Second Quarter 2000 Mergers", collectively with the First Quarter 2000 Mergers, the "First Half 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ ---------------------------------- ------------------ ----------------- System One Services, Inc.................... Selection & Temporary Contracting April 3, 2000 1,022,257 GTR Advertising.......... Recruitment Advertising April 4, 2000 54,041 Virtual Relocation.com, Inc.................... Interactive May 9, 2000 947,916 Business Technologies Ltd.................... Interactive May 17, 2000 205,703 Simpatix, Inc............ Interactive May 31, 2000 152,500 Rollo Associates, Inc.... Executive Search May 31, 2000 110,860 Web Technology Partners, Inc.................... Interactive May 31, 2000 623,892
The consolidated financial statements included herein as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999 have been retroactively restated to reflect the First Quarter 2000 Mergers and the Second Quarter 2000 Mergers (collectively, the "First Half 2000 Mergers"), as if the combining companies had been consolidated for all periods presented. The consolidated condensed financial statements for the six months ended June 30, 1999 have been retroactively restated to reflect the First Half 2000 Mergers, as if the combining companies had been consolidated for all periods presented. As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated and consolidated condensed statements of stockholders' equity 19 reflect our accounts as if the additional common stock issued in connection with each of the aforementioned combinations included in the First Half 2000 Mergers had been issued for all periods when each of the related companies had issued shares and for the amounts that reflect the exchange ratios of the mergers. In the consolidated condensed balance sheets and the consolidated balance sheets, the balance sheets of TMP as of June 30, 2000 and December 31, 1999 and 1998 have been combined with those of the First Half 2000 Mergers all as of June 30, 2000 and December 31, 1999 and 1998 except for the following: Illsley Bourbonnais, for which the balance sheets as of January 31, 2000 and 1999 are combined with those of TMP as of December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"), for which the balance sheets as of July 31, 1999 and 1998 are combined with those of TMP as of December 31, 1999 and 1998, respectively; HW Group PLC ("HW"), for which the balance sheet as of March 31, 1999 is combined with that of TMP as of December 31, 1998. The consolidated statements of income (loss) combine the results of TMP for the six months ended June 30, 1999 and each year in the three year period ended December 31, 1999 with those of the First Half 2000 Mergers all for the same periods except for the following: Illsley Bourbonnais, for which the statements of income (loss) for the years ended January 31, 2000, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; BTL, for which the statements of income (loss) for the years ended July 31, 1999, 1998 and 1997 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; HW, for which the statements of income (loss) for the years ended March 31, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1998 and 1997, respectively. The results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the consolidated statements of income (loss) for the year ended December 31, 1999 and in the consolidated condensed statement of income (loss) for the six months ended June 30, 2000. Therefore, the following amounts have been included in both periods: (a) commissions and fees of $1.0 million and (b) net income of $285 thousand, with no impact on net income (loss) per share. Additionally, due to immateriality, the results of BTL for the period August 1, 1999 through December 31, 1999 of $314 thousand, in commissions and fees and $50 thousand, in net income have not been included in the consolidated statement of income (loss) for the year ended December 31, 1999 because the results of BTL for the fiscal year ended July 31, 1999 were combined with our consolidated statement of income (loss) for the year ended December 31, 1999. In addition, the results of HW, for the three months ended March 31, 1999 are included in the consolidated statements of income (loss) in both years ended December 31, 1999 and 1998, and the effects on both periods on (a) commissions and fees was $11.1 million, (b) net income was $1.9 million and (c) diluted earnings per share was $0.02. OVERVIEW TMP Worldwide Inc. ("TMP" or the "Company"), through its flagship Interactive product, Monster-Registered Trademark-.com (www.monster.com), is the on-line recruitment leader. TMP is also the world's largest Recruitment Advertising agency network, one of the world's largest Executive Search, Selection and Temporary Contracting agencies, the world's largest Yellow Pages Advertising agency, a provider of full service interactive advertising and interactive marketing technology services, and a provider of online moving services. Our Interactive growth is attributable to increased sales of our Internet products, expansion of our Interactive businesses into certain European countries, migration of our traditional businesses to the Internet and the addition of new Interactive services. Monster.com is the leading global career portal on the Web with over 15.3 million unique visits per month as of July 2000 per Nielson I/Pro. The Monster.com global network consists of local language and content sites in the United States, Canada (French and English), United Kingdom, Ireland, France, Germany, the Netherlands, Belgium, Australia, New Zealand, Singapore and Hong Kong. 20 A substantial part of our growth in Recruitment Advertising, Selection & Temporary Contracting and Yellow Page Advertising has been achieved through acquisitions accounted for as purchases. For the period January 1, 1997 through June 30, 2000 we completed 64 such acquisitions, with estimated annual gross billings of approximately $495 million. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, during the six months ended June 30, 2000, we completed eleven mergers that are being accounted for as poolings of interests (the "First Half 2000 Pooled Companies"). Approximately 4.8 million shares of our common stock were issued in exchange for all of the outstanding common stock of the First Half 2000 Pooled Companies (the "First Half 2000 Mergers"). Accordingly, the consolidated financial statements as of December 31, 1999 and 1998 and for each of the three years in the periods ended December 31, 1999, 1998 and 1997 included herein have been retroactively restated as if the First Half 2000 Pooled Companies had been consolidated for all periods presented, and the consolidated condensed financial statements for the six months ended June 30, 1999 have been retroactively restated as if the First Half 2000 Mergers had been consolidated for all periods presented. Gross billings refers to billings for advertising placed on the Internet, in newspapers and telephone directories by our clients, and associated fees for related services. In addition, Executive Search fees, Selection fees, and net fees from Temporary Contracting services are also part of gross billings. Gross billings for Recruitment Advertising and Yellow Page Advertising are not included in our consolidated financial statements because they include a substantial amount of funds that are collected from our clients but passed through to publishers for advertisements. However, the trends in gross billings in these two segments directly impact the commissions and fees earned because, for these segments, we earn commissions based on a percentage of the media advertising purchased at a rate established by the related publisher. We also earn associated fees for related services; such amounts are also included in gross billings. Publishers and third party websites typically bill us for the advertising purchased and we in turn bill our clients for this amount and retain a commission. Generally, the payment terms for Yellow Page Advertising clients require payment to us prior to the date payment is due to the publishers. The payment terms with Recruitment Advertising clients typically require payment when payment is due to publishers. Historically, we have not experienced substantial problems with unpaid accounts. Commissions and fees related to our Interactive businesses are derived from: - job postings and access to the resume database and related services delivered via the Internet, primarily our own Web site, www.monster.com; - searches for permanent and temporary employees, at the executive and professional levels, and related services conducted through the Internet; - Internet advertising services provided to our Yellow Page Advertising clients; - the providing of interactive advertising services and technologies, which allow advertisers to measure and track sales, repeat traffic and other key statistics to enable such advertisers to greatly reduce costs, while driving only the most qualified users to their web sites; and - online moving services, primarily on our own Web site, www.monstermoving.com(sm). MonsterMoving.com(sm) (www.monstermoving.com) provides important relocation information and services to Monster.com's job seeker and employer community, which averages over 3.9 million unique visitors and over 15.2 million unique visits per month. According to the U.S. Census Department 1997 Study, approximately 20% of the general U.S. population is relocating at any point in time and we believe that these additional relocation services will be highly valued by Monster.com's audience and customer base. MonsterMoving.com, currently through the individual properties we acquired in 2000 (primarily Virtual Relocation.com, Inc. and Microsurf, Inc.), is already one of the Internet's most comprehensive 21 providers of moving-related analytical tools, and features information that addresses the entire relocation process. This information includes new residence listings, community maps, education summaries, mortgage quotes, moving quotes, insurance quotes, address and utility change services, and home repair and maintenance information. MonsterMoving.com, which is scheduled to be launched as a new site in the third quarter of 2000, will be directly accessible to Monster.com's large base of consumer traffic through URL links and promotions on Monster.com. In addition, the cross-selling of MonsterMoving.com's services has started with the Company's other divisions and will provide an important new advertising venue for moving-related clients, particularly in the Yellow Page Advertising division, where over 30% of our Yellow Page revenues are derived from the moving services industry, including van lines, truck rentals and home services. For Recruitment Advertising placements in the U.S., publisher commissions historically average 15% of recruitment advertising gross billings. We also earn fees from related services such as campaign development and design, retention and referral programs, resume screening, brochures and other collateral services, research and other creative and administrative services. Outside of the U.S., where, collectively, we derive the majority of our Recruitment Advertising commissions and fees, our commission rates for recruitment advertising vary, historically ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. Executive Search offers an advanced and comprehensive range of services aimed at identifying the appropriate senior executive for our clients. Such senior executives typically earn in excess of $250,000 annually. Our specialized services include identification of candidates, competence measurement, assessment of candidate/company cultural fit and transaction negotiation and closure. Selection & Temporary Contracting offers placement services for executives and professionals in mid-level and temporary positions, as well as for specific short-term projects. Our Selection business provides services similar to our Executive Search business, and focuses on mid-level professionals or executives, who typically earn between $75,000 and $150,000, annually. Our Temporary Contracting business provides contract employees primarily in Australia, New Zealand, the United Kingdom and the U.S. We believe that our Executive Search and Selection & Temporary Contracting services are helping to broaden the universe of both job seekers and employers who utilize Monster.com. Through the use of Monster.com, Recruitment Advertising, Selection & Temporary Contracting and Executive Search, we believe that we can accommodate all of our clients' employee recruitment needs, which is our "Intern to CEO" strategy. We design and execute Yellow Page Advertising, receiving an effective commission rate from directory publishers which historically approximated 20% of Yellow Page Advertising gross billings. However, due to reductions in commission rates by the publishers and higher discounts provided to clients, the rate has declined and for 1999 was approximately 19% and has declined to approximately 17.3% by June 30, 2000. In addition to base commissions, certain yellow pages publishers pay increased commissions for volume placement by advertising agencies. We typically recognize this additional commission, if any, in the fourth quarter when it is certain that such commission has been earned. No such amounts were reported in the fourth quarter of 1999 due to the aggressive objectives set by the publishers, and the Company does not foresee achieving these aggressive goals in the future. Interactive commissions and fees were $163.0 million for the six months ended June 30, 2000, an increase of $112.3 million or 221.7% over the same period of 1999, which had Interactive commissions and fees of $50.7 million. This growth reflects an increase in the acceptance of our Interactive products and services by existing and new clients and the effect of increased sales and marketing activities. Recruitment Advertising commissions and fees were up 2.2% at $95.6 million for the six months ended June 30, 2000 versus $93.5 million for the same period of 1999 reflecting modest growth in traditional billings of 4.1%. 22 Selection & Temporary Contracting commissions and fees were $165.8 million, up $43.1 million or 35.1% from $122.7 million for the same period ended June 30, 1999. The increase reflects the greater demand for professional level and information service technology employees worldwide, particularly in mid-level management positions (annual salaries ranging from $75,000 to $150,000), the resumption of strong demand for temporary employees in Australia, and European acquisitions accounted for as purchases. Executive Search commissions and fees were $87.4 million for the six months ended June 30, 2000, an increase of $3.2 million or 3.7% from $84.2 million for the comparable six months of 1999, reflecting strong global demand for senior executive positions. Yellow Page Advertising billings increased 4.6% to $268.9 million for the six month period ended June 30, 2000 and commissions and fees decreased 9.0% to $46.4 million for the six months of 2000 compared to $51.0 million for the prior year period, reflecting substantially reduced commissions paid by publishers and the effects of higher discounts for certain large clients. Total commissions and fees as a percent of related billings for the six months ended June 30, 2000 were 48.4% as compared to 42.4% for the prior year period. The higher percentage reflects increased sales volume for Interactive, Executive Search, and Selection & Temporary Contracting, where the Company retains greater portions of the amounts billed. Based on our consolidated results for the periods ended June 30, 2000 and 1999, 44.4% and 47.7% respectively, of our consolidated commissions and fees are attributable to clients outside the U.S. 23 RESULTS OF OPERATIONS The following table sets forth our gross billings, commissions and fees, commissions and fees as a percentage of gross billings, EBITDA and cash flow information.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------ --------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- -------- ---------- (IN THOUSANDS) GROSS BILLINGS: Interactive(1).................... $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230 Recruitment Advertising........... 659,467 869,302 831,624 426,820 444,455 Selection & Temporary Contracting(2).................. 181,332 209,227 271,910 124,445 168,321 Executive Search.................. 168,107 195,268 173,558 84,230 87,352 Yellow Page Advertising........... 497,848 520,129 532,258 257,112 268,869 ---------- ---------- ---------- -------- ---------- Total............................... $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227 ========== ========== ========== ======== ========== COMMISSIONS AND FEES: Interactive(1).................... $ 21,940 $ 53,992 $ 144,400 $ 50,675 $ 163,030 Recruitment Advertising........... 136,758 180,774 181,228 93,527 95,553 Selection & Temporary Contracting(2).................. 180,016 208,028 269,008 122,707 165,821 Executive Search.................. 168,107 195,268 173,277 84,199 87,352 Yellow Page Advertising........... 103,941 106,455 101,294 50,982 46,381 ---------- ---------- ---------- -------- ---------- Total............................... $ 610,762 $ 744,517 $ 869,207 $402,090 $ 558,137 ========== ========== ========== ======== ========== COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS: Interactive(1).................... 95.3% 88.9% 88.7% 89.2% 89.0% Recruitment Advertising........... 20.7% 20.8% 21.8% 21.9% 21.5% Selection & Temporary Contracting(2).................. 99.3% 99.4% 98.9% 98.6% 98.5% Executive Search.................. 100.0% 100.0% 99.8% 100.0% 100.0% Yellow Page Advertising........... 20.9% 20.5% 19.0% 19.8% 17.3% Total............................... 39.9% 40.1% 44.1% 42.4% 48.4% EBITDA(3)........................... $ 107,400 $ 96,795 $ 57,789 $ 31,123 $ 52,291 Cash provided by (used in) operating activities........................ $ 62,438 $ 72,166 $ 95,520 $ 12,575 $ (8,243) Cash used in investing activities... $ (109,367) $ (73,863) $ (61,571) $(36,825) $ (65,782) Cash provided by (used in) financing activities........................ $ 75,613 $ 22,100 $ (48,463) $ 9,073 $ 521,374 Effect of exchange rate changes on cash.............................. $ (303) $ (165) $ (755) $ 294 $ (503)
- ------------------------ (1) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (2) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. (3) Earnings before interest, income taxes, depreciation and amortization. EBITDA is presented to provide additional information about our ability to meet our future debt service, capital expenditures and working capital requirements and is one of the measures which determines our ability to borrow under our credit facility. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. 24 EBITDA for the indicated periods is calculated as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ------------------- 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- (IN THOUSANDS) Net income (loss)............................. $ 50,879 $29,043 $(9,054) $ 2,505 $11,555 Interest (income) expense, net................ 10,502 12,876 12,927 6,226 (7,290) Income tax expense (benefit).................. 22,805 16,884 6,908 1,488 19,528 Depreciation and amortization................. 23,214 37,992 47,008 20,904 28,498 -------- ------- ------- ------- ------- EBITDA........................................ $107,400 $96,795 $57,789 $31,123 $52,291 ======== ======= ======= ======= =======
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Gross billings for the six months ended June 30, 2000 were $1,152.2 million, an increase of $202.8 million or 21.4% from $949.4 million for the six months ended June 30, 1999. Total commissions and fees for the six months ended June 30, 2000 were $558.1 million, an increase of $156.0 million or 38.8% from $402.1 million for the comparable period in 1999. Interactive commissions and fees for the six months ended June 30, 2000 were $163.0 million, an increase of $112.3 million or 221.7% compared with $50.7 million for the six months ended June 30, 1999. The increase in Interactive commissions and fees from the June 1999 period to the June 2000 period is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com's marketing campaign, (iii) increases in the services and content available on our websites, (iv) expansion into certain European markets, (v) price increases on certain products, and (vi) the continuing migration of our traditional businesses to the Internet. Recruitment Advertising commissions and fees increased 2.2% to $95.6 million for the six months ended June 30, 2000 compared to $93.5 million for the first six months of 1999. This increase reflects moderate growth in traditional billings related to publisher price increases for help-wanted advertisements placed in newspapers partially offset by migration of traditional business to the Internet. Accordingly, Interactive recruitment commissions and fees, which is included in the Interactive number above, increased 125.2% to $12.7 million for the six months ended June 30, 2000 from $5.6 million for the comparable 1999 period. Selection & Temporary Contracting commissions and fees were $165.8 million, up $43.1 million or 35.1% from $122.7 million for the period ended June 30, 1999. The increase reflects a strong global labor market and the resulting increased demand for professional level and information service technology employees worldwide, the resumption of strong demand for temporary employees in Australia and acquisitions accounted for as purchases in Europe. Executive Search commissions and fees were $87.4 million for the six months ended June 30, 2000, an increase of $3.2 million or 3.7% from $84.2 million for the comparable six months of 1999, reflecting the strong labor market and demand for senior executive positions, partially offset by the decrease, as anticipated, in consultants at LAI (many of whom would have been deemed redundant as a result of the merger) in the second quarter of 1999, in anticipation of the merger with TMP. Yellow Page Advertising commissions and fees were $46.4 million for the six months ended June 30, 2000, a decrease of $4.6 million or 9.0% from $51.0 million for the comparable six months of 1999. This decrease was due to substantially reduced commissions paid by publishers and the effects of higher discounts for certain large clients. Operating expenses for the six months ended June 30, 2000 were $534.1 million, compared with $390.1 million for the same period in 1999, an increase of $144.0 million or 36.9%. The increase is primarily due to $67.2 million in higher salaries and related costs due to organic growth and acquisitions accounted for as purchases, $38.1 million in marketing and promotion expenses, primarily related to Monster.com and $29.3 million in office and general expenses. As a percent of commissions and fees operating expenses were 95.7% for the six months ended June 30, 2000 compared with 97.0% for the comparable 1999 period. 25 Salaries and related expenses for the six months ended June 30, 2000 were $308.6 million, compared with $241.4 million for the same period in 1999. The increase of $67.2 million or 27.8% is primarily due to organic growth in Interactive and Selection & Temporary Contracting operations and acquisitions accounted for as purchases. Because the growth in total commissions and fees outpaced the growth in salaries and related expenses, salary and related expenses as a percent of commissions and fees declined from 60.0% for the six months ended June 30, 1999 to 55.3% for the six months ended June 30, 2000. Office and general expenses for the six months ended June 30, 2000 were $127.9 million, compared with $98.6 million for the same period in 1999. The increase of $29.3 million or 29.6% reflects organic growth in both Interactive and Selection & Temporary Contracting operations, and higher bad debt reserves, which reflects the $202.8 million increase in gross billings for the six months ended June 30, 2000 over the same period last year, partially offset by savings through consolidation of back offices and support functions in Recruitment and Yellow Pages Advertising. Because the growth in total commissions and fees outpaced the growth in office and general expenses, office and general expenses as a percent of commissions and fees declined from 24.5% to 22.9%. Marketing and promotion expenses for the six months ended June 30, 2000 were $67.7 million or 12.1% of commissions and fees, compared with $29.6 million or 7.4% of commissions and fees for the same period in 1999. The increase of $38.1 million or 129.0% is primarily due to higher marketing costs for Monster.com and reflects the Company's plan to increase the promotion of Monster.com with funds provided from increased revenues. The six months 2000 expenses include a pro rata charge pursuant to the content and marketing agreement with America Online, Inc. ("AOL") whereby Monster.com, for the payment of $100 million over four years, is the exclusive provider of career search services in the U.S. and Canada to AOL members across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. Merger and integration costs reflect costs incurred in connection with acquisitions and accounted for as poolings of interests and reflect integration of their operations. Such costs were anticipated and factored into the prices paid for these companies. For the six months ended June 30, 2000 merger and integration costs were $22.3 million compared with $11.5 million for the same period in 1999, an increase of $10.8 million or 94.9%. The $22.3 million is comprised of $9.3 million for integration, $3.5 million for debt settlement costs pursuant to change in control provisions of a pooled company's existing loan, $4.6 million for the amortization of employee stay bonuses, payable in stock, and $4.9 million in transaction related costs such as legal, accounting, advisory fees and costs to register the shares issued in the transactions. The $11.5 million for the six months ended June 30, 1999 is comprised of $5.5 million in transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions, $2.3 million for the amortization of non-cash employee stay bonuses, $2.1 million in separation pay for the chief operating officer of an acquired company and $1.6 million of office and staff integration costs. Restructuring charges for the six months ended June 30, 1999 were $2.8 million. These charges relate to LAI's closing of its London and Hong Kong offices prior to LAI's merger with TMP. These charges include $0.5 million for the write-off of leasehold improvements and fixed assets, $1.3 million for severance benefits payable to 24 employees, and $1.0 million for consolidation of facilities related to the restructuring. As a result of the above, operating income for the six months ended June 30, 2000 was $24.1 million, an increase of $12.1 million or 99.8% from $12.0 million for the comparable period in 1999. Net interest income for the six months ended June 30, 2000 was $7.3 million, compared with a net interest expense of $6.2 million for the comparable 1999 period, an improvement of $13.5 million or 217.1%. This improvement primarily reflects the investing of net proceeds from the Company's February 2000 follow-on offering after a significant portion of existing long-term debt was repaid with a portion of such proceeds. The Company completed the follow-on public offering of 4.0 million (8.0 million, 26 adjusted for the February 29, 2000 2-for-1 stock split) shares of common stock on February 2, 2000. The net proceeds raised by the Company totaled $594.2 million. Taxes on income for the six months ended June 30, 2000 were $19.5 million on pre-tax profit of $30.8 million, compared with a tax of $1.5 million on pre-tax profit of $4.3 million for the six months of 1999. The increase of $18.0 million reflects the higher pretax profit in the six months ended June 30, 2000. In addition, in each period the provision reflects expenses that are not tax deductible; these are primarily related to merger costs from pooling of interests transactions and amortization of certain intangible assets. Also for both periods the provision is affected by profits and losses from certain pooled entities that were not taxed at the corporate level prior to their merger with TMP. Minority interests in consolidated earnings for the six months ended June 30, 2000 was a $324,000 loss compared with a profit of $107,000 for the six months ended June 30, 1999. Equity in losses of unconsolidated affiliates, which reflected losses associated with the real estate advertising company in which the Company holds a minority interest, was $200,000 for the six months ended June 30, 1999. As a result of all of the above, the net income available to common and Class B common stockholders for the six months ended June 30, 2000 was $11.6 million, an increase of $9.1 million from the net income of $2.5 million for the six months ended June 30, 1999. On a diluted per share basis, the net income available to common and Class B common stockholders for the six months ended June 30, 2000 was $0.11, compared to a net income of $0.03 for the comparable 1999 period. THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 Gross billings for the year ended December 31, 1999 were $1,972.1 million, a net increase of $117.5 million or 6.3% from $1,854.6 million for the year ended December 31, 1998. Commissions and fees for the year ended December 31, 1999 were $869.2 million, an increase of $124.7 million or 16.7% from $744.5 million for the year ended December 31, 1998. Interactive commissions and fees for the year ended December 31, 1999 were $144.4 million, an increase of 167.4% or $90.4 million as compared with $54.0 million for the year ended December 31, 1998. This increase in Interactive commissions and fees is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign, (iii) increases in the services and content available on our Websites, (iv) expansion into certain European markets and (v) price increases on certain products. Recruitment Advertising commissions and fees of $181.2 million for the year ended December 31, 1999 were virtually flat compared with $180.8 million for the year ended December 31, 1998, reflecting reduced billings due to lower volume of help-wanted advertisements placed in newspapers and a loss of business in the Asia-Pacific Region, offset by substantial reductions in client discounts and increased ancillary services in North America and an increase in business in Europe. Selection & Temporary Contracting commissions and fees were $269.0 million, up $61.0 million or 29.3% from $208.0 million for the period ended December 31, 1998, due primarily to organic growth in selection services in Australia and Continental Europe and in temporary contracting operations. The increase in Temporary Contracting reflects an increase in the number of contractors placed, particularly information technology personnel and executives, which have higher margins than general and support staff. Executive Search commissions and fees were $173.3 million, a decrease of $22.0 million or 11.3% from $195.3 million for the comparable year of 1998, due primarily to a loss of consultants, as anticipated, at LAI and TASA Holding AG, which resulted from the merger and integration of these companies. Yellow Page Advertising commissions and fees were $101.3 million for the year ended December 31, 1999, a decrease of $5.2 million or 4.8% from $106.5 million for the year ended December 31, 1998, reflecting substantially reduced commission rates and year-end incentives paid by publishers and the effects of higher discounts for certain clients offset, in part by the benefits from higher gross billings, internal growth and acquisitions. 27 Operating expenses for the year ended December 31, 1999 were $855.1 million compared with $683.2 million for same period in 1998. The increase of $171.9 million or 25.2% is due to increases of $66.6 million in salary and related costs, $40.7 million in merger and integration costs related to mergers accounted for as poolings of interests, $44.9 million in marketing and promotion expenses primarily to support Monster.com(sm) and $20.3 million in office and general expenses. Salaries and related costs for the year ended December 31, 1999 were $496.9 million or 57.2% of total commissions and fees, compared with $430.3 million or 57.8% of total commissions and fees for the same period in 1998. The increase of $66.6 million or 15.5% is primarily due to increased staff for the expansion of our Interactive operations, especially Monster.com(sm), and acquisitions accounted for as purchases in Selection & Temporary Contracting. Office and general expenses for the year ended December 31, 1999 were $205.2 million or 23.6% of total commissions and fees, compared with $184.9 million or 24.8% of commissions and fees for the same period in 1998. The increase of $20.3 million or 11.0% is primarily due to acquisitions and higher costs for our Interactive operations, partially offset by reductions in expenses for the Yellow Page Advertising and Recruitment Advertising businesses due to improved efficiencies. Marketing and promotion expenses increased $44.9 million to $74.6 million for the year ended December 31, 1999 from $29.7 million for the year ended December 31, 1998, a 151.0% increase due to increased spending to promote Monster.com(sm). Merger and integration costs for the year ended December 31, 1999 were $63.1 million compared with $22.4 million for the same period in 1998 an increase of $40.7 million or 181.3%. This increase primarily resulted from the pooling of interests transactions that occurred during the year ended December 31, 1999 and the planned integration of such companies and is comprised of: (i) $32.5 million of office integration costs, which include the closing of excess leased facilities, the write-off of fixed assets which will not be used in the future and a reserve for the effect, after reduction for related compensation, of uncollectible search fees recorded as a result of a loss of executive search consultants, (ii) $9.6 million for separation pay and accelerated vesting of employee stock and stock option grants, both in accordance with pre-existing contractual change in control provisions and (iii) $3.6 million more of transaction related costs, which include legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the transactions, partially offset by $5.0 million less for employee stay bonuses paid primarily with TMP shares and options to certain key personnel of the merged companies. Approximately $24.1 million of the $63.1 million are non-cash charges. The after tax effect of these charges on diluted net income (loss) per share is $(0.53) and $(0.20) for the year ended December 31, 1999 and 1998, respectively. Restructuring charges for the year ended December 31, 1999 were $2.8 million or, on an after tax basis, $(0.02) per diluted share, compared with $3.5 million or $(0.03) per diluted share on an after tax basis for the year ended December 31, 1998. These charges relate to LAI's closing of its London and Hong Kong offices prior to LAI's merger with TMP. These charges include $0.5 million for the write-off of leasehold improvements and fixed assets, $1.3 million for severance benefits payable to 24 employees, and $1.0 million for consolidation of facilities related to the restructuring. As a result of the above, operating income for the year ended December 31, 1999 decreased $47.2 million or 77.0% to $14.1 million from $61.3 million for the comparable period in 1998. Net interest expense was $12.9 million for each of the years ended December 31, 1999 and 1998. The effects of lower interest rates and borrowing costs in 1999, resulting from the amended and restated financing agreement entered into on November 5, 1998, were offset by increased borrowings and interest expense of pooled companies. Taxes on income for the year ended December 31, 1999 were $6.9 million on a $1.7 million pretax loss, compared with a tax expense of $16.9 million on a $46.4 million pretax profit for the year ended December 31, 1998. Although there is a loss for the 1999 period, there is a tax expense because certain 28 expenses are not tax deductible. Such expenses are primarily related to merger costs from pooling of interests transactions and amortization of intangible assets. The tax charge in each period benefited from profits of certain pooled entities whose earnings were not taxed at the corporate level prior to their merger with TMP. As a result of all of the above, the net loss applicable to common and Class B common stockholders for the year ended December 31, 1999 was $0.11 per diluted share, a decrease of $0.46 per diluted share or 131.4% from the net income of $0.35 per diluted share for the comparable 1998 period. THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 Gross billings for the year ended December 31, 1998 were $1,854.6 million, an increase of $324.8 million or 21.2% as compared to gross billings of $1,529.8 million for the year ended December 31, 1997. This increase in gross billings resulted primarily from acquisitions in Recruitment Advertising and organic growth in our Interactive, Selection & Temporary Contracting and Executive Search businesses. Total commissions and fees for the year ended December 31, 1998 were $744.5 million, an increase of $133.7 million or 21.9% from $610.8 million for the year ended December 31, 1997. Interactive commissions and fees for the year ended December 31, 1998 were $54.0 million, an increase of 146.1% or $32.1 million from $21.9 million for the year ended December 31, 1997. The increase in Interactive commissions and fees is due to (i) an increasing acceptance of our Interactive services and products from existing clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign, (iii) increases in the service and content available on our websites, (iv) expansion into certain European markets and (v) price increases on certain products. Recruitment Advertising commissions and fees were $180.8 million for the year ended December 31, 1998 compared with $136.8 million for the year ended December 31, 1997, an increase of $44.0 million or 32.2%. This increase was primarily due to (a) acquisitions, which contributed approximately $25.1 million and (b) approximately $21.4 million from increased client spending and new clients partially offset by client losses and a decrease in foreign currency translation rates, which had a negative effect of approximately $3.0 million. Executive Search commissions and fees were $195.3 million compared with $168.1 million for the year ended December 31, 1997, an increase of $27.2 million or 16.2%, due primarily to strong organic growth due to increased demand for executive management employees worldwide. Selection & Temporary Contracting commissions and fees were $208.0 million, an increase of $28.0 million or 15.6% from $180.0 million for the year ended December 31, 1997. This increase is primarily due to acquisitions of selection firms in Continental Europe, a greater number of temporary contract workers placed during 1998 as compared with the prior period, growth in the executive temporary contracting business. Yellow Page Advertising commissions and fees were $106.5 million for the year ended December 31, 1998 compared with $103.9 million for the year ended December 31, 1997, an increase of 2.4% or $2.6 million due primarily to acquisitions accounted for as purchases. Total operating expenses for the year ended December 31, 1998 were $683.2 million, compared with $527.1 million for 1997. The increase of $156.1 million or 29.6% is due primarily to acquisitions and internal growth, together with the addition of $22.4 million for merger and integration costs related to pooling of interests transactions and $3.5 million in restructuring charges for the closing of LAI's London, England and Hong Kong offices prior to LAI's merger with TMP. Salaries and related costs for the year ended December 31, 1998 were $430.3 million or 57.8% of total commissions and fees, compared with $345.0 million or 56.5% of total commissions and fees for the same period in 1997, representing an increase of $85.3 million or 24.7%. This increase reflects acquisitions in Executive Search and Recruitment Advertising and growth in Interactive operations. Office and general expenses increased $24.9 million to $184.9 million for the year ended December 31, 1998, as compared with $160.0 million for the prior period primarily due to acquisitions accounted for as purchases and other expenses to grow our Interactive businesses. As a percent of total 29 commissions and fees, office and general expenses decreased to 24.8% for the year ended December 31, 1998 from 26.2% for the year ended December 31, 1997. Marketing and promotion expenses increased $16.0 million to $29.7 million for the year ended December 31, 1998 from $13.7 million for the year ended December 31, 1997, a 117.6% increase due to increased marketing for our interactive operations, especially Monster.com(sm). In connection with the mergers completed during 1998 and the merger with Morgan & Banks Limited completed in January 1999, we expensed merger and integration costs of $22.4 million for the year ended December 31, 1998, consisting of (i) $11.9 million of non-cash employee stay bonuses, which included (a) $3.6 million for the amortization of TMP shares set aside for key personnel of Johnson, Smith & Knisely Inc. and The Consulting Group (International) Limited, who must remain employees for a full year in order to earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA and Stackig, Inc. as employee stay bonuses, (ii) $1.5 million of stay bonuses paid as cash to key personnel of one of the companies merged in 1998 and (iii) $9.0 million of transaction related costs, including fees for legal, accounting and advisory services and the costs incurred for the subsequent registration of shares issued in the acquisitions. The after tax effect of this charge is $16.7 million or $(0.20) per diluted share. Restructuring charges for the year ended December 31, 1998 were $3.5 million or, on an after tax basis, $(0.03) per diluted share and relate to LAI's plan prior to its merger with TMP to significantly curtail the operations of its international offices in London, England. These charges include $1.1 million for severance, and $2.4 million for the write-off of leasehold improvements and other costs to close these facilities. Amortization of intangibles was $11.1 million for the year ended December 31, 1998 compared to $6.9 million for the year ended December 31, 1997. The increase is due to our continued growth through acquisitions. As a percentage of total commissions and fees, amortization of intangibles was 1.5% and 1.1% for the years ended December 31, 1998 and 1997, respectively. As a result of all of the above, operating income decreased $22.4 million to $61.3 million for the year ended December 31, 1998 as compared with operating income of $83.7 million for the year ended December 31, 1997 and, as a percent of total commissions and fees, operating income decreased to 8.2% from 13.7%. Net interest expense increased $2.4 million to $12.9 million for the year ended December 31, 1998 as compared to $10.5 million for the year ended December 31, 1997, reflecting a net increase in debt as a result of acquisitions and capital expenditures. In addition, our effective interest rate was 11.2% for the year ended December 31, 1998 compared with 10.8% for the year ended December 31, 1997. Taxes on income decreased $5.9 million to $16.9 million for the year ended December 31, 1998 from $22.8 million for the year ended December 31, 1997 primarily due to lower pre-tax income. The 1998 amount reflects the inability to deduct for tax, certain costs associated with the mergers completed during 1998 and the merger with Morgan & Banks Limited completed in 1999 which were accounted for as poolings of interests. For the year ended December 31, 1998, equity in losses of unconsolidated affiliates was $396, reflecting losses at our minority owned real estate advertising affiliate, as compared with a $33 loss for the same period in 1997. Minority interests in consolidated earnings for the year ended December 31, 1998 were $28 compared with $296 for the year ended December 31, 1997. As a result of all of the above, the net income applicable to common and Class B common stockholders was $29.0 million for the year ended December 31, 1998, or $0.35 per diluted share, compared with net income applicable to common and Class B common stockholders of $50.8 million, or $0.66 per diluted share for the year ended December 31, 1997. 30 LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements have been to fund (i) acquisitions, (ii) working capital, (iii) capital expenditures and (iv) marketing and development of our Interactive business. Our working capital requirements are generally higher in the quarters ending March 31 and June 30 during which payments to the major yellow page directory publishers are at their highest levels. We have met our liquidity needs over the last three years through (a) funds provided by operating activities, (b) equity offerings, (c) long-term borrowings, (d) capital leases and (e) vendor financing in 1996. In December 1996, we completed our initial public offering of an aggregate of 8,294,816 shares of Common Stock at a purchase price of $7.00 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co. Inc. In the initial public offering, certain stockholders sold an additional aggregate of 1,305,184 shares of Common Stock. The net proceeds that we received from the initial public offering of $50.8 million were used to repay debt and, in early 1997, to pay down accounts payable and to redeem preferred stock. In September 1997, we completed a second public offering of an aggregate of 4,800,000 shares of Common Stock at a purchase price of $11.50 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In addition, certain stockholders sold an aggregate of 3,200,000 shares of common stock in such offering. Our net proceeds from this offering of $63.4 million, including net repayment of borrowings of $12.2 million paid to us by certain stockholders, were used to repay debt. In 1998, LAI received $41.6 million in net proceeds from its second public offering managed by Robert W. Baird & Co. Incorporated, The Robinson-Humphrey Company, LLC and J.C. Bradford & Co. Such proceeds were used to support its international expansion, support enhancements to its technology-based infrastructure, acquire two executive search companies and provide additional working capital. On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney, Deutsche Bank Securities, Inc., Paine Webber Incorporated and U.S. Bancorp Piper Jaffrey, Inc. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $82 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Net cash used in operating activities for the six months ended June 30, 2000 was $8.2 million and net cash provided by operating activities for the six months ended June 30, 1999 was $12.6 million. The increase in cash used in operating activities of $20.8 million for 2000 over 1999 was primarily attributable to (i) $50.3 million due to increases in accounts receivable for the 2000 period over the 1999 period, related mostly to growth at Monster.com, Selection & Temporary Contracting and Recruitment Advertising (ii) $25.5 million resulting from decreases in cash from accounts payable and accrued liabilities and (iii) $1.8 million due to the effects of higher earnings from pooled companies in both the current and previous period, partially offset by (i) $28.2 million increase in earnings after adjusting for non-cash items (ii) $18.8 million resulting from increases in deferred commissions and fees, primarily at Monster.com and (iii) $9.8 million related to increases in the use of funds for work-in-process and prepaid and other assets for the 2000 period over the 1999 period. Net cash provided by operating activities for the years ended December 31, 1999, 1998 and 1997 was $95.5 million, $72.2 million and $62.4 million, respectively. The increase in cash of $23.3 million from operating activities for 1999 over 1998 was primarily due to (i) the net increase in funds from a $49.3 million greater increase in deferred commissions and fees, primarily for Monster.com(sm), for the 1999 period over the 1998 period, (ii) a $5.1 million effect from inclusion of losses in 1999 and profits in 1998 from companies accounted for as poolings of interests, in both the current period and the previous year, because of overlapping reporting periods reduced by (i) an $11.8 million net increase in the use of funds 31 from increases in accounts receivable over increases in accounts payable, accrued expenses and other liabilities, for the 1999 period over the 1998 period, (ii) a $0.8 million increase in work-in-process and prepaid and other assets and (iii) a $17.5 million decline in earnings after adjusting for non-cash items. The increase in cash of $9.8 million from operating activities for 1998 over 1997 was primarily due to an increase of $8.7 million in accounts payable, accrued expenses and other current liabilities, a $10.4 million increase in depreciation and amortization costs, $8.3 million for the utilization of our common stock to pay bonuses, a decrease of $11.3 million in accounts receivable, $2.9 million from the net loss on disposal of fixed assets, a $3.4 million increase in deferred commissions and fees, a $4.4 million increase in amortization of deferred compensation and a $2.2 million increase in provision for doubtful accounts, partially offset by decreases in net income of $21.8 million, $8.0 million in deferred income taxes, $9.9 million in work-in-process, prepaid and other assets, and a decrease of $2.3 million from the effects of including losses from pooled companies in both the current and previous period. In addition, in 1998 we paid approximately $13.6 million for restructuring. Such amount was applied against a reserve set up during 1997 in connection with acquisitions accounted for using the purchase method. This reserve was increased in 1998 by a $3.5 million charge to earnings and by a $10.1 million charge to intangible assets, and reduced by payments of $13.6 million, leaving a restructuring reserve at December 31, 1998 of $16.7 million. EBITDA was $52.3 million for the six months ended June 30, 2000, an increase of $21.2 million or 68.0% from $31.1 million for the six months ended June 30, 1999. The increase primarily reflects, for the 2000 period, a $12.0 million increase in operating profits and $7.6 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA increased to 9.4% for the six months ended June 30, 2000 as compared with 7.7% for the six months ended June 30, 1999. The higher percent reflects the improved operating margins (including the effects of merger and integration costs), which were 4.0% and 2.8% of commissions and fees for the 2000 and 1999 periods, respectively. EBITDA was $57.8 million for the year ended December 31, 1999, a decrease of $39.0 million or 40.3% from $96.8 million for the year ended December 31, 1998. The decrease primarily reflects, for the 1999 period, a $47.2 million decrease in operating profits and $10.0 million less in income taxes, partially offset by $9.0 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA decreased to 6.6% for the year ended December 31, 1999 as compared with 13.0% for the year ended December 31, 1998. The lower percent reflects the increase in merger & integration and restructuring costs, which were 7.3% and 3.0% of commissions and fees for the 1999 and 1998 periods, respectively. EBITDA was $96.8 million for the year ended December 31, 1998, a decrease of $10.6 million from $107.4 million for the year ended December 31, 1997. As a percentage of total commissions and fees, EBITDA decreased to 13.0% for the year ended December 31, 1998 from 17.6% for the year ended December 31, 1997. The decrease resulted primarily from the $18.0 million charge for merger costs ($22.4 million less $4.4 million in amortization of deferred compensation), which was 2.4% of total commissions and fees for the year ended December 31, 1998, offset, in part, by increased depreciation and amortization of $14.8 million. Net cash used in investing activities for the six months ended June 30, 2000 and 1999 was $65.8 million and $36.8 million, respectively. The $29.0 million increase in cash used in 2000 compared to 1999 was due to a $14.5 million increase in payments for business acquisitions and $14.5 million for capital expenditures, primarily leasehold improvements and computer equipment and software for the expansion of the Company's global technology infrastructure. Net cash used in investing activities for the years ended December 31, 1999, 1998 and 1997 was $61.6 million, $73.9 million and $109.4 million, respectively. The decrease in 1999 of $12.3 million as compared to 1998 was primarily due to $9.1 million received from the sale of fixed assets and $9.0 million less used for business acquisitions, partially offset by $7.9 million more in capital expenditures. The $35.5 million decrease in 1998 as compared with 1997 was primarily due to $46.7 million less in payments for acquisitions, reflecting the use of company stock to make acquisitions of businesses, offset in part by $1.9 million more in capital expenditures and during 1997 our receipt of a net $11.4 million from the 32 Principal Stockholder and certain other stockholders, who repaid borrowings with funds received primarily from their sale of shares included with our second public offering. Payments for businesses acquired using the purchase method of accounting, excluding $5.5 million in TMP stock, were $37.0 million in 1998 and $83.7 million in 1997, of which $47.2 million was for Austin Knight. Capital expenditures, primarily for computer equipment and furniture and fixtures, were $43.0 million, $35.1 million and $33.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. In addition, in 1997, we acquired certain transportation equipment and made capital improvements for a total of $6.8 million, and simultaneously entered into a $7.8 million financing agreement to fund the purchases and provide additional operating funds. We estimate that our expenditures for computer equipment and software, furniture and fixtures, and leasehold improvements will be approximately $70 to $80 million for the year ended December 31, 2000. Our financing activities include equity offerings, borrowings and repayments under our bank financing agreements and borrowings for and payments on (i) installment notes, principally to finance acquisitions, (ii) capital leases and (iii) equipment. Our financing activities for the six months ended June 30, 2000 and June 30, 1999 provided net cash of $521.3 million and $9.1 million, respectively. The change of $512.2 million resulted primarily from $594.2 million in net proceeds from our follow-on common stock offering and a $12.6 million increase in cash received from the exercise of employee stock options, partially offset by net repayments in the 2000 period of $88.1 million against credit facilities and capitalized lease obligations compared with a net increase in credit facilities and capitalized lease obligations of $7.2 million in the prior year period. Our financing activities for the year ended December 31, 1999 used net cash of $48.5 million but provided $22.1 million and $75.6 million for the years ended December 31, 1998 and 1997. The change of $70.6 million in 1999 compared to 1998 resulted primarily from $41.6 million in proceeds from common stock offerings (primarily by LAI) in the 1998 period and an increase in net repayments in the 1999 period to $53.6 million against credit facilities and capitalized lease obligations compared with total net repayments of $4.0 million in the prior year period, offset in part by a $17.6 million increase in cash received from the exercise of employee stock options and a $2.9 million decline in dividends paid by pooled companies in the 1999 period. The change of $53.5 million in 1998 compared to 1997 was primarily due to LAI's initial public offering for net proceeds of $25.4 million and TMP's second public offering of 4,800,000 shares of Common Stock for net proceeds of $51.2 million in the third quarter of 1997 compared with net proceeds of $41.6 million from LAI's follow-on offering in 1998. With a portion of the proceeds received from our initial public offering in January 1997, we redeemed all of the shares of the cumulative preferred stock issued by a subsidiary, reported as a minority interest, and our previously issued preferred stock for approximately $3.1 million and $2.1 million, respectively. Such redemptions included approximately $100,000 each of premiums. In November, 1998 and 1997 we amended our financing agreement with our primary lender to provide for borrowings, under a revolving credit facility, of a minimum of $175 million. In May 1999 we increased this amount to $185 million. This facility is used to finance our acquisitions and for working capital requirements. At June 30, 2000, we had a $185 million committed line of credit from our primary lender pursuant to a revolving credit agreement expiring November 5, 2003. Of such line, at June 30, 2000, approximately $156.1 million was unused and accounts receivable is sufficient to allow drawdown of the entire amount. Our current interest rate under the agreement is LIBOR plus 50 basis points. In addition, we had secured lines of credit aggregating $12.2 million for our operations in Australia, New Zealand, France, Belgium, and Italy, of which approximately $3.6 million was unused at June 30, 2000. Cash and cash equivalents at June 30, 2000 were $511.4 million, an increase of $446.8 million from $64.6 million at December 31, 1999, and were $446.4 million higher than the June 30, 1999 balance of $65.0 million. 33 Cash and cash equivalents at December 31, 1999 were $64.6 million, an increase of $15.3 million from $79.9 million at December 31, 1998. Part of our acquisition strategy is to pay, over time, a portion of the purchase price of certain acquisitions through seller financed notes. Accordingly, such notes are included in long-term debt, are generally payable over five years and totaled approximately $7.2 million at June 30, 2000. We intend to continue our acquisition strategy and the marketing and promotion of our Interactive businesses through the use of cash-on-hand, operating profits, issuance of additional shares of our common stock, borrowings against our long-term debt facility and seller financed notes. We believe that our anticipated cash flow from operations, cash-on-hand, as well as the availability of funds under our existing financing agreements will provide us with sufficient liquidity to meet our current foreseeable cash needs. RECENT ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which had an initial adoption date by the Company of January 1, 2000. During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company does not expect the adoption of this statement to have a significant impact on the Company's results of operations, financial position or cash flows. In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of 2000. The Company does not expect its adoption to have a material effect on the Company's financial statements. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue No. 00-2, "Website Development Costs," which established guidelines for accounting for website development costs and is effective for quarters beginning after June 30, 2000. Although the Company is still evaluating its impact, the Company does not believe its adoption will have a significant effect on its financial statements. YEAR 2000 ISSUE We completed our Year 2000 software program conversions and compliance programs during the fourth quarter of 1999. The total external costs for such programs were approximately $3.0 million. Through the six months ended June 30, 2000 we have not experienced any Year 2000 problems either internally or from outside sources. We have no reason to believe that Year 2000 failures will materially affect us in the future. However, since it may take several additional months before it is known whether we or third party suppliers, vendors or customers may have undergone Year 2000 problems, no assurances can be given that we will not experience losses or disruptions due to Year 2000 computer-related problems. We will continue to monitor the operation of our computers and microprocessor-based devices for any Year 2000 problems. FLUCTUATIONS OF QUARTERLY RESULTS Our quarterly commissions and fees are affected by the timing of yellow page directory closings which currently have a concentration in the third quarter. Yellow page publishers may change the timing of directory publications which may have an effect on our quarterly results. Our Yellow Page advertising results are also affected by commissions earned for volume placements for the year, which are typically 34 reported in the fourth quarter. Our quarterly commissions and fees for recruitment advertising are typically highest in the first quarter and lowest in the fourth quarter; however, the cyclical nature of the economy and our clients' employment needs have an overriding impact on our quarterly results in Recruitment Advertising, Selection & Temporary Contracting and Executive Search. Moreover, our Recruitment Advertising acquisition activity has had more of an impact on our recently reported quarterly results than any other factor. The following table sets forth summary quarterly unaudited financial information for the six months ended June 30, 2000 and the years ended December 31, 1999 and 1998 (in millions, except share and per share amounts).
2000 THREE MONTHS ENDED -------------------------- MARCH 31, JUNE 30, --------- -------- Commissions and fees: Interactive............................................... $ 70.8 $ 92.2 Recruitment Advertising................................... 46.5 49.1 Selection & Temporary Contracting......................... 77.8 88.0 Executive Search.......................................... 39.0 48.3 Yellow Page Advertising................................... 23.3 23.1 -------- -------- Total commissions and fees.................................. $ 257.4 $ 300.7 ======== ======== Operating income............................................ $ 8.5 $ 15.5 Net income applicable to common and Class B common stockholders.............................................. $ 3.1 $ 8.5 Net income per common and Class B common share: Basic..................................................... $ 0.03 $ 0.09 Diluted................................................... $ 0.03 $ 0.08 Weighted average shares outstanding (in thousands): Basic..................................................... 92,399 95,614 Diluted................................................... 100,315 102,100
1999 THREE MONTHS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ Commissions and fees: Interactive..................................... $ 22.4 $ 28.3 $ 40.2 $ 53.5 Recruitment Advertising......................... 46.4 47.1 43.8 43.9 Selection & Temporary Contracting............... 57.4 65.3 74.7 71.6 Executive Search................................ 41.5 42.7 47.8 41.3 Yellow Page Advertising......................... 23.8 27.2 28.5 21.8 ------ ------ ------ ------ Total commissions and fees........................ $191.5 $210.6 $235.0 $232.1 ====== ====== ====== ====== Operating income (loss)........................... $ 2.4 $ 9.6 $ 2.0 $ 0.1 Net income (loss) applicable to common and Class B common stockholders............................. $ (0.7) $ 3.2 $ (4.2) $ (7.4) Net income (loss) per common and Class B common share: Basic........................................... $(0.01) $ 0.04 $(0.05) $(0.09) Diluted......................................... $(0.01) $ 0.04 $(0.05) $(0.09) Weighted average shares outstanding (in thousands): Basic........................................... 83,065 84,166 84,398 84,978 Diluted......................................... 83,065 88,268 84,398 84,978
35
1998 THREE MONTHS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ Commissions and fees: Interactive..................................... $ 8.7 $ 11.8 $ 14.6 $ 18.9 Recruitment Advertising......................... 46.4 46.4 43.1 44.9 Selection & Temporary Contracting............... 43.9 53.5 53.5 57.1 Executive Search................................ 50.0 54.4 51.6 39.3 Yellow Page Advertising......................... 23.3 27.1 32.1 23.9 ------ ------ ------ ------ Total commissions and fees........................ $172.3 $193.2 $194.9 $184.1 ====== ====== ====== ====== Operating income (loss)........................... $ 20.4 $ 24.6 $ 18.6 $ (2.3) Net income (loss) applicable to common and Class B common stockholders............................. $ 11.4 $ 13.8 $ 9.5 $ (5.7) Net income (loss) per common and Class B common share: Basic........................................... $ 0.14 $ 0.17 $ 0.12 $(0.07) Diluted......................................... $ 0.14 $ 0.16 $ 0.11 $(0.07) Weighted average shares outstanding (in thousands): Basic........................................... 81,008 81,662 81,788 81,880 Diluted......................................... 83,686 83,828 84,156 81,880
Earnings (loss) per share calculations for each quarter include the weighted average effect for the quarter; therefore, the sum of the quarters may not equal the full year earnings (loss) per share amount, which reflects the weighted average effect on an annual basis. In addition, diluted earnings per share calculations for each quarter include the effect of stock options and warrants, when dilutive to the quarter. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risks include fluctuations in interest rates, variability in interest rate spread relationships (i.e., prime to LIBOR spreads) and exchange rate variability. Substantially all of the Company's debt relates to a five-year financing agreement with an outstanding principal balance of approximately $28.9 million, including $18.3 million reflected as a reduction to accounts receivable and $7.7 million for letters of credit, as of June 30, 2000. Interest on the outstanding balance is charged based on a variable interest rate related to the higher of the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus 50 basis points as specified in the agreement, and is thus subject to market risk in the form of fluctuations in interest rates. The Company does not trade in derivative financial instruments. The Company also conducts operations in various foreign countries, including Australia, Belgium, Canada, China, France, Germany, Italy, Japan, the Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the six months ended June 30, 2000 approximately 44.4% of our commissions and fees were earned outside the United States and collected in local currency, and related operating expenses were also paid in such corresponding local currency. Accordingly, we will be subject to increased risk for exchange rate fluctuations between such local currencies and the dollar. We do not conduct any significant hedging activities. The financial statements of the Company's non-U.S. subsidiaries are translated into U.S. dollars using current rates of exchange, with gains or losses included in the cumulative translation adjustment account, a component of stockholders' equity. During the six months ended June 30, 2000, due to the strengthening of the U.S. dollar, the Company had an exchange loss of $37.9 million, primarily attributable to the strengthening of the U.S. dollar against the Australian dollar. 36 BUSINESS We have built Monster.com(sm) (http://www.monster.com) into the Internet's leading career destination portal. We are the world's largest recruitment advertising agency and one of the world's largest executive search and selection firms. In addition to offering these career solutions, we are the world's largest yellow page advertising agency. We have more than 31,000 clients, including over 90 of the Fortune 100 and over 480 of the Fortune 500 companies. INDUSTRY OVERVIEW INTERACTIVE. The Internet is an increasingly significant global medium for communications, content and commerce. Growth in Internet usage has been fueled by a number of factors, including the availability of a growing number of useful products and services, the large and growing installed base of personal computers in the workplace and home, advances in the performance and speed of personal computers and modems, improvements in network infrastructure, easier and cheaper access to the Internet and increased awareness of the Internet among businesses and consumers. The increasing functionality, accessibility and overall usage of the Internet and online services have made them an attractive commercial medium. Thousands of companies have created corporate websites that feature information about their product offerings and advertise employment opportunities. Through the web, Internet content providers are able to deliver timely, personalized content in a manner not possible through traditional media. Internet content can be continuously updated, distributed to a large number of consumers on a real-time basis, and accessed by users at any time. Industry publications indicate that the historical and projected adoption of online/Internet services represents a faster rate of penetration than occurred with traditional media, such as radio, broadcast television and cable television. For job seekers, online recruiting can provide the ability to rapidly and more easily build, update and distribute their resumes, conduct job searches and gather information about employers. Online recruiting can also help to reduce the time of a job search by permitting job seekers to define their specific job needs and be contacted automatically when desired jobs become available. Online recruiting is also proving to be attractive to employers because online job advertisements can be accessed by job seekers anywhere in the world at anytime and more cost effectively than print media. Forrester Research estimates that online spending by employers for recruitment will grow from $411 million in 1999 to $3.2 billion in 2004. THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising traditionally consists of creating and placing recruitment advertisements in the classified advertising sections of newspapers. While the recruitment advertising market has historically been cyclical, during the period of 1990 through 1998, the U.S. market grew at a compound annual rate of approximately 13%. Classified readership by job seekers has remained constant over the last ten years and approximately 85% of companies use newspapers to attract potential employees. The services provided by recruitment advertising agencies can be complex and range from the design and placement of classified advertisements to the creation of comprehensive image campaigns which internationally "brand" a client as a quality employer. Further, shortages of qualified employees in many industries, particularly in the technology area, have increased the need for recruitment advertising agencies to expand the breadth of their service offerings to effect national and sometimes global recruitment campaigns. For the year ended December 31, 1998, global spending (billings) in the recruitment classified advertisement section of newspapers was approximately $13 billion. Agencies which place recruitment classified advertising are paid commissions generally equal to 15% of recruitment advertising placed in newspapers and earn fees for providing additional recruitment services. EXECUTIVE SEARCH. The market for executive search firms is generally separated into two broad categories: retained executive search firms and contingency executive search firms. Retained executive search firms service their clients' senior management needs by acting in an ongoing client-consultant relationship to actively identify, evaluate, assess and recommend to the client suitable candidates for senior level positions. Retained search firms are generally engaged on an exclusive basis and paid a contractually 37 agreed-to fee. Contingency executive search firms typically do not focus on the senior executives and are generally paid a percentage of the hired candidate's salary only when a candidate is successfully placed with the client. Contingency firms are generally not hired on an exclusive basis and do not focus on the assessment, evaluation or recommendation of a candidate other than to determine if the candidate's resume qualifies him/her for the position. We provide executive search services on a retained basis. Our executive search service identifies senior executives who typically earn in excess of $250,000 annually. SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business identifies for our clients those professionals, below the CEO level, who typically earn between $50,000 and $150,000. We have identified a suite of products geared towards this market which seek to predict whether a candidate will be successful in a given role. Temporary contracting supplements our selection services. According to the Staffing Industry Report, the United States temporary staffing industry grew from approximately $29 billion in revenue in 1993 to approximately $62 billion in revenue in 1998. In addition, third party sources estimate the worldwide temporary staffing market at more than $130 billion. The temporary staffing industry has experienced significant growth in response to the changing work environment. These changes are a result of increasing automation that has resulted and we believe will continue to result in shorter technological cycles, and global competitive pressures. Many employers responded to these challenges by turning to temporary and contract personnel to keep personnel costs variable, achieve maximum flexibility, outsource highly specialized skills, and avoid the negative effect of layoffs. We believe fundamental changes in the employer-employee relationship continue to occur, with employers developing increasingly stringent criteria for permanent employees, while moving toward project-oriented temporary and contract hiring. THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been published in the U.S. since at least the 1890's and, traditionally, have been published almost exclusively by telephone utilities. In the early 1980's, due in part to telephone deregulation, independent companies began publishing an increasing number of directories. Currently, approximately 7,000 yellow page directories are published annually by 200 publishers and, in the U.S., many cities with populations in excess of 80,000 are served by multiple directories. The percentage of adults who use the yellow pages has remained relatively constant over the last ten years at over 56%, and such readers consult the yellow pages approximately two times weekly. Accordingly, yellow page directories continue to be a highly effective advertising medium. For the year ended December 31, 1999, total spending on yellow page advertisements in the U.S. was $12.7 billion. Of this amount, approximately $10.7 billion was spent by local accounts and approximately $2.0 billion was spent by national accounts. As those terms are used in the yellow page industry, "local" refers to an advertisement solicited by a yellow page publisher's own sales staff and "national" refers to an advertisement that is placed by an advertising agency and that meets certain criteria specified by the publisher. Local accounts are typically merchants who primarily conduct their business within the geographic area served by the publisher's directories. The national account market, which is the client base that we service, consists of companies that sell products or services in multiple markets. Most national accounts use independent advertising agencies to design and implement their yellow page advertising programs to create a consistent brand image and compelling message, to develop an effective media plan and to execute the placement of the advertising at the local level. Agencies which place national advertising are paid commissions by yellow page publishers. The market has grown each year since 1981. During the period of 1990 through 1999, the market has grown at a compound average rate of approximately 6.4%. OUR CAREER SOLUTIONS "INTERN TO CEO" MIGRATION TO INTERACTIVE. We believe that our growth in the career solutions area will continue to come from our Interactive properties, through our leadership position at Monster.com(sm), combined with additional online growth opportunities from the recruitment advertising and executive 38 search and selection markets and by capturing increasing shares of budgets previously spent by corporations on unassisted recruiting activities. MONSTER.COM(sm) Monster.com(sm) (http://www.monster.com), the flagship of our Interactive properties, is the nucleus of our "Intern to CEO" strategy. For the six months ended June 30, 2000, Monster.com(sm)'s gross billings and commissions and fees were $136.4 million and $135.0 million, respectively, and our total Interactive gross billings and commissions and fees were $183.2 million and $163.0 million, respectively. Based on experience with our clients, we believe that only 20% to 30% of open job positions are advertised using traditional print media. We also believe that online solutions will significantly expand the recruitment advertising market because of their global reach and continuous availability. Furthermore, online advertising is extremely cost effective when compared to other traditional recruitment methods such as print media. Our Interactive recruitment services have been actively marketed since May 1995 and Monster.com(sm) was one of the first 1,000 commercial web sites out of more than 158 million which currently exist. According to Nielson I/PRO, Monster.com(sm) had approximately 15.3 million visits (the gross number of occasions on which a user looked up a site) in July 2000 with the average length of each visit exceeding sixteen minutes. Media Metrix reported that for July 2000, 5.8% of the U.S. Internet population visited Monster.com(sm). In addition, for this month, an average of 31.1 unique pages were viewed by each visitor, resulting in a power ranking of 180.4 (reach of 5.8 multiplied by average page views of 31.1) compared to 29.9 for its nearest competitor and 105.2 for its six closest competitors combined. We believe that the power ranking is significant because, by taking into account reach and page views, it indicates Monster.com(sm)'s usefulness and recognition. Monster.com(sm) allows users to create their own personalized career page, My Monster. Using My Monster, job seekers can store their resumes, cover letters and job applications and create multiple Job Search Agents. They can also track how many times their resume has been viewed by employers. My Monster is at the center of the Monster.com(sm) job seeker experience, with over 8.7 million job seeker accounts as of July 2000. Monster.com(sm)'s Job Search Agent continuously seeks to find the desired job for the job seeker. Job seekers can sign up for this free service on the site by creating a simple personal profile indicating the industry and location in which they want to work and any job-specific keywords. The Job Search Agent then continually scans the entire Monster.com(sm) job database for opportunities that match the requirements and delivers the leads to job seekers' desktops, even while they are off-line. As of July 2000, Monster.com(sm) contained over 3.6 million Job Search Agent profiles and its resume database contained over 4.7 million resumes of which 3.3 million are active, and is growing by an average of more than 13,000 resumes daily. Job seekers post their resumes free of charge in a confidential searchable access-restricted database. This database can be searched, using keyword searches, by employers who pay for the service. Job seekers can search Monster.com(sm)'s database of employment opportunities by location, job category, industry and/or keyword. Keyword searches allow a user to enter specific keywords to match skills, job titles or other requirements. We have also introduced Monster Talent Market which allows independent contractor professionals to offer their services to the highest bidder. As of July 2000, Monster.com(sm) listed approximately 415,000 paid postings from clients such as Adecco, Blockbuster Entertainment Inc., Dell Computer Corporation, McDonald's and Procter & Gamble Co. We also have developed private label applications of our Interactive products. For example, we adapted Monster.com(sm) technology to create for Fidelity Investments a database of jobs which resides, through a hyper-link, on the Fidelity home page. The search features have the look, feel and ease of use associated with Monster.com(sm) while appearing to the user as a seamless part of the Fidelity site. We intend to continue to market private label products as a way to increase the size of our databases. 39 To attract the maximum amount of traffic to our websites, we intend to continue to develop additional value-added content, while developing strategic alliances with other on-line content providers. For example, we recently entered into a content and marketing arrangement with America Online, Inc., pursuant to which Monster.com(sm) for the payment of $100 million would be the exclusive provider of career search services in the United States and Canada for four years to over 21 million AOL members across seven AOL properties: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. We believe that this agreement has the potential to drive a substantial amount of increased traffic and new users to Monster.com(sm.) See "Risk Factors--Potential impact of third-party litigation on our agreement with AOL." In addition to the U.S., Monster.com(sm) has been customized, in language and content, for Canada, the U.K., the Netherlands, Australia, Belgium, France, Singapore, New Zealand, Hong Kong, Germany and Ireland. MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize on the relationship between recruitment and relocation. By featuring information that addresses the entire moving process, such as mortgages, insurance, utilities and education, we offer our clients the ability to research a prospective move online. We are combining these tools into a Moving Center which will be integrated into Monster.com-SM-, thus extending the Monster.com-SM- brand into the moving services marketplace. RECRUITMENT ADVERTISING. We entered the recruitment advertising business in 1993 and have expanded this business through acquisitions and internal growth. For the six months ended June 30, 2000, we had recruitment advertising gross billings of $444.5 million and recruitment advertising commissions and fees of $95.6 million. In addition to our worldwide offices, we maintain relationships with unaffiliated agencies throughout the world to further enhance our ability to reach qualified job candidates. As a full service agency, we offer our clients comprehensive recruitment advertising services including creation and placement of classified advertising, development of employer image campaigns, creation of collateral materials such as recruiting brochures and implementation of alternative recruitment programs such as job fairs, employee referral programs and campus recruiting. We specialize in designing recruitment advertising campaigns for clients in high growth industries and in industries with high employee turnover rates. Further, we believe that as employers find it more difficult to attract qualified employees, they will increasingly seek out agencies that can implement national and, in some cases, global recruitment strategies. Our task in formulating and implementing a global recruitment advertising program is to design the creative elements of the campaign and to select the appropriate media and/or other recruitment methods. This is done in the context of the client's staffing parameters, which generally include skill requirements, job location and advertising budget. In addition, while executing a given campaign, we will often undertake basic research with respect to demographic profiles of selected geographic areas to assist the client in developing an appropriate overall strategy. We have historically found that the strongest recruitment advertising campaigns "brand" the client's image, demonstrate the client's unique selling points and stress the client's employee benefits and corporate culture. Effectively differentiating one employer from another has become particularly important in the technology and healthcare sectors where there is an acute shortage of qualified job candidates. The success of the campaign may depend on whether an organization is seen as sufficiently distinct from its competitors. After completing the design of an advertisement's creative elements, we develop an appropriate media plan. Typically, a variety of media is used, including newspapers, trade journals, the Internet, outdoor/transit media, direct mail, radio and television. If we recommend use of newspapers, we may recommend certain newspapers or editions of a particular newspaper which are targeted to a specific demographic segment of the population. We may also recommend a variety of advertisement sizes and vary the frequency with which an advertisement appears. 40 After an advertisement is placed, we conduct extensive customer analysis to assure satisfaction, including monitoring the effectiveness of the chosen media. As an example, for a transportation client, we analyzed cost-per-response, cost-per-application and cost-per-hire data for over a dozen media vehicles running in approximately 30 markets in an effort to determine the return on investment of each media vehicle. Our Recruitment Advertising Division also maintains a quality assurance program for its larger clients which involves formal creative reviews by our clients as well as soliciting client feedback. In the U.S., we receive commissions generally equal to 15% of recruitment advertising gross billings. Outside of the U.S., where, collectively, we derive the majority of our recruitment advertising commissions and fees, our commission rates for recruitment advertising vary, ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. We also earn fees from value-added services such as design, research and other creative and administrative services which resulted in aggregate commissions and fees equal to approximately 4% of recruitment advertising gross billings for the six months ended June 30, 2000. In addition, interactive commissions and fees earned by this division were $12.7 million for the six months ended June 30, 2000. EXECUTIVE SEARCH. Traditionally, recruitment and online advertising does not target the senior executive. Therefore, in order to expand the range of services we offer to our recruitment advertising clients, we entered the executive search field. We currently have 30 executive search offices in 15 countries. We believe that our expansion into the executive search field will enable us to attract and service new major clients because we can now market ourselves as a full service firm that can accommodate all of our clients' employment and recruitment advertising needs. For the six months ended June 30, 2000, Executive Search gross billings and commissions and fees were $87.4 million and $87.4 million, respectively. Our retained executive search process typically targets senior level executives (those earning over $250,000, annually) and includes the following steps: - a TMP Executive Search consultant interviews the client in order to analyze the senior executive position that needs to be filled, the general environment of the client's work place and the character and quality of candidates that have successfully performed as an executive of the client; - our consultant then prepares a written synopsis of the position to be filled in order to attract a suitable, qualified, successful candidate; - the synopsis is then forwarded to other recruiters in order to assist with the search for a candidate that fits the criteria set forth in the synopsis; - a pool of suitable candidates is gathered and the consultants begin to schedule interviews; - the candidates are then interviewed and analyzed by the consultants on our premises to determine if the candidate meets the requisite experience and potential cultural fit outlined by the consultant and the client; - reports of the most suitable candidates are prepared by the consultant and presented to the client, who then chooses the candidates to be met; - the consultant then organizes a mutually convenient time and place for the client to personally meet and interview such candidates; - the consultant will follow up with the successful candidate to obtain any supplemental information needed or requested by the client, including references and other documentary materials; and - the consultant then assists the client in structuring and negotiating the final compensation package and other benefits for the hired executive based on all relevant factors researched by the consultant, including industry comparisons, the experience levels of the executive and future trends. 41 SELECTION AND TEMPORARY CONTRACTING. Candidates for mid-level positions, the search for whom we term "selection," are normally attracted by classified advertising or chosen through a computerized database file search, as opposed to the detailed search process used for senior executives. We screen and interview applicants prior to providing the client with a short list. Upon acceptance of the short list of suitable candidates, the client then proceeds to interview the selected candidates. The next steps in the process include reference checking, negotiation of an offer, confirmation of acceptances and start date, and performance follow-up at the end of one and three months. For assignments involving mid-level executives we have developed and are introducing a process which is designed to evaluate a person's capacity to perform in a current or future role. It can be used for internal and external candidates and is based on the premise that if the requirements for an individual job are thoroughly understood, it is possible to develop testing protocols which assess and predict a candidate's ability to succeed in a specific position. Tools and exercises include aptitude testing, job simulations, behavioral and situational interviews, leadership and team exercises, group discussions, role plays and work sample tests. The goals of the Selection process are to put the right people in the right job, boosting both individual job satisfaction and productivity. We provide temporary contract employees in Australia, New Zealand, the United Kingdom and the United States. These employees range from executives to clerical workers. The demand for contract employee services was created by organizations' need for flexible work forces with the types of skills required to meet their particular circumstances in a changing market. We place qualified executives, professionals, clerical and trade labor in temporary positions, or for specific short term projects. Contractors can be used for emergency support or to complement the skills of a client's core, permanent staff. Contracting can be linked to the permanent placement, with the client employing a "try before you buy" strategy. The period for the contracting assignment can vary from as little as one day to over 12 months. In addition to the more general contracting assignments, we provide executives on a contract basis with our Australian clients, whereby a specific task is managed by us but staffed by contract executives. For the six months ended June 30, 2000, gross billings were $168.3 million, commissions and fees were $165.8 million and the related gross revenue, before deducting the costs of temporary contractors, was $353.6 million. In addition, Interactive commissions and fees were $6.2 million. OUR YELLOW PAGES BUSINESS We entered the yellow page advertising business in 1967 and have grown to become the largest yellow page advertising agency in the world based on gross billings. For the six months ended June 30, 2000, we had yellow page advertising gross billings and commissions and fees of $268.9 million and $46.4 million, respectively. This division also generated $5.0 million of interactive commissions and fees. In addition, during 1999, this division acquired IN2 in a pooling of interests transaction. IN2 is a state of the art, online marketing agency and technology company based in New York City. As our clients, including our yellow page clients, migrate portions of their business to the Web, IN2 will provide them with complete interactive marketing solutions and it will continue to expand its own interactive client base and develop technology solutions. This acquisition also marked the establishment of two new business units within our Yellow Pages Advertising Division--Interactive Direct Marketing and Interactive Technologies. CREATING AND PLACING DIRECTORY ADVERTISEMENTS. There are currently approximately 7,000 yellow page directories in the U.S. Each has a separate closing date for accepting advertisements and one or more of these closings occur on every working day of the year. The steps involved in placing an advertisement are numerous and can take as long as nine months. The first step in the process is the formulation of the advertising program's creative elements including illustrations, advertising copy, slogans and other elements which are designed to attract a 42 potential customer's attention. To assess the effectiveness of a proposed campaign, we generally undertake extensive research to determine which alternatives best reach the client's target market. This research typically includes focus group testing and the running of split-run advertisements. Focus group testing involves forming groups of potential customers and gauging their reaction to a variety of potential advertisements. Split-run testing measures the results of specific campaigns by placing more than one version of an advertisement in various editions of the same yellow page directory. By using multiple phone numbers and various monitoring methods, we can then determine which advertisements generate the most effective response. After designing an advertising program, we create a media plan which targets client's customer base in a cost-effective manner. We analyze targeted directories to determine circulation, rate of usage and demographic profile. We then recommend advertisements ranging from a full page to as little as a one line listing. For some of our larger yellow page advertising clients, advertisements are placed in over 2,000 directories. To ensure client satisfaction, we maintain an extensive quality control program. Account teams have frequent in-person client contact as well as formal annual creative reviews. We also solicit feedback through client interviews, written surveys and other methods consisting of focus groups made up of yellow page users and yellow page user pollings. The principal aims of this program are client retention and sales growth. We believe our focus on customer service has enabled us to maintain our client retention rate, year to year, in excess of 90%. In addition to traditional advertising, we offer to our clients a variety of services ranging from managing the maintenance and installation of telephone lines for branch locations to the staffing and operation of fulfillment centers which respond to toll-free calls requesting product brochures and other information. While beyond the typical scope of services provided by an advertising agency, these ancillary services are designed to further integrate us into client processes for the mutual benefit of both parties. CLIENTS. Our yellow page clients generally determine the content of their advertising programs on a centralized basis. Placement of the advertising, however, requires an extensive local selling and quality control effort because many of our clients are franchisors or manufacturers who are dependent upon franchisees or independent dealers for distribution. The participation of franchisees and dealers in the yellow page program is discretionary and must be solicited at the local level. As an example of the scale of this task, in 1999, we visited or had contact with over half a million individual store locations. We have a yellow page sales, marketing and customer service staff of approximately 850 people to implement this local effort. We believe the size and breadth of this staff, its local client relationships and its databases of client branch locations, franchisors and dealers provide us with a strong competitive advantage in executing the yellow page programs of existing clients. We believe these resources are critical in marketing our services to potential new clients and in marketing and executing our Interactive-based service offerings. SALES AND MARKETING At December 31, 1999, we had more than 5,100 employees focused on our sales, marketing and customer service efforts worldwide. Our sales, marketing and customer service staff is divided into two groups: (i) new business generation (approximately 400 employees) and (ii) existing client relationship maintenance and improvement (approximately 4,700 employees). Within each group, we maintain separate sales and marketing staffs for our Interactive business, Recruitment Advertising business and Yellow Page business. In addition to specializing by product, each group is accountable for, and incentivized to, cross sell our other products. Our Interactive sales staff has targeted our recruitment advertising and yellow page clients to capitalize on the additional services that our Interactive products can cost effectively provide to such clients. In addition to pursuing cross-selling opportunities within our existing client base, each product sales force also designs targeted selling campaigns for potential new clients. We assign a 43 marketing manager to our clients in order to work closely with the client to develop and design the appropriate marketing and advertising campaign. Our customer service representative works closely with the marketing manager and the client to implement the marketing and advertising campaign, evaluate the effectiveness of the campaign and monitor client satisfaction levels. At December 31, 1999, we had 95 sales, marketing and customer service offices located in the United States and 137 offices in the rest of the world. We also maintained relationships with 7 international recruitment advertising agencies throughout the world, further enhancing our ability to reach qualified job candidates. PROPERTIES Substantially all of our offices are located in leased premises. Our principal office is located at 622 Third Avenue, New York, New York, where along with the New York Executive Search and Selection & Temporary Contracting Divisions, we occupy approximately 104,000 square feet of space under a lease expiring in July 2015. Monthly payments under the lease currently are approximately $416,000 and escalate during the term of the lease. We also have leases covering local offices throughout the United States and in the foreign countries where we have operations. All leased space is considered to be adequate for the operation of our business, and no difficulties are foreseen in meeting any future space requirements. CLIENTS At December 31, 1999, we had more than 31,000 clients, including more than 90 of the Fortune 100 companies and more than 480 of the Fortune 500 companies. Our clients include: The Allstate Corporation, AT&T Corp., CVS Corporation, Ford Motor Company, GTE Corporation, Hewlett-Packard Company, The Home Depot, Inc., MCI Worldcom, Inc., Merck & Co., Inc., Mobil Corporation, Morgan Stanley Dean Witter, Motorola, Inc., Sears, Roebuck and Co., Sprint Corporation, and United Parcel Service, Inc. No one client accounts for more than 5% of our total annual commissions and fees. COMPETITION The markets for our services and products are highly competitive and are characterized by pressure to reduce prices, incorporate new capabilities and technologies, and accelerate job completion schedules. We face competition from a number of sources. These sources include national and regional advertising agencies, media companies, as well as specialized and integrated marketing communication firms. Many advertising agencies and media companies have started to either internally develop or acquire new media capabilities. New boutique businesses that provide integrated or specialized services (such as advertising services or website design) and are technologically proficient, especially in the new media arena, are also competing with us. Many of our competitors or potential competitors have long operating histories, and some have greater financial, management, technological, development, sales, marketing and other resources than do we. In addition, our ability to maintain our existing clients and generate new clients depends to a significant degree on the quality of our services, pricing and our reputation among our clients and potential clients. INTELLECTUAL PROPERTY Our success and ability to compete is dependent in part on the protection of our original content for the Internet and on the goodwill associated with our trademarks, trade names, service marks and other proprietary rights. We rely on copyright laws to protect the original content that we develop for the 44 Internet. In addition, we rely on Federal trademark laws to provide additional protection for the appearance of our Internet sites. A substantial amount of uncertainty exists concerning the application of copyright laws to the Internet, and there can be no assurance that existing laws will provide adequate protection for our original content. In addition, because copyright laws do not prohibit independent development of similar content, there can be no assurance that copyright laws will provide any competitive advantage to us. We also assert common law protection on certain names and marks that we have used in connection with our business activities. We rely on trade secret and copyright laws to protect the proprietary technologies that we have developed to manage and improve our Internet sites and advertising services, but there can be no assurance that such laws will provide sufficient protection to us, that others will not develop technologies that are similar or superior to ours, or that third parties will not copy or otherwise obtain and use our technologies without authorization. We have filed patent applications with respect to certain of our software systems, methods and related technologies, but there can be no assurance that such applications will be granted or that any future patents will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage. In addition, we rely on certain technology licensed from third parties, and may be required to license additional technology in the future, for use in managing our Internet sites and providing related services to users and advertising customers. Our ability to generate fees from Internet commerce may also depend on data encryption and authentication technologies that we may be required to license from third parties. There can be no assurance that these third party technology licenses will be available or will continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these technology licenses could have a material adverse effect on our business, financial condition and operating results. Policing unauthorized use of our proprietary technology and other intellectual property rights could entail significant expense and could be difficult or impossible, particularly given the global nature of the Internet and the fact that the laws of other countries may afford us little or no effective protection of our intellectual property. In addition, there can be no assurance that third parties will not bring claims of copyright or trademark infringement against us or claim that our use of certain technologies violates a patent. We anticipate an increase in patent infringement claims involving Internet-related technologies as the number of products and competitors in this market grows and as related patents are issued. Further, there can be no assurance that third parties will not claim that we have misappropriated their creative ideas or formats or otherwise infringed upon their proprietary rights in connection with our Internet content. Any claims of infringement, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies or methods, any of which could have a material adverse effect on our business, financial condition or operating results. GOVERNMENT REGULATION As an advertising agency which creates and places print and Internet advertisements, we are subject to Sections 5 and 12 of the Federal Trade Commission Act (the "FTC Act") which regulate advertising in all media, including the Internet, and require advertisers and advertising agencies to have substantiation for advertising claims before disseminating advertisements. The FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair advertising, and grants the Federal Trade Commission ("FTC") enforcement powers to impose and seek civil penalties, consumer redress, injunctive relief and other remedies upon advertisers and advertising agencies which disseminate prohibited advertisements. Advertising agencies are subject to liability under the FTC Act if the agency actively participated in creating the advertisement, and knew or had reason to know that the advertising was false or deceptive. 45 In the event that any advertising created by us was found to be false, deceptive or misleading, the FTC Act could potentially subject us to liability. The fact that the FTC has recently brought several actions charging deceptive advertising via the Internet, and is actively seeking new cases involving advertising via the Internet, indicates that the FTC Act could pose a somewhat higher risk of liability to the advertising distributed via the Internet. The FTC has never brought any actions against us. There can be no assurance that other current or new government laws and regulations, or the application of existing laws and regulations, will not subject us to significant liabilities, significantly dampen growth in Internet usage, prevent us from offering certain Internet content or services or otherwise cause a material adverse effect on our business, financial condition or operating results. EMPLOYEES At December 31, 1999, we employed approximately 6,400 people, of whom approximately 3,300 were client services personnel, approximately 400 were sales and marketing personnel, approximately 1,100 were Executive Search and Selection and Temporary Contracting personnel and approximately 300 were creative and graphics personnel. The remainder of our personnel are information systems, financial and administrative personnel. Our employees are not represented by a labor union or a collective bargaining agreement. We regard our employee relations as generally excellent. COMPANY HISTORY We are the successor to the businesses formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries ("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief executive officer of which was Andrew J. McKelvey. On December 9, 1996, Old TMP merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey Enterprises, Inc. and McKelvey Enterprises, Inc. then merged into Telephone Marketing Programs Incorporated. Such mergers are collectively referred to as the "1996 Mergers." In addition, Mr. McKelvey sold or contributed his interest in five other entities to the Company. Pursuant to the 1996 Mergers, Telephone Marketing Programs Incorporated changed its name to TMP Worldwide Inc. Effective February 29, 2000 a 2-for-1 stock split in the form of a stock dividend was paid. All share and per share amounts included herein have been retroactively restated to give effect to the stock split. 46 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL The executive officers, directors and key personnel of the Company are as follows:
NAME AGE POSITION - ---- -------- -------- Andrew J. McKelvey.......... 65 Chairman of the Board, CEO and Director Thomas G. Collison.......... 60 Vice Chairman and Secretary James J. Treacy............. 42 Chief Operating Officer, Executive Vice President and Director Paul M. Camara.............. 52 Executive Vice President--Creative/Sales/Marketing Jeffrey C. Taylor........... 39 Chief Executive Officer--TMP Interactive Andrew R. Banks............. 48 CEO--Selection and Temporary Contracting Peter Dolphin............... 53 CEO--Recruitment Advertising Stuart J. McKelvey.......... 33 CEO--Yellow Page Advertising Steven B. Potter............ 45 CEO--Executive Search George R. Eisele............ 64 Executive Vice President of TMP Worldwide Direct and Director Bart W. Catalane............ 43 Senior Vice President and Chief Financial Officer Myron F. Olesnyckyj......... 39 Vice President--General Counsel Michael Kaufman............. 54 Director John Swann.................. 63 Director Ronald J. Kramer............ 41 Director
Andrew J. McKelvey founded the Company in 1967, and has served as Chairman of the Board and CEO since that time. Mr. McKelvey has a B.A. from Westminster College. Mr. McKelvey was a member of the Board of Directors of the Yellow Page Publishers Association and the Association of Directory Marketing from 1994 through September 1996. Mr. McKelvey is the father of Stuart J. McKelvey. Thomas G. Collison joined the Company in February 1977 as Controller. Subsequently, he was named Vice President--Finance; Senior Vice President; Executive Vice President and Chief Financial Officer and, in March 1996, Vice Chairman. Mr. Collison received a B.S. from Fordham University. James J. Treacy joined the Company in June 1994 as chief executive officer of the Recruitment Advertising Division. In April 1996, Mr. Treacy was named Executive Vice President--Finance and Strategy. In February 1998, Mr. Treacy, in addition to his then current position, was named to the position of Chief Operating Officer. In September, 1998, Mr. Treacy was named a director. Prior to joining the Company, Mr. Treacy was Senior Vice President--Western Hemisphere Treasurer for the WPP Group USA, Inc. Prior thereto, Mr. Treacy was a corporate officer of the Ogilvy Group Inc. Mr. Treacy received a B.B.A from Siena College and an M.B.A. from St. John's University. Paul M. Camara joined the Company in February 1970. Mr. Camara was elected as a Vice President of the Company in 1978 and as a Senior Vice President in 1987. He was named to his current position in April 1996. Mr. Camara received a B.A. from the University of Massachusetts--Dartmouth. Jeffrey C. Taylor joined the Company in November 1995. Mr. Taylor was founder and president of Adion, Inc., a recruitment advertising firm, from May 1989 until its purchase by the Company in November 1995. Mr. Taylor founded The Monster Board-SM- in April 1994. He attended the University of Massachusetts. Mr. Taylor graduated from the Executive M.B.A. (OPM) program at the Harvard Business School in August 1999. 47 Andrew R. Banks joined the Company in July 1999 at his current position following the Company's acquisition of Morgan & Banks Limited ("M&B"). From 1985 until February 1999, Mr. Banks was Joint Managing Director of M&B, a recruitment agency headquartered in Australia. Peter Dolphin joined the Company in January 1996 as Chairman of the Company's U.K. operations. Mr. Dolphin was one of the three founding partners of Moxon, Dolphin & Kerby, a London-based recruitment advertising agency founded in 1976, where he was a Director of the firm until its purchase by the Company in January 1996. In January 1997, Mr. Dolphin was appointed as the Managing Director of the Company's European operations and in July 1999 to his current position. He studied at the City of London University, where he graduated with a Business Studies qualification. Stuart J. McKelvey joined Monster.com-SM- as a project manager in March 1996 and became a senior project manager in October 1996. He was named to his current position in March 1998. Mr. McKelvey holds a B.A. from Stetson University. Stuart J. McKelvey is the son of Andrew J. McKelvey. Steven B. Potter joined the Company in October 1999 at his current position upon the Company's merger with Highland Search Group L.L.C. ("Highland"). From August 1995 until October 1999, Mr. Potter was Managing Partner and co-founder of Highland, an executive search boutique specializing in financial services. Prior to that, Mr. Potter spent 14 years with Russel Reynolds Associates, Inc., where he most recently headed the global banking and merchant banking practices and, beginning in 1992, served as a member of the Executive Committee. Mr. Potter is a 1977 graduate of Yale University. George R. Eisele joined the Company in 1976, and has been Executive Vice President of TMP Worlwide Direct, the Company's Yellow Page Advertising Division, since 1989, and a director of the Company since September 1987. Bart W. Catalane joined the Company in June 1999 as Senior Vice President and Chief Financial Officer. Prior to joining the Company, from January 1999 to May 1999, Mr. Catalane was Executive Vice President and Chief Financial Officer of ABC's Broadcasting Division, a unit of The Walt Disney Company. Prior to that, Mr. Catalane was Executive Vice President and Chief Financial Officer of the ABC Radio Division from June 1996 to December 1998 and Executive Vice President of the ABC Radio Networks from August 1989 to May 1996. Mr. Catalane is a 1978 graduate of Fairfield University in Connecticut and earned an M.B.A. from Babson College in Wellesley, Massachusetts in 1980. Myron F. Olesnyckyj joined the Company in June 1994. From September 1986 through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P. and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown University's School of Foreign Service and a J.D. from the University of Pennsylvania Law School. Michael Kaufman has been a director of the Company since October 1997. Mr. Kaufman is President of SBC/Prodigy Transition. Mr. Kaufman previously served as President and CEO of Pacific Bell's Consumer's Market Group. Prior thereto, Mr. Kaufman was the President and CEO of Pacific Bell Communications, a subsidiary of SBC Communications Inc., and from 1993 through April 1997 he was the regional president for the Central and West Texas market area of Southwestern Bell Telephone. Mr. Kaufman holds a B.A. and an M.B.A. from the University of Wisconsin. John Swann has been a director of the Company since September 1996. In 1995, Mr. Swann founded Cactus Digital Imaging Systems, Ltd., Canada's largest supplier of electronically produced large format color prints. Ronald J. Kramer has been a director of the Company since February 2000. Mr. Kramer has been a managing director of Wasserstein Perella & Co., Inc. since July 1999. Prior thereto, Mr. Kramer was the Chairman and CEO of Ladenburg Thalmann Group Inc. and had been employed there for more than the last five years. Mr. Kramer is also a director of Griffon Corporation, Lakes Gaming and New Valley Corporation. 48 The Board of Directors has a Compensation Committee charged with recommending to the Board the compensation for the Company's executives and administering the Company's stock option and benefit plans. The Compensation Committee is currently composed of Messrs. Kramer and Kaufman. The Board of Directors also has an Audit Committee charged with recommending to the Board the appointment of independent auditors of the Company, as well as discussing and reviewing, with the independent auditors, the scope of the annual audit and results thereof. The Audit Committee is currently composed of Messrs. Kramer and Kaufman. The Board of Directors also has a Strategy Committee charged with recommending to the Board strategic plans. The Strategy Committee is currently composed of Messrs. Kramer and Kaufman. Finally, the Board of Directors has an Executive Committee which is empowered to act on behalf of the whole Board. The Executive Committee is currently composed of Messrs. McKelvey and Treacy. DIRECTOR COMPENSATION Directors who are full time employees of the Company receive no additional compensation for their services as a director. Each of the Company's non-employee directors receives $15,000 per year for services rendered as a director, plus a per meeting fee of $5,000 for each meeting of the board of directors or a committee of the board of directors attended in person after the fifth such meeting attended in person, plus reimbursement of expenses incurred in connection with his or her duties as director. The Company has adopted the 1996 Stock Option Plan for Non-Employee Directors (the "Directors' Plan"), pursuant to which options to acquire a maximum aggregate of 360,000 shares of Common Stock may be granted to non-employee directors. Pursuant to the Directors' Plan, each of Messrs. Kaufman and Swann, its non-employee directors, was granted an option to purchase 22,500 shares of Common Stock at a purchase price per share equal to the fair market value of the Common Stock on the date of such director's election to the Board of Directors ($11.81 in the case of Mr. Kaufman and $7.00 in the case of Mr. Swann). The options have a ten-year term and become exercisable as determined by the Compensation Committee. The options may be exercised by payment in cash, check or shares of Common Stock. Pursuant to the 1999 Plan, each new non-employee director of the Company will be automatically granted an option to purchase 22,500 shares of Common Stock upon his or her commencement of service as a non-employee director. Accordingly, Mr. Kramer received such option in February 2000, at an exercise price equal to the fair market value of the Common Stock on the date of grant. In addition, each non-employee director of the Company will automatically be granted an option to purchase 5,000 shares of Common Stock under the 1999 Plan on the day following each Annual Meeting of Stockholders that occurs at least one year after the first anniversary of the date he or she first became a non-employee director. Automatic option grants will have a ten-year term and an exercise price equal to the fair market value of the Common Stock on the date of grant. Options granted to non-employee directors upon their commencement of service will be 50% vested on the date of grant and will generally become fully vested on the first anniversary of the date of grant. Options granted to non-employee directors on an annual basis will generally become 50% vested on each of the first two anniversaries of the date of grant. The Company will no longer make grants under the Directors' Plan. EXECUTIVE COMPENSATION The following table sets forth information concerning all cash and non-cash compensation paid or to be paid by the Company as well as certain other compensation awarded, earned by and paid, during the fiscal years indicated, to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company for such periods in all capacities in which they served. 49 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------------------- --------------------------- OTHER SECURITIES ALL ANNUAL UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION - -------------------------------- -------- ---------- -------- ------------ ------------ ------------ Andrew J. McKelvey,............. 1999 $ 833,364 -- $21,874(1) -- -- Chairman of the Board and CEO 1998 1,500,000 -- 21,395(1) -- -- 1997 1,500,031 -- 23,111(1) -- -- James J. Treacy,................ 1999 329,576 $ 35,000 3,200(2) 400,000 -- Chief Operating Officer and 1998 231,100 35,000 3,200(2) 150,000 -- Executive Vice President-- 1997 211,531 50,000 3,200(2) 143,332 -- Finance and Strategy Jeffrey C. Taylor,.............. 1999 400,000 112,500 67,375(3) 2,000,300 -- CEO of TMP Interactive 1998 401,314 50,000 20,000(3) 200,000 -- 1997 217,196 100,000 20,000(3) 82,250 -- Paul M. Camara,................. 1999 359,148 -- 3,200(2) 500,000 -- Executive Vice President-- 1998 225,031 -- 3,200(2) 200,000 -- Creative/Sales/Marketing 1997 225,030 52,680 3,200(2) 48,500 -- Thomas G. Collison,............. 1999 207,031 -- 3,200(2) 60,000 -- Vice Chairman and Secretary 1998 207,031 -- 3,200(2) 10,000 -- 1997 207,031 50,320 3,200(2) 37,668 --
- ------------------------ (1) $3,200 represents matching contributions made to the Company's 401(k) Plan in each of 1999, 1998 and 1997 and $18,674, $18,195 and $19,911 represents lease payments for an automobile in 1999, 1998 and 1997, respectively. (2) Represents matching contributions made to the Company's 401(k) Plan. (3) $3,200 represents matching contributions made to the Company's 401(k) Plan in each of 1999, 1998 and 1997 and $16,800 represents lease payments for an automobile in each of 1999, 1998 and 1997 and $47,375 represents Mr. Taylor's 1999 commission compensation. 50 STOCK OPTIONS The following table sets forth certain summary information concerning individual grants of stock options made during the year ended December 31, 1999 to each of the Company's executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS ----------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM(2) OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------------- NAME GRANTED IN 1999(1) SHARE DATE 5% 10% - ---- ---------- ---------- --------- ---------- ------------- ------------- Andrew J. McKelvey......... -- -- -- -- -- -- James J. Treacy............ 400,000 5.7% $22.063 08/05/09 $37,435,607 $64,837,086 Jeffrey C. Taylor.......... 2,000,300 28.7% (3) (3) 184,385,482 321,414,426 Paul M. Camara............. 500,000 7.2% $22.063 08/05/09 46,794,509 81,046,357 Thomas G. Collison......... 60,000 0.9% (4) (4) 5,214,091 9,324,340
- ------------------------ (1) In December 1999, the Company's Board of Directors granted the indicated options. The indicated percentages are based on 6,942,880 options granted in 1999 under the 1999 Long Term Incentive Plan and 30,000 options granted in April 1999 under the 1996 Stock Option Plan and do not include 3,405,100 options which are a result of the conversion of options of companies acquired by TMP. (2) These amounts represent assumed rates of appreciation in the price of the Company's Common Stock during the term of the option in accordance with rates specified in applicable federal securities regulations. Actual gains, if any, or stock option exercises, will depend on the future price of the Common Stock and overall stock market conditions. The Company's stock price, as reported by the Nasdaq National Market on December 31, 1999, was $71.00 per share. (3) Mr. Taylor was granted options to purchase 2,000,000 shares of the Company's Common Stock on July 30, 1999 at an exercise price per share of $23.47. These options expire on July 30, 2009. Mr. Taylor was also granted options to purchase 300 shares of the Company's Common Stock on December 1, 1999 at an exercise price per share of $47.50. These options expire on December 1, 2009. (4) Mr. Collison was granted options to purchase 50,000 shares of the Company's Common Stock on October 18, 1999 at a per share exercise price of $25.00, these options expire on October 18, 2009. Mr. Collison was granted options to purchase 10,000 shares of the Company's Common Stock on December 1, 1999 at a per share exercise price of $47.50, these options expire on December 1, 2009. The following table sets forth at December 31, 1999 the number of securities underlying unexercised options and the value of unexercised options held by each of the executive officers named in the Summary Compensation Table:
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT YEAR END OPTIONS AT YEAR END(1) --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Andrew J. McKelvey......................... -- -- -- -- James J. Treacy............................ 175,832 517,500 $11,084,341 $ 26,368,281 Jeffrey C. Taylor.......................... 254,186 2,130,564 15,547,477 102,908,601 Paul M. Camara............................. 93,000 655,500 5,648,469 33,452,375 Thomas G. Collison......................... 34,168 72,500 2,183,159 3,284,200
- ------------------------ (1) Computed based upon the difference between the Stock Option exercise price and $71.00, the closing price of the Company's Common Stock on December 31, 1999. 51 EMPLOYMENT AGREEMENTS The Company has entered into an amended employment agreement with Andrew J. McKelvey, effective as of November 15, 1996, for a term ending on November 14, 2001. The agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 90 days prior to the expiration of the then current term. The agreement also provides that Mr. McKelvey will serve as Chairman of the Board and CEO of the Company and will be nominated for election as a director during all periods of his employment. Under the agreement, Mr. McKelvey is entitled to a base salary of $1,500,000 per year and until November 1998, when his agreement was amended, was entitled to mandatory quarterly bonuses of $375,000. Mr. McKelvey waived such bonuses. Mr. McKelvey was paid $833,364 in 1999. On May 1, 1999, the Company and Mr. McKelvey further amended the employment agreement to provide for an annual base salary of $500,000 and an annual bonus, based on exceeding earnings per share targets, not to exceed $500,000. Under the agreement, Mr. McKelvey may terminate his employment upon 90 days' prior written notice for any reason. The agreement also provides that in the event Mr. McKelvey's employment is terminated by the Company prior to its expiration for reasons other than for "cause," the Company shall pay Mr. McKelvey his base salary for the remaining term of the agreement at the times it would have been payable had he remained employed. The agreement further provides that in the event of Mr. McKelvey's voluntary resignation, termination of his employment by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary for a period of 180 days after any such termination at the times it would have been payable had he remained employed. The agreement also contains confidentiality provisions, whereby Mr. McKelvey agrees not to disclose any confidential information regarding the Company and its affiliates. The Company has entered into a second amended employment agreement with James J. Treacy, effective as of October 1, 1999, for an indefinite term on an at-will basis. The agreement provides that either party may terminate the agreement for any reason. Pursuant to the agreement, Mr. Treacy will serve as Chief Operating Officer and Executive Vice President, Finance and Strategy of the Company for a base salary in 1999 of $475,000 and an annual bonus equivalent to a percentage, ranging from 25% to 50%, of his salary if certain goals mutually agreed upon by Mr. Treacy and the Chief Executive Officer are attained by Mr. Treacy and/or the Company. The agreement provides that in the event Mr. Treacy is terminated for "cause" or voluntarily resigns, he shall not be entitled to any severance, and in the event Mr. Treacy is terminated by reason of his death, disability or for other reasons, he or his estate shall be entitled to his base salary and minimum annual bonus for a period of one year after the effective date of his termination payable at the times they would have been payable had he remained employed, less income earned by him from the performance of any personal services during such period. The agreement provides that in the event Mr. Treacy's employment is terminated by death all of his options shall become fully vested and exercisable for the shorter of one year or the balance of the term provided in the stock option agreement. The agreement contains confidentiality provisions, whereby Mr. Treacy agrees not to disclose any confidential information regarding the Company and its affiliates, as well as nonsolicitation provisions which prohibit Mr. Treacy from soliciting any active or prospective accounts of the Company or its affiliates for a period of one year following termination. The Company's subsidiary, TMP Interactive Inc., entered into a second amended and restated employment agreement with Jeffrey C. Taylor, effective as of August 28, 1998, for a term ending December 31, 2001. That agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 60 days prior to its expiration. The agreement provides that Mr. Taylor will serve as Chief Executive Officer of TMP Interactive Inc. and currently provides Mr. Taylor with a base salary of $400,000 per year and annual bonuses of at least $100,000 per year based on formulae mutually agreed to by the parties. Under the agreement, Mr. Taylor may terminate his employment upon written notice for certain material alterations in his responsibilities, duties, and authorities or upon 90 days' prior written notice for any reason. The agreement provides that in the event 52 Mr. Taylor's employment is terminated by TMP Interactive Inc. prior to its expiration for reasons other than cause or is terminated by Mr. Taylor for certain material alterations in his responsibilities, duties and authorities, TMP Interactive Inc. shall pay Mr. Taylor his base salary and his annual bonus from the preceding year or, if not yet issued a minimum of $100,000 and all of Mr. Taylor's options to purchase TMP stock shall become fully vested and Mr. Taylor and his immediate family shall be provided with specified insurance for a period of one year. The agreement also provides that in the event of Mr. Taylor's voluntary resignation, termination of his employment by TMP Interactive Inc. for "cause" or non-renewal of the agreement, Mr. Taylor shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary and certain other benefits for a period of 90 days at the times they would have been payable had he remained employed. The agreement contains confidentiality provisions, whereby Mr. Taylor agrees not to disclose any confidential information regarding TMP Interactive Inc. and its affiliates, as well as non-competition provisions. The non-competition covenants generally survive the termination or expiration of Mr. Taylor's employment for two years, provided that in certain circumstances TMP Interactive Inc. must pay Mr. Taylor one-half of his base salary, one-half of his $75,000 minimum annual bonus, medical benefits and an additional payment of $19,792 per month for the duration of the non-competition obligation. Mr. Taylor's agreement also prohibits him from soliciting or servicing customers or prospective customers of TMP Interactive Inc. and its affiliates for a period of two years following the termination or expiration of his employment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION On September 16, 1996, the Company's Board of Directors established a Compensation Committee, which currently consists of Messrs. Kramer and Kaufman to recommend compensation for the Company's executives and to administer the Company's stock option and other benefit plans. Prior to September 16, 1996, all matters concerning executive officer compensation were addressed by the entire Board of Directors. In February 2000 and in October 1997, respectively, Mr. Kramer and Mr. Kaufman received stock options to purchase 22,500 shares and 22,500 shares of Common Stock, respectively, at an exercise price of $63.07 per share and $11.81 per share, respectively, equal to the fair market value on the date of grant. CERTAIN TRANSACTIONS Messrs. McKelvey, Eisele, Camara and Collison have approximately 69.4%, 10%, 5% and 5% interests, respectively, in International Drive, L.P., the lessor of the Company's 48,000 square foot office in Mt. Olive, New Jersey. This lease runs through December 2004 and the Company's rent for this space is $46,200 per month. Mr. McKelvey has a 49% interest in TPH & AJM, a partnership, the lessor of the office occupied by Telephone Directory Advertising, Inc., an entity in which the Company has a 48.92% interest. This lease runs through June 2000 and Telephone Directory Advertising, Inc.'s rent for this space is currently $9,286 per month. On January 1, 1996, TMP Worldwide Communications Inc., the Company's Canadian recruitment advertising subsidiary, entered into a management agreement with TMPW Canada Inc., a recruitment advertising company owned by Mr. Swann, pursuant to which TMP Worldwide Communications Inc. provides management services in exchange for a percentage of the billings of TMPW Canada Inc. which is agreed to from time to time. The agreement has no stated term but is terminable by either party on 30 days' notice. For the years ended December 31, 1999, 1998 and 1997, TMPW Canada Inc. paid approximately $396,000, $537,000, and $294,000, respectively to TMP Worldwide Communications Inc. for management services. Beginning in June 1999, the Company periodically used the service of an aircraft from a company owned by Mr. McKelvey, and in connection therewith, $215,000 was paid through December 31, 1999. The Company believes that all transactions with the aforementioned directors and executive officers were made on terms no less favorable to the Company than would have been obtained from unaffiliated third parties and were approved or ratified by the entire Board, including disinterested directors. 53 PRINCIPAL STOCKHOLDERS The following table sets forth information as of August 31, 2000 (except as otherwise noted in the footnotes), regarding the beneficial ownership determined in accordance with the rules of the Securities and Exchange Commission, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities, of the Company's Common Stock by: (i) each person known by the Company to own beneficially more than five percent (5%) of the Company's outstanding Common Stock; (ii) each director of the Company; (iii) each executive officer named in the Summary Compensation Table (see "Management--Executive Compensation"); and (iv) all directors and executive officers of the Company as a group. Except as otherwise specified, the named beneficial owner has the sole voting and investment power over the shares listed.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF PERCENTAGE OF COMMON STOCK/CLASS B PERCENTAGE OF CLASS B NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK - ------------------------ ----------------------- ------------- ------------- Andrew J. McKelvey(1)......................... 26,479,663 27.3% 100% Thomas G. Collison(2)......................... 245,988 * -- James J. Treacy(3)............................ 704,544 * -- Jeffrey C. Taylor(4).......................... 459,911 * -- Paul M. Camara(5)............................. 294,190 * -- George R. Eisele(6)........................... 153,860 * -- Ronald J. Kramer(7)........................... 5,625 * -- Michael Kaufman(8)............................ 25,000 * -- John Swann(9)................................. 24,240 * -- All directors and executive officers as a group (11 persons)(10)...................... 28,428,877 29.3% 100% Putnam Investments, Inc.(11).................. 5,644,512 5.8% -- Janus Capital Corporation(12)................. 9,256,870 9.5% --
- ------------------------ * Less than 1% (1) Includes 4,762,000 shares of Class B Common Stock which are convertible, on a share for share basis, into Common Stock. Each share of Class B Common Stock has ten votes per share. Also includes 4,115 shares of Common Stock owned by Mr. McKelvey's wife, 200 shares of Common Stock owned by Mr. McKelvey's daughter and 902 shares of Common Stock held by TMP's 401(k) Plan. Mr. McKelvey disclaims beneficial ownership of the shares owned by his wife. (2) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 59,168 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (3) Includes 600 shares of Common Stock owned by Mr. Treacy's daughters, 902 shares of Common Stock held by TMP's 401(k) Plan, and 175,832 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (4) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 281,341 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (5) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 93,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (6) Includes 762 shares of Common Stock held by TMP's 401(k) Plan and 1,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (7) Consists of 5,625 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. 54 (8) Consists of 25,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (9) Consists of 24,240 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of August 31, 2000. (10) Includes 4,762,000 shares of Class B Common Stock, which are convertible on a share for share basis, into Common Stock, 5,272 shares held by TMP's 401(k) plan and 22,970,943 shares of Common Stock beneficially owned. Also includes 690,662 shares subject to options which are exercisable within 60 days of August 31, 2000. (11) Putnam Investments, Inc. may be deemed to beneficially own 5,644,512 shares of our Common Stock which are held of record by clients of Putnam Investments, Inc. Putnam Investments, Inc. does not have sole voting or dispositive power with respect to any of the shares and has shared voting power with respect to 117,300 shares and shared dispositive power with respect to 5,644,512 shares. Information with respect to Putnam Investments, Inc. has been derived from their Schedule 13G dated February 18, 2000 as filed with the Securities and Exchange Commission. (12) Janus Capital Corporation may be deemed to beneficially own 9,256,870 shares of our Common Stock which are held of record by clients of Janus Capital Corporation. Janus Capital Corporation does not have sole voting or dispositive power with respect to any of the shares and has shared voting power with respect to 9,256,870 shares and shared dispositive power with respect to 9,256,870 shares. Information with respect to Janus Capital Corporation has been derived from their Schedule 13G dated January 11, 2000 as filed with the Securities and Exchange Commission. 55 SELLING STOCKHOLDERS The following table sets forth information as of September 14, 2000, except as otherwise noted, with respect to the number of shares of Common Stock beneficially owned or to be acquired by each of the selling stockholders and assumes that all shares subject to vesting schedules and conditions have vested. The shares offered hereby were acquired by the selling stockholders from TMP pursuant to the acquisition of or merger with companies owned by such selling stockholders or pursuant to stock bonus arrangements entered into in connection therewith. No selling stockholder owns more than one percent of the outstanding Common Stock.
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ 704803 Ontario Limited........................ 49,428 49,428 0 1064066 Ontario Limited....................... 9,330 9,330 0 1132766 Ontario Inc........................... 149 149 0 1220669 Ontario Limited....................... 100,679 100,679 0 1223402 Ontario Inc........................... 154 154 0 1365074 Ontario Inc........................... 4,929 4,929 0 86 Burchell Trust (Mike)...................... 50 50 0 86 Burschell Trust (Ed Jr.)................... 50 50 0 1201 Venture Investments...................... 166 166 0 Mark David Abbott............................. 244 85 159 ABS Capital Partners II, L.P.................. 103,429 103,429 0 Brad Ackerman................................. 1,363 1,022 341 Gordon Arthur Ross Adam....................... 59,555 59,555 0 Jurgen Adler.................................. 13,810 13,810 0 Russell B. Aldrich............................ 1,664 1,664 0 Alex. Brown Exchange Fund, L.P. .............. 4,011 4,011 0 Anita M. Ames................................. 14 5 9 Kristi Anderson............................... 2,812 2,812 0 James P. Angelini............................. 2,862 2,147 715 Arab Investment and Management................ 4,011 4,011 0 Arthur Anton Trust............................ 3,812 2,109 1,703 Arts Shareholders Limited Partnership......... 301 301 0 Rick B. Aspros................................ 273 205 68 Paul Atkinson................................. 59,555 59,555 0 AV Williams Trust FBO Jennie.................. 201 201 0 AV Williams Trust............................. 201 201 0 John S. Baran................................. 409 182 227 Gregory H. Barnhill........................... 41 41 0 Christopher H. Bartlett II.................... 60 60 0 Batza 1980 Trust.............................. 40 40 0 Michael Batza................................. 361 361 0 Kent T. Baum.................................. 41 41 0 Harris Berenholz.............................. 458 4 454 James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Daniel J. Byrnes................. 32,247 32,247 0 James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Kathryn L. Byrnes................ 32,247 32,247 0
56
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Kristin L. Byrnes................ 32,247 32,247 0 Bertrand Berullier............................ 13,080 13,080 0 Charles K. Blandin Foundation................. 100 100 0 Charles K. Blandin Residuary Trust............ 902 902 0 Robert S. Blank............................... 1,616 404 1,212 Boca Partners, LLC............................ 602 602 0 George B. Bolton.............................. 80 80 0 William P. Boume.............................. 41 41 0 Chris Bowen................................... 1,723 431 1,292 William B. Boyd............................... 41 41 0 Walter W. Brewster............................ 80 80 0 Briles & Fujii DMD, PC 401(k)................. 5,450 4,088 1,362 Christopher H.G. Brown........................ 12,630 12,630 0 Peggy L. Buchenroth........................... 2,272 2,272 0 Bunting Family II, LLC........................ 3,209 3,209 0 Matt Buonomano................................ 6,891 1,723 5,168 Edward Burchell............................... 201 201 0 Randall T. Byrnes............................. 5,480 5,480 0 Edward L. Cahill.............................. 60 60 0 California Public Employees'.................. 20,055 20,055 0 Jeffry Canin.................................. 101 101 0 Paul Canniff.................................. 504 504 0 Revocable Trust of Tadhg Canniffe and Bernadette Canniffe dated March 11, 1998.... 37,789 37,789 0 Capital Science Partners, Ltd................. 647 162 485 Michael J. Carney............................. 13,819 13,819 0 Cavan Consulting Limited...................... 12,227 12,227 0 Hillary Cecil................................. 1,616 404 1,212 Steven Chanin................................. 970 243 727 Ishmael Chawla................................ 3,185 796 2,389 Joe Childs.................................... 4,595 1,149 3,446 Hyundeok Chung................................ 1,247 312 935 Brett D. Clifford............................. 41 41 0 Paul J. Cohen................................. 954 715 239 Marco A. Coleman.............................. 273 205 68 Douglas S. Collat............................. 60 60 0 Commonwealth of Pennsylvania Public........... 16,043 16,043 0 David Concordia............................... 4,307 1,077 3,230 Robert F. Conroy.............................. 40 40 0 Robert Cook................................... 401 401 0 Cruttenden Roth Incorporated.................. 4,327 3,245 1,082 CSR Defined Benefit Pension Plan.............. 1,616 404 1,212 Clinton R. Daly............................... 40 40 0 William Dausch................................ 20 20 0 Mike B. Davey................................. 40 40 0 Paul Davis.................................... 163 163 0 Dr. Armin Deuter.............................. 5,280 5,280 0
57
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ Dinte Resources, Inc.......................... 172 43 129 Peter Dion.................................... 3,812 2,109 1,703 Eileen T. Donahue............................. 2,079 2,079 0 Jay C. Doraiswami and Valli K. Doraiswami, as Trustees of the Doraiswami Family Trust..... 29,754 29,754 0 Thomas U. Dudley II........................... 40 40 0 Jaymie A. Durnan.............................. 688 172 516 EDN Equities.................................. 1,003 1,003 0 Mary S. Emmerling and David E. Emmerling JTWROS...................................... 37 37 0 Enterprise International Holding Ltd., Inc. ....................................... 802 802 0 EPIC Relocation, LLC.......................... 5,450 4,088 1,362 Jonathan E. Farber............................ 241 241 0 Andrew Feller................................. 60 15 45 Barry Flamm................................... 862 216 646 Pamela Flores................................. 803 803 0 George R. Floyd............................... 40 40 0 Edward Foehl.................................. 627 470 157 Kenneth T. Folkman............................ 13,819 13,819 0 Fort Pond Bay Co., LLC........................ 27,247 20,435 6,812 Fox Ventures Inc. ............................ 12,104 12,104 0 Ivy T. Fradin................................. 40 40 0 Barbara Frank................................. 1,616 404 1,212 Marc J. Fratello.............................. 2,957 2,957 0 Bonnie Bershad Freundlich..................... 324 81 243 Laura Freundlich.............................. 324 81 243 James F. Freundlich........................... 55,877 13,969 41,908 Richard L. Freundlich......................... 5,854 39 5,815 William T. Freeman............................ 2,808 2,808 0 Jennie Ping Fu................................ 1,364 1,364 0 Peter Gadinas................................. 3,089 2,067 1,022 Andrew Gelina................................. 6,891 1,723 5,168 General Electric Capital Assurance Company.... 3,026 3,026 0 John D. Gentry................................ 1,616 404 1,212 Bethany George................................ 2,812 2,812 0 Bruna M. Giammarco Non resident Trust......... 57,680 57,680 0 John P. Giammarco, as Trustee of the Giammarco Irrevocable GST Trust dated March 26, 1998........................................ 14,601 14,601 0 Elaine S. Gilde............................... 1,600 400 1,200 Jack Gill..................................... 252 252 0 Margaret Gilmore.............................. 11,496 11,496 0 Susan Golob................................... 1,723 431 1,292 Steven Goode.................................. 970 243 727 Steve Goretti................................. 6,891 1,723 5,168 Gary J. Goulski............................... 200 70 130 Granite Assets LLC............................ 361 361 0 Granite Assets LLC "B"........................ 141 141 0 Robert C. Greco............................... 202 202 0 Jonathon E. Greenleaf......................... 364 127 237
58
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ Jeffrey A. Greiner as custodian for Carolyn Greiner under the Ohio Gifts to Minors Act......................................... 2,972 2,972 0 Jeffrey A. Greiner............................ 16,483 16,483 0 Susan Greiner................................. 2,972 2,972 0 Daniel Gross and Associates Pension Plan...... 2,263 566 1,697 Carl Grossman................................. 442 111 331 Grove Street Capital LLC...................... 3,143 3,143 0 Thomas W. Guard............................... 325 325 0 GVI, LLC...................................... 923 923 0 Richard T. Hale............................... 40 40 0 Richard E. Halperin........................... 2,294 574 1,720 Donald B. Hebb, Jr. .......................... 27 27 0 Hebb Family Limited Partnership............... 1,112 1,112 0 Richard H. Holden Jr. ........................ 60 60 0 Christopher L. Holter......................... 40 40 0 Thomas Holzchen............................... 13,810 13,810 0 Devora Hosseinof.............................. 508 508 0 Robert E. Howard IV........................... 60 60 0 Alan Michael Hughes........................... 19,591 19,591 0 Ideal Associates.............................. 401 401 0 John P. Imlay, Jr............................. 98 98 0 Imperial Credit Corp. ........................ 101 101 0 Inacom Corp................................... 2,285 2,285 0 Invemed Associates, Inc....................... 47,676 35,757 11,919 Michael Jaharis............................... 22,059 13,544 8,515 Francis J. Jamison, Jr. ...................... 40 40 0 Jeremy Jeach.................................. 504 504 0 JMI Investments 1992 LP....................... 2,005 2,005 0 Paul Johnson.................................. 1,818 1,818 0 Reinhard Junker............................... 5,280 5,280 0 Kadila Holdings, Inc.......................... 15,936 10,827 5,109 Howard T. Kamisky............................. 40 40 0 Douglas Kaplan................................ 33 8 25 Kenneth Karl Kelly III........................ 1,364 1,364 0 Peter Kelly................................... 48,401 48,401 0 Cristina H. Kepner............................ 4,490 3,241 1,249 Keswick Private Fund I, L.L.C. ............... 401 401 0 Robert S. Killerbrew, Jr. .................... 40 40 0 Jennie V. Kjos................................ 955 717 238 Dr. Thomas Kleine............................. 5,280 5,280 0 Lisa Knight................................... 4,862 4,862 0 Jeffrey Kolber................................ 1,364 1,364 0 Reinhard Kolvenbach........................... 13,810 13,810 0 David Kowalick................................ 370 370 0 Kranzlin Family LLC........................... 40 40 0 Dr. Gerhard Kratz............................. 5,280 5,280 0 Eric Krauss................................... 2,584 646 1,938 John A. Kryzanowski........................... 40 40 0
59
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ Revocable Trust of Ankesh Kumar and Abha Kumar dated April 19, 1998........................ 37,975 37,975 0 Steven Kyriakos............................... 8,117 6,088 2,029 Dean Kyriakos................................. 132,633 99,475 33,158 Landmark Co-Investment Partners, LP........... 86,500 64,875 21,625 Bruce Langone................................. 2,272 1,704 568 John A. Lechner............................... 40 40 0 John Peter Lee................................ 2,000 2,000 0 Linehan Foundation............................ 40 40 0 Linehan 1982 Trust............................ 60 60 0 Earl Linehan.................................. 716 716 0 Michael Linehan............................... 60 60 0 Lion Investments, L.P......................... 180,748 180,748 0 Lipitz Family L.P. ........................... 80 80 0 Tom Litle..................................... 8,614 2,154 6,460 Brent M. Lockwood............................. 40 40 0 Lornes B.V.................................... 51,906 51,906 0 Loyola College of Maryland.................... 2,056 2,056 0 Mark A. Ludwick............................... 244 85 159 Marcelo MacKinlay............................. 12,155 12,155 0 Frank G. Magdlen.............................. 545 409 136 Management Resources International Holding B.V......................................... 23,817 23,817 0 Suzanne Manzler............................... 200 70 130 Yvonne V. Marsh............................... 459 115 344 Stefan Martens................................ 13,810 13,810 0 Charles E. Mather IV.......................... 382 96 286 Anthony M. May................................ 60 60 0 Mayfair Management Services, S.A. ............ 802 802 0 Brian McCabe.................................. 2,725 2,044 681 James T. McGibbon............................. 156 42 114 James Mc Leod................................. 200 70 130 Juan Jose Pol Mendez.......................... 16,840 16,840 0 Lorna F. Meyer................................ 40 40 0 Lucinda Sandford Mezey........................ 40 40 0 Stephen R. Mickelberg......................... 1,616 404 1,212 Peggy J. Miller............................... 44,588 32,691 11,897 Stephen T. Mitchell........................... 40 40 0 Frank G. Moscow............................... 221 166 55 Rudolf Muller................................. 13,810 13,810 0 Kapil Nanda................................... 101 101 0 Norwest Bank Minnesota, N.A. ................. 402 402 0 Suzanne D. Olsen.............................. 818 614 204 James Z. O'Leary.............................. 221 166 55 Florencio Barranco Ortega..................... 39,338 39,338 0 John H. Park.................................. 1,090 818 272 Paulson Investment Co, Inc.................... 45,412 34,059 11,353 Charles LF Paulson............................ 909 682 227 Chester LF & Jacqueline Paulson............... 9,083 6,812 2,271 Erick JC Paulson.............................. 909 682 227
60
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ Stuart A. Peschka............................. 273 205 68 Harold W. Pote................................ 1,142 286 856 Michael J. Pratt and Jean V. Pratt, Joint Tenants..................................... 1,147 287 860 Margaret-Mary V. Preston...................... 40 40 0 Mike A. Pruett................................ 2,658 1,994 664 Thomas Reichwein.............................. 13,810 13,810 0 William F. Rienhoff IV........................ 40 40 0 Ulrich P. Reiter.............................. 32,884 32,884 0 Rhode Island Employees' Retirement System..... 2,005 2,005 0 Arnold Richman................................ 401 401 0 Allen Roberts................................. 33 8 25 Robert S. Rollo............................... 18,678 18,678 0 Robert Stone Rollo and Kimberlee Dockson Rollo TTEE UAO 6/8/90 (Restarted 5/20/97)......... 55,430 55,430 0 Rooster Investment Company LLC................ 3,232 808 2,424 Richard A. Rosee.............................. 80 80 0 Harold R. Ross................................ 100 100 0 William R. Rothe.............................. 40 40 0 John C. Rudder................................ 11,988 11,988 0 Dr. Christoph Rummel.......................... 13,810 13,810 0 Jeffrey G. Rupp............................... 40 40 0 S. Lawrence Rusoff............................ 647 162 485 Clint W. Sager II............................. 1,216 426 790 Pedro Garcia-Cano Salgado..................... 15,602 15,602 0 Timothy Sandborn.............................. 954 715 239 Alicia E. Santos.............................. 324 81 243 Gonzalo Santos................................ 52,936 13,234 39,702 Olivia Santos................................. 2,941 735 2,206 Steven E. Schaedel............................ 608 213 395 Sandra Schoem................................. 5,031 1,258 3,773 Claus Schulmeister............................ 13,810 13,810 0 Randy Schwartz................................ 1,182 1,182 0 Jill A. Shaw.................................. 40 40 0 Jason N. Sheh................................. 50 50 0 Bernard J. Sheinfeld.......................... 7,412 7,412 0 Adam Shelnut.................................. 1,338 468 870 Jennifer Shenbaum............................. 1,205 1,205 0 Isabelle M. Sherman........................... 334,044 114,315 219,729 Mark A. Sherman............................... 275,844 56,115 219,729 Silicon Valley Bancshares..................... 101 101 0 Smith Family Unitrust, L.P. No. 1............. 2,005 2,005 0 Baldwin Smith, Jr............................. 2,272 1,704 568 Raymond W. Smith.............................. 3,232 808 2,424 South Ferry #2, L.P. ......................... 2,005 2,005 0 John A. Spilman............................... 30 30 0 Dr. Dieter Spori.............................. 5,280 5,280 0 Stephens & Company............................ 252 252 0 William G. Stewart............................ 60 60 0 Mary Ellen Sutherland......................... 1,147 287 860
61
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) - ------------------- ------------------ ----------------- ------------------ Thomas W. Sutton.............................. 40 40 0 B. Scott Taylor............................... 112,633 79,475 33,158 Thomas L. Teague.............................. 4,543 3,407 1,136 Technology Gateway Partnership, LP............ 30,276 22,707 7,569 The Brentwood Group, Ltd...................... 49 36 13 The Samuel Lewis Green Trust.................. 236 59 177 George Thompson............................... 909 682 227 Jim Thornton.................................. 1,664 1,664 0 Timberline Venture Partners, LP............... 96,853 72,640 24,213 Richard E. Timbers............................ 22,814 22,814 0 William J. Tyne............................... 100 100 0 Daniel Valladares............................. 3,321 3,321 0 Leiven VanMarcke.............................. 647 162 485 VanRam Associates International N.V........... 73,414 73,414 0 Vantagepoint Venture Partners III, L.P. ...... 222 222 0 Vantagepoint Venture Partners (Q.) III, L.P. ....................................... 1,795 1,795 0 Joseph R. Vicente............................. 3,186 3,186 0 Mark Villilo.................................. 1,800 1,800 0 Peter Vlachos................................. 10,624 7,218 3,406 David Waage................................... 1,000 1,000 0 Walter F. Wagner.............................. 3,633 3,633 0 Frank L. Walters, Jr. ........................ 40 40 0 Timothy T. Weglicki........................... 157 157 0 Weglicki Trust--Class B....................... 52 52 0 Weglicki Trust--Class C....................... 254 254 0 Byron L. West................................. 18,359 18,359 0 Curt Whitehead................................ 6,891 1,723 5,168 Mark Whittington.............................. 147 147 0 Don Willis.................................... 6,891 1,723 5,168 Wolfson Equities.............................. 1,003 1,003 0 Caesar Wong................................... 273 205 68 Woodbank Capital.............................. 26 26 0 WS Investment Company 99A..................... 25 25 0 Yarmuth Dion, Inc............................. 18,247 11,435 6,812 David Croy Drysdale Young..................... 67,002 67,002 0 M.D. Young.................................... 252 252 0
- ------------------------ (1) Assumes that all shares offered by each selling stockholder are sold in this offering. 62 DESCRIPTION OF CAPITAL STOCK The Certificate of Incorporation of the Company provides the Company with the authority to issue 1,500,000,000 shares of Common Stock, 39,000,000 shares of Class B Common Stock, 200,000 shares of 10.5% Cumulative Preferred Stock and 800,000 shares of Preferred Stock. No shares of Preferred Stock are outstanding. The 10.5% Cumulative Preferred Stock was redeemed and no shares are outstanding. COMMON STOCK AND CLASS B COMMON STOCK DIVIDENDS Each share of Common Stock and Class B Common Stock is entitled to dividends if, as and when dividends may be declared by the Board of Directors of the Company and paid. Under the Delaware General Corporation Law, the Company may declare and pay dividends only out of its surplus, or in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding year. No dividends may be declared, however, if the capital of the Company has been diminished by depreciation, losses or otherwise to an amount less than the aggregate amount of capital represented by any issued and outstanding stock having a preference on distribution. Dividends must be paid on both the Common Stock and the Class B Common Stock at any time that dividends are paid on either. Any dividend so declared and payable in cash, capital stock of the Company (other than Common Stock or Class B Common Stock) or other property will be paid equally, share for share, on the Class B Common Stock and Common Stock. Dividends and distributions payable in shares of Class B Common Stock may be paid only on shares of Class B Common Stock, and dividends and distributions payable in shares of Common Stock may be paid only on shares of Common Stock. If a dividend or distribution payable in Common Stock is made on the Common Stock, the Company must also make a simultaneous dividend or distribution on the the Class B Common Stock. Pursuant to any such dividend or distribution, each share of Class B Common Stock will receive a number of shares of Class B Common Stock equal to the number of shares of Common Stock payable on each share of Common Stock. VOTING RIGHTS Each share of Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters. Except as described below, the Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote of the stockholders, including the election of directors. The holders of a majority of the outstanding shares of Common Stock or Class B Common Stock, voting as separate classes, must approve certain amendments affecting shares of such class. Specifically, if there is any proposal to amend the Certificate of Incorporation in a manner that would increase or decrease the number of authorized shares of Common Stock or Class B Common Stock, increase or decrease the par value of the shares of Common Stock or Class B Common Stock or alter or change the powers, preferences, or special rights of the shares of Common Stock or Class B Common Stock so as to affect them adversely, such an amendment must be approved by a majority of the outstanding shares of the affected class, voting separately as a class. In addition, any merger or consolidation in which each share of Common Stock receives consideration that is not of the same type or is less than the amount of the consideration to be received by each share of Class B Common Stock, other than consideration payable in securities which provide each share of Class B Common Stock with the number of votes that is no more than ten times the number of votes provided each share of Common Stock, must be approved by a majority of the outstanding shares of Common Stock, voting separately as a class. Shares of Common Stock and Class B Common Stock do not have cumulative voting rights. TERMS OF CONVERSION. Each share of Class B Common Stock is convertible at any time, at the option of and without cost to the stockholder, into one share of Common Stock. If at any time (i) the outstanding shares of Class B Common Stock represent less than 15% of the combined voting power of issued and outstanding shares of Common Stock and Class B Common Stock, or (ii) the Board of Directors and the holder of a majority of the outstanding shares of Class B Common Stock approve the conversion of all of the Class B Common Stock into Common Stock, or (iii) the holder of a majority of the outstanding shares of Class B Common Stock dies, then each outstanding share of Class B Common Stock shall be converted automatically into one share of Common Stock without any action by the holder. In the event of such a 63 conversion, certificates formerly representing outstanding shares of Class B Common Stock will thereafter be deemed to represent an equal number of shares of Common Stock. LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding up of the Company, holders of the shares of Common Stock and Class B Common Stock are entitled to share equally, share for share, in the assets available for distribution. OTHER. Additional shares of Class B Common Stock may only be issued upon stock splits of, or stock dividends on, the existing Class B Common Stock. No stockholder of the Company has preemptive or other rights to subscribe for additional shares of the Company. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series as determined by the Board of Directors. The Board of Directors is authorized to issue the shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividends rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of such Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock, including the loss of voting control to others. The Company currently has no plan to issue any shares of such Preferred Stock. DELAWARE ANTI-TAKEOVER LAW Under Section 203 of the Delaware General Corporation Law (the "Delaware Anti-Takeover Law"), certain "business combinations" between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and any person acquiring 15% or more of the voting stock of such Delaware corporation (an "interested stockholder") are prohibited for a three-year period following the time that such stockholder became an interested stockholder, unless (i) either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder" was approved by the board of directors of the corporation prior to the time the other party to the business combination became an interested stockholder, (ii) upon consummation of the the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers and stock held in employee stock plans in which the employees do not have a right to determine confidentially whether to tender or vote stock held by the plan), or (iii) the business combination was approved by the board of directors of the corporation and authorized by 66 2/3% of the voting stock which the interested stockholder did not own. The corporation may opt out of the effect of this statement by (i) including a provision to such effect in the corporation's original certificate of incorporation, (ii) amendment to the corporation's bylaws made by the board of directors within 90 days after the effective date of the statute or (iii) amendment of the corporation's certificate of incorporation or bylaws approved by holders of a majority of the shares entitled to vote; provided that such amendment shall generally not take effect until 12 months after its adoption and shall not effect any business combination with interested stockholders which are effected during such 12 months. The three-year prohibition does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of 64 the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who becomes the beneficial owner of 15% or more of a Delaware corporation's voting stock. Section 203 could have the effect of delaying, deferring or preventing a change in control of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of a director's duty of loyalty to the Company or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derives an improper personal benefit. Moreover, the provisions do not apply to claims against a director for violations of certain laws, including federal securities laws. If the Delaware General Corporation Law is amended to authorize the further elimination or limitation of directors' liability, then the liability of directors of the Company shall automatically be limited to the fullest extent provided by law. The Company's Bylaws also contain provisions to indemnify the directors and officers of the Company to the fullest extent permitted by the Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its current directors. These provisions and agreements may have the practical effect in certain cases of eliminating the ability of stockholders to collect monetary damages from directors. The Company believes that these contractual agreements and the provisions in its Certificate of Incorporation and Bylaws are necessary to attract and retain qualified persons as directors and officers. TRANSFER AGENT The Transfer Agent for the Common Stock is The Bank of New York. PLAN OF DISTRIBUTION The selling stockholders named herein (or pledgees, donees, transferees or other successors-in-interest selling shares received from a named selling stockholder as a gift, partnership, distribution or other non-sale-related transfer after the date of this prospectus) may offer their shares at various times in one or more transactions on the Nasdaq National Market, in special offerings, exchange distributions, secondary distributions, negotiated transactions, or a combination of such. They may sell at market prices at the time of sale, at prices related to the market price or at negotiated prices. The selling stockholders may use broker-dealers to sell their shares. If this happens, broker-dealers will either receive discounts or commissions from the selling stockholders, or they will receive commissions from purchasers of shares for whom they acted as agents. Compensation as to a particular broker-dealer might be in excess of customary commissions and will be in amounts to be negotiated in connection with the sale. Broker-dealers or agents and the selling stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act in connection with sales of the shares. Accordingly, any such commission, discount or concession received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts or commissions under the Securities Act. Because selling stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, the selling stockholders will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. LEGAL OPINION For the purpose of this offering, our outside counsel, Fulbright & Jaworski L.L.P., New York, New York 10103, is giving its opinion on the validity of the shares. 65 EXPERTS The consolidated financial statements and schedule and the consolidated financial statements and schedule of the Company included herein have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports included herein, and are included herein in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing. The financial statements of Baumgartner & Partner Personalberatung GmbH included herein have been audited by BDO International GmbH, Wirtschaftsprufungsgesellschaft, to the extent and for the periods set forth in their report included herein, and are included herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. The financial statements of Rich, Gardner & Associates, Ltd. included herein have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report included herein, and are included herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets of Morgan & Banks Limited as of December 31, 1998 and the consolidated statements of operations and stockholders' equity for the year ended December 31, 1998 and the year ended March 31, 1998 and the statements of cash flows for the nine months ended December 31, 1998 and the year ended March 31, 1998, included in the Company's financial statements as of December 31, 1998 and for the year ended December 31, 1998 are included in reliance on the report of Pannell Kerr Forster, independent auditors, given upon the authority of that firm as experts in accounting and auditing. The consolidated financial statements and schedule of LAI Worldwide, Inc. as of February 28, 1999 and for each of the two years in the period ended February 28, 1999 (not presented separately herein) have been audited by Arthur Andersen LLP, independent certified public accountants, as indicated in their reports with respect thereto which are included herein, in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements of System One Services, Inc. and subsidiaries as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 (not presented separately herein) have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which has been included herein in reliance upon such report given upon their authority as experts in accounting and auditing. The consolidated financial statements of QD Group Limited as of 30 September 1999 and 1998 and for each of the two years then ended included herein have been audited by Arthur Andersen, independent chartered accountants, as indicated in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said report. The financial statements of MoveCentral, Inc. as of December 31, 1999 and 1998 and for the years then ended, included herein have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report dated February 25, 2000 with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of Stratascape, Inc. as of December 31, 1998 and December 31, 1999 included herein have been audited by Finck, Rudnick & Company to the extent and for the periods set forth in their reports included herein, and are included herein in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing. 66 INDEX TO FINANCIAL STATEMENTS TMP WORLDWIDE INC. AND SUBSIDIARIES
PAGE NO. ----------------------- Consolidated Condensed Financial Statements (unaudited): Balance sheet as of June 30, 2000......................... F-4 Statements of income for the six months ended June 30, 2000 and 1999........................................... F-5 Statements of comprehensive income (loss) for the six months ended June 30, 2000 and 1999..................... F-6 Statement of stockholders' equity for the six months ended June 30, 2000........................................... F-7 Statements of cash flows for the six months ended June 30, 2000 and 1999.................................. F-8 Notes to consolidated condensed financial statements...... F-9 Report of Independent Certified Public Accountants.......... F-19 Independent Auditor's Report to the Members of Morgan & Banks Limited............................................. F-20 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)........................... F-21 Independent Auditors' Report (with respect to System One Services, Inc.)........................................... F-22 Consolidated Financial Statements: Balance sheets as of December 31, 1999 and 1998........... F-23 Statements of income (loss) for the years ended December 31, 1999, 1998 and 1997................................. F-24 Statements of comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997.................. F-25 Statements of stockholders' equity for the years ended December 31, 1999, 1998 and 1997........................ F-26 Statements of cash flows for the years ended December 31, 1999, 1998 and 1997..................................... F-29 Notes to consolidated financial statements................ F-30 BAUMGARTNER & PARTNER PERSONALBERATUNG GMBH Independent Auditors' Report................................ F-61 Balance sheet as of December 31, 1999....................... F-62 Statement of income for the year ended December 31, 1999.... F-63 Statement of stockholders' equity for the year ended December 31, 1999......................................... F-64 Statement of comprehensive income (loss) for the year ended December 31, 1999......................................... F-65 Statement of cash flows for the year ended December 31, 1999...................................................... F-66 Notes to financial statements............................... F-67 QD GROUP LIMITED Consolidated profit and loss account for the six months ended 30 June 2000 and 30 June 1999 (unaudited)........... F-71 Consolidated balance sheet as at 30 June 2000 and 30 June 1999 (unaudited).......................................... F-72 Consolidated cash flow statement for the six months ended 30 June 2000 and 30 June 1999 (unaudited)................. F-73
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PAGE NO. ----------------------- Notes to the financial statements (unaudited)............... F-74 Auditors' report............................................ F-79 Consolidated profit and loss account for the year ended 30 September 1999 and 30 September 1998................... F-80 Consolidated balance sheet as at 30 September 1999 and 30 September 1998......................................... F-81 Company balance sheet as at 30 September 1999 and 30 September 1998......................................... F-82 Consolidated cash flow statement as at 30 September 1999 and 30 September 1998......................................... F-83 Notes to the accounts....................................... F-84 MOVECENTRAL, INC. Statements of income (loss) for the period ended June 19, 2000 and the six months ended June 30, 1999 (unaudited)... F-102 Statements of cash flows for the period ended June 19, 2000 and the six months ended June 30, 1999 (unaudited)................................. F-103 Notes to financial statements (unaudited)................... F-104 Report of Independent Public Accountants.................... F-105 Balance sheets as of December 31, 1999 and 1998............. F-106 Statements of operations for the years ended December 31, 1999 and 1998............................................. F-107 Statements of shareholders' equity (deficit) for the years ended December 31, 1999 and 1998.......................... F-108 Statements of cash flows for the years ended December 31, 1999 and 1998............................................. F-109 Notes to financial statements............................... F-110 RICH, GARDNER & ASSOCIATES, LTD. (information as of June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) Report of Independent Certified Public Accountants.......... F-115 Balance Sheets as of December 31, 1999 and 1998 and June 30, 2000............................................. F-116 Statements of income for the years ended December 31, 1999 and 1998 and the six months ended June 30, 2000 and 1999....................... F-117 Statements of members' equity for the years ended December 31, 1999 and 1998 and the six months ended June 30, 2000........................ F-118 Statements of cash flows for the years ended December 31, 1999 and 1998 and the six months ended June 30, 2000 and 1999....................... F-119 Notes to financial statements............................... F-120 STRATASCAPE, INC. Balance sheet as of June 30, 2000 (unaudited)............... F-123 Statements of income for the six months ended June 30, 2000 and 1999 (unaudited)...................................... F-124 Statement of retained earnings for the six months ended June 30, 2000 (unaudited)...................................... F-125 Statements of cash flows for the six months ended June 30, 2000 and 1999 (unaudited)................................. F-126 Notes to the financial statements (unaudited)............... F-127 Independent Auditors' Report................................ F-129
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PAGE NO. ----------------------- Balance sheets as of December 31, 1999 and 1998............. F-130 Statements of income for the years ended December 31, 1999 and 1998.................................................. F-131 Statement of retained earnings for the years ended December 31, 1999 and 1998................................ F-132 Statements of cash flows for the years ended December 31, 1999 and 1998............................................. F-133 Notes to the financial statements........................... F-134 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)............................................... F-137 Pro forma condensed consolidated balance sheet as of June 30, 2000............................................. F-138 Pro forma condensed consolidated statement of income (loss) for the six months ended June 30, 2000.................... F-139 Pro forma condensed consolidated statement of income (loss) for the twelve months ended December 31, 1999............. F-140 Pro forma condensed consoldiated statement of income (loss) for twelve months ended December 31, 1998................. F-141 Pro forma condensed consolidated statement of income (loss) for the twelve months ended December 31, 1997............. F-142
F-3 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
JUNE 30, 2000 ---------- ASSETS Current assets: Cash and cash equivalents................................. $ 511,445 Accounts receivable, net.................................. 539,897 Work-in-process........................................... 26,970 Prepaid and other......................................... 58,725 ---------- Total current assets.................................. 1,137,037 Property and equipment, net................................. 98,352 Intangibles, net............................................ 374,658 Deferred income taxes....................................... 11,103 Other assets................................................ 22,089 ---------- $1,643,239 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 325,640 Accrued expenses and other current liabilities............ 209,320 Accrued integration and restructuring costs............... 21,850 Deferred commissions and fees............................. 104,174 Current portion of long term debt......................... 8,141 ---------- Total current liabilities............................. 669,125 Long term debt, less current portion........................ 15,139 Other long-term liabilities................................. 22,318 ---------- Total liabilities..................................... 706,582 ---------- Minority interests.......................................... -- ---------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................... -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 91,204,907 shares....... 91 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding: 4,762,000 shares.................................................. 5 Additional paid-in capital................................ 1,017,899 Other comprehensive loss.................................. (42,836) Deficit................................................... (38,502) ---------- Total stockholders' equity.................................. 936,657 ---------- $1,643,239 ==========
See accompanying notes to consolidated condensed financial statements. F-4 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Commissions and fees........................................ $558,137 $402,090 -------- -------- Operating expenses: Salaries & related........................................ 308,638 241,430 Office & general.......................................... 127,883 98,649 Marketing & promotion..................................... 67,702 29,564 Merger & integration...................................... 22,323 11,454 Restructuring............................................. -- 2,789 Amortization of intangibles............................... 7,540 6,167 -------- -------- Total operating expenses................................ 534,086 390,053 -------- -------- Operating income............................................ 24,051 12,037 -------- -------- Other income (expense): Interest income (expense), net............................ 7,290 (6,226) Other, net................................................ (582) (1,511) -------- -------- 6,708 (7,737) -------- -------- Income before provision for income taxes, minority interests and equity in losses of affiliates........................ 30,759 4,300 Provision for income taxes.................................. 19,528 1,488 -------- -------- Income before minority interests and equity in losses of affiliates................................................ 11,231 2,812 Minority interests.......................................... (324) 107 Equity in losses of affiliates.............................. -- (200) -------- -------- Net income applicable to common and Class B common stockholders.............................................. $ 11,555 $ 2,505 ======== ======== Net income per common and Class B common share: Basic..................................................... $ 0.12 $ 0.03 ======== ======== Diluted................................................... $ 0.11 $ 0.03 ======== ======== Weighted average shares outstanding: Basic..................................................... 94,048 83,380 ======== ======== Diluted................................................... 101,078 87,318 ======== ========
See accompanying notes to consolidated condensed financial statements. F-5 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Net income.................................................. $ 11,555 $2,505 Foreign currency translation adjustment..................... (37,937) 579 -------- ------ Comprehensive income (loss)................................. $(26,382) $3,084 ======== ======
See accompanying notes to consolidated condensed financial statements. F-6 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER TOTAL --------------------- -------------------- PAID-IN COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT EQUITY ---------- -------- --------- -------- ---------- ------------- -------- ------------- Balance, January 1, 2000... 81,359,671 $81 4,762,000 $ 5 $ 367,857 $ (4,899) $(45,257) $317,787 Issuance of common stock in connection with a pubic offering completed February 2, 2000......... 8,000,000 8 -- -- 594,230 -- -- 594,238 Issuance of common stock in connection with the exercise of options...... 1,332,397 1 -- -- 19,781 -- -- 19,782 Tax benefit from the exercise of stock options.................. -- -- -- -- 7,828 -- -- 7,828 Issuance of common stock in connection with acquisitions............. 428,864 1 -- -- 26,000 -- -- 26,001 Issuance of common stock for matching contribution to 401(k) plan........... 14,399 -- -- -- 1,023 -- -- 1,023 Issuance of common stock for employee stay bonuses.................. 22,702 -- -- -- 553 -- -- 553 Other issuance of common stock of pooled entities................. 46,874 -- -- -- 627 -- -- 627 Foreign currency translation adjustment... -- -- -- -- -- (37,937) -- (37,937) Pooled company earnings included in both current and previous periods..... -- -- -- -- -- -- (285) (285) Dividends declared by pooled companies......... -- -- -- -- -- -- (4,515) (4,515) Net income................. -- -- -- -- -- -- 11,555 11,555 ---------- --- --------- --- ---------- -------- -------- -------- Balance, June 30, 2000..... 91,204,907 $91 4,762,000 $ 5 $1,017,899 $(42,836) $(38,502) $936,657 ========== === ========= === ========== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. F-7 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income................................................ $ 11,555 $ 2,505 --------- --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization........................... 28,498 20,904 Provision for doubtful accounts......................... 13,800 2,695 Common stock issued for matching contribution to 401(k) plan and employee stay bonuses........................ 1,576 902 (Gain) loss on disposal & write-down of fixed assets.... -- 2,801 Provision for deferred income taxes..................... 4,955 (2,277) Minority interests and other............................ -- 4,372 Effect of pooled companies included in more than one period................................................ (285) 1,465 Changes in assets and liabilities, net of effects of purchases of businesses: Increase in accounts receivable, net.................. (85,772) (35,438) (Increase) decrease in work-in-process, prepaid and other............................................... 7,228 (2,608) Increase in deferred commissions and fees............. 31,335 12,522 Decrease in accounts payable and accrued liabilities......................................... (21,133) 4,732 --------- --------- Total adjustments....................................... (19,798) 10,070 --------- --------- Net cash provided by (used in) operating activities... (8,243) 12,575 --------- --------- Cash flows from investing activities: Capital expenditures.................................... (32,410) (17,990) Payments for purchases of businesses, net of cash acquired.............................................. (33,372) (18,835) --------- --------- Net cash used in investing activities................. (65,782) (36,825) --------- --------- Cash flows from financing activities: Borrowings under line of credit and proceeds from issuance of debt...................................... 137,083 599,888 Repayments under line of credit and principal payments on debt............................................... (223,015) (590,171) Net proceeds from issuance of common stock.............. 594,238 -- Cash received from the exercise of employee stock options............................................... 19,782 7,163 Other................................................... (59) (241) Dividends paid by pooled entities....................... (4,515) (5,100) Payments on capitalized leases.......................... (2,140) (2,466) --------- --------- Net cash provided by financing activities............. 521,374 9,073 --------- --------- Effect of exchange rate changes on cash..................... (503) 294 --------- --------- Net increase (decrease) in cash and cash equivalents........ 446,846 (14,883) Cash and cash equivalents, beginning of period.............. 64,599 79,868 --------- --------- Cash and cash equivalents, end of period.................... $ 511,445 $ 64,985 ========= =========
See accompanying notes to consolidated condensed financial statements. F-8 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The consolidated condensed interim financial statements included herein have been prepared by TMP Worldwide Inc. ("TMP" or the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements included elsewhere herein. The Company follows the same accounting policies in preparation of interim reports. During the period of January 1, 2000 through March 31, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "First Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ --------------------------------- ----------------- ----------------- HW Group PLC................... Selection & Temporary Contracting February 16, 2000 715,769 Microsurf, Inc................. Interactive February 16, 2000 684,462 Burlington Wells, Inc.......... Selection & Temporary Contracting February 29, 2000 52,190 Illsley Bourbonnais............ Executive Search March 1, 2000 246,702
During the period of April 1, 2000 through June 30, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "Second Quarter 2000 Mergers," collectively, with the First Quarter 2000 Mergers, the "First Half 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED - ------ --------------------------------- ----------------- ----------------- System One Services, Inc....... Selection & Temporary Contracting April 3, 2000 1,022,257 GTR Advertising................ Recruitment Advertising April 4, 2000 54,041 Virtual Relocation.com, Inc.... Interactive May 9, 2000 947,916 Business Technologies Ltd...... Interactive May 17, 2000 205,703 Simpatix, Inc.................. Interactive May 31, 2000 152,500 Rollo Associates, Inc.......... Executive Search May 31, 2000 110,860 Web Technology Partners, Inc.......................... Interactive May 31, 2000 623,892
The Company's consolidated condensed statements have been retroactively restated for the six months ended June 30, 1999 to reflect the First Half 2000 Mergers. As a result, the financial position, and F-9 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION (CONTINUED) statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated condensed statements of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with these mergers had been issued for all periods when each of the related companies had issued their shares and for the amounts that reflect the exchange ratios of the mergers. In addition, for the period July 1, 1999 through June 30, 2000 the Company completed 20 acquisitions using the purchase method of accounting. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, results of operations for the interim periods are not necessarily indicative of annual results. Amounts charged to clients for Temporary Contracting services are reported net of the costs paid to the temporary contractor. The details for such amounts are:
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Temporary Contracting revenue........................... $241,131 $226,753 Temporary Contracting costs............................. 187,738 181,910 -------- -------- Temporary Contracting, billings and commissions and fees.................................................. $ 53,393 $ 44,843 ======== ========
On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post-split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $82 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Basic earnings per share assumes no dilution, and is computed by dividing income available to common and Class B common stockholders by the weighted average number of common and Class B common shares outstanding during each period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants, and contingent shares, based on the treasury stock method of computing such effects. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows:
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- (IN THOUSANDS) Basic..................................................... 94,048 83,380 Effect of assumed conversion of options................... 7,030 3,938 ------- ------- Diluted................................................... 101,078 87,318 ======= =======
F-10 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 2--NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive (including Monster.com-SM- and MonsterMoving.com-SM-), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising. The Company's commissions and fees are earned from the following activities: (i) advertisements placed on its career and other websites, (ii) resume and other database access, (iii) executive placement services, (iv) mid-level employee selection and temporary contracting services, (v) selling and placing recruitment advertising and related services, (vi) resume screening services and (vii) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia-Pacific Region (primarily Australia and New Zealand). NOTE 3--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of April 1, 2000 through June 30, 2000, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests.
NUMBER OF TMP ENTITY BUSINESS SEGMENT GEOGRAPHIC REGION ACQUISITION DATE SHARES ISSUED - ------ --------------------- ----------------- ------------------ ------------- System One Services, Inc.................... Selection & Temporary North America April 3, 2000 1,022,257 Contracting GTR Advertising.......... Recruitment North America April 4, 2000 54,041 Advertising Virtual Relocation.com, Interactive North America May 9, 2000 947,916 Inc.................... Business Technologies Ltd.................... Interactive United Kingdom May 17, 2000 205,703 Simpatix, Inc............ Interactive North America May 31, 2000 152,500 Rollo Associates, Inc.... Executive Search North America May 31, 2000 110,860 Web Technology Partners, Inc.................... Interactive North America May 31, 2000 623,892
F-11 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) Commissions and fees, net income (loss) applicable to common and Class B common stockholders and net income per common and Class B common share of the combining companies are as follows:
SIX MONTHS ENDED JUNE 30, 1999 ----------- COMMISSIONS AND FEES: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $355,150 HW Group, PLC............................................. 21,303 Microsurf, Inc. .......................................... 2,208 Burlington Wells, Inc..................................... 821 Illsley Bourbonnais....................................... 2,730 System One Services, Inc.................................. 14,558 GTR Advertising........................................... 1,561 Virtual Relocation.com, Inc............................... 501 Business Technologies Ltd................................. 394 Simpatix, Inc............................................. (7) Rollo Associates, Inc..................................... 1,605 Web Technology Partners, Inc.............................. 1,266 -------- TMP, as restated............................................ $402,090 ======== NET INCOME APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $ 930 HW Group, PLC............................................. 205 Microsurf, Inc. .......................................... 828 Burlington Wells, Inc..................................... 265 Illsley Bourbonnais....................................... 1,372 System One Services, Inc.................................. (920) GTR Advertising........................................... 374 Virtual Relocation.com, Inc............................... (884) Business Technologies Ltd................................. 56 Simpatix, Inc............................................. (241) Rollo Associates, Inc..................................... 594 Web Technology Partners, Inc.............................. (74) -------- TMP, as restated............................................ $ 2,505 ========
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS Merger and integration costs are expenses incurred in connection with business combinations accounted for under the pooling of interests method of accounting. In general, merger costs are comprised of transaction costs (such as advisory, legal and accounting fees, printing costs and costs incurred for the subsequent registration of shares in connection with the transactions) and stay bonuses. Integration costs F-12 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) are those associated with the elimination of redundant facilities and personnel, integration of the operations of the pooled entities and acceleration of benefits and separation pay in accordance with pre-existing contractual change in control provisions. In connection with pooling of interests transactions completed prior to June 30, 2000, the Company expensed merger and integration costs of $22,323. Of this amount $13,062 is for merger costs and $9,261 is for integration costs. The merger costs for the period ended June 30, 2000 consist of (a) $3,548 for payments made in connection with the repayment of debt of a pooled company pursuant to change in control provision of such debt, (b) $4,634 of non-cash employee stay bonuses and (c) $4,880 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the mergers. The $9,261 of integration costs consist of: (a) $4,424 for assumed obligations of closed facilities, (b) $5,010 for consolidation of acquired facilities and (c) $488 for severance, relocation and other employee costs, partially offset by a $661 recovery of a reserve for receivables. See schedule of Accrued Integration and Restructuring Costs in the section below. During the six months ended June 30, 1999, the Company expensed merger and integration costs of $11,454 which were comprised of $5,449 of transaction costs, $2,280 for the amortization of employee stay bonuses payable in TMP common stock, $2,100 in separation costs for the Chief Operating Officer of an acquired company and $1,625 for integration costs. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, in the six month period ended June 30, 2000, the Company completed nine acquisitions using the purchase method of accounting, five Selection & Temporary Contracting firms, two Recruitment Advertising firms and two Interactive firms for MonsterMoving.com-SM- business. The total amount of cash paid for these acquisitions was approximately $36.1 million. In addition, the Company issued 352,575 shares of common stock in connection with certain of the above mentioned acquisitions. Operations of these businesses have been included in the consolidated financial statements from their acquisition dates. The summarized unaudited pro forma results of operations set forth below for the six month periods ended June 30, 2000 and 1999 and the year ended December 31, 1999 assume the acquisitions in 2000 and 1999 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------- ------------ 2000 1999 1999 -------- -------- ------------ Commissions and fees........................................ $563,462 $434,907 $923,183 Net income (loss) applicable to common and Class B common stockholders.............................................. $ 10,816 $ 2,970 $ (9,068) Net income (loss) per common and Class B common share: Basic..................................................... $ 0.11 $ 0.04 $ (0.11) Diluted................................................... $ 0.11 $ 0.03 $ (0.11)
F-13 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the periods presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS In connection with its acquisitions, the Company formulated plans to integrate the operations of the acquired companies. Such plans involve the closure of certain offices of such companies and the elimination of redundant management and employees. The objectives of the plans are to take advantage of the Company's existing operating infrastructure and efficiencies or to develop efficiencies from the infrastructure of the acquired companies, and to create a single brand in the related markets in which the Company operates. In connection with such plans, in the six months ended June 30, 2000, the Company (i) expensed, as part of merger and integration expenses, $9,261, for companies acquired in transactions accounted for as poolings of interests and (ii) increased goodwill by $2,516 for companies acquired in transactions accounted for under the purchase method. These costs and liabilities include:
ADDITIONS DEDUCTIONS BALANCE --------------------- -------------------------- BALANCE DECEMBER 31, CHARGED TO APPLIED AGAINST JUNE 30, 1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000 ------------ ---------- -------- --------------- -------- -------- Assumed obligations on closed leased facilities................ $ 9,564 $ 327 $4,424 $ -- $ (3,189) $11,126(a) Consolidation of acquired facilities....................... 8,715 243 5,010 -- (6,007) 7,961(b) Contracted lease payments exceeding current market costs............. 562 -- -- -- (70) 492(c) Severance, relocation and other employee costs................... 954 1,586 488 -- (2,415) 613(d) Provision for uncollectible receivables...................... -- -- (661) 661 -- Pension obligations................ 1,658 -- -- -- 1,658(e) ------- ------ ------ ---- -------- ------- Total.............................. $21,453 $2,156 $9,261 $661 $(11,681) $21,850 ======= ====== ====== ==== ======== =======
- ------------------------ (a) Accrued liabilities for surplus property in the amount of $11,126 as of June 30, 2000 relate to leased office locations of acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the restructuring plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. (b) Other costs associated with the closure or consolidation of existing offices of acquired companies in the amount of $7,961 as of June 30, 2000 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. F-14 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) (c) Above market lease costs in the amount of $492 as of June 30, 2000 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated employee severance and relocation expenses and other employee costs in the amount of $613 as of June 30, 2000 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate locations as well as redundant management and administrative personnel at corporate headquarters. As of June 30, 2000, the accrual related to approximately 50 employees, senior management, sales, service and administrative personnel. During the six-months ended June 30, 2000, payments of $2,415 were made for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. Pursuant to the conclusions reached by the Emerging Issues Task Force ("EITF") of the FASB in EITF Issues No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," in connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price but costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. F-15 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA The Company is engaged in five lines of business based primarily on the reporting of senior management to the Chief Operating Officer: Interactive (including Monster.com(sm) and MonsterMoving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising, which now also includes full service interactive advertising services provided by IN2. Operations are conducted in several geographic regions: North America, the Asia-Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the six month periods ended June 30, 2000 and 1999. Overhead is allocated based on retroactively restated commissions and fees.
INTERACTIVE SELECTION & YELLOW --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING - ------------------------------- --------------- --------------------- ----------- ----------- --------- ----------- Six months ended June 30, 2000 Commissions and fees: Traditional sources........... $ -- $ -- $ 95,553 165,821 87,352 46,381 Interactive................... 134,966 4,158 12,717 6,179 -- 5,010 -------- ------- -------- -------- ------- ------- Total commissions and fees.... 134,966 4,158 108,270 172,000 87,352 51,391 -------- ------- -------- -------- ------- ------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead..... -- -- 83,945 160,969 79,915 37,419 Interactive (a)............... 111,718 10,002 11,064 5,022 -- 4,169 Merger & integration.......... 122 787 1,133 13,763 5,654 864 Amortization of intangibles... 164 56 3,376 1,389 388 2,167 -------- ------- -------- -------- ------- ------- Total operating expenses........ 112,004 10,845 99,518 181,143 85,957 44,619 -------- ------- -------- -------- ------- ------- Operating income (loss): Traditional sources........... -- -- 7,099 (10,300) 1,395 5,931 Interactive................... 22,962 (6,687) 1,653 1,157 -- 841 -------- ------- -------- -------- ------- ------- Total operating income (loss)... $ 22,962 $(6,687) $ 8,752 (9,143) 1,395 6,772 ======== ======= ======== ======== ======= ======= Total other income, net......... * * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates................. * * * * * * INFORMATION BY BUSINESS SEGMENT TOTAL - ------------------------------- -------- Six months ended June 30, 2000 Commissions and fees: Traditional sources........... 395,107 Interactive................... 163,030 -------- Total commissions and fees.... 558,137 -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead..... 362,248 Interactive (a)............... 141,975 Merger & integration.......... 22,323 Amortization of intangibles... 7,540 -------- Total operating expenses........ 534,086 -------- Operating income (loss): Traditional sources........... 4,125 Interactive................... 19,926 -------- Total operating income (loss)... 24,051 Total other income, net......... 6,708 -------- Income before provision for income taxes, minority interests and equity in losses of affiliates................. $ 30,759 ========
- ------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-16 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & YELLOW ---------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING - ------------------------------- --------------- ---------------------- ----------- ----------- --------- ----------- Six months ended June 30, 1999 Commissions and fees: Traditional sources.......... $ -- $ -- $93,527 $122,707 $ 84,199 $50,982 Interactive.................. 37,632 2,709 5,647 3,035 -- 1,652 ------- ------ ------- -------- -------- ------- Total commissions and fees..... 37,632 2,709 99,174 125,742 84,199 52,634 ------- ------ ------- -------- -------- ------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... -- -- 80,750 109,126 89,144 32,286 Interactive (a).............. 37,914 2,818 4,858 2,460 8,823 1,464 Merger & integration......... -- -- 198 4,787 6,439 30 Restructuring................ -- -- -- -- 2,789 -- Amortization of intangibles................ 121 6 3,235 1,029 470 1,306 ------- ------ ------- -------- -------- ------- Total operating expenses....... 38,035 2,824 89,041 117,402 107,665 35,086 ------- ------ ------- -------- -------- ------- Operating income (loss): Traditional sources.......... -- -- 9,344 7,765 (14,643) 17,360 Interactive.................. (403) (115) 789 575 (8,823) 188 ------- ------ ------- -------- -------- ------- Total operating income (loss)....................... $ (403) $ (115) $10,133 $ 8,340 $(23,466) $17,548 ======= ====== ======= ======== ======== ======= Total other expense, net....... * * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates......... * * * * * * INFORMATION BY BUSINESS SEGMENT TOTAL - ------------------------------- -------- Six months ended June 30, 1999 Commissions and fees: Traditional sources.......... $351,415 Interactive.................. 50,675 -------- Total commissions and fees..... 402,090 -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... 311,306 Interactive (a).............. 58,337 Merger & integration......... 11,454 Restructuring................ 2,789 Amortization of intangibles................ 6,167 -------- Total operating expenses....... 390,053 -------- Operating income (loss): Traditional sources.......... 19,826 Interactive.................. (7,789) -------- Total operating income (loss)....................... 12,037 Total other expense, net....... (7,737) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates......... $ 4,300 ========
- ------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-17 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
ASIA- UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL - -------------------------------- ------------- -------- -------- ----------- -------- SIX MONTHS ENDED JUNE 30, 2000 Commissions and fees......................... $325,174 $90,812 $75,309 $66,842 $558,137 Income (loss) before income taxes, minority interests and equity in losses of affiliates................................. $ 24,605 $ 8,804 $(8,921) $ 6,271 $ 30,759 SIX MONTHS ENDED JUNE 30, 1999 Commissions and fees......................... $218,392 $77,829 $64,056 $41,813 $402,090 Income (loss) before income taxes, minority interests and equity in losses of affiliates................................. $(12,542) $ 9,248 $ 256 $ 7,338 $ 4,300
F-18 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TMP Worldwide Inc. New York, New York We have audited the accompanying consolidated balance sheets of TMP Worldwide Inc. and Subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 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 did not audit the financial statements of Morgan & Banks Limited as of December 31, 1998 and for the years ended December 31, 1998 and March 31, 1998 which were combined with the Company's financial statements as of December 31, 1998 and for each of the two years in the period ended December 31, 1998, which financial statements reflect total assets of approximately $52.3 million as of December 31, 1998 and total commissions & fees of approximately $255.4 million and $235.8 million for the years ended December 31, 1998 and March 31, 1998, respectively. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Morgan & Banks Limited, is based solely on the report of the other auditor. We did not audit the financial statements of LAI Worldwide, Inc. and subsidiaries as of February 28, 1999 and for each of the two years in the period ended February 28, 1999 which were combined with the Company's financial statements as of December 31, 1998 and for each of the two years in the period ended December 31, 1998, which financial statements reflect total assets of approximately $103.8 million as of February 28, 1999 and total commissions & fees of approximately $61.8 million and $86.8 million for each of the two years in the period ended February 28, 1999, respectively. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LAI Worldwide, Inc. and subsidiaries, is based solely on the report of the other auditor. We did not audit the consolidated financial statements of System One Services, Inc. and subsidiaries as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 which were combined with the Company's financial statements as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, which financial statements reflect total assets of approximately $56.6 million and $46.6 million as of December 31, 1999 and 1998 and total commissions and fees of $15.5 million, $23.2 million and $33.6 million for each of the three years in the period ended December 31, 1999. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for System One Services, Inc. and subsidiaries is based solely on the report of the other auditor. 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TMP Worldwide Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP --------------------------------------------------------------------------- BDO SEIDMAN, LLP New York, New York June 26, 2000 F-19 INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MORGAN & BANKS LIMITED SCOPE We have audited the financial statements of Morgan & Banks Limited for the financial years ended 31 December 1998 and 31 March 1998. The financial statements include the consolidated accounts of the economic entity, comprising the company and the entities it controlled at the year's end or from time to time during the financial year. The company's directors are responsible for the preparation and presentation of these financial statements and the information they contain. We have conducted an independent audit of the financial statements and the information they contain in order to express an opinion on them to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards, which are substantially the same as generally accepted auditing standards in the United States of America, to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with Australian Accounting Standards and other mandatory professional reporting requirements and statutory requirements so as to present a view which is consistent with our understanding of the company's and the economic entity's financial position and the results of its operations and its cash flows. The audit opinion expressed in this report has been formed on the above basis. AUDIT OPINION In our opinion, the financial statements of Morgan & Banks Limited are properly drawn up: (a) so as to give a true and fair view of the state of affairs as at 31 December 1998, the profit for the financial years ended on 31 December 1998 and 31 March 1998 and the cash flows for the nine month period ended 31 December 1998, and the year ended 31 March 1998, of the company and the economic entity; (b) in accordance with applicable Australian Accounting Standards and other mandatory professional reporting requirements. /s/ PANNELL KERR FORSTER /s/ A.P. WHITING - -------------------------------------------- -------------------------------------------- Pannell Kerr Forster A.P. Whiting Chartered Accountants PARTNER New South Wales Partnership SYDNEY, 15 APRIL 1999
F-20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited the consolidated balance sheet of LAI Worldwide, Inc. (a Florida corporation) and subsidiaries as of February 28, 1999, and the related consolidated statements of operations, stockholders' equity, comprehensive income and cash flows for each of the two years in the period ended February 28, 1999 (not presented separately herein). 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 auditing standards generally accepted in the United States. 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 the results of their operations and their cash flows for each of the two years in the period ended February 28, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999 F-21 INDEPENDENT AUDITORS' REPORT To the Stockholders System One Services, Inc.: We have audited the consolidated balance sheets of System One Services, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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, such consolidated financial statements (not presented separately herein) present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Tampa, Florida February 4, 2000 F-22 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, --------------------- 1999 1998 ---------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 64,599 $ 79,868 Accounts receivable, net.................................. 462,595 380,240 Work-in-process........................................... 25,632 19,300 Prepaid and other......................................... 60,019 38,572 ---------- -------- Total current assets.................................... 612,845 517,980 Property and equipment, net................................. 80,839 81,986 Deferred income taxes....................................... 25,237 9,114 Intangibles, net............................................ 311,873 266,544 Other assets................................................ 22,434 20,057 ---------- -------- $1,053,228 $895,681 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 364,951 $287,828 Accrued expenses and other current liabilities............ 134,838 117,165 Accrued integration and restructuring costs............... 21,453 16,747 Deferred commissions and fees............................. 72,298 15,736 Deferred income taxes..................................... -- 3,671 Current portion of long-term debt......................... 11,068 16,267 ---------- -------- Total current liabilities............................... 604,608 457,414 Long-term debt, less current portion........................ 100,098 146,722 Other long-term liabilities................................. 30,726 25,852 ---------- -------- Total liabilities......................................... 735,432 629,988 ---------- -------- Minority interests.......................................... 9 509 ---------- -------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................... -- -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 81,359,671 and 77,231,265, shares, respectively........................ 81 77 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding: 4,762,000 shares.................................................. 5 5 Additional paid-in capital................................ 367,857 291,075 Other comprehensive loss.................................. (4,899) (3,627) Unamortized stock-based compensation...................... -- (2,732) Deficit................................................... (45,257) (19,614) ---------- -------- Total stockholders' equity.............................. 317,787 265,184 ---------- -------- $1,053,228 $895,681 ========== ========
See accompanying notes to consolidated financial statements. F-23 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Commissions and fees........................................ $869,207 $744,517 $610,762 -------- -------- -------- Operating expenses: Salaries & related........................................ 496,926 430,316 344,956 Office & general.......................................... 205,165 184,905 160,027 Marketing & promotion..................................... 74,647 29,737 13,665 Merger & integration...................................... 63,054 22,412 -- Restructuring............................................. 2,789 3,543 -- Amortization of intangibles............................... 12,532 11,070 6,913 CEO special bonus......................................... -- 1,250 1,500 -------- -------- -------- Total operating expenses.................................. 855,113 683,233 527,061 -------- -------- -------- Operating income............................................ 14,094 61,284 83,701 -------- -------- -------- Other income (expense): Interest expense.......................................... (21,288) (18,596) (14,523) Interest income........................................... 8,361 5,720 4,021 Other, net................................................ (2,906) (2,057) 814 -------- -------- -------- (15,833) (14,933) (9,688) -------- -------- -------- Income (loss) before provision for income taxes, minority interests and equity in losses of affiliates.............. (1,739) 46,351 74,013 Provision for income taxes.................................. 6,908 16,884 22,805 -------- -------- -------- Income (loss) before minority interests and equity in losses of affiliates............................................. (8,647) 29,467 51,208 Minority interests.......................................... 107 28 296 Equity in losses of unconsolidated affiliates............... (300) (396) (33) -------- -------- -------- Net income (loss)........................................... (9,054) 29,043 50,879 Preferred stock dividends................................... -- -- (123) -------- -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $ (9,054) $ 29,043 $ 50,756 ======== ======== ======== Net income (loss) per common and Class B common share: Basic..................................................... $ (0.11) $ 0.36 $ 0.67 ======== ======== ======== Diluted................................................... $ (0.11) $ 0.35 $ 0.66 ======== ======== ======== Weighted average shares outstanding: Basic..................................................... 84,250 81,638 75,857 ======== ======== ======== Diluted................................................... 84,250 83,494 77,134 ======== ======== ========
See accompanying notes to consolidated financial statements. F-24 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Net income (loss)........................................... $ (9,054) $29,043 $ 50,879 Foreign currency translation adjustment..................... (1,272) (2,343) (4,174) -------- ------- -------- Comprehensive income (loss)................................. $(10,326) $26,700 $(46,705) ======== ======= ========
See accompanying notes to consolidated financial statements. F-25 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ---------- -------- ---------- ------------- ------------ Balance, January 1, 1997........... 43,101,486 $43 29,575,082 $30 $128,503 $ 2,890 $ -- Issuance of common stock for purchase of minority interest in subsidiary.................. 123,696 -- -- -- 1,000 -- -- Issuance of common stock in connection with acquisitions... 367,394 -- -- -- 9,286 -- -- Conversion of Class B shares..... 2,400,000 3 (2,400,000) (3) Public offerings of pooled companies...................... 1,839,271 2 -- -- 26,717 -- -- Other issuance of common stock by pooled company................. 66,314 -- -- -- 4,307 -- -- Issuance of common stock......... 4,800,000 5 -- -- 51,164 -- -- Issuance of common stock in connection with the exercise of options........................ 209,242 -- -- -- 659 -- -- Tax benefit of stock options exercised...................... -- -- -- -- 175 -- -- Issuance of common stock for matching contribution to 401(k) plan........................... 87,096 -- -- -- 555 -- -- Capital contribution from Principal Stockholder re: CEO bonus and other................ -- -- -- -- 1,775 -- -- Foreign currency translation adjustment..................... -- -- -- -- -- (4,174) -- Dividends and redemption premium preferred stock................ -- -- -- -- -- -- -- Dividends declared by pooled companies...................... -- -- -- -- -- -- -- Net income....................... -- -- -- -- -- -- -- ---------- --- ---------- --- -------- ------- ---- Balance, December 31, 1997......... 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ -- ========== === ========== === ======== ======= ==== TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, January 1, 1997........... $(46,939) $ 84,527 Issuance of common stock for purchase of minority interest in subsidiary.................. -- 1,000 Issuance of common stock in connection with acquisitions... -- 9,286 Conversion of Class B shares..... -- Public offerings of pooled companies...................... -- 26,719 Other issuance of common stock by pooled company................. -- 4,307 Issuance of common stock......... -- 51,169 Issuance of common stock in connection with the exercise of options........................ -- 659 Tax benefit of stock options exercised...................... -- 175 Issuance of common stock for matching contribution to 401(k) plan........................... -- 555 Capital contribution from Principal Stockholder re: CEO bonus and other................ -- 1,775 Foreign currency translation adjustment..................... -- (4,174) Dividends and redemption premium preferred stock................ (123) (123) Dividends declared by pooled companies...................... (30,664) (30,664) Net income....................... 50,879 50,879 -------- -------- Balance, December 31, 1997......... $(26,847) $196,090 ======== ========
See accompanying notes to consolidated financial statements. F-26 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- ---------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ----------- -------- ---------- ------------- ------------ Balance, December 31, 1997........ 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ -- Issuance of common stock in connection with the exercise of options.................... 419,898 1 -- -- 1,494 -- -- Tax benefit of stock options exercised..................... -- -- -- -- 407 -- -- Capital contribution from Principal Stockholder re: CEO bonus and other............... -- -- -- -- 1,250 -- -- Issuance of common stock in connection with acquisitions.................. 402,812 -- -- -- 5,546 -- -- Issuance of compensatory options....................... -- -- -- -- 295 -- -- Issuance of common stock by pooled companies.............. 1,005,712 1 -- -- 46,042 -- -- Repurchase and cancellation of common stock.................. (574,704) (1) -- -- (668) -- -- Conversion of Class B shares.... 22,413,082 22 (22,413,082) (22) -- -- -- Issuance of common stock for compensation.................. 515,420 1 -- -- 11,941 -- (3,308) Issuance of common stock for matching contribution to 401(k) plan................... 54,546 -- -- -- 627 -- -- Amortization of stock based compensation.................. -- -- -- -- -- -- 576 Pooled companies' earnings included in both current and previous years................ -- -- -- -- -- -- -- Pooled company's earnings, excluded from statement of operations.................... -- -- -- -- -- -- -- Foreign currency translation adjustment.................... -- -- -- -- -- (2,343) -- Dividends declared by pooled companies..................... -- -- -- -- -- -- -- Net income...................... -- -- -- -- -- -- -- ---------- --- ----------- --- -------- ------- ------- Balance, December 31, 1998........ 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732) ========== === =========== === ======== ======= ======= TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, December 31, 1997........ $(26,847) $196,090 Issuance of common stock in connection with the exercise of options.................... -- 1,495 Tax benefit of stock options exercised..................... -- 407 Capital contribution from Principal Stockholder re: CEO bonus and other............... -- 1,250 Issuance of common stock in connection with acquisitions.................. -- 5,546 Issuance of compensatory options....................... -- 295 Issuance of common stock by pooled companies.............. -- 46,043 Repurchase and cancellation of common stock.................. -- (669) Conversion of Class B shares.... -- -- Issuance of common stock for compensation.................. -- 8,634 Issuance of common stock for matching contribution to 401(k) plan................... -- 627 Amortization of stock based compensation.................. -- 576 Pooled companies' earnings included in both current and previous years................ (3,182) (3,182) Pooled company's earnings, excluded from statement of operations.................... 873 873 Foreign currency translation adjustment.................... -- (2,343) Dividends declared by pooled companies..................... (19,501) (19,501) Net income...................... 29,043 29,043 -------- -------- Balance, December 31, 1998........ $(19,614) $265,184 ======== ========
See accompanying notes to consolidated financial statements. F-27 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ---------- -------- ---------- ------------- ------------ Balance, December 31, 1998......... 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732) Issuance of common stock in connection with the exercise of options........................ 2,230,990 2 -- -- 19,044 -- -- Tax benefit of stock options exercised...................... -- -- -- -- 11,869 -- -- Issuance of common stock in connection with acquisitions... 928,619 1 -- -- 24,275 -- -- Issuance of compensatory options........................ -- -- -- -- 680 -- -- Issuance of common stock for matching contribution to 401(k) plan........................... 42,954 -- -- -- 902 -- -- Forfeiture of stock-based compensation due to departure of employees of pooled entity......................... -- -- -- -- (1,033) -- 1,033 Issuance of common stock for employee stay bonuses.......... 462,772 1 -- -- 7,048 -- -- Issuance of common stock for purchase of minority interest....................... 38,862 -- -- -- 1,210 -- -- Tax benefit in connection with taxable pooling of interests... -- -- -- -- 6,400 -- -- Public offering of shares........ 424,209 -- -- -- 6,387 -- -- Accelerated vesting of stock based compensation............. -- -- -- -- -- -- 1,699 Pooled companies' losses included in both current and previous years.......................... -- -- -- -- -- -- -- Foreign currency translation adjustment..................... -- -- -- -- -- (1,272) -- Dividends declared by pooled companies...................... -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- ---------- --- ---------- --- -------- ------- ------- Balance, December 31, 1999......... 81,359,671 $81 4,762,000 $ 5 $367,857 $(4,899) $ --- ========== === ========== === ======== ======= ======= TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, December 31, 1998......... $(19,614) $265,184 Issuance of common stock in connection with the exercise of options........................ -- 19,046 Tax benefit of stock options exercised...................... -- 11,869 Issuance of common stock in connection with acquisitions... -- 24,276 Issuance of compensatory options........................ -- 680 Issuance of common stock for matching contribution to 401(k) plan........................... -- 902 Forfeiture of stock-based compensation due to departure of employees of pooled entity......................... -- -- Issuance of common stock for employee stay bonuses.......... -- 7,049 Issuance of common stock for purchase of minority interest....................... -- 1,210 Tax benefit in connection with taxable pooling of interests... -- 6,400 Public offering of shares........ -- 6,387 Accelerated vesting of stock based compensation............. -- 1,699 Pooled companies' losses included in both current and previous years.......................... 1,941 1,941 Foreign currency translation adjustment..................... -- (1,272) Dividends declared by pooled companies...................... (18,530) (18,530) Net loss......................... (9,054) (9,054) -------- -------- Balance, December 31, 1999......... $(45,257) $317,787 ======== ========
See accompanying notes to consolidated financial statements. F-28 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------- 1999 1998 1997 ----------- ----------- --------- Cash flows from operating activities: Net income (loss)......................................... $ (9,054) $ 29,043 $ 50,879 ----------- ----------- --------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment............................................. 26,987 22,564 16,301 Amortization of intangibles............................. 12,532 11,070 6,913 Amortization of deferred compensation in connection with employee stay bonuses................................. 7,489 4,358 -- Provision for doubtful accounts......................... 14,527 6,394 4,211 Net loss on disposal and write-off of fixed assets...... 12,118 2,907 -- Common stock issued for matching contribution to 401(k) plan and employee stay bonuses........................ 7,950 8,939 627 Provision (benefit) for deferred income taxes........... (4,831) (1,307) 6,393 CEO bonus and indemnity payment......................... -- 1,250 1,775 Minority interests and other............................ 243 330 19 Effect of pooled companies' losses (earnings) included in more than one period............................... 1,941 (3,182) -- Effect of pooled company excluded from the periods presented............................................. -- 873 -- Changes in assets and liabilities, net of effects from purchases of businesses: Increase in accounts receivable, net.................. (85,434) (19,269) (30,560) Increase in work-in-process, prepaid and other........ (15,790) (14,971) (5,116) Increase in deferred commissions and fees............. 56,762 7,464 4,036 Increase in accounts payable, accrued expenses and other current liabilities........................... 70,080 15,703 6,960 ----------- ----------- --------- Total adjustments......................................... 104,574 43,123 11,559 ----------- ----------- --------- Net cash provided by operating activities............. 95,520 72,166 62,438 ----------- ----------- --------- Cash flows from investing activities: Payments pursuant to notes and advances to Principal Stockholder............................................. -- -- (3,064) Repayments from Principal Stockholder..................... -- -- 14,477 Capital expenditures...................................... (42,982) (35,116) (33,191) Payments for purchases of businesses, net of cash acquired................................................ (28,010) (36,979) (83,660) Purchases of short and long term investments.............. (150) (38,271) -- Sales of short term investments........................... 101 39,047 -- Investment in life insurance, net......................... (38) (1,985) (1,797) Proceeds from sale of assets.............................. 9,749 648 78 Cash paid for non-compete agreements...................... (101) -- -- Advances by pooled entities to officers and affiliates.... (140) (1,207) (2,210) ----------- ----------- --------- Net cash used in investing activities................. (61,571) (73,863) (109,367) ----------- ----------- --------- Cash flows from financing activities: Payments on capitalized leases............................ (3,492) (4,010) (2,975) Borrowings under line of credit and proceeds from issuance of long-term debt....................................... 1,308,315 1,055,594 741,919 Repayments under line of credit and principal payments on long-term debt.......................................... (1,358,383) (1,055,582) (707,040) Net proceeds from stock issuance.......................... 6,387 46,043 77,888 Cash received from the exercise of employee stock options................................................. 19,046 1,495 659 Repurchase of common stock................................ -- -- (77) Redemption of minority interest and preferred stock (including premium)..................................... (2,000) -- (5,238) Dividends on preferred stock.............................. -- -- (123) Capital contribution from former owner of pooled company................................................. 194 13 15 Dividends paid by pooled companies........................ (18,530) (21,453) (29,415) ----------- ----------- --------- Net cash provided by (used in) financing activities... (48,463) 22,100 75,613 ----------- ----------- --------- Effect of exchange rate changes on cash..................... (755) (165) (303) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents........ (15,269) 20,238 28,381 Cash and cash equivalents, beginning of year................ 79,868 59,630 31,249 ----------- ----------- --------- Cash and cash equivalents, end of year...................... $ 64,599 $ 79,868 $ 59,630 =========== =========== =========
See accompanying notes to consolidated financial statements. F-29 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and subsidiaries ("MEI") and certain other entities under the control of Andrew J. McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization, the Principal Stockholder owned 100% of the common stock of MEI (which owned approximately 86% of the common stock of Old TMP) and approximately 33% of the common stock of WCI. In addition to his approximately 33% ownership of WCI, the Principal Stockholder had voting proxy on the remaining outstanding shares of WCI. WCI was organized in 1993 to sell Recruitment Advertising. On December 9, 1996, Old TMP, which sells Yellow Page Advertising, merged into MEI. Thereafter, WCI merged into MEI, MEI then merged into Telephone Marketing Programs Incorporated and MEI acquired the outstanding minority interest of a subsidiary (the "1996 Mergers"). Concurrent with the 1996 Mergers, Telephone Marketing Programs Incorporated changed its name to TMP Worldwide Inc. Due to the control of these companies by the Principal Stockholder, the companies have been consolidated on a retroactive basis in a manner similar to a pooling of interests, the interests previously owned by the Principal Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill in the amount of approximately $1.6 million was recorded for the issuance of 542,556 shares of common stock of the Company to Old TMP stockholders who had been previously issued shares of Old TMP in exchange for their minority interests in certain operating subsidiaries in which they were original owners and, accordingly, were considered to have made a substantive investment, and is based on an initial public offering price of $7.00 per share, less approximately $2.2 million previously recorded on the issuance of these shares, and (ii) special compensation in the amount of approximately $52.0 million was recorded for the issuance of 7,169,580 shares of common stock of the Company to Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in those companies which they had received for nominal or no consideration, as employees or as management of businesses financed substantially by the Principal Stockholder and, accordingly, were not considered to have made substantive investments for their minority shares, and is based on an initial public offering price of $7.00 per share. The minority stockholders of Old TMP had received compensation in lieu of their share of earnings of Old TMP in exchange for waiving their rights to such earnings, and WCI and the MEI subsidiary had cumulative losses. Accordingly, no amounts were attributable to these minority interests in the accompanying consolidated financial statements. In addition, in 1996, the Principal Stockholder sold or contributed to the Company his majority interests, and in one case a 49% interest, in five companies primarily engaged in yellow page and Internet-based advertising. Due to the element of common control of these companies, all of these transactions have been accounted for in a manner similar to a pooling of interests and each of the five companies has been included in the accompanying consolidated financial statements from their respective dates of acquisition by the Principal Stockholder. For the period April 1, 1998 through December 31, 1999, the Company completed 20 mergers which were accounted for as poolings of interests. The seven that the Company completed prior to April 1, 1999 are Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group and The Consulting Group (International) Limited ("TCG"), in 1998 (the "1998 Mergers"); and Morgan & Banks Limited ("M&B") F-30 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) in January 1999 (the "M&B Merger"). In connection with these mergers, the Company issued 17,578,910 shares of our common stock in exchange for all of the outstanding common stock of these seven companies. From April 1, 1999 to June 30, 1999, the Company completed pooling of interests mergers (the "Second Quarter 1999 Mergers") with six companies Interquest, Pty. Limited ("Interquest"), LIDA Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming & LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second Quarter 1999 Pooled Companies") (the "Second Quarter 1999 Mergers"). In connection with the Second Quarter 1999 Mergers the Company issued a total of 1,800,480 shares of TMP common stock in exchange for all of the outstanding stock of the Second Quarter 1999 Pooled Companies. In addition, from July 1, 1999 through September 30, 1999, the Company completed pooling of interests mergers (the "Third Quarter 1999 Mergers") with five companies, Cameron-Newell Advertising, Inc. ("CNA"), Brook Street Bureau (QLD) Pty Ltd, ("Brook St."), LAI Worldwide, Inc. ("LAI"), Fox Advertising Inc. ("Fox") and Lampen Group Limited ("Lampen") ("the Third Quarter 1999 Pooled Companies"). In connection with the Third Quarter 1999 Mergers the Company issued a total of 4,306,914 shares of TMP common stock in exchange for all of the outstanding stock of the Third Quarter 1999 Pooled Companies. From October 1, 1999 through December 31, 1999, the Company completed mergers with two companies, Highland Search Group L.L.C. ("Highland") and TMC S.r.l. ("Amrop Italy") (the "Fourth Quarter 1999 Pooled Companies"), which provided for the exchange of all of the outstanding stock of such companies for a total of 1,517,226 shares of TMP common stock and which were accounted for as poolings of interests (the "Fourth Quarter 1999 Mergers"). The consolidated financial statements of the Company reflect the effect of the 1996 Mergers, the 1998 Mergers, the M & B Merger, the Second Quarter 1999 Mergers, the Third Quarter 1999 Mergers and the Fourth Quarter 1999 Mergers, because such mergers have been accounted for as poolings of interests (see Note 5). As a result, the financial position, statements of income (loss), comprehensive income (loss) and cash flows included herein are presented as if the combining companies had been consolidated for all periods presented. The consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with the 1998 and 1999 Mergers had been issued for all periods presented. During the period of January 1, 2000 through June 30, 2000, the Company completed mergers with eleven companies which were accounted for as poolings of interests (the "First Half 2000 Mergers"): HW Group PLC; Microsurf, Inc.; Burlington Wells, Inc.; Illsley Bourbonnais; System One Services, Inc.; GTR Advertising; Virtual Relocation.com, Inc.; Business Technologies, Ltd.; Simpatix, Inc.; Rollo Associates, Inc.; and Web Technology Partners, Inc. In connection with these mergers, the Company issued 4,816,292 shares of TMP common stock in exchange for all the outstanding common stock of these eleven companies. Consequently, the Company's consolidated financial statements have been retroactively restated as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, to reflect the consummation of the 1996 Mergers, the 1998 Mergers, the M&B Merger, the Second Quarter 1999 Mergers, the Third Quarter 1999 Mergers, the Fourth Quarter 1999 Mergers and the First Half 2000 Mergers because such mergers have been accounted for as poolings of interests (see Note 5). As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common F-31 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) stock issued in connection with each of the aforementioned combinations included in the First Half 2000 Mergers had been issued in the periods when each of the related companies had issued shares and for the amounts that reflect the exchange ratios of the mergers. In the consolidated balance sheets, the balance sheets of TMP as of June 30, 2000 and December 31, 1999 and 1998 have been combined with those of the First Half 2000 Mergers, all as of June 30, 2000 and December 31, 1999 and 1998 except for the following: Illsley Bourbonnais, for which the balance sheets as of January 31, 2000 and 1999 are combined with those of TMP as of December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"), for which the balance sheets as of July 31, 1999 and 1998 are combined with those of TMP as of December 31, 1999 and 1998, respectively; HW Group PLC ("HW"), for which the balance sheet as of March 31, 1999 is combined with that of TMP as of December 31, 1998. The consolidated statements of income (loss) combine the results of TMP for the six months ended June 30, 1999 and each year in the three year period ended December 31, 1999 with those of the First Half 2000 Mergers all for the same periods except for the following: Illsley Bourbonnais, for which the statements of income (loss) for the years ended January 31, 2000, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; BTL for which the statements of income (loss) for the years ended July 31, 1999, 1998 and 1997 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; HW for which the statements of income (loss) for the years ended March 31, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1998 and 1997, respectively. Furthermore, the results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the consolidated statements of income (loss) for the year ended December 31, 1999 and in the consolidated condensed statement of income (loss) for the six months ended June 30, 2000. Therefore the following amounts have been included in both periods: (a) commissions & fees of $1,019 and (b) net income of $285, with no impact on earnings per share. Additionally, due to immateriality, the results of BTL for the period August 1, 1999 through December 31, 1999 have not been included in the consolidated condensed statement of income (loss) for the year ended December 31, 1999 because the results of BTL for its fiscal year ended July 31, 1999 were included in the consolidated condensed statement of income (loss) for the year ended December 31, 1999, including commissions and fees of $314 and net income of $50. BTL's results for the three months ended March 31, 2000 were included in the consolidated condensed statement of income (loss) for the three months ended March 31, 2000. In addition, the results of HW, for the three months ended March 31, 1999 are included in the consolidated statements of income (loss) in both years ended December 31, 1999 and 1998, and the effects on both periods on (a) commissions and fees was $11,075, (b) net income was $1,893 and (c) diluted earnings per share was $0.02. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in unconsolidated affiliates are accounted for using the equity method when the Company owns at least 20% but no more than 50% of such affiliates. Under the equity method, the Company records its proportionate share of profits and losses based on its percentage interest in these affiliates. F-32 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 commissions & fees and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the following estimated useful lives:
YEARS -------- Buildings and improvements.................................. 5-32 Furniture and equipment..................................... 3-10 Capitalized software costs.................................. 3-5 Computed equipment.......................................... 3-7 Transportation equipment.................................... 3-18
Leasehold improvements are amortized over their estimated useful lives or the lives of the related leases, whichever is shorter. INTANGIBLES Intangibles represent acquisition costs in excess of the fair value of net tangible assets of businesses purchased and consist primarily of the value of ongoing client relationships and goodwill. These costs are being amortized over periods ranging from three to thirty years on a straight-line basis. LONG-LIVED ASSETS Long-lived assets, such as ongoing client relationships, goodwill and property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Impairment losses have been recorded as Merger and Integration Costs (see Note 5). FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial position and results of operations of the Company's foreign subsidiaries are determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in the other comprehensive loss account in stockholders' equity. Gains and losses resulting from foreign currency transactions are included in other income (expense). F-33 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMMISSIONS AND FEES RECOGNITION AND WORK-IN-PROCESS The Company earns fees for the placement of advertisements on the Internet, primarily its careers Web site, Monster.com(sm). Such website related fees are recognized over the length of the advertising agreement, typically one to six months. The amounts not recognized are reported on the balance sheet as deferred commissions and fees. The Company also derives commissions and fees for advertisements placed in telephone directories, newspapers and other media, plus associated fees for related services. Commissions and fees are generally recognized upon placement date for newspapers and other media and on publication close date for yellow page advertisements. The Company also earns fees for Executive Search services. Commissions and fees are recognized as clients are billed. Billings begin with the client's acceptance of a contract. A retainer equal to 33( 1/)(3)% of a candidate's first year estimated annual cash compensation is billed in equal installments over three consecutive months (at which time, in general, the retainer has been substantially earned). A final invoice is issued in the event that the candidate's actual compensation package exceeds the original estimate. For Selection, a fee equal to between 20% and 30% of a candidate's first year estimated annual cash compensation is billed in equal installments over three consecutive months (the average length of time needed to successfully complete an assignment). Temporary Contracting commission and fees are recorded when earned. The amounts charged to clients for Temporary Contracting services are reported after deducting the costs of the temporary contractors. The details for such amounts are (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Temporary contracting Revenue............................... $471,588 $394,077 $313,595 Temporary contracting Costs................................. 379,666 318,155 253,658 -------- -------- -------- Temporary contracting Billings/Commissions and fees......... $ 91,922 $ 75,922 $ 59,937 ======== ======== ========
The Company's quarterly commissions and fees are affected by the cyclical nature of its operating segments. The timing of yellow page directory closings is currently concentrated in the third quarter. However, yellow page publishers may change the timing of directory publications which may have an effect on the Company's quarterly results. The Company's Yellow Page Advertising results are also affected by commissions earned for volume placements for the year, which are typically reported in the fourth quarter. Amounts reported in the three months ended December 31, 1999, 1998 and 1997 for commissions on volume placements were $0.1 million, $0.9 million and $2.2 million, respectively. The Company's quarterly commissions and fees for Recruitment Advertising are typically highest in the first quarter and lowest in the fourth quarter; however, the cyclicality in the economy and the Company's clients' employment needs have an overriding impact on the Company's quarterly results in Recruitment Advertising. Direct operating costs incurred that relate to future commissions and fees, principally for yellow page advertisements, are deferred (recorded as work-in-process in the accompanying consolidated balance sheets) and are subsequently charged to expense when the directories are closed for publication and the related commission is recognized as income. F-34 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The provision for income taxes is computed on the pretax income (loss) based on the current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive (including Monster.com(SM) and MonsterMoving.com(SM)), Relocation Services, Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Pages Advertising which now also includes full service interactive advertising and marketing technology services through IN2. The Company's commissions and fees are earned from the following activities: (a) advertisements placed on its careers and other websites, (b) resume and other database access, (c) executive placement services, (d) mid level employee selection and temporary contracting services, (e) selling and placing recruitment advertising and related services, (f) resume screening services and (g) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia/Pacific Region (primarily Australia and New Zealand). Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. For the most part, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates. STOCK-BASED COMPENSATION The Company accounts for its stock option awards under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by SFAS No. 123, "Accounting for Stock-Based Compensation." F-35 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants. The Company's Board of Directors authorized a 2-for-1 split of its common stock in the form of a stock dividend, effective February 29, 2000. All shares and per share amounts in the accompanying consolidated financials statements have been restated to give effect to the stock split. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows (in thousands): December 31, 1999: Basic....................................................... 84,250 Effect of assumed conversion of stock options............... * ------ Diluted..................................................... 84,250 ====== December 31, 1998: Basic....................................................... 81,638 Effect of assumed conversion of stock options............... 1,856 ------ Diluted..................................................... 83,494 ====== December 31, 1997: Basic....................................................... 75,857 Effect of assumed conversion of stock options............... 1,277 ------ Diluted..................................................... 77,134 ======
- ------------------------ * Effect of the conversion of stock options outstanding is anti-dilutive. The number of options is approximately 4,307. STATEMENTS OF CASH FLOWS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents. COMPREHENSIVE INCOME Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company's only other item of comprehensive income (loss) is foreign currency translation adjustments. F-36 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) POSTRETIREMENT BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postetirement Benefits," which standardizes the disclosure requirements for pensions and other postretirement benefits. The adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's financial statement disclosures. CAPITALIZED SOFTWARE COSTS The Company capitalizes certain incurred software development costs in accordance with, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Costs incurred during the application-development stage for software bought and further customized by outside vendors for the Company's use and software developed by a vendor for the Company's proprietary use have been capitalized. Costs incurred for the Company's own personnel who are directly associated with software development are capitalized. Capitalized software costs are being amortized over periods of 3 to 5 years. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which had an initial adoption date by the Company of January 1, 2000. During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company does not expect the adoption of this statement to have a significant impact on the Company's results of operations, financial position or cash flows. In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of 2000. The Company does not expect its adoption to have a material effect on the Company's financial statements. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue No. 00-2, "Website Development Costs," which established guidelines for accounting for website development costs and is effective for quarters beginning after June 30, 2000. Although the Company is still evaluating its impact, the Company does not believe its adoption will have a significant effect on its financial statements. F-37 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 3--ACCOUNTS RECEIVABLE, NET Accounts receivable, net consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Trade................................................... $476,688 $386,021 Earned commissions(a)................................... 11,422 12,811 -------- -------- 488,110 398,832 Less: Allowance for doubtful accounts................... 25,515 18,592 -------- -------- Accounts receivable, net................................ $462,595 $380,240 ======== ========
- ------------------------ (a) Earned commissions receivable represent commissions on advertisements that have not been published, and relate to yellow page advertisements only. Upon publication of the related yellow page directories, the earned commissions plus the related advertising cost at December 31, 1999 and 1998 are recorded as accounts receivable of $66,648 and $67,955, respectively, and the related advertising costs are recorded as accounts payable of $55,226 and $55,144, respectively. NOTE 4--PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Capitalized software costs................................ $25,352 $16,301 Buildings and improvements................................ 1,323 1,168 Furniture and equipment................................... 78,813 85,503 Leasehold improvements.................................... 24,328 19,593 Transportation equipment.................................. 5,956 12,018 Computer equipment........................................ 39,493 22,286 ------- ------- 175,265 156,869 Less: Accumulated depreciation and amortization........... 94,426 74,883 ------- ------- Property and equipment, net............................... $80,839 $81,986 ======= =======
Property and equipment includes equipment under capital leases at December 31, 1999 and 1998 with a cost of $8,032 and $13,726, respectively, and accumulated amortization of $6,000 and $7,084 respectively. F-38 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of January 1, 1999 through December 31, 1999, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for shares of TMP stock and are accounted for as poolings of interests (See Note 1):
GEOGRAPHIC NUMBER OF TMP ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED - ------ ------------------------------ -------------- ---------------- ------------- Morgan & Banks Limited........ Selection & Temporary Asia-Pacific January 28, 1999 10,296,582 Contracting Interquest Pty Limited........ Selection & Temporary Asia-Pacific April 30, 1999 353,390 Contracting LIDA Advertising, Inc......... Yellow Page Advertising North America May 19, 1999 225,212 Maes & Lunau.................. Executive Search Europe May 20, 1999 220,000 IN2, Inc...................... Yellow Page Advertising North America May 28, 1999 578,062 Lemming & Levan, Inc.......... Executive Search North America May 28, 1999 245,816 Yellow Pages Unlimited, Inc... Yellow Page Advertising North America May 28, 1999 178,000 Cameron-Newell Advertising, Inc......................... Recruitment Advertising North America August 2, 1999 840,000 Brook St. Bureau Pty, Ltd..... Selection & Temporary Asia-Pacific August 3, 1999 261,800 Contracting LAI Worldwide, Inc............ Executive Search North America August 26, 1999 2,119,642 Fox Advertising, Inc.......... Yellow Page Advertising North America August 30, 1999 259,280 Lampen Group Limited.......... Selection & Temporary Asia-Pacific & August 31, 1999 826,192 Contracting United Kingdom Highland Search Group Executive Search North America October 21, 1999 1,398,666 L.L.C....................... TMC S.r.l. ("Amrop Italy").... Executive Search Europe October 27, 1999 118,560
The effects on the Company's financial statements as of December 31, 1998 and 1997 and for the years then ended of mergers accounted for as poolings of interests consummated during the year ended December 31, 1999 are reflected in the Company's financial statements as of December 31, 1998 and 1997 and for the years then ended as previously reported on the Company's Form 10-K for the year ended December 31, 1999. During the period of January 1, 2000 through June 30, 2000, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for shares of TMP stock and are accounted for as poolings of interests (See Note 1):
GEOGRAPHIC NUMBER OF TMP ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED - ------ ----------------------------- -------------- ------------------ ------------- HW Group PLC................. Selection & Temporary United Kingdom February 16, 2000 715,769 Contracting Microsurf, Inc............... Interactive North America February 16, 2000 684,462 Burlington Wells, Inc........ Selection & Temporary North America February 29, 2000 52,190 Contracting Illsley Bourbonnais.......... Executive Search North America March 1, 2000 246,702 System One Services, Inc..... Selection & Temporary North America April 3, 2000 1,022,257 Contracting GTR Advertising.............. Recruitment Advertising North America April 4, 2000 54,041 Virtual Relocation.com, Interactive North America May 9, 2000 947,916 Inc........................ Business Technologies Ltd.... Interactive United Kingdom May 17, 2000 205,703 Simpatix, Inc................ Interactive North America May 31, 2000 152,500 Rollo Associates, Inc........ Executive Search North America May 31, 2000 110,860 Web Technology Partners, Interactive North America May 31, 2000 623,892 Inc........................
F-39 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) The effects of the First Half 2000 Mergers accounted for as poolings of interest transactions are summarized below:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- COMMISSIONS AND FEES: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $765,805 $657,486 $541,828 HW Group PLC.............................................. 41,708 46,774 37,915 Microsurf, Inc............................................ 5,040 1,543 260 Burlington Wells, Inc..................................... 2,705 2,101 1,390 Illsley Bourbonnais....................................... 7,997 5,568 7,007 System One Services, Inc.................................. 33,573 23,212 15,454 GTR Advertising........................................... 2,961 2,943 2,316 Virtual Relocation.com, Inc............................... 1,353 168 15 Business Technologies Ltd................................. 786 352 -- Simpatix, Inc............................................. 37 (5) -- Rollo Associates, Inc..................................... 3,597 2,599 2,382 Web Technology Partners, Inc.............................. 3,645 1,776 2,195 -------- -------- -------- TMP, as restated............................................ $869,207 $744,517 $610,762 ======== ======== ======== NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON SHAREHOLDERS: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $ (7,405) $ 20,542 $ 41,831 HW Group PLC.............................................. (3,664) 4,458 2,956 Microsurf, Inc............................................ 509 283 (84) Burlington Wells, Inc..................................... 336 309 220 Illsley Bourbonnais....................................... 4,313 3,192 3,904 System One Services, Inc.................................. (82) 168 868 GTR Advertising........................................... 123 229 128 Virtual Relocation.com, Inc............................... (2,922) (480) (35) Business Technologies Ltd................................. 111 65 -- Simpatix, Inc............................................. (552) (473) (212) Rollo Associates, Inc..................................... 301 679 742 Web Technology Partners, Inc.............................. (122) 71 438 -------- -------- -------- TMP, as restated............................................ $ (9,054) $ 29,043 $ 50,756 ======== ======== ========
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHAREHOLDERS: Basic TMP, as previously reported on Form 10-K for the period ended December 31, 1999................................... $ (0.09) $ 0.27 $ 0.58 TMP, as restated............................................ $ (0.11) $ 0.36 $ 0.67 Diluted TMP, as previously reported on Form 10-K for the period ended December 31, 1999................................... $ (0.09) $ 0.26 $ 0.57 TMP, as restated............................................ $ (0.11) $ 0.35 $ 0.66
F-40 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS In connection with pooling of interests transactions completed during 1999, the Company expensed merger & integration costs of which $16,792 was expensed in the fourth quarter and $63,054 was expensed for the twelve months ended December 31, 1999. Of this amount $27,442 is for merger costs and $35,612 is for integration costs. The merger costs for the year ended December 31, 1999 consist of (1) $5,944 of non-cash employee stay bonuses, which include (a) $4,826 for the amortization of $16,437 recorded as prepaid compensation and a corresponding long-term liability, being expensed over the course of a year from the date of grant for TMP shares set aside for key personnel of acquired companies who must remain employees of the Company for a full year in order to earn such shares, (b) $351 which is related to an option grant to employees of a pooled company and which represents the difference between the option price and the stock price on the day the options were granted and (c) $767 for TMP shares given to key personnel of a pooled company as employee stay bonuses, (2) $2,466 paid in cash to key personnel of pooled companies as employee stay bonuses, (3) $12,606 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions and (4) $6,426 in severance costs for managers of pooled companies. The $35,612 of integration costs consist of: (a) $9,221 for assumed obligations of closed facilities, (b) $20,392 for consolidation of acquired facilities, (c) $3,172 for severance, relocation and other employee costs and (d) a $2,827 provision for uncollectible accounts receivable. See schedule in Accrued Integration and Restructuring Costs below. In connection with the pooling of interests transactions completed during 1998, the Company expensed merger related costs of $22,412. The $22,412 of merger costs for the year ended December 31, 1998 consists of (1) $11,934 of non-cash employee stay bonuses, which included (a) $3,622 for the amortization of $5,986, recorded as prepaid compensation and a corresponding long-term liability, being expensed over the eighteen months from April 1, 1998 to September 30, 1999 for TMP shares set aside for key personnel of JSK and TCG who must remain employees of the Company for a full year in order to earn such shares and (b) $8,312 for TMP shares to key personnel of TASA, JSK, Stackig, the SMART Group, Recruitment Solutions and TCG as employee stay bonuses and (2) $1,461 of stay bonuses paid as cash to key personnel of the Pooled Companies and (3) $9,017 of transaction related costs, including legal, accounting and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, the Company has acquired 55 businesses (primarily Recruitment Advertising businesses) between January 1, 1997 and December 31, 1999 including, on August 26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries ("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash acquired relating to the sale, in July 1997, of real property by Austin Knight which had commissions & fees of approximately $47,600 for the year ended September 30, 1996. The total amount of cash paid and promissory notes and Common Stock of the Company issued for these acquisitions was approximately $59,030, $34,168 and $98,100 for 1999, 1998 and 1997, respectively. The shares of common stock issued by the Company in connection with certain of the above mentioned acquisitions were 928,619, 402,812 and 367,394 for 1999, 1998 and 1997, respectively. These acquisitions have been accounted for under the purchase method of F-41 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) accounting and accordingly, operations of these businesses have been included in the consolidated financial statements from their acquisition dates. On February 27, 1998, LAI completed the acquisition of Ward Howell International, Inc. ("WHI"). The purchase price was approximately $19,500 including $7,600 in notes payable and approximately $3,050 in LAI common stock. The remaining $8,850 of the purchase consideration was payable to the former WHI stockholders as of February 28, 1998 and is accrued for in the accompanying 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, LAI acquired Chartwell Partners International, Inc. ("CPI"). The acquisition cost was approximately $3,100 and consisted of approximately $1,400 in cash, a $1,250 convertible subordinated note payable and $400 of LAI common stock. The acquisition was accounted for as a purchase with goodwill being recognized for the excess of the purchase amount over the fair value of the assets acquired. The convertible subordinated note is payable in three equal installments, plus accrued interest and bears interest at 6.75%. The subordinated note is convertible into shares of common stock at each anniversary at prices specified in the asset purchase agreement. The summarized unaudited pro forma results of operations set forth below for the years ended December 31, 1999 and 1998 assume the acquisitions in 1999 and 1998 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
YEAR ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- Total commissions and fees.............................. $887,723 $793,982 Net income (loss) applicable to common and Class B common stockholders................................... $ (8,578) $ 29,762 Net income (loss) per common and Class B common share: Basic................................................. $ (0.10) $ 0.36 Diluted............................................... $ (0.10) $ 0.35
The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the years presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS Pursuant to the conclusions reached by the Emerging Issues Task Force ("EITF") of the FASB in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," in connection with the acquisitions and mergers made in 1997, 1998 and 1999, the Company formulated plans to integrate the operations of such companies. Such plans involve the closure of certain offices of the acquired and merged companies and the termination of certain management and employees. The objectives of the plans are to eliminate redundant facilities and personnel, and to create a single brand in the related markets in which the Company operates. In connection therewith the Company expensed $35,612 in 1999, relating to integration activities which are included in merger and integration expenses. In addition, in 1999 LAI formulated plans to close F-42 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) its London England and Hong Kong offices. In connection with these office closings, LAI charged earnings for the year ended December 31, 1999 and 1998 for $2,789 and $3,543, respectively. These costs and liabilities include:
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1998 GOODWILL EXPENSED ASSET PAYMENTS 1999 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1999 Assumed obligations on closed leased facilities................................... $ 9,590 $ 705 $ 9,737 $ (1,872) $ (8,596) $ 9,564(a) Consolidation of acquired facilities........... 2,745 1,317 21,427 (6,704) (10,070) 8,715(b) Contracted lease payments exceeding current market costs................................. 707 -- -- -- (145) 562(c) Severance, relocation and other employee costs........................................ 1,952 1,359 4,410 (1,780) (4,987) 954(d) Provision for uncollectible receivable......... -- -- 2,827 (2,827) -- -- Pension obligations............................ 1,753 -- -- -- (95) 1,658(e) ------- ------ ------- -------- -------- ------- Total.......................................... $16,747 $3,381 $38,401 $(13,183) $(23,893) $21,453 ======= ====== ======= ======== ======== =======
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1997 GOODWILL EXPENSED ASSET PAYMENTS 1998 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1998 Assumed obligations on closed leased facilities................................... $ 7,830 $ 767 $ 2,423 $ -- $ (1,430) $ 9,590 Consolidation of acquired facilities........... 2,521 5,720 -- -- (5,496) 2,745 Contracted lease payments exceeding current market costs................................. 783 73 -- -- (149) 707 Severance, relocation and other employee costs........................................ 4,017 3,357 1,120 -- (6,542) 1,952 Provision for uncollectible receivable......... -- -- -- -- -- -- Pension obligations............................ 1,650 103 -- -- -- 1,753 ------- ------- ------- -------- -------- ------- Total.......................................... $16,801 $10,020 $ 3,543 $ -- $(13,617) $16,747 ======= ======= ======= ======== ======== =======
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1996 GOODWILL EXPENSED ASSET PAYMENTS 1997 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1997 Assumed obligations on closed leased facilities................................... $ -- $ 8,002 $ -- $ -- $ (172) $ 7,830 Consolidation of acquired facilities........... -- 2,521 -- -- -- 2,521 Contracted lease payments exceeding current market costs................................. -- 1,473 -- -- (690) 783 Severance, relocation and other employee costs........................................ -- 4,017 -- -- -- 4,017 Provision for uncollectible receivable......... -- -- -- -- -- -- Pension obligations............................ -- 1,650 -- -- -- 1,650 ------- ------- ------- -------- -------- ------- Total.......................................... $ -- $17,663 $ -- $ -- $ (862) $16,801 ======= ======= ======= ======== ======== =======
- ------------------------------ (a) Accrued liabilities for surplus property in the amount of $9,564 as of December 31, 1999 relate to 28 leased office locations of the acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the integration plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. F-43 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) (b) Other costs associated with the consolidation of existing offices of acquired companies in the amount of $8,715 as of December 31, 1999 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. (c) Above market lease costs in the amount of $562 as of December 31, 1999 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated severance payments, employee relocation expenses and other employee costs in the amount of $954 as of December 31, 1999 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate corporate headquarters and administrative personnel As of December 31, 1999 the accrual related to approximately 48 employees including senior management, sales, service and administrative personnel. During the year ended December 31, 1999, payments of $4,987 were made to 43 members of senior management and employees for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. In connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price; costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. NOTE 6--INTANGIBLES, NET Intangibles, net consists of the following:
DECEMBER 31, ------------------- AMORTIZATION 1999 1998 PERIOD (YEARS) -------- -------- -------------- Client lists, net of accumulated amortization of $6,349 and $5,709, respectively...................................... $ 14,376 $ 9,981 5 to 30 Covenants not to compete, net of accumulated amortization of $2,905 and $2,551, respectively........................... 1,880 2,080 2 to 6 Excess of cost of investments over fair value of net assets acquired, net of accumulated amortization of $31,096 and $20,903, respectively..................................... 295,336 254,059 5 to 30 Other, net of accumulated amortization of $2,206 and $2,060, respectively.............................................. 281 424 4 to 10 -------- -------- $311,873 $266,544 ======== ========
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes amounted to the following:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Interest......................................... $15,884 $14,264 $14,519 Income taxes..................................... 13,287 13,136 15,818
F-44 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED) In conjunction with business acquisitions, the Company used cash as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Fair value of assets acquired, excluding cash... $47,044 $50,365 $156,182 Less: Liabilities assumed and created upon acquisition................................... (19,034) (13,386) (72,522) ------- ------- -------- Net cash paid................................... $28,010 $36,979 $ 83,660 ======= ======= ======== Capital lease obligations incurred.............. $ 75 $ 217 $ 5,884 ======= ======= ========
NOTE 8--FINANCING AGREEMENT The Company obtains its primary financing from a financial institution under a five year financing agreement as amended and restated on June 27, 1996, further amended on November 14, 1997, and amended and restated again on November 5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on November 4, 2003, the Agreement provides for one year extensions subject to bank approval unless terminated by either party at least 90 days prior to expiration of the initial term or any renewal term. The Agreement, as amended, provides for borrowings of up to $185,000 at the Company's choice of either (1) the higher of (a) prime rate or (b) Federal Funds rate less ( 1)/(2) of 1% or (2) LIBOR plus a margin determined by the ratio of the Company's debt to earnings before interest, taxes, depreciation and amortization (EBITDA) as defined in the Agreement. At December 31, 1999 the margin equaled 0.75%. Borrowings under the Agreement are based on 90% of eligible accounts receivable, which are amounts billed under 120 days old and amounts to be billed as defined in the Agreement. Substantially all of the assets of the Company are pledged as collateral for borrowings under the Agreement. The Agreement contains certain covenants which restrict, among other things, the ability of the Company to borrow, pay dividends, acquire businesses, guarantee debts of others and lend funds to affiliated companies and contains criteria on the maintenance of certain financial statement amounts and ratios, all as defined in the Agreement. The Agreement also provides for a fee on any unused portion of the commitment based upon a rate determined by the ratio of the Company's debt to EBITDA. At December 31, 1999, this rate equaled 0.20%. In addition, the Agreement provides for a declining termination fee of $1,000, $500, $0 for the annual periods ended November 5, 1999, 2000, and 2001, respectively. The outstanding principal under this agreement as of December 31, 1999 is approximately $91.2 million of which $17.2 million is reflected as a reduction to accounts receivable and $15.3 million is for letters of credit. See Notes 9 and 17. At December 31, 1999, the prime rate, Federal funds rate and one month LIBOR were 8.50%, 5.50% and 5.82% respectively, and borrowings outstanding were at a weighted average interest rate of 6.57%. F-45 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 9--LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Borrowings under financing agreement (see Note 8)........... $ 58,664 $ 97,720 Borrowings under other financing agreements, interest payable at rates varying from 5.0% to 9.2%, and collateralized by assets in certain foreign countries..... 9,717 8,251 Notes payable to former WHI stockholders dated February 27, 1998, payable in three equal annual installments plus accrued interest bearing interest at 5.0%................. 1,324 4,892 Convertible subordinated promissory note issued by LAI in connection with an acquisition, 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................. 417 833 Senior subordinated promissory note issued by System One with interest at 16% with 11% paid quarterly and 5% deferred and recorded as part of the principal amount due, payable in varying installments through 2006.............. 18,164 -- Line of credit collateralized by System One's assets, due December 2001............................................. 10,738 13,550 Other acquisition notes payable, non-interest bearing, interest imputed at 6.7% to 8.0%, in varying installments through 2001.............................................. 3,511 8,121 Capitalized lease obligations, payable with interest from 9% to 15%, in varying installments through 2001 (see Note 14)....................................................... 8,267 9,203 Term note payable, maturing February 1999................... -- 10,000 Term note payable in sixty consecutive monthly installments from July 1997 through June 2002, collateralized by transportation equipment and with interest at 8.43% for the first 36 months. Thereafter the interest rate will be based on two year U.S. Treasury Notes..................... -- 7,557 Notes payable, in varying monthly installments maturing through 2001, with interest at rates ranging from 6.5% to 9.5%...................................................... 364 2,862 -------- -------- 111,166 162,989 Less: Current portion....................................... 11,068 16,267 -------- -------- $100,098 $146,722 ======== ========
F-46 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 9--LONG-TERM DEBT (CONTINUED) Long-term debt matures as follows:
DECEMBER 31, 1999 ------------ 2001........................................................ $ 19,997 2002........................................................ 1,333 2003........................................................ 59,998* 2004........................................................ 6,852 Thereafter.................................................. 12,645 -------- $100,825** ========
- ------------------------ * Of this amount, $58,664 is subject to one year extensions subsequent to 2003. See Note 8. ** Includes $727 of original issue discount, which is shown net in the consolidated balance sheet as of December 31, 1999. NOTE 10--MINORITY INTERESTS In connection with an acquisition in 1990, a subsidiary of the Company issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in exchange for 176,850 shares (58%) of the outstanding common stock of the acquired company held by the acquired company's employee stock ownership trust. These shares were redeemed in January 1997 for a total of $3,133, which included a redemption premium of $133. NOTE 11--REDEEMABLE PREFERRED STOCK During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative preferred stock ($10.00 par value) to the Company's profit sharing plan for $2,000. These shares were redeemed in January 1997 for a total of $2,105, which included a redemption premium of $105. NOTE 12--STOCKHOLDERS' EQUITY (A) COMMON AND CLASS B COMMON STOCK Common and Class B common stock have identical rights except that each share of Class B common stock is entitled to ten votes and is convertible, at any time, at the option of the stockholder into one share of common stock. Effective February 29, 2000, a 2-for-1 stock split in the form of a stock dividend was paid. All share and per share amounts in the accompanying consolidated financial statements have been restated to give effect to the stock split. (B) STOCK OPTIONS In January 1996, the Company's Board of Directors (the "Board") adopted the 1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for the issuance of both incentive stock options F-47 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options, to purchase an aggregate of up to 1,800,000 shares (amended to 6,000,000 on April 27, 1998) of the common stock of the Company. The Stock Option Plan permits the granting of options to officers, employees and consultants of the Company, its subsidiaries and affiliates. Under the Stock Option Plan, the exercise price of an incentive stock option must be at least equal to 100% of the fair market value of the common stock on the date of grant (110% of the fair market value in the case of options granted to employees who hold more than ten percent of the voting power of the Company's capital stock on the date of grant). The exercise price of a nonqualified stock option must be not less than the par value of a share of the common stock on the date of grant. The term of an incentive or nonqualified stock option is not to exceed ten years (five years in the case of an incentive stock option granted to a ten percent holder). The Stock Option Plan provides that the maximum option grant which may be made to an executive officer in any calendar year is 90,000 shares (amended to 300,000 on June 25, 1997). At December 31, 1999, approximately 2,008,451 options were exercisable and 1,625,742 options are available for future grants. In January 1996, the Company also adopted a stock option plan for nonemployee directors (the "Directors' Plan"), pursuant to which options to acquire a maximum aggregate of 360,000 shares of common stock may be granted to nonemployee directors. Options granted under the Directors' Plan do not qualify as incentive stock options within the meaning of Section 422 of the Code. The Directors' Plan provides for an automatic grant to each of the Company's nonemployee directors of an option to purchase 22,500 shares of common stock on the date of such director's initial election or appointment to the Board. The options will have an exercise price of 100% of the fair market value of the common stock on the date of grant, have a ten-year term and become exercisable in accordance with a vesting schedule determined by the Board of Directors. At December 31, 1999, approximately 104,740 options were exercisable and 170,000 options were available for future grants In December 1998, the Company also adopted, subject to stockholder approval, a long-term incentive plan (the "1999 Plan"), pursuant to which stock options, stock appreciation rights, restricted stock and other equity based awards may be granted. Stock options which may be granted may be incentive stock options and nonqualified stock options within the meaning of the Code. The total number of shares of the common stock of the Company which may be granted under the 1999 Plan is the sum of 30,000,000 and the number of shares available for new awards under the Stock Option Plan. At December 31, 1999, approximately 1,138,556 options were exercisable and 17,427,886 options are available for future grants. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using the Black- Scholes option pricing model with the following weighted average assumptions; risk-free interest rates of approximately 6.1%, 4.6% and 6.5% in 1999, 1998 and 1997, respectively; volatility factor of the expected market price of the Company's common stock of 46%, 24% and 27% in 1999, 1998 and 1997, respectively; F-48 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED) a weighted average expected life of the options of 8 years in 1999, 1998 and 1997; and no dividend yield in 1999, 1998 and 1997. Under the accounting provisions of SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 -------- -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $(41,874) $22,066 $46,628 Net income (loss) per common and Class B common share Basic..................................................... $ (0.50) $ 0.27 $ 0.61 Diluted................................................... $ (0.50) $ 0.26 $ 0.60
A summary of the status of the Company's fixed stock option plans as of December 31, 1999, 1998 and 1997, and changes during the years ending on those dates is presented.
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 --------------------------- -------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- -------------- --------- -------------- --------- -------------- Outstanding at beginning of year........................ 8,615,402 $12.12 5,659,600 $ 9.76 1,685,457 $3.93 Granted....................... 10,724,025 30.53 4,088,951 18.10 4,593,711 11.36 Exercised..................... (2,323,242) 8.75 (488,224) 3.60 (218,670) 4.17 Forfeited/cancelled........... (1,058,843) 20.50 (644,925) 35.83 (400,898) 6.59 ---------- --------- --------- Outstanding at end of year.... 15,957,342 $24.43 8,615,402 $12.12 5,659,600 $9.76 ========== ========= ========= Options exercisable at year-end.................... 3,251,747 $12.16 768,594 $10.03 377,712 $3.63 ========== ========= ========= Weighted average fair value of options granted during the year........................ $18.74 $ 5.86 $3.28
The following table summarizes information about stock options outstanding at December 31, 1999.
WEIGHTED NUMBER WEIGHTED AVERAGE NUMBER AVERAGE OUTSTANDING AT REMAINING EXERCISABLE AT EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE(YEARS) DECEMBER 31, 1999 --------------------- ----------------- ----------------------- ----------------- $0.60 to$10.00.... 2,717,510 7.0 1,855,625 10.01 to 20.00.... 3,354,182 8.6 939,662 20.01 to 26.00.... 5,334,754 9.5 338,680 26.01 to 50.00.... 4,531,930 9.7 102,680 50.01 to 81.38.... 18,966 8.0 15,100 ---------- --------- 15,957,342 3,251,747 ========== =========
F-49 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES The components of income (loss) before the provision (benefit) for income taxes, minority interests and equity in losses of affiliates are as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Domestic........................................ $(14,995) $ 7,707 $27,198 Foreign......................................... 13,256 38,644 46,815 -------- ------- ------- Total income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates................ $ (1,739) $46,351 $74,013 ======== ======= =======
The provision (benefit) for income taxes is as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Current tax provision: U.S. Federal................................... $ 276 $ 1,073 $ 3,556 State and local................................ 1,062 1,611 3,037 Foreign........................................ 10,401 15,507 9,819 ------- ------- ------- Total current.................................... 11,739 18,191 16,412 ------- ------- ------- Deferred tax provision (benefit): U.S. Federal................................... (1,110) 2,719 2,178 State and local................................ (1,258) (639) 550 Foreign........................................ (2,463) (3,387) 3,665 ------- ------- ------- Total deferred................................... (4,831) (1,307) 6,393 ------- ------- ------- Total provision.................................. $ 6,908 $16,884 $22,805 ======= ======= =======
F-50 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to the Company's deferred tax asset (liability) are below:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Current deferred tax assets (liabilities): Earned commissions..................................... $ (4,945) $(5,124) Allowance for doubtful accounts........................ 8,241 6,699 Work-in-process........................................ (5,668) (5,224) Prepaid and other...................................... (121) (692) Accrued expenses and other liabilities................. 6,699 9 Accrued compensation................................... 2,746 (418) Tax loss carryforwards................................. 3,405 1,079 -------- ------- Total current deferred tax asset (liability)............. 10,357 (3,671) -------- ------- Noncurrent deferred tax assets (liabilities): Property and equipment................................. (2,143) (2,299) Intangibles............................................ 12,753 (1,344) Accrued expenses and other liabilities................. 639 3,768 Accrued rent........................................... 430 499 Deferred compensation.................................. 3,899 3,213 Tax loss carryforwards................................. 20,611 8,405 Valuation allowance.................................... (10,952) (3,128) -------- ------- Total noncurrent deferred tax asset...................... 25,237 9,114 -------- ------- Net deferred tax asset................................... $ 35,594 $ 5,443 ======== =======
At December 31, 1999, the Company has net operating loss carryforwards for U.S. Federal tax purposes of approximately $50 million which expire through 2019 and operating loss carryfowards in the United Kingdom and Australia of approximately $8.3 million and $1.3 million, respectively. The Company has concluded that, based on expected future results, the future reversals of existing taxable temporary differences, the tax benefits derived from the exercise of nonqualified employee stock options, the amortization of benefits from taxable poolings and the loss carryforwards of certain subsidiaries, which are only usable by such subsidiary, there is no reasonable assurance that the entire tax benefit can be used. Accordingly, a valuation allowance has been established. The deferred tax benefits from taxable poolings and the tax benefits derived from the exercise of nonqualified stock options, net of the valuation allowance, were recorded as additional paid-in capital. F-51 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED) The provision for income taxes differs from the amount computed using the Federal statutory income tax rate as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Provision (benefit) at Federal statutory rate.... $ (500) $16,221 $24,956 State income taxes, net of Federal income tax effect......................................... (347) 672 1,945 Nondeductible expenses(1)........................ 9,151 5,462 1,429 Nondeductible special charge..................... 438 510 --- Foreign income taxes at other than the Federal statutory rate................................. (199) (1,656) 583 Profits of pooled entities taxed directly to owners......................................... (2,883) (3,774) (5,719) Increase in valuation allowance of pooled entities....................................... 1,109 173 12 Other............................................ 577 (652) (911) ------- ------- ------- Income tax provision............................. $ 6,908 $16,884 $22,805 ======= ======= =======
- ------------------------ (1) Primarily due to nondeductible (i) merger costs of $12.5 million, $6.9 million and $0, respectively which at the Federal statutory rate would have equated to a tax benefit of $4.4 million, $2.4 million and $0, respectively, (ii) amortization of intangible assets and (iii) meals & entertainment expenses. Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will continue to be reinvested but could become subject to additional tax if they were remitted as dividends, or were loaned to the Company or a U.S. affiliate, or if the Company should sell its stock in the foreign subsidiaries. It is not practicable to determine the amount of additional tax, if any, that might be payable on the foreign earnings; however, the Company believes that foreign tax credits would substantially offset any U.S. tax. At December 31, 1999, the cumulative amount of reinvested earnings was approximately $26.0 million. F-52 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (A) LEASES The Company leases its facilities and certain equipment under operating leases and certain equipment under capital leases. Future minimum lease commitments under both noncancellable operating leases and capital leases at December 31, 1999 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2000...................................................... $4,298 $ 45,260 2001...................................................... 2,561 43,921 2002...................................................... 1,356 36,891 2003...................................................... 894 31,145 2004...................................................... 9 27,275 Thereafter................................................ -- 101,536 ------ -------- 9,118 $286,028 ======== Less: Amount representing interest........................ 851 ------ Present value of minimum lease payments................... 8,267 Less: Current portion..................................... 4,298 ------ $3,969 ======
Rent and related expenses under operating leases amounted to $44,471, $30,619, and $26,861 for the years ended December 31, 1999, 1998 and 1997, respectively. In February 2000 the Company signed a lease to occupy 84,342 square feet located at 205 Hudson Street, New York, New York to house the Interactive operations of its Recruitment Advertising division and Yellow Page division, which includes IN2. The lease will commence upon the completion of a work order and expires in 2010. Monthly payments under the new lease will be $170,441 through August 31, 2005 and $198,555 through the remainder of the lease and will escalate during the terms of the lease. This space allows for the future expansion of these and other Interactive operations of the Company. (B) CONSULTING, EMPLOYMENT AND NON-COMPETE AGREEMENTS The Company has entered into various consulting, employment and non-compete agreements with certain management personnel, executive search consultants and former owners of acquired businesses. These agreements are generally two to five years in length, with one for a term of fifteen years and two providing aggregate annual lifetime payments of approximately $135. The Company has entered into an amended employment agreement with Andrew J. McKelvey, effective November 15, 1996, for a term ending on November 14, 2001. The agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 90 days prior to the expiration of the then current term. The agreement also provides that Mr. McKelvey will serve as Chairman of the Board and CEO of the Company and will be nominated for election as a director during all periods of his employment. Under the agreement, Mr. McKelvey is entitled to a base salary of $1,500 per year and until November 1998, when his agreement was amended, was F-53 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED) entitled to mandatory quarterly bonuses of $375. Mr. McKelvey waived such bonuses. On May 1, 1999, the Company and Mr. McKelvey further amended the employment agreement to provide for an annual base salary of $500 and an annual bonus, based on exceeding earnings per share targets, not to exceed $500. Mr. McKelvey was paid $834 in 1999. Under the agreement, Mr. McKelvey may terminate his employment upon 90 days' prior written notice for any reason. The agreement also provides that in the event Mr. McKelvey's employment is terminated by the Company prior to its expiration for reasons other than for "cause," the Company shall pay Mr. McKelvey his base salary for the remaining term of the agreement at the times it would have been payable had he remained employed. The agreement further provides that in the event of Mr. McKelvey's voluntary resignation, termination of his employment by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary for a period of 180 days after any such termination at the times it would have been payable had he remained employed. The agreement also contains confidentially provisions, whereby Mr. McKelvey agrees not to disclose any confidential information regarding the Company and its affiliates. Such agreements provide for the following aggregate annual payments:
DECEMBER 31, 1999 ------------ 2000........................................................ $11,009 2001........................................................ 7,596 2002........................................................ 2,863 2003........................................................ 1,956 2004........................................................ 1,290 Thereafter.................................................. 1,098 ------- $25,812 =======
(C) EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit sharing plan covering all eligible employees. Employer matching contributions, which are a maximum of 2% of payroll of participating employees, amounted to $1,175, $924 and $813 for the years ended December 31, 1999, 1998 and 1997, respectively. LAI 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. LAI profit sharing and matching contributions are discretionary and are funded annually as approved by the LAI Board of Directors. For the years ended December 31, 1999 and 1998, as reported herein, employer matching contributions for LAI amounted to $437 and $1,600, respectively. Effective January 1, 2000, LAI employees began contributing to the TMP plan. The LAI plan will be combined with TMP's plan during 2000. Outside of the United States, the Company has employee benefit plans in the countries in which it operates. The cost of these plans amounted to $6,234, $5,102 and $4,438 for the years ended December 31, 1999, 1998 and 1997, respectively. LAI has deferred compensation agreements with 58 employees and former employees. Under the terms of the agreements, employees are eligible to make annual elections, on calendar year basis, to defer F-54 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 a long-term liability in the accompanying consolidated balance sheets and was $9,786 at December 31, 1999. Interest is earned on deferred amounts at a rate determined annually by LAI (6.25% at December 31, 1999). (D) LITIGATION The Company is subject to various claims, suits and complaints arising in the ordinary course of business. Although the outcome of these legal matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company's financial condition, operations or liquidity. M & B has had proceedings issued against it in New Zealand for an amount of $3,400. These proceedings relate to the acquisition of the claimant's business in New Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled entity of the M & B group. The parties have engaged in significant discovery. The directors of M & B are of the opinion that the claim is without substance and, accordingly, the action is being vigorously defended. (E) AOL MARKETING AGREEMENT On December 1, 1999, the Company entered into a content and marketing arrangement with America Online, Inc. Pursuant to this arrangement, the Company's flagship Interactive property, Monster.com(sm), for the payment of $100 million over four years, would be the exclusive provider of career search services in the United States and Canada for four years to AOL members, currently over 21 million, across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. The $100 million will be expensed pro rata over the four year life of the agreement pursuant to the number of impressions contracted per year as a percent of the total impressions anticipated over the life of the agreement. (F) OTHER (i) The Company is contingently liable on a note of the Principal Stockholder in the amount of approximately $1,600. (ii) The majority stockholder of an unconsolidated equity investee has an agreement which requires the Company to purchase his interest, based on a formula value, upon death. The value of his shares at December 31, 1999 is approximately $6,200 based on the formula. NOTE 15--RELATED PARTY TRANSACTIONS (A) The Company charged management and other fees to affiliates for services provided of approximately $1,257, $651 and $788 for the years ended December 31, 1999, 1998, and 1997, respectively. Such fees are reflected as a reduction of salaries and related costs in the accompanying consolidated statements of operations. F-55 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED) (B) In January 1994, the Company acquired a 50% interest in an agency selling real estate advertising. In connection with this acquisition, the Company agreed to provide the agency with certain office and administrative services which amounted to $321 for the nine months ended September 31, 1997 at which time the arrangement was terminated.. The Company also entered into three-year employment and consulting agreements with the two other stockholders of the agency and granted them the right to convert their agency shares into Company shares after an initial public offering. That conversion right, as amended, provided that those two stockholders may convert 25% of the agency's stock into unregistered common stock of the Company with a total value of $1,000 as of the effective date of conversion. The conversion was exercised in February 1997 and 123,696 shares of common stock were issued to these stockholders pursuant to the above agreement. Simultaneously, the Company transferred to such stockholders 50% of its interest in the agency, thus retaining a 25% interest and terminated its obligation to provide office and administrative services effective October 1, 1997. (C) The Company leases an office from an entity in which the Principal Stockholder and other stockholders have a 90% ownership interest. Annual rent expense under the lease, which expires in the year 2004, amounts to approximately $554. (D) Beginning in June 1999, the Company periodically used the services of an aircraft from a company owned by the Principal Stockholder, and in connection therewith, $215 was paid through December 1999. NOTE 16--SEGMENT AND GEOGRAPHIC DATA The Company operates in five business segments: Interactive (including Monster.com(sm) and MonsterMoving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising which now also includes full service interactive advertising and marketing technology services through IN2. Operations are conducted in several geographic regions: North America, the Asia/Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the years ended December 31, 1999, 1998 and 1997. Overhead is allocated based on retroactively restated commissions and fees. F-56 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & YELLOW --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING - ------------------------------- --------------- --------------------- ----------- ----------- --------- ----------- Year ended December 31, 1999 Commissions and fees: Traditional sources......... $ -- $ -- $181,228 $269,008 $173,277 $101,294 Interactive................. 112,323 6,393 13,352 6,447 -- 5,885 -------- ------- -------- -------- -------- -------- Total commissions and fees.... 112,323 6,393 194,580 275,455 173,277 107,179 -------- ------- -------- -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus............. -- -- 158,643 236,225 173,004 61,649 Interactive expenses(a)..... 102,303 8,645 11,475 9,358 9,573 5,863 Merger & integration costs... -- -- 13,442 10,082 36,791 2,739 Restructuring charges....... -- -- -- -- 2,789 -- Amortization of intangibles............... 236 17 6,226 2,538 971 2,544 -------- ------- -------- -------- -------- -------- Total operating expenses...... 102,539 8,662 189,786 258,203 223,128 72,795 -------- ------- -------- -------- -------- -------- Operating income (loss): Traditional sources......... -- -- 2,917 20,163 (40,278) 34,362 Interactive................. 9,784 (2,269) 1,877 (2,911) (9,573) 22 -------- ------- -------- -------- -------- -------- Total operating income (loss)....................... $ 9,784 $(2,269) $ 4,794 $ 17,252 $(49,851) $ 34,384 ======== ======= ======== ======== ======== ======== Total other expense, net...... * * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates................ * * * * * * Total assets.................. $ 96,636 $ 6,052 $412,188 $232,793 $ 90,547 $215,012 ======== ======= ======== ======== ======== ======== INFORMATION BY BUSINESS SEGMENT TOTAL - ------------------------------- ---------- Year ended December 31, 1999 Commissions and fees: Traditional sources......... $ 724,807 Interactive................. 144,400 ---------- Total commissions and fees.... 869,207 ---------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus............. 629,521 Interactive expenses(a)..... 147,217 Merger & integration costs... 63,054 Restructuring charges....... 2,789 Amortization of intangibles............... 12,532 ---------- Total operating expenses...... 855,113 ---------- Operating income (loss): Traditional sources......... 17,164 Interactive................. (3,070) ---------- Total operating income (loss)....................... 14,094 Total other expense, net...... (15,833) ---------- Income before provision for income taxes, minority interests and equity in losses of affiliates................ $ (1,739) ========== Total assets.................. $1,053,228 ==========
- ------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-57 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH - ------------------------------- --------------- --------------------- ----------- ----------- --------- Year ended December 31, 1998 Total commissions and fees: Traditional sources................ $ -- $ -- $180,774 $208,028 $195,268 Interactive........................ 48,544 1,711 2,436 245 -- ------- ------ -------- -------- -------- Total commissions and fees........... 48,544 1,711 183,210 208,273 195,268 ------- ------ -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus............................ -- -- 161,572 181,462 184,993 Interactive expenses(a)............ 49,014 1,931 1,977 68 -- Merger & integration costs......... -- -- 2,004 9,445 10,367 Restructuring charges.............. -- -- -- 3,543 --- Amortization of intangibles........ 234 10 5,626 1,331 965 ------- ------ -------- -------- -------- Total operating expenses............. 49,248 1,941 171,179 192,306 199,868 ------- ------ -------- -------- -------- Operating income (loss): Traditional sources................ -- -- 11,572 15,790 (4,600) Interactive........................ (704) (230) 459 177 -- ------- ------ -------- -------- -------- Total operating income (loss)........ $ (704) $ (230) $ 12,031 $ 15,967 $ (4,600) ======= ====== ======== ======== ======== Total other expense, net............. * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates..... * * * * * Total assets......................... $35,927 $ 424 $263,191 $148,828 $148,894 ======= ====== ======== ======== ======== YELLOW PAGE INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL - ------------------------------- ----------- -------- Year ended December 31, 1998 Total commissions and fees: Traditional sources................ $106,455 $690,525 Interactive........................ 1,056 53,992 -------- -------- Total commissions and fees........... 107,511 744,517 -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus............................ 64,431 592,458 Interactive expenses(a)............ 760 53,750 Merger & integration costs......... 596 22,412 Restructuring charges.............. 3,543 --- Amortization of intangibles........ 2,904 11,070 -------- -------- Total operating expenses............. 68,691 683,233 -------- -------- Operating income (loss): Traditional sources................ 38,524 61,286 Interactive........................ 296 (2) -------- -------- Total operating income (loss)........ $ 38,820 61,284 ======== Total other expense, net............. * (14,933) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates..... * $ 46,351 ======== Total assets......................... $298,417 $895,681 ======== ========
- ------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-58 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH - ------------------------------- --------------- --------------------- ----------- ----------- --------- Year ended December 31, 1997 Total commissions and fees: Traditional sources............... $ -- $ -- $136,758 $180,016 $168,107 Interactive....................... 18,974 275 2,206 -- -- ------- ----- -------- -------- -------- Commissions and fees................ 18,974 275 138,964 180,016 168,107 ------- ----- -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus.. -- -- 125,073 157,901 143,335 Interactive expenses(a)........... 25,237 399 1,793 -- -- Amortization of intangibles....... 167 3 3,850 593 157 ------- ----- -------- -------- -------- Total operating expenses............ 25,404 402 130,716 158,494 143,492 ------- ----- -------- -------- -------- Operating income (loss): Traditional sources............... -- -- 7,835 21,522 24,615 Interactive....................... (6,430) (127) 413 -- -- ------- ----- -------- -------- -------- Total operating income (loss)....... $(6,430) $(127) $ 8,248 $ 21,522 $ 24,615 ======= ===== ======== ======== ======== Total other expense, net............ * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates.... * * * * * Total assets........................ $14,565 $ 98 $252,109 $141,230 $137,203 ======= ===== ======== ======== ======== YELLOW PAGE INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL - ------------------------------- ----------- -------- Year ended December 31, 1997 Total commissions and fees: Traditional sources............... $103,941 $588,822 Interactive....................... 485 21,940 -------- -------- Commissions and fees................ 104,426 610,762 -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus.. 66,059 492,368 Interactive expenses(a)........... 351 27,780 Amortization of intangibles....... 2,143 6,913 -------- -------- Total operating expenses............ 68,553 527,061 -------- -------- Operating income (loss): Traditional sources............... 35,739 89,711 Interactive....................... 134 (6,010) -------- -------- Total operating income (loss)....... $ 35,873 83,701 ======== Total other expense, net............ * (9,688) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates.... * $ 74,013 ======== Total assets........................ $259,311 $804,516 ======== ========
- ------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-59 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
ASIA- UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL - -------------------------------- ------------- --------- -------- ----------- -------- Year ended December 31, 1999 Commissions and fees.................. $483,466 $161,643 $132,594 $91,504 $869,207 Income (loss) before taxes, minority interests and equity in earnings of affiliates.......................... (5,407) 9,042 (9,712) 4,338 (1,739) Long-lived assets..................... 166,203 38,283 108,797 79,429 392,712 Year ended December 31, 1998 Commissions and fees.................. $419,370 $131,906 $135,571 $57,670 $744,517 Income (loss) before taxes, minority interests and equity in earnings of affiliates.......................... 26,301 16,085 2,211 1,754 46,351 Long-lived assets..................... 156,867 32,918 110,656 48,089 348,530 Year ended December 31, 1997 Commissions and fees.................. $353,103 $113,620 $120,654 $23,385 $610,762 Income before taxes, minority interests and equity in earnings of affiliates.......................... 40,896 17,560 11,015 4,542 74,013 Long-lived assets..................... 144,121 33,054 101,094 21,844 300,113
NOTE 17--SUBSEQUENT EVENTS On February 2, 2000, the Company completed a follow-on public offering of an aggregate of 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The public offering was managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc., Deutsche Bank Securities Inc., PaineWebber Incorporated, and U.S. Bancorp Piper Jaffray Inc. Net proceeds from this offering were $594.2 million and $82 million was used to pay down debt on the Company's credit line. The remainder will be used for strategic equity investments and general corporate purposes. On February 16, 2000 the Company completed its previously announced acquisition of the HW Group PLC ("HW") whereby the Company acquired all of the outstanding stock of HW in a stock for stock transaction and issued approximately 716,000 shares of TMP common stock. HW is a recruitment consultancy firm based in the UK specializing in the financial and legal markets with a presence in executive, information technology and international recruitment disciplines. HW places both permanent and contract professional staff across a broad range of sectors and clients. This transaction has been accounted for as a poolings of interests in February and March 2000. Effective February 29, 2000, a 2-for-1 stock split, in the form of a stock dividend was paid. All share and per share amounts in the accompanying consolidated financial statements have been restated to give effect to the stock split. F-60 INDEPENDENT AUDITORS' REPORT BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN, GERMANY We have audited the accompanying balance sheet of Baumgartner + Partner Personalberatung GmbH as of December 31, 1999 and the related statements of income, comprehensive income (loss), stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and Germany. 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 audit provides 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 Baumgartner + Partner Personalberatung GmbH as of December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles of the United States of America. Frankfurt am Main, Germany, June 20, 2000 BDO International GmbH Wirtschaftsprufungsgesellschaft /s/ Klaus-Juergen Rudolph/Michael Follner F-61 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN BALANCE SHEET DECEMBER 31, 1999 US DOLLARS ASSETS CURRENT ASSETS Cash and cash equivalents................................. 4,952 Trade accounts receivable, net of allowance for doubtful accounts USD 96,021..................................... 2,282,856 Receivable from parent.................................... 292,461 Work in progress.......................................... 678,523 Prepaid expenses and other current assets................. 324,823 --------- TOTAL CURRENT ASSETS.................................. 3,583,615 --------- NON-CURRENT ASSETS Cash surrender value of life insurances................... 429,054 Property and equipment, net............................... 411,718 --------- TOTAL NON-CURRENT ASSETS.............................. 840,772 --------- TOTAL ASSETS........................................ 4,424,387 --------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable.......................................... 401,703 Accrued expenses.......................................... 2,549,657 Payables to affiliated company............................ 887,031 Payroll tax............................................... 200,610 Customers deposits........................................ 117,069 Other current liabilities................................. 29,422 --------- TOTAL CURRENT LIABILITIES............................. 4,185,492 --------- NON CURRENT LIABILITIES Deferred compensation..................................... 161,543 --------- STOCKHOLDER'S EQUITY Common stock.............................................. 87,771 Accumulated other comprehensive (loss).................... (10,419) --------- TOTAL EQUITY.......................................... 77,352 --------- TOTAL LIABILITIES AND EQUITY........................ 4,424,387 =========
See accompanying notes to financial statements. F-62 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1999 US DOLLARS COMMISSIONS AND FEES........................................ 14,662,488 ---------- Salary and related.......................................... 9,073,046 Office and general.......................................... 2,203,195 Marketing and promotion..................................... 611,692 ---------- OPERATING EXPENSES.......................................... 11,887,933 ---------- OPERATING INCOME............................................ 2,774,555 Other income, net........................................... 286,867 ---------- INCOME BEFORE INTEREST AND TAXES............................ 3,061,422 Interest income (expense), net.............................. 1,575 ---------- INCOME BEFORE TAXES......................................... 3,062,997 Income taxes................................................ 510,645 ---------- NET INCOME BEFORE PROFIT TRANSFER........................... 2,552,352 Profit transfer to parent................................... 2,552,352 ---------- NET INCOME TRANSFERRED TO RESERVES.......................... -- ==========
See accompanying notes to financial statements. F-63 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1999 US DOLLARS
ACCUMULATED OTHER COMMON COMPREHENSIVE TOTAL STOCK INCOME (LOSS) -------- -------- ----------------- Balances at January 1, 1999................................ 89,660 87,771 1,889 Foreign currency translation adjustment.................... (12,308) -- (12,308) ------- ------ ------- Balances at December 31, 1999.............................. 77,352 87,771 (10,419) ======= ====== =======
See accompanying notes to financial statements. F-64 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF COMPREHENSIVE INCOME (LOSS) YEAR ENDED DECEMBER 31, 1999 US DOLLARS Net income before profit transfer........................... 2,552,352 Foreign currency translation adjustment..................... (12,308) --------- Comprehensive income before profit transfer................. 2,540,044 Profit transfer to parent................................... 2,552,352 --------- (12,308) =========
See accompanying notes to financial statements. F-65 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999 US DOLLARS CASH FLOWS FROM OPERATING ACTIVITIES Net income before profit transfer........................... 2,552,352 Adjustments to reconcile net income with net cash provided by operating activities: Depreciation and amortization............................. 169,567 Gain on sale of assets.................................... (87) Changes in assets and liabilities: Trade receivables....................................... (191,252) Work in progress........................................ (148,759) Prepaid expenses and other current assets............... 39,314 Accounts payable and payables to affiliated companies... (1,820,826) Deferred compensation................................... 32,128 Accrued expenses, payroll taxes, customer deposits and other current liabilities............................. (463,221) ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 169,216 ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of equipment....................... 94 Acquisitions of property and equipment.................... (183,451) Increase of cash surrender values of life insurance....... (95,829) ---------- NET CASH USED IN INVESTING ACTIVITIES................... (279,186) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in receivables from shareholders................. 2,610,764 Profit transfer to parent................................. (2,552,352) ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES............... 58,412 ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS............... (51,558) Effect of exchange rate changes on cash................... 51,851 Cash and cash equivalents at beginning of year............ 4,659 ---------- Cash and cash equivalents at end of year.................. 4,952 ========== Supplementary cash flow information: Interest paid............................................. 912 ========== Taxes paid................................................ 9,164 ==========
See accompanying notes to financial statements. F-66 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) THE COMPANY The financial statements include Baumgartner + Partner Personalberatung GmbH ("the Company"), Sindelfingen. The Company is active in executive search, personnel consulting and media services primarily in Germany. B) AUDIT SCOPE The Company prepares its statutory financial statements in accordance with German Commercial Code and German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschrankter Haftung) which are the basis of generally accepted accounting principles ("GAAP") in Germany. GAAP in Germany varies in certain significant respects from those in the United States. Financial statements in accordance with US-GAAP have been prepared after examining potential differences between German-GAAP and US-GAAP. The principal difference between German-GAAP and US-GAAP for the Company relates to revenue recognition and the related income tax effect which results in an increase in net income before profit transfer of approximately USD 155,313. C) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The financial statements of the Company have been prepared in accordance with US-GAAP. USE OF ESTIMATES: The preparation of the financial statements requires the Company's management to make estimates and assumptions regarding the amounts of receivables, liabilities and provisions and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported period. Actual results may differ from those estimates. REVENUE RECOGNITION AND WORK IN PROGRESS: The Company's revenues are derived principally from services rendered to clients for search and selection of employees. Revenues are recognized in general in three stages: The first portion (between 25% and 40%) of the agreed total is invoiced at the time of contract signing, the second portion (between 25% and 40%) approximately ten weeks later and the remainder upon completion of the project, which approximates when services are rendered. Work-in-progress is estimated at the lower of production costs and net realizable value. Work-in-progress shows the difference between production costs incurred and revenues already recognized for each project. The production costs are estimated for every single project based on the selling price of the project without considering costs that cannot be capitalized, such as selling expenses. CASH AND CASH EQUIVALENTS: All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. TRADE ACCOUNTS RECEIVABLES: Trade accounts receivables are shown in the balance sheet with their net realizable value after the respective revenues have been recognized, net of provisions of USD 96,021. PROPERTY AND EQUIPMENT: Property and equipment is valued at acquisition cost and depreciated over their estimated useful lives ranging from 3 to 8 years using the straight line method. F-67 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) LONG-LIVED ASSETS: Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of those assets. When any such impairment exists, the related assets will be written down to fair value. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS: The Company has presented its financial statements in US-Dollars. The financial position and results of operations are determined using local currency as functional currency. Assets and liabilities are translated at the exchange rate in effect at year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in the other comprehensive loss account in equity. Gains and losses resulting from foreign currency transactions are included in other income (expense). CREDIT RISK: Financial instruments, which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs continuing evaluations of its customers and does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of those financial instruments. COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company's only item of other comprehensive income (loss) is the foreign currency translation adjustment. CAPITALIZED SOFTWARE COSTS: The Company capitalizes certain incurred software development costs in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". Costs incurred during the application-development stage for software bought and further customized by outside vendors for the Company's use and software developed by the vendor for the Company's proprietary use have been capitalized. Capitalized software costs are amortized over a period of 4 years. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities", which establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect the adoption of this statement to have significant impact on the Company's results of operations or financial position. ADVERTISING COSTS: Advertising costs are expensed as incurred. Such costs are included in selling, general and administrative expenses. F-68 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) PROPERTY AND EQUIPMENT Property and Equipment consist of the following at December 31, 1999:
US DOLLARS ---------- Property and Equipment Software, acquired from others............................ 66,300 Technical equipment....................................... 104,087 Office equipment.......................................... 765,416 ------- 935,803 Less accumulated depreciation............................. 524,085 ------- 411,718 =======
ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 1999:
US DOLLARS ---------- Employee bonuses............................................ 1,518,115 Directors' bonus............................................ 704,402 Vacation.................................................... 111,952 Other....................................................... 215,188 --------- 2,549,657 =========
NON-CURRENT LIABILITIES Non-current liabilities comprise deferred compensation of employees based on individual deferred compensation agreements. The accrual for the deferred compensation is based on the German "Teilwert" method which does not materially differ from US-GAAP. RELATED PARTY TRANSACTIONS The following transactions with the related parties of Baumgartner + Partner Personalsberatung GmbH have been reflected in the financial statements for the year ended December 31, 1999:
US DOLLARS ---------- Profit transfer to parent................................... 2,552,352 Charge for trade income tax................................. 510,645 Receivable from parent...................................... 292,461 Payables to affiliated company.............................. 887,031
Profit transfer to parent arises from the profit and loss pooling agreement between the Company and its parent, Karl Baumgartner + Partner Consulting GmbH & Co. KG. The charge for trade income tax arises because the parent company pays the trade income tax on the earnings of the Company and charges it back to the Company. F-69 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) Receivable from shareholder is from Karl Baumgartner + Partner Consulting GmbH & Co KG for services of cash management, profit distribution, trade tax recharge and VAT payments. Payable to affiliated company is between Baumgartner + Partner Unternehmensberatung GmbH and the Company for charges of rent, recharged salaries and others. INCOME TAXES The income of the Company is transferred by a profit and loss pooling agreement contract ("Ergebnisabfuhrungsvertrag") to its shareholder Karl Baumgartner + Partner Consulting GmbH & Co. KG. Between the Company and its shareholder exists a fiscal unity ("Organschaft") for trade-tax and corporation-tax. Therefore, only the shareholder has to pay taxes on the consolidated income. The shareholder recharges to the Company the trade tax that would have to be paid on the income of the Company. The shareholder is a limited partnership and has therefore only to pay the trade income tax. The partners of the parent company will have to pay income tax on their individual part of the income after trade income tax of the partnership. These individual income tax payments are not shown in the financial statements of the partnership. COMMITMENTS AND CONTINGENCIES OPERATING LEASES: In 1999 the Company recorded lease expenses for company cars of USD 302,834 and expenses for the leasing of office equipment of USD 70,845. The leasing commitments at December 31, 1999 are as follows (in US-Dollars):
2000 2001 2002 TOTAL -------- -------- -------- --------- Office space lease..................................... 618,195 618,195 528,984 1,765,374 Other lease contracts.................................. 253,759 253,759 253,759 761,277
SUBSEQUENT EVENT All of the shares in Karl Baumgartner + Partner Consulting GmbH & Co. KG--the shareholder of the Company--have been transferred from the former owners to TMP Worldwide Inc. ("TMP") on February 10, 2000 in exchange for approximately $10 million in cash and 169,764 shares of unregistered TMP common stock. In connection with the transfer of shares to TMP the Company had to pay an additional compensation of USD 386,760 to an employee of Baumgartner terminated as a result of the acquisition. The Company did not accrue for this payment in the financial statements as at December 31, 1999. F-70 QD GROUP LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 JUNE 2000 AND 30 JUNE 1999
2000 2000 CONTINUING DISCONTINUED NOTES BUSINESSES BUSINESSES 2000 1999 -------- ---------- ------------ -------- -------- L'000'S L'000'S L'000'S L'000'S TURNOVER........................................ 2 10,752 9 10,761 7,361 Cost of sales................................... (2,172) (64) (2,236) (1,878) ------ --- ------ ------ GROSS PROFIT/(LOSS)............................. 8,580 (55) 8,525 5,483 Net operating expenses.......................... (6,747) (15) (6,762) (5,020) ------ --- ------ ------ OPERATING PROFIT/(LOSS)......................... 1,833 (70) 1,763 463 ------ ------ PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION... 1,763 463 Tax on profit on ordinary activities............ 3 (529) (180) ------ ------ PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.... 1,234 283 ====== ======
The attached notes to the financial statements form an integral part of these financial statements. F-71 QD GROUP LIMITED CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2000 AND 30 JUNE 1999
NOTES 2000 1999 --------- -------- -------- L'000'S L'000'S FIXED ASSETS Tangible assets............................................. 4 917 822 Investments................................................. 5 936 900 ----- ----- 1,853 1,722 ----- ----- CURRENT ASSETS Debtors..................................................... 4,545 3,862 Cash at bank and in hand.................................... 2,196 1,608 ----- ----- 6,741 5,470 Creditors................................................... 3,277 3,392 ----- ----- NET ASSETS.................................................. 5,317 3,800 ===== ===== CAPITAL AND RESERVES Called-up share capital..................................... 50 50 Share premium account....................................... 31 31 Capital redemption reserve.................................. 1 1 Profit and loss account..................................... 5,235 3,714 ----- ----- EQUITY SHAREHOLDERS' FUNDS.................................. 5,317 3,796 Minority interests--equity.................................. -- 4 ----- ----- TOTAL CAPITAL AND RESERVES.................................. 5,317 3,800 ===== =====
The attached notes to the financial statements form an integral part of these financial statements. F-72 QD GROUP LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2000 AND 30 JUNE 1999
2000 1999 NOTES L'000'S L'000'S -------- -------- -------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES......... 6 1,146 (363) ----- ---- TAXATION UK corporation tax paid..................................... (118) (110) ----- ---- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS Purchase of tangible fixed assets........................... (200) (115) Sale of tangible fixed assets............................... 14 6 ----- ---- FINANCING................................................... (186) (109) Repayment of loan........................................... (24) (24) Capital element of finance lease repayments................. (82) (82) ----- ---- (106) (106) ----- ---- INCREASE/(DECREASE) IN CASH IN THE PERIOD................... 736 (688) ===== ====
The attached notes to the financial statements form an integral part of these financial statements. F-73 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PRESENTATION The consolidated condensed interim financial statements included herein have been prepared according to accounting principles generally accepted in the United Kingdom (UK GAAP). These principles differ in certain respects from those generally accepted in the United States (US GAAP). The significant areas of difference are shown in note 7. The financial statements have been prepared without audit, pursuant to the rules and regulations of the US Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Group believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Group's annual report for the year ended September 30, 1999. The Group follows the same accounting policies in preparation of interim reports. 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT Turnover is generated wholly from the group's principal activities. The analysis of the group's turnover by destination and origin is set out below:
2000 1999 L'000'S L'000'S -------- -------- TURNOVER United Kingdom.............................................. 9,218 6,957 Europe...................................................... 557 122 Far East.................................................... 898 136 Rest of the World........................................... 88 146 ------ ----- 10,761 7,361 ====== =====
The analysis of the group's turnover by business segment is set out below:
2000 1999 L'000'S L'000'S -------- -------- TURNOVER Recruitment................................................. 10,176 6,432 Business services........................................... 576 355 Discontinued businesses..................................... 9 574 ------ ----- 10,761 7,361 ====== =====
F-74 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 3 TAXATION
2000 1999 L'000'S L'000'S -------- -------- UK corporation tax Current @ 30% (1999:30.5%).................................. 529 180 === ===
4 TANGIBLE FIXED ASSETS The net book values as at 30 June 2000 are summarised below:
L'000'S -------- Computers................................................... 520 Motor vehicles.............................................. 37 Fixtures, fittings and equipment............................ 360 --- TOTAL NET BOOK VALUE AT 30 JUNE 2000........................ 917 ===
5 FIXED ASSET INVESTMENTS
ESOT INVESTMENT IN OWN ORDINARY SHARES L'000'S --------------- At 30 June 2000............................................. 936 ===
6 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
2000 1999 L'000'S L'000'S -------- -------- Operating profit............................................ 1,763 463 Depreciation................................................ 210 180 Profit on sale of tangible fixed assets..................... (7) (14) Increase in debtors......................................... (817) (1,507) (Decrease)/increase in creditors............................ (3) 515 ----- ------ Net cash inflow/(outflow) from operating activities......... 1,146 (363) ===== ======
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United Kingdom ("UK GAAP") which differ in certain respects from those generally F-75 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) accepted in the United States ("US GAAP"). The significant areas of difference affecting the financial statements of the Group are described below: RECONCILIATIONS The following is a summary of the material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP:
2000 1999 NOTE L'000'S L'000'S -------- -------- -------- NET INCOME IN ACCORDANCE WITH UK GAAP................. 1,234 283 ADJUSTMENT TO CONFORM WITH US GAAP Deferred taxation..................................... (b) 20 (35) ----- ------ NET INCOME IN ACCORDANCE WITH US GAAP................. 1,254 248 ===== ======
2000 1999 L'000'S L'000'S -------- -------- SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP........ 5,317 3,800 ADJUSTMENTS TO CONFORM WITH US GAAP Reclassification of investment held by ESOT........... (936) (900) Deferred tax liability................................ (22) (35) ----- ----- Shareholders' funds in accordance with US GAAP........ 4,359 2,865 ===== =====
A) DISCONTINUED OPERATIONS The effect of discontinued operations on the 1999 results were as follows:
CONTINUING DISCONTINUED BUSINESSES BUSINESSES TOTAL L'000'S L'000'S L'000'S ---------- ------------ -------- TURNOVER...................................... 6,787 574 7,361 Cost of sales................................. (1,459) (419) (1,878) ------ ---- ------ Gross profit.................................. 5,328 155 5,483 Net operating expenses........................ (4,478) (542) (5,020) ------ ---- ------ OPERATING PROFIT.............................. 850 (387) 463 ====== ==== ======
F-76 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Net liabilities of discontinued operations
2000 1999 L'000'S L'000'S -------- -------- Fixed assets................................................ -- 28 Debtors..................................................... 32 166 Cash........................................................ 3 66 Creditors................................................... (1,155) (1,005) ------ ------ (1,120) (745) ====== ======
B) INCOME TAXES Under UK GAAP, the Group provides for deferred taxation using the partial liability method on all timing differences to the extent that it is considered probable that the liabilities will crystallise in the foreseeable future. Deferred tax assets are recognised to the extent that they are recoverable without replacement in the foreseeable future. Under US GAAP, income taxes are accounted for under Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income before the provision for taxes consisted of the following:
2000 1999 L'000'S L'000'S -------- -------- Domestic.................................................... 1,467 609 Foreign..................................................... 296 (146) ----- ---- INCOME BEFORE INCOME TAXES UNDER US GAAP.................... 1,763 463 ===== ====
C) EMPLOYEE SHARE OWNERSHIP TRUST Under UK GAAP, shares in the company which are held by the ESOT are shown as fixed asset investments and the related dividends receivable and gain or loss on sale of shares are included in operating income. Under US GAAP, the shares held by the ESOT are shown as treasury shares and the dividends and gains or losses on sales of shares are not recognised. F-77 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) D) CASH FLOWS Set out below is a summary consolidated statement of cash flows for the Group under US GAAP.
2000 1999 L'000'S L'000'S -------- -------- Net cash provided by/(used in) operating activities......... 1,028 (473) Net cash used in investing activities....................... (186) (109) Net cash used in financing activities....................... (106) (106) ----- ----- NET DECREASE IN CASH UNDER US GAAP.......................... 736 (688) ===== =====
F-78 AUDITORS' REPORT TO THE SHAREHOLDERS OF QD GROUP LIMITED We have audited the financial statements on pages F-80 to F-101 which have been prepared under the historical cost convention and accounting policies set out on pages F-84 and F-85. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The company's directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board and by our profession's ethical guidance. BASIS OF OPINION We conducted our audit in accordance with Auditing Standards issued by the United Kingdom Auditing Practices Board, which are substantially consistent with generally accepted auditing standards in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and of the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the company and of the group as at 30 September 1998 and 1999 and of the group's profits and cash flows for the two years then ended and have been properly prepared in accordance with the Companies Act 1985. Certain accounting practices of the Group used in preparing the accompanying financial statements conform with generally accepted accounting principles in the United Kingdom, but do not conform with accounting principles generally accepted in the United States. A description of these differences and the adjustments required to conform the financial statements to accounting principles generally accepted in the United States are set forth in note 26. Arthur Andersen Chartered Accountants and Registered Auditors 20 Old Bailey London EC4M 7AN 5 April 2000 (except with respect to note 26 which is as of 14 July 2000). F-79 QD GROUP LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
1999 1999 CONTINUING DISCONTINUED NOTES BUSINESSES BUSINESSES 1999 1998 -------- ----------- ------------- ----------- ---------- L L L L TURNOVER.......................... 2 13,141,901 1,196,080 14,337,981 11,900,838 Cost of sales..................... (2,428,478) (919,624) (3,348,102) (2,303,809) ---------- --------- ----------- ---------- GROSS PROFIT...................... 10,713,423 276,456 10,989,879 9,597,029 Net operating expenses............ (9,584,757) (936,495) (10,521,252) (8,701,664) Other income...................... 3 125,219 -- 125,219 60,494 ---------- --------- ----------- ---------- OPERATING PROFIT.................. 1,253,885 (660,039) 593,846 955,859 Interest receivable............... 72,458 108,575 Interest payable.................. 7 (11,456) (3,651) ----------- ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION................. 4 654,848 1,060,783 Tax on profit on ordinary activities...................... 8 (254,262) (328,842) ----------- ---------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.................. 400,586 731,941 Minority interests................ 19 3,658 5,292 ----------- ---------- PROFIT FOR THE FINANCIAL YEAR..... 9 404,244 737,233 Dividends--equity shareholders.... 10 (200,000) (400,000) ----------- ---------- RETAINED PROFIT FOR THE FINANCIAL YEAR............................ 17 204,244 337,233 =========== ==========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES PROFIT FOR THE FINANCIAL YEAR........... 404,244 737,233 Loss on currency translation............ (8,873) -- ----------- ---------- TOTAL RECOGNISED GAINS AND LOSSES....... 395,371 737,233 =========== ==========
The attached notes to the accounts form an integral part of these financial statements. F-80 QD GROUP LIMITED CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 --------- ---------- ---------- L L FIXED ASSETS Tangible assets............................................ 11 949,816 736,470 Investments................................................ 12 894,200 900,300 ---------- ---------- 1,844,016 1,636,770 ---------- ---------- CURRENT ASSETS Debtors.................................................... 13 4,131,727 3,084,443 Cash at bank and in hand................................... 1,289,810 2,039,693 ---------- ---------- 5,421,537 5,124,136 CREDITORS: amounts falling due within one year............. 14 (3,231,327) (3,185,562) ---------- ---------- NET CURRENT ASSETS......................................... 2,190,210 1,938,574 ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES...................... 4,034,226 3,575,344 CREDITORS: amounts falling due after more than one year.... 15 (267,169) -- ---------- ---------- NET ASSETS................................................. 3,767,057 3,575,344 ========== ========== CAPITAL AND RESERVES Called-up share capital.................................... 16 49,806 49,806 Share premium account...................................... 17 30,895 30,895 Capital redemption reserve................................. 17 944 944 Profit and loss account.................................... 17 3,685,412 3,490,041 ---------- ---------- EQUITY SHAREHOLDERS' FUNDS................................. 18 3,767,057 3,571,686 Minority interests--equity................................. 19 -- 3,658 ---------- ---------- TOTAL CAPITAL AND RESERVES................................. 3,767,057 3,575,344 ========== ==========
The attached notes to the accounts form an integral part of these financial statements. F-81 QD GROUP LIMITED COMPANY BALANCE SHEET AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 --------- ---------- ---------- L L FIXED ASSETS Investments................................................ 12 941,818 931,287 ---------- ---------- CURRENT ASSETS Debtors.................................................... 13 9,082,608 2,291,624 Cash at bank and in hand................................... 842,060 1,711,028 ---------- ---------- 9,924,668 4,002,652 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............. 14 (5,843,394) (3,033,297) ---------- ---------- Net current assets......................................... 4,081,274 969,355 ---------- ---------- NET ASSETS................................................. 5,023,092 1,900,642 ========== ========== CAPITAL AND RESERVES Called-up share capital.................................... 16 49,806 49,806 Share premium account...................................... 17 30,895 30,895 Capital redemption reserve................................. 17 944 944 Profit and loss account.................................... 17 4,941,447 1,818,997 ---------- ---------- EQUITY SHAREHOLDERS' FUNDS................................. 5,023,092 1,900,642 ========== ==========
The financial statements were approved by the Board on 5 April 2000. GD Quarry Director The attached notes to the accounts form an integral part of these financial statements. F-82 QD GROUP LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 -------- -------- --------- L L NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 20 (265,434) 1,770,844 -------- --------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received........................................... 72,458 108,575 Interest paid............................................... (2,648) (5,227) Interest element of finance lease rental payments........... (8,808) -- -------- --------- 61,002 103,348 TAXATION UK corporation tax paid..................................... (581,455) (401,708) ACT repayment............................................... 100,000 163,733 -------- --------- (481,455) (237,975) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS Purchase of tangible fixed assets........................... (12,877) (634,175) Purchase of investments..................................... -- (67,100) Sale of tangible fixed assets............................... 52,355 62,148 -------- --------- 39,478 (639,127) EQUITY DIVIDENDS PAID....................................... -- (397,885) -------- --------- Cash (outflow)/inflow before financing...................... (646,409) 599,205 FINANCING New loan.................................................... 175,750 -- Repayment of loan........................................... (64,563) -- Capital element of finance lease rental payments............ (214,661) -- -------- --------- CASH OUTFLOW FROM FINANCING................................. (103,474) -- -------- --------- (DECREASE)/INCREASE IN CASH IN THE YEAR..................... 21 (749,883) 599,205 ======== =========
The attached notes to the accounts form an integral part of these financial statements. F-83 QD GROUP LIMITED NOTES TO THE ACCOUNTS FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 1 ACCOUNTING POLICIES The principal accounting policies are summarised below: A) BASIS OF ACCOUNTING The accounts have been prepared under the historical cost convention and in accordance with applicable accounting standards. B) BASIS OF CONSOLIDATION The consolidated accounts include the accounts of the company and all its subsidiary undertakings. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the date of their acquisition or up to the date of their disposal. Intra-group sales and profits are eliminated on consolidation. C) TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost less depreciation. Depreciation is calculated so as to write off the cost of tangible fixed assets less their estimated residual values, on a straight line basis, over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: Motor vehicles.............................................. -- 25% Computers................................................... -- 33% Fixtures, fittings and equipment............................ -- 20%
D) FINANCE AND OPERATING LEASES Costs in respect of operating leases are charged on a straight line basis over the lease term. Where fixed assets are financed by leasing agreements, which transfer to the company substantially all the benefits and risks of ownership, the assets are treated as if they had been purchased outright and are included in tangible fixed assets. The capital element of the leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease term and their useful lives. E) FOREIGN CURRENCIES Assets and liabilities expressed in foreign currencies at the balance sheet date are translated into sterling at rates of exchange prevailing at the end of the financial year. Transactions carried out during the year are translated at the rate of exchange ruling at the date of the transaction. The results of overseas operations are translated at the average rates of exchange during the year and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt with through reserves. All other exchange differences are included in the profit and loss account in the year in which they arise. F-84 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 1 ACCOUNTING POLICIES (CONTINUED) F) TURNOVER Turnover, which excludes value added tax and trade discounts, represents the invoiced value of services supplied. Turnover is recognised at the date the recruit commences employment, the date instructions for an advertising campaign have been confirmed, when certain discrete stages of management consultancy assignments have been completed, when conferences are actually held, or when publications are issued. G) DEFERRED TAXATION Tax deferred or accelerated is accounted for in respect of all material timing differences to the extent that it is probable that a liability or asset will crystallise. H) PENSION SCHEME ARRANGEMENTS The company operates a defined contribution pension scheme. The fund is administered by pension fund managers. Pension costs are accounted for on the basis of charging the profit and loss account with the pension costs payable in the year. The company provides no other post retirement benefits to its employees. I) EMPLOYEE SHARE OWNERSHIP TRUSTS The company is deemed to have control of the assets, liabilities, income and costs of The Quarry Dougall Employee Share Ownership Trust (ESOT). The ordinary shares held by the ESOT are included in fixed asset investments and written down to the option price over the minimum period of service to which the conditions attached to the shares relate. No dividends have been waived in respect of these shares and the dividends receivable are set off against the administrative costs of running the ESOT. 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT Turnover is generated wholly from the group's principal activities. The analysis of the group's turnover by destination and origin is set out below:
1999 1998 ---------- ---------- L L TURNOVER United Kingdom....................................... 12,619,873 10,236,245 Europe............................................... 525,573 34,820 Far East............................................. 814,192 1,120,667 Rest of the World.................................... 378,343 509,106 ---------- ---------- 14,337,981 11,900,838 ========== ==========
F-85 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT (CONTINUED) The analysis of the group's turnover by business segment is set out below:
1999 1998 ---------- ---------- L L TURNOVER Recruitment.......................................... 11,862,403 10,947,035 Training and development............................. 243,835 837,858 Business services.................................... 1,035,663 115,945 Discontinued businesses.............................. 1,196,080 -- ---------- ---------- 14,337,981 11,900,838 ========== ==========
3 OTHER INCOME
1999 1998 -------- -------- L L Dividends receivable....................................... 74,433 60,494 Provision no longer required............................... 50,786 -- ------- ------ 125,219 60,494 ======= ======
4 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION Profit on ordinary activities before taxation is stated after charging/(crediting):
1999 1998 -------- -------- L L Depreciation of tangible fixed assets - -owned.................................................... 195,478 170,928 - -leased................................................... 165,818 10,275 Auditors' remuneration.................................... 17,675 14,500 Operating lease rental for - -office equipment......................................... 7,827 12,108 - -land and buildings....................................... 297,936 247,054 Profit on disposal of tangible fixed assets............... (20,026) (14,140) Profit on disposal of fixed asset investments............. (3,600) (77,710) Exchange (gains)/ losses.................................. (18,319) 23,345
F-86 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 5 DIRECTORS' EMOLUMENTS AND TRANSACTIONS
1999 1998 -------- -------- L L Directors' emoluments..................................... 335,000 335,000 Benefits in kind.......................................... 9,535 9,535 Contributions to defined contribution pension scheme...... 9,323 9,323 Emoluments of the highest paid director: Remuneration.............................................. 344,535 344,535 Contributions to a defined contribution pension scheme.... 9,323 9,323
There is 1 (1998: 1) director in the defined contribution pension scheme. DIRECTORS' TRANSACTIONS During the year, Gareth Quarry let a villa owned by him to employees of the group. The rents due to him were at commercial rates and were settled by Quarry Dougall Recruitment Limited. Rents amounting to L6,736 were payable by the company for the year ended 30 September 1999 (1998: L9,274). During the year he also let a property for use as a training facility and as office premises for QD Conferencing Limited. Rents amounting to L2,500 were payable by the company for the year ended 30 September 1999 (1998: L10,000). 6 EMPLOYEE INFORMATION The average number of persons employed by the company during the year was:
1999 1998 NUMBER NUMBER -------- -------- Selling and marketing....................................... 94 77 Administration.............................................. 58 40 --- --- 152 117 === ===
Employment costs--all employees including executive directors:
1999 1998 --------- --------- L L - -wages and salaries.................................... 6,476,404 4,958,982 - -social security costs................................. 535,962 376,633 - -pension costs......................................... 56,744 54,406 --------- --------- 7,069,110 5,390,021 ========= =========
F-87 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 7 INTEREST PAYABLE
1999 1998 -------- -------- L L Bank loans and overdrafts................................... 2,648 381 Finance leases.............................................. 8,808 3,270 ------ ----- 11,456 3,651 ====== =====
8 TAXATION
1999 1998 -------- -------- L L UK corporation tax Current @ 30.5% (1998: 31%)............................... 260,025 170,366 (Over)/under provision in respect of prior years.......... (55,025) 59,642 Overseas taxation......................................... 49,262 98,834 ------- ------- 254,262 328,842 ======= =======
9 PROFIT FOR THE FINANCIAL YEAR As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has not been included in these financial statements. The profit for the financial year dealt with in the accounts of the holding company was L3,322,450 (1998: L165,776). 10 DIVIDENDS--EQUITY SHAREHOLDERS
1999 1998 -------- -------- L L Interim dividend declared of L0.23 per share (1998: L0.47) Founder shares............................................ 142,194 284,388 Ordinary shares........................................... 57,806 115,612 ------- ------- 200,000 400,000 ======= =======
F-88 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 11 TANGIBLE FIXED ASSETS
FIXTURES, MOTOR FITTINGS AND COMPUTERS VEHICLES EQUIPMENT TOTAL --------- -------- ------------ --------- L L L L COST At 1 October 1998................... 576,927 256,444 465,773 1,299,144 Additions........................... 386,886 17,286 193,099 597,271 Disposals........................... -- (83,187) (705) (83,892) ------- ------- ------- --------- At 30 September 1999................ 963,813 190,543 658,167 1,812,523 ======= ======= ======= ========= DEPRECIATION At 1 October 1998................... 133,030 134,188 295,456 562,674 Charge for year..................... 244,364 49,817 67,115 361,296 Disposals........................... -- (60,558) (705) (61,263) ------- ------- ------- --------- At 30 September 1999................ 377,394 123,447 361,866 862,707 ======= ======= ======= ========= NET BOOK VALUE At 30 September 1999................ 586,419 67,096 296,301 949,816 ======= ======= ======= ========= At 30 September 1998................ 443,897 122,256 170,317 736,470 ======= ======= ======= =========
The net book value of computers includes L408,306 (1998: Lnil) in respect of assets held under finance leases, comprising cost of L584,399 (including L356,725 accrued at 30 September 1998) less depreciation of L176,093 (including L10,275 on the accrued assets at 30 September 1998). 12 FIXED ASSET INVESTMENTS
ESOT INVESTMENT IN OWN ORDINARY SHARES --------------- L GROUP At 1 October 1998........................................... 900,300 Disposals................................................... (6,100) ------- At 30 September 1999........................................ 894,200 =======
ESOT INVESTMENT INTEREST IN OWN ORDINARY IN GROUP SHARES UNDERTAKING TOTAL --------------- ----------- -------- L L L COMPANY At 1 October 1998......................... 900,300 30,987 931,287 Additions................................. -- 16,631 16,631 Disposals................................. (6,100) -- (6,100) ------- ------ ------- At 30 September 1999...................... 894,200 47,618 941,818 ======= ====== =======
EMPLOYEE SHARE OWNERSHIP TRUST An Employee Share Ownership Trust (ESOT) was established on 30 March 1990. At 30 September 1999, the ESOT held 132,000 20p ordinary shares at a cost of L894,200 (1998: 133,220 ordinary shares F-89 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 12 FIXED ASSET INVESTMENTS (CONTINUED) at a cost of L900,300). The ESOT is a discretionary trust for the benefit of employees (including certain directors). SUBSIDIARY UNDERTAKINGS
PROPORTION OF NOMINAL VALUE OF SHARES HELD NAME OF COMPANY AND COUNTRY OF DESCRIPTION OF -------------------- INCORPORATION AND OPERATION SHARES HELD GROUP COMPANY PRINCIPAL ACTIVITY - ------------------------------------ ------------------ -------- --------- ------------------------------------ % % Quarry Dougall Recruitment Limited Ordinary L1 shares 100 100 Recruitment and advertising services (England and Wales) for the legal profession QD Consulting Group Limited Ordinary L1 shares 100 100 Recruitment and advertising services (England and Wales) for the legal profession, retail, sales, marketing, banking and finance sectors, career counselling and outplacement services Quarry Dougall Recruitment North Ordinary L1 shares 85 0.2 Recruitment and advertising services Limited (England and Wales) for the legal profession The Quarry Dougall Employee Ordinary 20p 100 100 Settlement to facilitate the Share Ownership Trust shares in the acquisition of shares by employees (England and Wales) company of the company QD Conferencing Limited (England and Ordinary L1 shares 87.5 87.5 Provision of conferences for the Wales) legal profession, retail, sales, marketing, banking and finance sectors New City Media Limited Ordinary L1 shares 90 90 Production of various publications (England and Wales) and yearbooks for the legal profession QD Asia Limited Ordinary HK$10 100 100 Recruitment and advertising services (Hong Kong) Shares for the legal sector in Asia-Pacific. The company commenced trading on 23 February 1999 QD Technology Limited Ordinary L1 shares 90 90 Recruitment and advertising services (England and Wales) for the information technology sector QD Legal Consulting GmbH Ordinary 1DM 100 100 Recruitment and advertising services (Germany) shares for the legal profession in Germany JuVe Verlag Fur Juristische Ordinary 1DM 90 90 Production of various publications Information GmbH Shares and yearbooks for the legal (Germany) profession in Germany
All the above companies operate principally in their country of incorporation or settlement. Quarry Dougall Recruitment Limited also operates in Canada and operated in Hong Kong until 22 February 1999 when the trade was transferred to QD Asia Limited. The group has incentivised key managers through deemed minority interests which would become payable in shares or cash following a crystallising event. Had the event taken place at the year end the directors believe that the amount payable would not have materially affected the accounts. F-90 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 13 DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY --------------------- --------------------- 1999 1998 1999 1998 --------- --------- --------- --------- L L L L Trade debtors..................................... 3,703,587 2,758,727 -- -- Dividend receivable from subsidiary undertaking... -- -- 3,223,935 -- Amounts owed by group undertakings................ -- -- 5,757,085 2,089,363 Other debtors..................................... 205,187 129,114 101,588 102,261 Prepayments and accrued income.................... 222,953 96,602 -- -- ACT recoverable................................... -- 100,000 -- 100,000 --------- --------- --------- --------- 4,131,727 3,084,443 9,082,608 2,291,624 ========= ========= ========= =========
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY --------------------- --------------------- 1999 1998 1999 1998 --------- --------- --------- --------- L L L L Obligations under finance leases.................. 164,340 -- -- -- Term loan......................................... 49,416 -- -- -- Trade creditors................................... 1,255,395 1,155,003 -- -- Amounts owed to group undertakings................ -- -- 5,621,860 2,826,883 Corporation tax................................... 235,208 562,401 21,534 204,299 Other taxes and social security................... 533,402 386,901 -- -- Dividends payable................................. 200,000 2,115 200,000 2,115 Accruals and deferred income...................... 793,566 1,079,142 -- -- --------- --------- --------- --------- 3,231,327 3,185,562 5,843,394 3,033,297 ========= ========= ========= =========
F-91 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
GROUP ------------------- 1999 1998 -------- -------- L L FINANCE LEASES - between one and two years............................. 164,319 -- - between two and five years............................ 41,079 -- ------- ------- 205,398 -- ------- ------- TERM LOAN - between one and two years............................. 49,416 -- - between two and five years............................ 12,355 -- ------- ------- 61,771 -- ------- ------- TOTAL BORROWINGS INCLUDING FINANCE LEASES - between one and two years............................. 213,735 -- - between two and five years............................ 53,434 -- ------- ------- 267,169 -- On demand or within one year.............................. 213,756 -- ------- ------- 480,925 -- ======= =======
16 CALLED UP SHARE CAPITAL
ORDINARY FOUNDER ORDINARY FOUNDER SHARES OF SHARES OF SHARES OF SHARES OF 20P EACH 0.1P EACH 20P EACH 0.1P EACH 1999 1999 1998 1998 --------------- --------------- --------------- --------------- AUTHORISED - value........................................... L100,000 L 750 L100,000 L 750 - number.......................................... 500,000 750,000 500,000 750,000 ALLOTTED, CALLED UP AND FULLY PAID - value........................................... L 49,200 L 606 L 49,200 L 606 - number.......................................... 246,000 605,123 246,000 605,123
The founder shares of 0.1p each rank PARI PASSU with the ordinary shares of 20p each. At 30 September 1999, options over 40,000 (1998: 100,000) ordinary shares of 20p each had been granted at L3 per share and over a further 4,000 (1998: 4,000) ordinary shares of 20p each had been granted at L10 per share. The options are exercisable on a crystallising event as a result of which there is a change of control in the company. The option periods expire on 16 December 2001 and 21 October 2003 respectively. F-92 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 17 SHARE PREMIUM ACCOUNT AND RESERVES
SHARE CAPITAL PROFIT PREMIUM REDEMPTION AND LOSS ACCOUNT RESERVE ACCOUNT TOTAL --------- ---------- --------- --------- L L L L GROUP At 1 October 1998................................. 30,895 944 3,490,041 3,521,880 Foreign exchange adjustment....................... -- -- (8,873) (8,873) Retained profit for the year...................... -- -- 204,244 204,244 --------- --------- --------- --------- At 30 September 1999.............................. 30,895 944 3,685,412 3,717,251 ========= ========= ========= ========= COMPANY At 1 October 1998................................. 30,895 944 1,818,997 1,850,836 Retained profit for the year...................... -- -- 3,122,450 3,122,450 --------- --------- --------- --------- At 30 September 1999.............................. 30,895 944 4,941,447 4,973,286 ========= ========= ========= =========
18 RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
1999 1998 --------- --------- L L Profit for the financial year.......................... 404,244 737,233 Loss on currency translation........................... (8,873) -- Dividends.............................................. (200,000) (400,000) --------- --------- Net additions to shareholders' funds................... 195,371 337,233 Opening shareholders' funds............................ 3,571,686 3,234,453 --------- --------- Closing shareholders' funds............................ 3,767,057 3,571,686 ========= =========
19 MINORITY INTERESTS
1999 1998 -------- -------- L L At 1 October 1998........................................... 3,658 127 Share of loss for the year.................................. (3,658) (5,292) Minority interest in reserves............................... -- 6,503 Minority interest in share capital.......................... -- 2,320 ------ ------ At 30 September 1999........................................ -- 3,658 ====== ======
F-93 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 20 RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
1999 1998 ---------- --------- L L Operating profit...................................... 593,846 955,859 Depreciation.......................................... 361,296 181,203 Profit on sale of tangible fixed assets............... (20,026) (14,140) Profit on sale of investments......................... (3,600) (77,710) Increase in debtors................................... (1,147,284) (968,314) (Decrease)/increase in creditors...................... (49,666) 1,618,123 Bonus paid as shares.................................. -- 67,000 Decrease in minority interest......................... -- 8,823 ---------- --------- Net cash (outflow)/inflow from operating activities... (265,434) 1,770,844 ========== =========
21 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
L L -------- ---------- Decrease in net cash in the period.......................... (749,883) Cash outflow from increase in debt and lease financing...... 103,474 -------- Change in net debt resulting from cash flows................ (646,409) New finance leases.......................................... (584,399) ---------- Movement in net debt in the period.......................... (1,230,808) Net funds at 1 October 1998................................. 2,039,693 ---------- Net funds at 30 September 1999.............................. 808,885 ==========
22 ANALYSIS OF CHANGES IN NET DEBT
AT AT 1 OCTOBER NON CASH 30 SEPTEMBER 1998 CASH FLOWS FLOW CHANGES 1999 --------- ---------- ------------ ------------ L L L L Cash in hand and at bank........................ 2,039,693 (749,883) -- 1,289,810 Debt due within one year........................ -- (49,416) -- (49,416) Debt due after more than one year............... -- (61,771) -- (61,771) Finance leases.................................. -- 214,661 (584,399) (369,738) --------- -------- -------- --------- 2,039,693 (646,409) (584,399) 808,885 ========= ======== ======== =========
F-94 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 23 FINANCIAL COMMITMENTS GROUP The group no longer holds non-cancellable operating leases for office equipment. The group leases certain properties on short and long term leases. The rents payable under these leases, which are subject to renegotiation at various intervals specified in the leases and in respect of which the group pays all insurance, maintenance and repairs, in the next year are as follows:
1999 1998 --------- --------- L L Date of lease termination: Within one year........................................ 205,009 216,631 In two to five years................................... 539,680 858,071 More than five years................................... 313,650 -- --------- --------- 1,058,339 1,074,702 ========= =========
Other capital commitments: The group had no contracted capital commitments at the year end (1998: L300,000). 24 PENSION OBLIGATIONS The group participates in a defined contribution pension scheme. The assets of the scheme are held separately from those of the group. The total pension cost for the year was L56,744 (1998: L54,406). 25 CONTINGENT LIABILITIES The group has incentivised key management through deemed minority interests which would become payable in shares or cash following a crystallising event. Had the event taken place at the year end, the directors believe that the amount payable would not have been significant. 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the UK ("UK GAAP") which differ in certain respects from those generally accepted in the F-95 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) United States ("US GAAP"). The significant areas of difference affecting the financial statements of the Group are described below: RECONCILIATIONS The following is a summary of the material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP:
NOTE 1999 1998 -------- --------- --------- L L NET INCOME IN ACCORDANCE WITH UK GAAP....................... 404,244 737,233 ADJUSTMENTS TO CONFORM WITH US GAAP Dividends receivable on shares held by ESOT................. (a) (74,433) (60,494) Profit on sale of shares held by ESOT....................... (a) (3,600) (77,710) Deferred tax (charge)/benefit............................... (c) (69,156) 16,773 --------- --------- NET INCOME IN ACCORDANCE WITH US GAAP....................... 257,055 615,802 ========= =========
1999 1998 --------- --------- L L SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP.............. 3,767,057 3,571,686 ADJUSTMENTS TO CONFORM WITH US GAAP Dividends proposed but not approved or paid................. (d) 125,567 -- Reclassification of investment held by ESOT................. (a) (894,200) (900,300) Deferred tax asset.......................................... (c) -- 16,773 Deferred tax liability...................................... (c) (52,383) -- --------- --------- SHAREHOLDERS' FUNDS IN ACCORDANCE WITH US GAAP.............. 2,946,041 2,688,159 ========= =========
A) EMPLOYEE SHARE OWNERSHIP TRUST Under UK GAAP, shares in the company which are held by the ESOT are shown as fixed asset investments and the related dividends receivable and gain or loss on sale of shares are included in operating income. Under US GAAP, the shares held by the ESOT are shown as treasury shares and the dividends and gains or losses on sales of shares are not recognised. F-96 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) B) DISCONTINUED OPERATIONS The effect of discontinued operations on the 1998 results were as follows:
CONTINUING DISCONTINUED BUSINESSES BUSINESSES TOTAL ---------- ------------ ---------- L L L TURNOVER................................................. 11,345,155 555,683 11,900,838 Cost of sales............................................ (1,872,541) (431,268) (2,303,809) ---------- ---------- ---------- Gross profit............................................. 9,472,614 124,415 9,597,029 Net operating expenses................................... (8,067,016) (634,648) (8,701,664) Other income............................................. 60,494 -- 60,494 ---------- ---------- ---------- OPERATING PROFIT......................................... 1,466,092 (510,233) 955,859 ========== ========== ==========
NET LIABILITIES OF DISCONTINUED OPERATIONS
1999 1998 ---------- -------- L L Tangible assets........................................ 29,438 35,399 Debtors................................................ 946,698 47,121 Cash at bank........................................... 48,132 5,927 Creditors: amounts falling due within one year......... (1,962,813) (597,680) ---------- -------- Net liabilities........................................ (938,545) (509,233) ========== ========
C) INCOME TAXES Under UK GAAP, the Group provides for deferred taxation using the partial liability method on all timing differences to the extent that it is considered probable that the liabilities will crystallise in the foreseeable future. Deferred tax assets are recognised to the extent that they are recoverable without replacement in the foreseeable future. Under US GAAP, income taxes are accounted for under Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. The effect on deferred income tax assets and liabilities of a change in tax rates is recognised in income in the period that includes the enactment date. F-97 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Income before the provision for taxes consisted of the following:
1999 1998 -------- -------- L L Domestic.................................................. 571,521 439,349 Foreign................................................... 5,294 483,230 ------- ------- INCOME/(LOSS) BEFORE INCOME TAXES UNDER US GAAP........... 576,815 922,579 ======= =======
The following table reconciles the income tax provision/(benefit) at the United Kingdom statutory rate to that in the financial statements:
1999 1998 -------- -------- L L Taxes computed at 30.5% (1998: 31%)....................... 175,929 285,999 Permanent differences..................................... 42,806 33,947 Prior years' adjustments.................................. 35,527 8,896 Deferred tax charge (benefit)............................. 69,156 (16,773) ------- ------- Income tax charge......................................... 323,418 312,069 ======= =======
Details of the provision for income taxes in the consolidated statements of operations are as follows:
1999 1998 -------- -------- L L CURRENT TAXES Domestic.................................................. 205,000 230,008 Foreign................................................... 49,262 98,834 ------- ------- Total current............................................. 254,262 328,842 DEFERRED TAX (BENEFIT) Domestic.................................................. 69,156 (16,773) Foreign................................................... -- -- ------- ------- Total deferred............................................ 69,156 (16,773) ------- ------- TOTAL PROVISION FOR INCOME TAXES.......................... 323,418 312,069 ======= =======
The components of the Group's deferred tax assets and liabilities under US GAAP are as follows:
1999 1998 -------- -------- L L CURRENT DEFERRED TAX ASSET................................ -- 16,773 CURRENT DEFERRED TAX LIABILITIES.......................... (40,678) -- NON-CURRENT DEFERRED TAX LIABILITIES...................... (11,705) -- ------- ------- NET DEFERRED TAX (LIABILITIES)/ASSETS..................... (52,383) 16,773 ======= =======
F-98 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) All of the Group's deferred tax assets and liabilities relate to temporary differences in accounting and tax depreciation of tangible fixed assets. D) DIVIDENDS Under UK GAAP, the Group recognises a liability in respect of dividends when proposed. Under US GAAP, dividends are only recognised when dividends are approved or paid.
1999 1998 -------- -------- L L Amount of dividends approved or paid following US GAAP.... -- 397,885 Amount of dividends proposed following UK GAAP............ 200,000 400,000
E) STATEMENT OF CASH FLOWS Under UK GAAP, cash flows are presented separately for operating activities, return on investments and servicing of finance, taxation, capital investment and financial investments, equity dividends and financing activities. Cash and cash equivalents represents cash in hand and deposits repayable on demand with any qualifying financial institution, less overdrafts from any qualifying financial institution repayable on demand. Deposits are repayable on demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. Cash includes cash in hand and deposits denominated in foreign currencies. Liquid resources are current asset investments held as readily disposable stores of value. A readily disposable investment is one that is disposable by the reporting entity without curtailing or disrupting its business; and is either readily convertible into known amounts of cash at or close to its carrying amount, or traded in an active market. Under US GAAP, cash flows are reported as operating activities, investing activities and financing activities. Cash flow from taxation and returns on investments and servicing of finance would, with the exceptions of dividends paid, be included in operating activities. The payment of dividends would be included under financing activities. Cash and cash equivalents represents all highly liquid investments with original maturities of three months or less. Cash and cash equivalent balances consist of deposits with banks and financial institutions, which are unrestricted as to withdrawal or use. Set out below is a summary consolidated statement of cash flows for the Group under US GAAP.
1999 1998 -------- --------- L L Net cash (used in)/provided by operating activities..... (685,887) 1,636,795 Net cash provided by/(used in) investing activities..... 39,478 (572,027) Net cash used in financing activities................... (103,474) (465,563) -------- --------- Net (decrease)/increase in cash under US GAAP........... (749,883) 599,205 ======== =========
F-99 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) F) FIXED ASSETS Under UK GAAP, fixed assets are assessed for impairment when there is some indication that the carrying value of a fixed asset may exceed its recoverable amount. Impairment is determined and measured by comparing the carrying value of the fixed asset with its recoverable amount. The recoverable amount is the higher of the amounts that can be obtained from selling the fixed asset (net realisable value) or using the fixed asset (value in use which is normally determined by reference to discounted cash flows). Under US GAAP, the determination of whether an impairment has occurred is by reference to undiscounted cash flows. If this indicates an impairment the writedown is based upon the fair value of the asset which is usually determined by reference to discounted cash flows. As a result impairment writedowns are less likely to be recognised under US GAAP. The Group has not recorded any fixed asset impairments under UK or US GAAP during the years ended 30 September 1999 and 1998. G) USE OF ESTIMATES The preparation of financial statements in conformity with both US and UK GAAP 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. H) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Group to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Group performs ongoing credit evaluations of customers and generally does not require collateral on accounts receivable. The Group maintains allowances for potential credit losses and such losses have been within management's expectations. The allowances were L65,000 and L43,726 at 30 September 1999 and 1998 respectively. The fair market value of cash and cash equivalents, accounts receivable and debt instruments at 30 September 1999 and 1998 approximate their carrying amounts because of their short maturity. I) NEW ACCOUNTING PRONOUNCEMENTS In June 1998 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or a liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognised currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses on a derivative to offset related results on the hedged item in the income statement, and requires that a Group formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after 15 F-100 QD GROUP LIMITED NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) June 2000 and cannot be applied retroactively. The Group does not expect the impact of this new statement on its balance sheet or income statement to be material. In March 2000, Emerging Issues Task Force issued EITF 00-02 "Accounting for Web Site Development Costs." EITF 00-02 requires that certain costs incurred by a company in developing its own website be capitalised and that certain other costs should be expensed as incurred. The Group has not incurred significant costs in developing its own website. F-101 MOVECENTRAL, INC. STATEMENTS OF LOSS (UNAUDITED)
SIX MONTHS PERIOD ENDED ENDED JUNE 19, JUNE 30, 2000 1999 ------------ ---------- Revenue..................................................... $ 1,726,278 $2,038,971 ----------- ---------- Operating Expenses: Labor and related benefits................................ 2,021,703 748,111 Depreciation and amortization............................. 133,522 87,800 General and administrative................................ 2,465,544 1,372,439 ----------- ---------- Total operating expenses................................ 4,620,769 2,208,350 ----------- ---------- Operating loss.......................................... (2,894,491) (169,379) Interest and Other Expense, net............................. 67,075 32,891 ----------- ---------- Net loss................................................ $(2,961,566) $ (202,270) =========== ==========
The accompanying notes are an integral part of these financial statements. F-102 MOVECENTRAL, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS PERIOD ENDED ENDED JUNE 19, JUNE 30, 2000 1999 ------------ ---------- Cash Flows from Operating Activities: Net loss.................................................. $(2,961,566) $(202,270) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation and amortization........................... 133,522 87,800 Changes in operating assets and liabilities-- Accounts receivable................................... 209,194 (985,461) Supplies.............................................. 41,003 (16,807) Prepaid expenses and other assets..................... (678,606) (13,669) Accounts payable and accrued expenses................. (238,343) (73,855) Deferred revenue...................................... 241,096 879,771 ----------- --------- Net cash used in operating activities............... (3,253,700) (324,491) ----------- --------- Cash Flows from Investing Activities: Capital expenditures...................................... (368,829) (7,355) Loan receivable from employee............................. 112,210 (995) ----------- --------- Net cash used in investing activities............... (256,619) (8,350) ----------- --------- Cash Flows from Financing Activities: Repayments of long-term debt.............................. -- (78,662) Cash overdraft............................................ -- 161,803 Advance from TMP Worldwide Inc. .......................... 3,500,000 -- Net advances from affiliates.............................. 83,506 299,132 ----------- --------- Net cash provided by financing activities........... 3,583,506 382,273 ----------- --------- Net Increase (Decrease) in Cash............................. 73,187 (49,432) Cash, beginning of year..................................... 259 49,432 ----------- --------- Cash, end of year........................................... $ 73,446 $ -- =========== ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for-- Interest................................................ $ 1,623 $ 29,256 =========== =========
The accompanying notes are an integral part of these financial statements. F-103 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS JUNE 19, 2000 (UNAUDITED) (1) NATURE OF BUSINESS MoveCentral, Inc., a Massachusetts Subchapter S corporation (the Company), formerly Before You Move, Inc., provides database and direct marketing programs targeting the consumer relocation market. These services include address change notification, assistance with scheduling various relocation services, specialty publishing and Internet-based services. The Company operates in North America. (2) INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. (3) SUBSEQUENT EVENT On June 19, 2000, the Company entered into a Stock Purchase Agreement (the "Agreement") with TMP Worldwide Inc. ("TMP"), whereby TMP purchased all of the outstanding shares of the Company in exchange for approximately $20,000,000 in cash. The acquisition will be accounted under the purchase method of accounting. Under the terms of the Agreement, the Company will become a wholly-owned subsidiary of TMP. F-104 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of MoveCentral, Inc.: We have audited the accompanying balance sheets of MoveCentral, Inc., formerly Before You Move, Inc. (a Massachusetts Subchapter S corporation) as of December 31, 1999 and 1998 and the related statements of operations, shareholders' equity (deficit) and cash flows for the years then ended. 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 auditing standards generally accepted in the United States. 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 MoveCentral, Inc. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts February 25, 2000 F-105 MOVECENTRAL, INC. BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ---------- --------- ASSETS Current Assets: Cash...................................................... $ 259 $ 49,432 Accounts receivable....................................... 377,211 161,259 Supplies.................................................. 77,561 68,543 Prepaid postage........................................... 48,576 18,518 Other current assets...................................... 4,336 14,762 ---------- --------- Total current assets.................................. 507,943 312,514 Property and Equipment: Furniture and office equipment............................ 200,410 197,522 Computer equipment and software costs..................... 497,304 259,540 Motor vehicles............................................ -- 15,292 Leasehold improvements.................................... 46,790 46,790 ---------- --------- 744,504 519,144 Less -- Accumulated depreciation and amortization........... 279,684 157,886 ---------- --------- Total property and equipment, net..................... 464,820 361,258 ---------- --------- Loan Receivable from Employee............................... 109,710 100,000 Other Assets, net........................................... -- 138,201 ---------- --------- Total assets.......................................... $1,082,473 $ 911,973 ========== ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable.......................................... $ 300,184 $ 22,232 Accrued expenses.......................................... 390,107 539,689 Deferred revenue.......................................... 142,100 133,973 Due to affiliates......................................... 613,080 377,387 ---------- --------- Total current liabilities............................. 1,445,471 1,073,281 Long-term Liabilities....................................... -- 78,662 Commitments and Contingencies (Note 5) Shareholders' Deficit: Common stock, $0.01 par value -- Authorized -- 200,000 shares Issued and outstanding -- 107,941 shares................ 1,079 1,079 Paid-in capital........................................... 365,421 142,921 Accumulated deficit....................................... (729,498) (383,970) ---------- --------- Total shareholders' deficit........................... (362,998) (239,970) ---------- --------- Total liabilities and shareholders' deficit........... $1,082,473 $ 911,973 ========== =========
The accompanying notes are an integral part of these financial statements. F-106 MOVECENTRAL, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 ---------- ---------- Revenue..................................................... $4,583,829 $5,843,371 ---------- ---------- Operating Expenses: Labor and related benefits................................ 2,240,993 1,965,284 Depreciation and amortization............................. 275,291 199,486 General and administrative................................ 2,358,577 1,792,667 ---------- ---------- Total operating expenses.............................. 4,874,861 3,957,437 ---------- ---------- Operating (loss) income............................... (291,032) 1,885,934 Interest and Other Expense (Income), net.................... 54,496 (96,951) ---------- ---------- Net (loss) income..................................... $ (345,528) $1,982,885 ========== ==========
The accompanying notes are an integral part of these financial statements. F-107 MOVECENTRAL, INC. STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
RETAINED TOTAL ADDITIONAL EARNINGS SHAREHOLDERS' COMMON PAID-IN (ACCUMULATED EQUITY STOCK CAPITAL DEFICIT) (DEFICIT) -------- ---------- ------------ ------------- Balance, December 31, 1997....................... $1,079 $142,921 $ 558,479 $ 702,479 ------ -------- ----------- ----------- Net income..................................... -- -- 1,982,885 1,982,885 Dividend paid to shareholders.................. -- -- (2,925,334) (2,925,334) ------ -------- ----------- ----------- Balance, December 31, 1998....................... 1,079 142,921 (383,970) (239,970) ------ -------- ----------- ----------- Net loss....................................... -- -- (345,528) (345,528) Additional capital contribution................ -- 222,500 -- 222,500 ------ -------- ----------- ----------- Balance, December 31, 1999....................... $1,079 $365,421 $ (729,498) $ (362,998) ====== ======== =========== ===========
The accompanying notes are an integral part of these financial statements. F-108 MOVECENTRAL, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 --------- ---------- Cash Flows from Operating Activities: Net (loss) income......................................... $(345,528) $1,982,885 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -- Depreciation and amortization........................... 275,291 199,486 Changes in operating assets and liabilities -- Accounts receivable................................... (215,952) 504,969 Supplies.............................................. (9,018) 94,935 Prepaid expenses...................................... (19,632) 57,851 Accounts payable and accrued expenses................. 128,370 65,313 Deferred revenue...................................... 8,127 (904,777) --------- ---------- Net cash (used in) provided by operating activities........................................ (178,342) 2,000,662 --------- ---------- Cash Flows from Investing Activities: Capital expenditures...................................... (240,652) (112,628) Loan receivable from employee............................. (9,710) (100,000) --------- ---------- Net cash used in investing activities............... (250,362) (212,628) --------- ---------- Cash Flows from Financing Activities: Additional capital contribution........................... 222,500 -- Repayments of long-term term debt......................... (78,662) (401,250) Net advances from affiliates.............................. 235,693 1,537,982 Dividends paid to shareholders............................ -- (2,925,334) --------- ---------- Net cash provided by (used in) financing activities........................................ 379,531 (1,788,602) --------- ---------- Net Decrease in Cash........................................ (49,173) (568) Cash, beginning of year..................................... 49,432 50,000 --------- ---------- Cash, end of year........................................... $ 259 $ 49,432 ========= ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for--Interest................... $ 24,751 $ 41,515 ========= ==========
The accompanying notes are an integral part of these financial statements. F-109 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1--NATURE OF BUSINESS MoveCentral, Inc., a Massachusetts Subchapter S corporation (the Company), formerly Before You Move, Inc., provides database and direct marketing programs targeting the consumer relocation market. These services include address change notification, assistance with scheduling various relocation services, specialty publishing and Internet-based services. The Company operates in North America. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Certain software development, implementation and testing costs relating to internal-use software are accounted for in accordance with Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. This treatment includes the capitalization of both external direct costs and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project. Assets are depreciated on either a straight-line or an accelerated basis over the following useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE - -------------------- -------------------------- Furniture and office equipment.............................. 5-10 years Computer equipment and software costs....................... 18 months-7 years Motor vehicles.............................................. 5 years Leasehold improvements...................................... Lesser of term of lease or useful life of asset
Maintenance and repairs are charged to expense when incurred; renewals and improvements are capitalized. OTHER ASSETS Other assets consisted of covenants not to compete related to the acquisition of the outstanding stock of the Company by certain stockholders of Cross Country Automotive Services, Inc., an affiliate (see Note 3). The Company amortized the covenants not to compete on a straight-line basis over the term of the agreements, which expired December 31, 1999. Amortization expense was approximately $138,000 for the years ended December 31, 1999 and 1998. Certain of the former shareholders are receiving their noncompete payments over three years, beginning April 30, 1997. At December 31, 1999 and 1998, the Company has accrued $78,669 and $393,309, respectively, related to these payments, of which $78,669 is due during the year ending December 31, 2000. F-110 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCRUED EXPENSES Accrued expenses as of December 31, 1999 and 1998 consist of the following:
1999 1998 -------- -------- Accrued bonuses......................................... $159,900 $141,608 Accrued non-compete payments............................ 80,131 314,648 Accrued compensation.................................... 56,452 14,010 Other accrued expenses.................................. 93,624 69,423 -------- -------- $390,107 $539,689 ======== ========
REVENUE RECOGNITION AND DEFERRED REVENUE Revenue is recognized from services when services are performed. Deferred revenue arises from payments received in advance of services. INCOME TAXES The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, the entity does not pay federal or state corporate income taxes on its taxable income. Instead, the shareholders are liable for income taxes. Therefore, no provision for income taxes has been made. COMPREHENSIVE INCOME In 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for the reporting and display of comprehensive income and other comprehensive income items. In general, comprehensive income combines net income and other changes in equity during the year from nonowner sources. The adoption of this statement had no impact on total stockholders' equity for the years ended December 31, 1999 and 1998. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. Management believes that estimating the fair value of amounts due to related parties and from employees is not practicable. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts and for hedging activities) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedging accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a F-111 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 cannot be applied retroactively. The Company does not anticipate that the adoption of this new standard will have a material impact on the Company's fiscal position or results of operations. RECLASSIFICATIONS Certain amounts in the prior-year financial statements have been reclassified to conform to the current year's presentation. NOTE 3--RELATED PARTY TRANSACTIONS Certain shareholders of the Company are also shareholders of affiliated companies. The Company outsources certain human resources and accounting services to affiliated companies. The Company is also charged a management fee from an affiliate for services provided to the Company. For the years ended December 31, 1999 and 1998, the Company was charged $388,747 and $463,816, respectively, by affiliates for these services. To the extent the Company has available cash reserves or requirements, amounts are loaned to or from affiliates. As of December 31, 1999 and 1998, $613,080 and $377,887, respectively, was due to affiliates. Interest is charged at 8% on outstanding borrowings. For the year ended December 31, 1999, the Company recorded net interest expense of $39,553 and for the year ended December 31, 1998, the Company recorded $158,920 in net interest income. Cross Country Automotive Services, Inc., has agreed to continue to provide financial support when necessary to the Company. The Company has advanced an employee $100,000 in return for a note bearing interest at 6%. Thirty percent of any performance bonus received by the employee must be used to pay down the note. Any unpaid principal and interest will become due on June 1, 2003 or termination of employment. As of December 31, 1999, $109,710 was outstanding for principal and interest. NOTE 4--EMPLOYEE BENEFITS The Company participates in the Cross Country Automotive Services, Inc. and Affiliates Salary Reduction/Profit Sharing Plan under the provisions of Section 401(k) of the Internal Revenue Code. The plan covers all employees who have completed one full year of service with the Company. The Company, at its option, may contribute additional amounts to the plan based on each employee's contribution. Matching contribution expense was $9,849 and $11,297, respectively, for the years ended December 31, 1999 and 1998. NOTE 5--COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases facilities under a long-term, noncancelable real estate lease agreement expiring in 2002. The agreement provides for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The lease also contains various fixed increases in rent. Rent expense was $158,407 and $155,791, respectively, for the years ended December 31, 1999 and 1998. F-112 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED) The future minimum annual rental commitments under this long-term, noncancelable lease is as follows:
FISCAL YEARS AMOUNT - ------------ -------- 2000........................................................ $145,260 2001........................................................ 146,928 2002........................................................ 24,488 -------- $316,676 ========
EMPLOYMENT AGREEMENTS Several employees of the Company have employment agreements that provide for bonuses if certain criteria are met and provide for these individuals to receive a percentage of the proceeds over a certain threshold from a sale or initial public offering of the Company. Several former key employees of the Company had employment agreements that contained incentive bonus awards. The awards were paid over the period January 1, 1997 to December 31, 1999. The awards were based on percentages of the Company's two highest annual earnings, before interest, taxes, depreciation and amortization, during the period from January 1, 1994 to December 31, 1996. As of December 31, 1998 the Company had accrued $86,608 for these awards, all of which was paid during the year ending December 31, 1999. LEGAL PROCEEDINGS The Company is subject to various legal proceedings that arise in the ordinary course of business. Based on the opinion of the Company's legal counsel, management believes that the amount of ultimate liability with respect to these actions will not be material to the financial position or results of operations of the Company. NOTE 6--SEGMENT INFORMATION Operating segments represent the Company's products that are evaluated regularly by key management in assessing performance and resource allocation. The Company has determined that its reportable segments consist of its Address Express, MoveCentral.com and MoveNow! Magazine products. Address Express provides customer retention through a direct mail change-of-address notification service. The Company charges the corporate sponsors a fee, either on a fixed-price or per mailed kit basis, generally subject to an annual minimum. MoveCentral.com provides customers with online products through three Web subsites. The Web subsites allow corporate customers access to consumer demographic data and direct access to the customer on a real-time basis. The Web sites offer an online version of Address Express, access to various how-to articles, utilities pertaining to the moving process, and e-commerce for services needed in connection with a move. F-113 MOVECENTRAL, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 NOTE 6--SEGMENT INFORMATION (CONTINUED) MoveNow! Magazine is a magazine produced by the Company to offer consumers informative editorial articles, helpful hints, advertisements and direct-response checks and coupons, all relative to relocating. The segments follow the same accounting policies described in Note 2, Summary of Significant Accounting Policies, except the Company does not allocate centrally incurred administrative costs. These costs are presented as corporate expenses below. The Company does not track assets, depreciation and amortization or capital expenditures by segment, therefore such information is not presented. The Company's statement of operations on a segment basis for the years ended December 31, 1999 and 1998 were as follows:
1999 1998 ----------- ----------- Revenue: Address Express.................................. $ 3,713,373 $ 5,841,346 MoveCentral.com.................................. 738,733 2,025 MoveNow! Magazine................................ 131,723 -- ----------- ----------- 4,583,829 5,843,371 Operating expenses: Address Express.................................. 1,266,295 1,578,769 MoveCentral.com.................................. 714,889 105,243 MoveNow! Magazine................................ 620,001 16,667 Corporate........................................ 2,273,676 2,256,758 ----------- ----------- 4,874,861 3,957,437 Operating income (loss): Address Express.................................. 2,447,078 4,262,577 MoveCentral.com.................................. 23,844 (103,218) MoveNow! Magazine................................ (488,278) (16,667) Corporate........................................ (2,273,676) (2,256,758) ----------- ----------- (291,032) 1,885,934 Interest income.................................... 9,833 158,920 Interest expense................................... (64,329) (61,969) ----------- ----------- Net income (loss).................................. $ (345,528) $ 1,982,885 =========== ===========
NOTE 7--SIGNIFICANT CUSTOMERS Revenues from one customer for the year ended December 31, 1999 was approximately $3,000,000, which accounted for 65.4% of total revenue for the year. Revenues from two customers for the year ended December 31, 1998 were approximately $3,800,000 and $650,000, which accounted for 65.5% and 11.1%, respectively, of total revenue for the year. F-114 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Members of Rich, Gardner & Associates, Ltd. Atlanta, Georgia We have audited the accompanying balance sheets of Rich, Gardner & Associates, Ltd. (an S Corporation) as of December 31, 1999 and 1998, and the related statements of income, changes in members' equity and cash flows for the years then ended. 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 audits 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 Rich, Gardner & Associates, Ltd. (an S Corporation) as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP -------------------------------------- BDO SEIDMAN, LLP August 11, 2000, except for Note 8 for which the date is August 31, 2000 Milwaukee, Wisconsin F-115 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) BALANCE SHEETS
DECEMBER 31, ----------------------- 1999 1998 JUNE 30, 2000 ---------- ---------- ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents (Note 2)..................... $ 15,760 $ 11,018 $1,040,569 Accounts receivable, net of allowance for doubtful accounts of $160,000 at December 31, 1999 and June 30, 2000 and $35,000 at December 31, 1998 (Note 3)................................................... 2,477,949 2,017,818 1,497,818 Prepaid expenses and other current assets.............. 16,965 1,880 12,000 ---------- ---------- ---------- Total current assets..................................... 2,510,674 2,030,716 2,550,387 Property and equipment, net (Notes 2 and 4)........................................ 155,899 151,505 149,620 Other assets............................................. 57,293 48,697 57,293 ---------- ---------- ---------- Total assets............................................. $2,723,866 $2,230,918 $2,757,300 ========== ========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities Accounts payable and accrued expenses.................. $ 39,492 $ 101,680 $ 78,232 Accrued media payable.................................. 535,886 374,145 667,953 ---------- ---------- ---------- Total current liabilities................................ 575,378 475,825 746,185 Commitments and contingency (Notes 5 and 6)........................................ Members' equity Common stock, $1 par value; 100,000 shares authorized; 1,000 shares issued and outstanding.................. 1,000 1,000 1,000 Retained earnings........................................ 2,147,488 1,754,093 2,010,115 ---------- ---------- ---------- Total members' equity.................................... 2,148,488 1,755,093 2,011,115 ---------- ---------- ---------- Total liabilities and members' equity.................... $2,723,866 $2,230,918 $2,757,300 ========== ========== ==========
See accompanying notes to financial statements. F-116 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) STATEMENTS OF INCOME
DECEMBER 31, JUNE 30, ----------------------- ----------------------- 1999 1998 2000 1999 ---------- ---------- ---------- ---------- (UNAUDITED) Commissions and fees (Notes 2 and 7).......... $2,710,487 $2,618,847 $1,245,692 $1,202,335 ---------- ---------- ---------- ---------- Operating expenses Compensation and other benefits............. 1,157,516 1,188,284 596,480 662,926 Marketing and promotion..................... 35,344 54,868 21,485 23,318 General and administrative.................. 923,243 846,980 371,864 289,114 ---------- ---------- ---------- ---------- 2,116,103 2,090,132 989,829 975,358 ---------- ---------- ---------- ---------- Income from operations........................ 594,384 528,715 255,863 226,977 Other income, net............................. 68,011 65,868 39,764 27,677 ---------- ---------- ---------- ---------- Net income.................................... $ 662,395 $ 594,583 $ 295,627 $ 254,654 ========== ========== ========== ==========
See accompanying notes to financial statements. F-117 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) STATEMENTS OF MEMBERS' EQUITY BALANCE, January 1, 1998.................................... $1,932,510 Distributions (Note 2).................................... (772,000) Net income................................................ 594,583 ---------- BALANCE, December 31, 1998.................................. 1,755,093 Distributions (Note 2).................................... (269,000) Net income................................................ 662,395 ---------- BALANCE, December 31, 1999.................................. 2,148,488 Distributions (Note 2) (Unaudited)........................ (433,000) Net income (Unaudited).................................... 295,627 ---------- BALANCE, June 30, 2000 (Unaudited).......................... $2,011,115 ==========
See accompanying notes to financial statements. F-118 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) STATEMENTS OF CASH FLOWS
DECEMBER 31, JUNE 30, --------------------- ----------------------- 1999 1998 2000 1999 --------- --------- ---------- ---------- (UNAUDITED) OPERATING ACTIVITIES Net income.................................... $ 662,395 $ 594,583 $ 295,627 $ 254,654 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debt...................... 125,000 35,000 35,000 35,000 Depreciation and amortization............... 50,582 46,777 27,217 22,423 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable.............................. (585,131) 390,018 945,131 233,914 (Increase) decrease in prepaid expenses and other current assets................ (15,085) 200 4,965 (2,241) Increase in other assets.................. (8,596) (13,415) -- -- Increase (decrease) in accounts payable and accrued expenses.................... (62,188) (111,085) 38,740 439,416 Increase (decrease) in accrued media payable................................. 161,741 (104,451) 132,067 262,683 --------- --------- ---------- ---------- Cash provided by operating activities........... 328,718 837,627 1,478,747 1,245,849 --------- --------- ---------- ---------- INVESTING ACTIVITY Purchase of property and equipment............ (54,976) (69,559) (20,938) (14,923) --------- --------- ---------- ---------- FINANCING ACTIVITY Distributions of income....................... (269,000) (772,000) (433,000) (184,000) --------- --------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... 4,742 (3,932) 1,024,809 1,046,926 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................ 11,018 14,950 15,760 11,018 --------- --------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 15,760 $ 11,018 $1,040,569 $1,057,944 ========= ========= ========== ==========
See accompanying notes to financial statements F-119 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Rich, Gardner & Associates, Ltd. (the "Company") was organized in 1985 as a full-service recruitment advertising and employee communications agency. The Company is located in and conducts business primarily in Atlanta, Georgia and is one of the largest independent recruitment agencies in the nation. The Company's services encompass the entire realm of recruitment advertising and employee communications, including internet strategies, newspaper advertising, trade publication campaigns, campus recruitment, career fairs, collateral materials, diversity programs, employee referral programs, open house/conventions, direct mail, outdoor advertising, and application response management. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL INFORMATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 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. REVENUE RECOGNITION The company earns commissions and fees for the placement of advertisements on the Internet, in newspapers and other media. Revenue is recognized upon placement date for newspapers and other media. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. For the most part, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. F-120 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at historical cost. Property and equipment is depreciated utilizing the straight-line method over the estimated useful lives of 3 to 7 years. Expenditures for repairs and maintenance are charged to expenses as incurred. INCOME TAXES The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal corporate income taxes on its taxable income. Instead the stockholders are liable for federal income taxes on their respective share of the Company's taxable income. The state of Georgia does not assess state corporate income taxes against the taxable income of S corporations. The election was effective for the tax year beginning October 25, 1985. DISTRIBUTION OF EARNINGS The Company distributes earnings to its stockholders' based upon the Company's taxable income on a cash basis. 3. ACCOUNTS RECEIVABLE Accounts receivable consists entirely of trade receivables. Earned revenue receivable representing fees on advertisements that have been published but not billed as of December 31, 1999 and 1998 are not material. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
1999 1998 -------- -------- Computer equipment and related software................. $288,197 $241,582 Office furniture and fixtures........................... 40,900 33,324 Machinery and equipment................................. 125,603 124,818 -------- -------- 454,700 399,724 Less: Accumulated depreciation and amortization......... 298,801 248,219 -------- -------- $155,899 $151,505 ======== ========
For the years ended December 31, 1999 and 1998, depreciation and amortization expense amounted to $50,582 and $46,777, respectively. F-121 RICH, GARDNER & ASSOCIATES, LTD. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS OPERATING LEASES The Company leases office space under a month-to-month operating lease with a related party. This lease is subject to escalations for increases in real estate taxes and other expenses. The Company also leases autos and office equipment under operating leases. At December 31, 1999, the future minimum lease commitments for these obligations are as follows:
YEAR AMOUNT - ---- -------- 2000........................................................ $25,791 2001........................................................ 21,392 2002........................................................ 12,173 2003........................................................ 2,002 ------- $61,358 =======
Rent expense under operating leases was $146,625 and $184,408 for the years ended December 31, 1999 and 1998, respectively. 6. 401(K) PLAN The Company has a 401(k) plan. The Company's contribution is discretionary, and the Company's annual contribution for 1999 and 1998 was $7,898 and $9,483, respectively. 7. MAJOR CUSTOMER During 1998, the Company had commissions from one customer of approximately $255,000 or approximately 10% of commissions. Accounts receivable to this customer at December 31, 1998 was approximately $31,000. There was no major customer for the year ended December 31, 1999. 8. SUBSEQUENT EVENT On August 31, 2000 all of the outstanding ownership interests of the Company were exchanged for $3.3 million of TMP Worldwide, Inc. common stock in a merger transaction to be accounted for as a pooling of interests. F-122 STRATASCAPE, INC. BALANCE SHEET AS OF JUNE 30, 2000 (UNAUDITED) ASSETS CURRENT ASSETS: Accounts receivable....................................... $1,883,278 Unbilled receivables...................................... 628,785 Other current assets...................................... 7,321 ---------- TOTAL CURRENT ASSETS.................................... 2,519,384 ---------- FIXED ASSETS, NET........................................... 21,070 ---------- OTHER ASSETS: Deposits.................................................. 24,032 ---------- TOTAL OTHER ASSETS...................................... 24,032 ---------- TOTAL ASSETS.......................................... $2,564,485 ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $1,921,401 Accrued liabilities....................................... 220,602 Cash overdraft............................................ 49,687 Deferred franchise taxes.................................. 5,450 Note payable -- current portion........................... 1,942 ---------- TOTAL CURRENT LIABILITIES............................... 2,199,082 LONG TERM LIABILITIES: Notes payable............................................. 2,623 ---------- TOTAL LIABILITIES....................................... 2,201,706 SHAREHOLDERS' EQUITY Common stock -- 1,500 shares authorized 200 shares issued and outstanding....................... 10,000 Retained earnings......................................... 352,780 ---------- TOTAL LIABILITIES AND EQUITY............................ $2,564,485 ==========
The accompanying notes are an integral part of these financial statements. F-123 STRATASCAPE, INC. STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 2000 1999 ---------- ---------- Revenues.................................................... $8,440,872 $3,940,960 Direct costs................................................ 6,420,772 2,991,255 ---------- ---------- Gross profit.............................................. 2,020,100 949,705 General and administrative.................................. 605,046 378,746 ---------- ---------- Income from operations.................................... 1,415,054 570,959 Other income (expense) Interest income, net...................................... 125 271 Loss on disposal of assets................................ (4,317) -- ---------- ---------- Net income before franchise tax........................... 1,410,863 571,230 Provision for California franchise tax...................... 21,200 14,004 ---------- ---------- Net income................................................ $1,389,663 $ 557,226 ========== ==========
The accompanying notes are an integral part of these financial statements. F-124 STRATASCAPE, INC. STATEMENT OF RETAINED EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) Balance, at beginning of year............................... $ 513,117 Net income for the year to date............................. 1,389,663 Cash dividends.............................................. (1,550,000) ---------- Balance, at June 30, 2000................................... $ 352,780 ==========
The accompanying notes are an integral part of these financial statements. F-125 STRATASCAPE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------ 2000 1999 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 1,389,663 $ 557,226 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 9,875 20,364 Loss on disposal of fixed assets...................... 4,317 -- Deferred franchise tax benefit........................ (4,194) (4,250) (Increase) decrease in current assets: Accounts receivable................................... (690,366) (425,881) Unbilled receivables.................................. (244,071) (225,615) Other current assets.................................. 9,345 (500) Increase (decrease) in current liabilities: Accounts payable...................................... 1,001,182 815,482 Accrued salaries and related payroll taxes............ (24,464) 37,838 Accrued paid time off................................. 10,746 9,277 Commissions payable................................... 114,761 44,422 Customer deposit...................................... -- 20,000 Other current liabilities............................. (19,497) 10,402 ----------- ---------- Net cash provided by operating activities........... 1,557,297 858,765 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of equipment.................................. (3,865) (16,976) Increase in deposits...................................... (10,000) (3,445) ----------- ---------- Net cash used by investing activities............... (13,865) (20,421) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends............................................ (1,550,000) (600,000) Cash overdraft............................................ 8,165 (41,417) Repayments on long-term debt.............................. (1,597) -- ----------- ---------- Net cash used by financing activities............... (1,543,432) (641,417) ----------- ---------- Net decrease in cash...................................... -- 196,927 Cash, at beginning of year................................ -- -- ----------- ---------- Cash, at end of period.................................... $ -- $ 196,927 =========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for interest.............. $ 404 $ -- Cash paid during the period for franchise tax......... $ 44,891 $ 5,541
The accompanying notes are an integral part of these financial statements. F-126 STRATASCAPE, INC. NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL INFORMATION The financial statements have been prepared in accordance with generally accepted accounting principles and, in management's opinion, include all normal recurring adjustments necessary for a fair statement of results for the interim period. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted; however, the Company believes that the disclosures made are adequate to keep the information presented from being misleading. CASH AND CASH EQUIVALENT For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. REVENUE RECOGNITION Revenues are recognized on fixed price/per hour contracts as the work is performed. Costs include labor and any other costs related to performance of a job. CONCENTRATION OF CREDIT RISK The Company's exposure to concentration of credit risk consists primarily of its accounts receivable. Such credit risk is considered by management to be limited due to the Company's customer base, collection history, and the fact that it has never incurred any credit losses. For these reasons, there is no allowance for doubtful accounts at June 30, 2000. Accounts receivable account for 98% of the balance sheet assets as of June 30, 2000, including $628,765 in unbilled receivables. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is computed using the double declining and straight line methods over the estimated useful lives of the assets, which range from 5 to 7 years. At June 30, 2000, fixed assets consist of: Computer software & equipment............................. $ 57,549 Leasehold improvements.................................... 12,767 Other property & equipment................................ 37,492 -------- 107,808 Less accumulated depreciation and amortization............ (86,738) -------- Fixed assets, net......................................... $ 21,070 ========
Depreciation and amortization expense charged to operations for the period ended June 30, 2000 was $9,875. F-127 STRATASCAPE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The shareholders have consented to the Company's election to be treated as an "S corporation" for Federal and California income tax purposes. Under this election, the income or loss of the Company is reported on the shareholders' individual income tax returns. Consequently, there are no provisions for Federal or California income taxes in the accompanying financial statements. The Company is, however, subject to California franchise tax at the rate of 1.5% on the income of the Corporation. The Company's franchise tax expense consists of:
CURRENT DEFERRED TOTAL -------- -------- -------- Six months ended June 30, 2000................... $25,394 $(4,194) $21,200 ======= ======= ======= Six months ended June 30, 1999................... $18,254 $(4,250) $14,004 ======= ======= =======
The franchise tax effects of differences in timing when revenues and expenses are reflected in accordance with regular accounting practices and when they are recognized for franchise tax purposes are shown in the balance sheet as deferred franchise taxes. The deferred franchise tax liability is primarily the result of the Company's use of the cash method of accounting for franchise tax purposes. F-128 INDEPENDENT AUDITORS' REPORT To the Board of Directors Stratascape, Inc. We have audited the accompanying balance sheet of Stratascape, Inc. (an S corporation) as of December 31, 1999 and 1998 and the related statements of income, retained earnings, and cash flows for the years then ended. 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 our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence assessing 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 Stratascape, Inc. as of December 31, 1999 and 1998 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. August 24, 2000 /s/ FINCK, RUDNICK & COMPANY - -------------------------------------- FINCK, RUDNICK & COMPANY Menlo Park, California F-129 STRATASCAPE, INC. BALANCE SHEETS (SEE ACCOUNTANTS' AUDIT REPORT)
DECEMBER 31, --------------------- 1999 1998 ---------- -------- ASSETS CURRENT ASSETS: Accounts receivable....................................... $1,192,912 $511,684 Unbilled receivables...................................... 384,714 119,589 Other current assets...................................... 16,666 1,085 ---------- -------- TOTAL CURRENT ASSETS.................................. 1,594,292 632,357 ---------- -------- FIXED ASSETS, NET........................................... 31,396 29,840 ---------- -------- OTHER ASSETS: Deposits.................................................. 14,032 7,402 ---------- -------- Total other assets...................................... 14,032 7,402 ---------- -------- Total assets.......................................... $1,639,720 $669,599 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Cash overdraft............................................ $ 41,522 $ 41,417 Note payable, current portion............................. 1,942 -- Accounts payable.......................................... 913,061 193,627 Accrued franchise taxes................................... 22,391 -- Deferred franchise taxes.................................. 9,644 6,147 Accrued liabilities....................................... 123,821 31,801 ---------- -------- TOTAL CURRENT LIABILITIES............................... 1,112,381 272,992 COMMITMENTS NOTE PAYABLE, LESS CURRENT PORTION.......................... 4,221 -- ---------- -------- TOTAL LIABILITIES..................................... 1,116,602 272,992 SHAREHOLDERS' EQUITY Common stock--1,500 shares authorized 200 shares issued and outstanding......................................... 10,000 10,000 Retained earnings......................................... 513,118 386,607 ---------- -------- TOTAL LIABILITIES AND EQUITY.......................... $1,639,720 $669,599 ========== ========
The accompanying notes are an integral part of this balance sheet. F-130 STRATASCAPE, INC. STATEMENTS OF INCOME (SEE ACCOUNTANTS' AUDIT REPORT)
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ----------- ---------- Revenues.................................................... $10,456,092 $3,537,152 Direct costs................................................ 7,872,208 2,549,630 ----------- ---------- Gross Profit.......................................... 2,583,884 987,522 General and administrative.................................. 919,046 522,549 ----------- ---------- Income from operations................................ 1,664,838 464,973 Other income (expense) Interest Income........................................... 875 554 Interest Expense.......................................... (256) (3) Loss on sale of assets.................................... -- (144) ----------- ---------- Net income before income tax.............................. 1,665,457 465,380 Provision for California franchise tax...................... 31,116 2,814 ----------- ---------- Net income................................................ $ 1,634,341 $ 462,566 =========== ==========
The accompanying notes are an integral part of these financial statements. F-131 STRATASCAPE, INC. STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (SEE ACCOUNTANTS' AUDIT REPORT) Balance, at January 1, 1998................................. $ 276,268 Net income for the year..................................... 462,566 Cash dividends.............................................. (352,227) ----------- Balance, at December 31, 1998............................... 386,607 Net income for the year..................................... 1,634,341 Cash dividends.............................................. (1,507,830) ----------- Balance, at December 31, 1999............................... $ 513,118 ===========
The accompanying notes are an integral part of these financial statements. F-132 STRATASCAPE, INC. STATEMENTS OF CASH FLOWS (SEE ACCOUNTANTS' AUDIT REPORT)
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ----------- ---------- Cash Flows From Operating Activities: Net income................................................ $1,634,341 $ 462,566 Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation and amortization........................... 40,725 23,231 Deferred taxes.......................................... 3,497 1,950 (Increase) decrease in current assets: Accounts receivable..................................... (561,639) (122,308) Unbilled receivables.................................... (384,714) (119,589) Employee advances....................................... (915) 56,742 Prepaids................................................ (14,666) -- Increase (decrease) in current liabilities: Accounts payable........................................ 779,211 106,348 Accrued salaries and related payroll taxes.............. (27,346) (25,885) Other current liabilities............................... 81,979 2,311 ---------- --------- Net Cash Provided by (Used by) Operating Activities... 1,550,473 385,366 ---------- --------- Cash Flows From Investing Activities: Acquisition of equipment.................................. (35,678) (24,520) Increase in deposits...................................... (6,630) (500) ---------- --------- Net Cash Used by Investing Activities................. (42,308) (25,020) ---------- --------- Cash Flows From Financing Activities: Cash dividends............................................ (1,507,830) (352,227) Cash overdraft............................................ 105 41,417 Repayments on long-term debt.............................. (440) (50,000) ---------- --------- Net Cash Used by Financing Activities................. (1,508,165) (360,810) ---------- --------- Net increase (decrease) in cash........................... -- (464) Cash, at beginning of year................................ -- 464 ---------- --------- Cash, at end of year...................................... $ -- $ -- ========== ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the year for interest.................. $ 256 $ 3 Franchise tax paid...................................... $ 5,568 $ 864 Note payable incurred for use of equipment.............. $ 6,603 $ --
The accompanying notes are an integral part of these financial statements. F-133 STRATASCAPE, INC. NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 (SEE ACCOUNTANTS' AUDIT REPORT) 1. ORGANIZATION AND BUSINESS Stratascape, Inc. (a California S Corporation) was organized on June 6, 1996. The Company is in the business of providing technical staff to high tech companies in the San Francisco Bay area. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. REVENUE RECOGNITION Revenues are earned on fixed price/per hour contracts as the work is performed. Costs include labor and any other costs related to performance of a job. CONCENTRATION OF CREDIT RISK The Company's exposure to concentration of credit risk consists primarily of its accounts receivable. Such credit risk is considered by management to be limited due to the Company's customer base, collection history, and the fact that it has never incurred any credit losses. For these reasons, there is no allowance for doubtful accounts at December 31, 1999 or 1998. Accounts receivable account for 96% and 94%, respectively, of the balance sheet assets as of December 31, 1999 and 1998 and includes $384,714 and $119,589, respectively, of accounts unbilled. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is computed using the double declining and straight line methods over the estimated useful lives of the assets, which range from 5 to 7 years.
DECEMBER 31, ------------------- 1999 1998 -------- -------- Computer software & equipment......................... $ 75,146 $ 53,149 Leasehold improvements................................ 12,767 12,767 Other assets.......................................... 39,212 18,928 -------- -------- 127,125 84,844 Less accumulated depreciation and amortization........ (95,729) (55,004) -------- -------- Fixed assets, net..................................... $ 31,396 $ 29,840 ======== ========
INCOME TAXES The shareholders have consented to the Company's election to be treated as an "S Corporation" for Federal and California income tax purposes. Under this election, the income or loss of the Company is reported on the shareholders' individual income tax returns. Consequently, there are no provisions for F-134 STRATASCAPE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (SEE ACCOUNTANTS' AUDIT REPORT) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Federal or California income taxes in the accompanying financial statements. The Company is, however, subject to California franchise tax at the rate of 1.5% on the income of the Corporation. The Company's franchise tax expense consists of:
YEAR ENDED DECEMBER 31, CURRENT DEFERRED TOTAL - ----------------------- -------- -------- -------- 1999............................................. $27,619 $3,497 $31,116 ======= ====== ======= 1998............................................. $ 864 $1,950 $ 2,814 ======= ====== =======
The franchise tax effects of differences in the tax basis of assets and liabilities and their financial reporting amounts are shown in the balance sheet as deferred franchise taxes. The deferred franchise tax liability is primarily the result of the Company's use of the cash method for income tax purposes. 3. ACCRUED LIABILITIES Accrued liabilities, consist of the following:
YEAR ENDED DECEMBER 31, ------------------ 1999 1998 -------- ------- Accrued salaries and taxes payable....................... $ 70,654 $29,512 Commissions payable...................................... 38,705 -- Paid time off accrual.................................... 7,305 -- Other current liabilities................................ 7,157 2,311 -------- ------- Total accrued liabilities................................ $123,821 $31,823 ======== =======
4. COMMITMENTS The Company leases office space under two non-cancelable operating leases which expire in January, 2003. Rent expense for the year ended December 31, 1999 and 1998 amounted to $33,960 and $48,613, respectively. In addition to the above mentioned leases, the Company also has operating leases for a copier which expires in October, 2002. Minimum future rental payments are as follows:
YEAR ENDED DECEMBER 31 - ----------- 2000........................................................ $ 65,642 2001........................................................ 71,472 2002........................................................ 71,220 2003........................................................ 5,830 -------- $214,164 ========
F-135 STRATASCAPE, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (SEE ACCOUNTANTS' AUDIT REPORT) 5. LONG TERM DEBT LINE OF CREDIT The Company maintains a $100,000 line of credit arrangement with a bank which matures March 31, 2001. The proceeds of the line of credit are to be used for short-term operating cash needs. The arrangement carries interest at the bank's reference rate plus 2.625%. At December 31, 1999 and 1998, there were no borrowings under the arrangement. See Note 6. NOTE PAYABLE
DECEMBER 31, 1999 ------------------ Note Payable to Greentree Vendor Services, due May 30, 2002. The terms of the note require monthly payments of principal plus interest payable at 15.6954%...... $ 6,163 Less: current maturities included in current liabilities..................................... (1,942) ------- $ 4,221 =======
Borrowing under the note is secured by a first priority security interest in the Gateway Server. Minimum future principal loan payments are as follows:
YEAR ENDED DECEMBER 31 - ----------- 2000........................................................ $1,942 2001........................................................ 3,109 2002........................................................ 1,112 ------ $6,163 ======
6. SUBSEQUENT EVENTS (a) Line of Credit The Company closed the credit line on August 16, 2000. (b) Merger with TMP Worldwide, Inc. ("TMP") In August 2000, the Company entered into a letter of intent which provided for all of the outstanding common stock of the Company to be exchanged for 311,978 shares of TMP stock in a transaction to be accounted for as a pooling of interests. F-136 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following Pro Forma Condensed Consolidated Financial Information reflects financial information with respect to (i) the acquisition, effective January 1, 2000, by TMP Worldwide Inc. and subsidiaries ("TMP" or the "Company") of all the outstanding stock of Baumgartner & Partner Personalberatung GmbH ("Baumgartner") for a purchase price of approximately $20 million which includes 169,764 TMP shares and $10 million in cash, (ii) the acquisition, effective June 19, 2000, of all of the outstanding stock of MoveCentral, Inc. ("MoveCentral") for a purchase price of $20.0 million in cash, (iii) the acquisition, effective September 5, 2000, by TMP of all the outstanding stock of QD Group Limited ("QD Group") for a purchase price of approximately $58.9 million, consisting of approximately $15.9 million in cash, $12.2 million in seller notes, payable over two years plus interest at LIBOR plus 0.5% and approximately $30.8 million in TMP stock, representing 475,853 shares of TMP common stock, (iv) the acquisition, effective August 31, 2000, by TMP of all the outstanding stock of Rich, Gardner & Associates, Ltd. ("RG") for a purchase price of $3.3 million, consisting of 43,535 shares of TMP common stock, and (v) the acquisition, effective August 31, 2000, by TMP of all the outstanding stock of Stratascape, Inc. ("Stratascape") for a purchase price of $24.0 million, consisting of 311,978 shares of TMP common stock. The acquisitions of Baumgartner, MoveCentral and QD Group will be accounted for under the purchase method and the acquisitions of RG and Stratascape will be accounted for as poolings of interests. The Unaudited Pro Forma Condensed Consolidated Financial Information is derived from the consolidated financial statements and the consolidated condensed financial statements of TMP included herein and the historical financial statements of Baumgartner, MoveCentral, QD Group, RG and Stratascape included herein. The Unaudited Pro Forma Condensed Consolidated Statements of Income (Loss) for the six months ended June 30, 2000 and for the year ended December 31, 1999 give effect to the acquisition of Baumgartner, MoveCentral and QD Group as if they had occurred on January 1, 1999 and of RG and Stratascape as if they had occured on January 1, 1997. The consolidated financial statements of QD Group were translated from British pounds to U.S. dollars at the rate of 1.60 and 1.63 with respect to the June 2000 and December 1999 statements of income (loss), respectively. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000, assumes that the acquisitions of QD Group, RG and Stratascape occurred as of this date and British pounds were translated to U.S. dollars at the rate of 1.60. The Baumgartner and MoveCentral acquisitions occurred prior to June 30, 2000, and, accordingly are already reflected in TMP's balance sheet. For purposes of the unaudited pro forma financial statements, TMP's consolidated condensed balance sheet as of June 30, 2000 and the consolidated condensed statement of income for the six months then ended and the consolidated statement of income (loss) for the year ended December 31, 1999 have been combined with the balance sheet of QD Group, RG and Stratascape as of June 30, 2000 and their statements of operations for the six months ended June 30, 2000 and for the year ended December 31, 1999, respectively, except for QD Group for which the year ended September 30, 1999 is combined with that of TMP for the year ended December 31, 1999. With respect to the statements of income (loss) for the six months ended June 30, 2000 and the year ended December 31, 1999, those of TMP have been combined with those of MoveCentral for the period ended June 19, 2000 and the year ended December 31, 1999, respectively, and with that of Baumgartner for only the year ended December 31, 1999 since the acquisition was effective as of January 1, 2000. The Unaudited Pro Forma Condensed Consolidated Financial Information gives effect to the acquisitions of Baumgartner, MoveCentral and QD Group based upon actual allocation of the purchase price, and includes all adjustments described in the notes thereto. The pro forma adjustments are based on certain assumptions that TMP's management believes are reasonable under the circumstances and do not reflect any potential cost savings. The Unaudited Pro Forma Condensed Consolidated Information is not necessarily indicative of the results that would have been reported if such events had occurred on the date specified nor is it intended to project TMP's results of operations or financial position for any future period or date. The Unaudited Pro Forma Condensed Consolidated Information set forth should be read in conjunction with the audited consolidated financial statements of TMP as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999, the audited financial statements of Baumgartner and MoveCentral as of and for the years ended December 31, 1999 and 1998, QD Group as of and for the years ended September 30, 1999 and 1998 and RG and Stratascape as of December 31, 1999 and 1998 and for the years then ended, the unaudited consolidated condensed financial statements of TMP as of June 30, 2000 and for the six months ended June 30, 2000 and 1999, the unaudited financial statements as of June 30, 2000 and for the six months ended June 30, 2000 and 1999 for QD Group, RG and Stratascape and the unaudited financial statements for the period of January 1, 2000 through June 19, 2000 and the six months ended June 30, 1999 for MoveCentral, all included herein. F-137 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS) (UNAUDITED)
QD GROUP TMP BUSINESSES WORLDWIDE QD GROUP NOT INC. LIMITED ACQUIRED RG STRATASCAPE ---------- ---------- ---------- -------- ----------- ASSETS Current assets Cash and cash equivalents..................... $ 511,445 $ 3,323 $ (39) $1,040 $ -- Account receivable, net....................... 539,897 6,254 (577) 1,498 2,512 Due from affiliates........................... -- -- 4,864 -- -- Prepaid and other............................. 58,725 625 (5) 12 7 Work-in-process............................... 26,970 -- -- -- -- ---------- ------- ------ ------ ------ Total current assets........................ 1,137,037 10,202 4,243 2,550 2,519 Property and equipment, net................... 98,352 1,388 (93) 150 21 Intangibles, net.............................. 374,658 -- -- -- -- Other assets.................................. 33,192 1,417 -- 57 24 ---------- ------- ------ ------ ------ Total Assets................................ $1,643,239 $13,007 $4,150 $2,757 $2,564 ========== ======= ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.............................. $ 325,640 $ 1,282 $ (73) $ 78 $1,921 Accrued expenses and other current liabilities................................. 209,320 1,819 (197) 668 276 Accrued integration and restructuring costs... 21,850 -- -- -- -- Deferred commissions and fees................. 104,174 1,322 (70) -- -- Current portion of long term debt............. 8,141 313 -- -- --2 ---------- ------- ------ ------ ------ Total current liabilities................... 669,125 4,736 (340) 746 2,199 Long term debt, less current portion............ 15,139 224 -- -- 3 Other long-term liabilities..................... 22,318 -- -- -- -- ---------- ------- ------ ------ ------ Total Liabilities........................... 706,582 4,960 (340) 746 2,202 ---------- ------- ------ ------ ------ Stockholders' equity Common stock.................................. 91 71 (44) 1 10 Class B common stock.......................... 5 -- -- -- -- Additional paid-in capital.................... 1,017,899 47 -- -- -- Other comprehensive loss...................... (42,836) (62) 18 -- -- Retained earnings (deficit)................... (38,502) 7,991 4,516 2,010 352 ---------- ------- ------ ------ ------ Total stockholders' equity...................... 936,657 8,047 4,490 2,011 362 ---------- ------- ------ ------ ------ Total Liabilities & Stockholders' Equity.... $1,643,239 $13,007 $4,150 $2,757 $2,564 ========== ======= ====== ====== ====== ADJUSTMENTS TOTAL ----------- ---------- ASSETS Current assets Cash and cash equivalents..................... $ (15,917 )(a) $ 499,852 Account receivable, net....................... -- 549,584 Due from affiliates........................... (4,584)(b) 280 Prepaid and other............................. (33)(b) 59,331 Work-in-process............................... -- 26,970 --------- ---------- Total current assets........................ (20,534) 1,136,017 Property and equipment, net................... -- 99,818 Intangibles, net.............................. 52,396 (c) 427,054 Other assets.................................. (1,417)(b) 33,273 --------- ---------- Total Assets................................ $ 30,445 $1,696,162 ========= ========== LIABILITIES AND STOCKHOLDERS' LIABI EQUITY Current liabilities Accounts payable.............................. $ -- $ 328,848 Accrued expenses and other current liabilities................................. -- 211,886 Accrued integration and restructuring costs... -- 21,850 Deferred commissions and fees................. -- 105,426 Current portion of long term debt............. 12,141 (a) 20,597 --------- ---------- Total current liabilities................... 12,141 688,607 Long term debt, less current portion............ -- 15,366 Other long-term liabilities..................... -- 22,318 --------- ---------- Total Liabilities........................... 12,141 726,291 --------- ---------- Stockholders' equity Common stock.................................. (37)(d) 92 Class B common stock.......................... -- 5 Additional paid-in capital.................... 30,804 (a) 1,051,112 2,362 (f) Other comprehensive loss...................... 44 (e) (42,836) Retained earnings (deficit)................... (12,507)(e) (38,502) (2,362)(f) --------- ---------- Total stockholders' equity...................... 18,304 969,871 --------- ---------- Total Liabilities & Stockholders' Equity.... $ 30,445 $1,696,162 ========= ==========
- ---------------------------------- (a) Adjustment reflects aggregate purchase price of $58.9 million, consisting of 476 shares of TMP stock valued at $30.8 million issued to QD Group shareholders, and an additional $28.1 million payable in cash and seller notes. (b) Amounts reflect the write off for QD Group of an intercompany receivable for businesses not acquired of $4,584, the elimination of an investment in QD Group shares held by an ESOT in the amount of $1,417 as required by U.S. GAAP and the effect of providing deferred taxes in accordance with U.S. GAAP in the amount of $33. (c) Amount represents goodwill recorded for the excess of cost over the fair value of net assets acquired in the QD Group Limited transaction. Purchase price.............................................. $58.9 million Net assets of QD Group Limited.............................. (8.0) million Effect of excluded business................................. (4.5) million Effect of U.S. GAAP......................................... 1.4 million Write off of amounts due from businesses not acquired....... 4.6 million ------------- Goodwill.................................................... $52.4 million =============
(d) Represents the par value of 356 shares of TMP stock issued in connection with the mergers of RG and Stratascape plus 476 issued in connection with the purchase QD Group offset by the elimination of the net par value of the common shares of these three companies. (e) To eliminate other comprehensive loss of $44 and retained earnings of $12,507 of QD Group, including amounts for business not acquired. (f) To reclassify the retained earnings of RG and Stratascape. F-138 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QD GROUP TMP BUSINESSES WORLDWIDE, QD GROUP NOT MOVE INC. LIMITED ACQUIRED RG STRATASCAPE CENTRAL ADJUSTMENTS TOTAL ---------- -------- ---------- -------- ----------- -------- ----------- -------- Commissions and fees............ $558,137 $13,049 $ (92) $1,246 $2,020 $ 1,726 $ -- $576,086 -------- ------- ------- ------ ------ ------- ------- -------- Operating expenses: Salaries & related............ 308,638 7,389 (876) 596 459 2,022 -- 318,228 Office & general.............. 127,883 2,873 (1,048) 372 146 2,599 -- 132,825 Marketing & promotion......... 67,702 952 (22) 21 -- -- -- 68,653 Merger & integration.......... 22,323 -- -- -- -- -- -- 22,323 Amortization of intangibles... 7,540 -- -- -- -- -- 1,364(a) 8,904 -------- ------- ------- ------ ------ ------- ------- -------- Total operating expenses.... 534,086 11,214 (1,946) 989 605 4,621 1,364 550,933 -------- ------- ------- ------ ------ ------- ------- -------- Operating income (loss)......... 24,051 1,835 1,854 257 1,415 (2,895) (1,364) 25,153 Total other income (expense), net............ 6,708 913 (818) 39 (4) (67) (398)(b) 6,373 -------- ------- ------- ------ ------ ------- ------- -------- Income (loss) before provision (benefit) for income taxes and minority interests............ 30,759 2,748 1,036 296 1,411 (2,962) (1,762) 31,526 Provision (benefit) for income taxes......................... 19,528 825 263 -- 21 -- (628)(c) 20,009 -------- ------- ------- ------ ------ ------- ------- -------- Income (loss) before minority interests..................... 11,231 1,923 773 296 1,390 (2,962) (1,134) 11,516 Minority interests.............. (324) -- -- -- -- -- -- (324) -------- ------- ------- ------ ------ ------- ------- -------- Net income (loss) applicable to common and Class B common stockholders.................. $ 11,555 $ 1,923 $ 773 $ 296 $1,390 $(2,962) $(1,134) $ 11,840 ======== ======= ======= ====== ====== ======= ======= ======== Net income (loss) per common and Class B common share: Basic......................... $ 0.12 $ 0.12 ======== ======== Diluted....................... $ 0.11 $ 0.12 ======== ======== Weighted average shares outstanding: Basic......................... 94,048 95,382(d) ======== ======== Diluted....................... 101,078 102,412(d) ======== ========
- ------------------------------ (a) Adjustment reflects amortization expense, calculated on goodwill of $52.4 million and $19.6 million related to the acquisitions of QD Group and MoveCentral, respectively based on an estimated useful life of 30 and 20 years, respectively. (b) Adjustment to record interest at 6.55% on $12.2 million in seller notes issued in connection with the acquisition of QD Group. (c) Adjustment to provide for taxes at 38% of companies taxed at the shareholder level, which include RG, MoveCentral and Stratascape, and to record the tax benefit at 38% of $398 in interest expense. (d) Weighted average shares outstanding reflects the effect of the issuance of (i) 476 shares and the presumed issuance of 245 shares relating to the funding of $15.9 million in cash both paid in connection with the acquisition of QD Group, (ii) the issuance of 312 shares in connection with the acquisition of Stratascape, (iii) the issuance of 44 shares for the acquisition of RG, and (iv) the presumed issuance of 257 shares relating to the funding of $20.0 million in cash paid in connection with the acquisition of MoveCentral. Shares presumed to be issued were considered to be outstanding from January 1, 2000 through January 27, 2000, the date of TMP's following offering. F-139 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QD GROUP BUSINESSES TMP NOT WORLDWIDE QD GROUP ACQUIRED INC. LIMITED (A) RG STRATASCAPE ADJUSTMENTS SUB-TOTAL --------- --------- ---------- -------- ----------- ----------- --------- Commissions and fees............... $869,207 $20,925 $(3,294) $2,710 $2,583 $ 139 (b) $892,270 -------- ------- ------- ------ ------ ------- -------- Operating expenses: Salaries & related............... 496,926 11,697 (2,897) 1,158 613 36 (b) 507,533 Office & general................. 205,165 6,518 (2,792) 923 306 123 (c) 210,243 Marketing & promotion............ 74,647 1,769 (53) 35 -- -- 76,398 Merger & Integration............. 63,054 -- -- -- -- -- 63,054 Restructuring.................... 2,789 -- -- -- -- -- 2,789 Amortization of intangibles 12,532 -- -- -- -- 1,746 (d) 14,278 -------- ------- ------- ------ ------ ------- -------- Total operating expenses....... 855,113 19,984 (5,742) 2,116 919 1,905 874,295 -------- ------- ------- ------ ------ ------- -------- Operating income (loss)............ 14,094 941 2,448 594 1,664 (1,766) 17,975 Total other income (expense), net.......................... (15,833) 116 -- 68 1 (795)(e) (16,443) -------- ------- ------- ------ ------ ------- -------- Income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates............. (1,739) 1,057 2,448 662 1,665 (2,561) 1,532 Provision (benefit) for income taxes............................ 6,908 410 379 31 726 (f) 8,454 -------- ------- ------- ------ ------ ------- -------- Income (loss) before minority interest and equity in losses of affiliates....................... (8,647) 647 2,069 662 1,634 (3,287) (6,922) Minority interests................. 107 -- -- -- -- -- 107 Equity in losses of affiliates..... (300) -- -- -- -- -- (300) -------- ------- ------- ------ ------ ------- -------- Net income (loss) applicable to common and Class B common stockholders $ (9,054) $ 647 $ 2,069 $ 662 $1,634 $(3,287) $ (7,329) ======== ======= ======= ====== ====== ======= ======== Net income (loss) per common and Class B common share: Basic............................ $ (0.11) ======== Diluted.......................... $ (0.11) ======== Weighted average shares outstanding: Basic.............................. 84,250 ======== Diluted............................ 84,250 ======== MOVE BAUMGARTNER CENTRAL ADJUSTMENTS TOTAL ----------- -------- ----------- -------- Commissions and fees............... $14,662 $4,584 $ -- $911,516 ------- ------ ------- -------- Operating expenses: Salaries & related............... 9,073 2,241 -- 518,847 Office & general................. 2,203 2,634 -- 215,080 Marketing & promotion............ 612 -- -- 77,010 Merger & Integration............. -- -- -- 63,054 Restructuring.................... -- -- -- 2,789 Amortization of intangibles -- -- 1,747 (g) 16,025 ------- ------ ------- -------- Total operating expenses....... 11,888 4,875 1,747 892,805 ------- ------ ------- -------- Operating income (loss)............ 2,774 (291) (1,747) 18,711 Total other income (expense), net.......................... 289 (55) -- (16,209) ------- ------ ------- -------- Income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates............. 3,063 (346) (1,747) 2,502 Provision (benefit) for income taxes............................ 511 -- (468 )(h) 8,497 ------- ------ -------- Income (loss) before minority interest and equity in losses of affiliates....................... 2,552 (346) (1,279) (5,995) Minority interests................. -- -- -- 107 Equity in losses of affiliates..... -- -- -- (300) ------- ------ ------- -------- Net income (loss) applicable to common and Class B common stockholders $ 2,552 $ (346) $(1,279) $ (6,402) ======= ====== ======= ======== Net income (loss) per common and Class B common share: Basic............................ $ (0.07) ======== Diluted.......................... $ (0.07) ======== Weighted average shares outstanding: Basic.............................. 85,924 (i) ======== Diluted............................ 85,924 (i) ========
- ---------------------------------- (a) Adjustments reflect income and expense balances of certain businesses of QD Group which will not be acquired by the Company. TMP has agreed to acquire QD Group's base selection business, excluding certain media divisions from the transaction. (b) Adjustments reflect commissions for job searches in progress and applicable expenses to conform with TMP's accounting policies. (c) Adjustment reflects the reversal of dividend income relating to QD Group shares held by an ESOT, as required by U.S. GAAP. (d) Amount reflects goodwill amortization expense for the acquisition of QD Group, calculated based on a 30 year estimated useful life. (e) Adjustment to record interest expense at 6.55% on $12.2 million in seller notes issued in connection with the acquisition of QD Group. (f) Amount reflects tax effect, at 38%, of commissions recorded for job searches in progress and applicable expenses (see note (b)), as well as to record deferred tax expense of $144 to conform QD to U.S. GAAP, plus tax at 38% for RG and Stratascape, for which income was taxed at the shareholder level, and the tax benefit at 38% for the interest expense adjustment (see note (e)). (g) Adjustment reflects goodwill amortization expense in connection with the acquisition of Baumgartner and MoveCentral of $765 and $982, respectively, calculated based on 30 and 20 year estimated useful lives, respectively. (h) Adjustment for taxes at 38% for MoveCentral, which was taxed at the shareholder level, and the tax benefit at 44% for the amortization expense on Baumgartner (see Note (g)). (i) Weighted average shares outstanding reflects the effect of the issuance of: (i) 476 shares and the presumed issuance of 245 shares relating to the funding of $15.9 million in cash both paid in connection with the acquisition of QD Group, (ii) the issuance of 170 shares and the presumed issuance of 170 shares relating to the funding of $10 million in cash paid both for the acquisition of Baumgartner, (iii) the issuance of 312 shares for the acquisition of Stratascape (iv) the issuance of 44 shares for the acquisition of RG and, (v) the presumed issuance of 257 shares relating to the funding of $20.0 million in cash paid in connection with the acquisition of MoveCentral. F-140 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
TMP WORLDWIDE INC. RG STRATASCAPE ADJUSTMENTS TOTAL --------- ---------- ------------ ----------- -------- Commissions and fees........................ $744,517 $2,619 $987 $ -- $748,123 -------- ------ ---- ----- -------- Operating expenses: Salaries & related........................ 430,316 1,188 304 -- 431,808 Office & general.......................... 184,905 847 219 -- 185,971 Merger & integration costs................ 22,412 -- -- -- 22,412 Amortization of intangibles............... 11,070 -- -- -- 11,070 Marketing and promotion................... 29,737 55 -- -- 29,792 Restructuring............................. 3,543 -- -- -- 3,543 CEO special bonus......................... 1,250 -- -- -- 1,250 -------- ------ ---- ----- -------- Total operating expenses................ 683,233 2,090 523 -- 685,846 -------- ------ ---- ----- -------- Operating income............................ 61,284 529 464 -- 62,277 Total other income (expense), net....... (14,933) 66 1 -- (14,866) -------- ------ ---- ----- -------- Income (loss) before provision for income taxes, minority interests and equity in losses of affiliates...................... 46,351 595 465 -- 47,411 Provision for income taxes.................. 16,884 -- 3 403 (a) 17,290 -------- ------ ---- ----- -------- Income (loss) before minority interests and equity in losses of affiliates............ 29,467 595 462 (403) 30,121 Minority interests.......................... 28 -- -- -- 28 Equity in losses of affiliates.............. (396) -- -- -- (396) -------- ------ ---- ----- -------- Net income (loss) applicable to common and Class B common stockholders............... $ 29,043 $ 595 $462 $(403) $ 29,697 ======== ====== ==== ===== ======== Net income (loss) per common and Class B common share: Basic..................................... $ 0.36 $ 0.36 ======== ======== Diluted................................... $ 0.35 $ 0.35 ======== ======== Weighted average shares outstanding: Basic..................................... 81,638 81,994 (b) ======== ======== Diluted................................... 83,494 83,850 (b) ======== ========
- ------------------------ (a) To record tax at 38% of pooled entities' earnings which were taxed at the shareholder level. (b) Gives effect to the additional shares and options issued in connection with the mergers, including the weighted average basic and diluted shares outstanding for the periods, which were 44 and 312 for RG and Stratascape, respectively. F-141 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
TMP WORLDWIDE INC. RICH GARDNER STRATASCAPE ADJUSTMENTS TOTAL --------- ------------ ------------ ----------- -------- Commissions and fees........................ $610,762 $2,609 $ 639 $ -- $614,010 -------- ------ ------ ----- -------- Operating expenses: Salaries & related........................ 344,956 1,002 181 -- 346,139 Office & general.......................... 160,027 410 147 -- 160,584 Amortization of intangibles............... 6,913 145 -- -- 7,058 Marketing & promotion..................... 13,665 -- -- -- 13,665 CEO special bonus......................... 1,500 -- -- -- 1,500 -------- ------ ------ ----- -------- Total operating expenses................ 527,061 1,557 328 -- 528,946 -------- ------ ------ ----- -------- Operating income............................ 83,701 1,052 311 -- 85,064 Total other income (expense), net....... (9,688) 74 -- -- (9,614) -------- ------ ------ ----- -------- Income before provision for income taxes, minority interests and equity in losses of affiliates................................ 74,013 1,126 311 -- 75,450 Provision for income taxes.................. 22,805 -- 1 546 (a) 23,352 -------- ------ ------ ----- -------- Income before minority interests and equity in losses of affiliates................... 51,208 1,126 310 (546) 52,098 Minority interests.......................... 296 -- -- -- 296 Equity in losses of affiliates.............. (33) -- -- -- (33) -------- ------ ------ ----- -------- Net income applicable to common and Class B common stockholders....................... 50,879 1,126 310 (546) 51,769 Preferred stock dividends................... (123) -- -- -- (123) -------- ------ ------ ----- -------- Net income (loss) per common and Class B common share.............................. $ 50,756 $1,126 $ 310 $(546) $ 51,646 ======== ====== ====== ===== ======== Net income (loss) per common and Class B common share: Basic..................................... $ 0.67 $ 0.68 ======== ======== Diluted................................... $ 0.66 $ 0.67 ======== ======== Weighted average shares outstanding: Basic..................................... 75,857 76,213 (b) ======== ======== Diluted................................... 77,134 77,490 (b) ======== ========
- ------------------------ (a) To record tax at 38% of pooled entities' earnings which were taxed at the shareholder level. (b) Gives effect to the additional shares and options issued in connection with the mergers, including the weighted average basic and diluted shares outstanding for the periods, which were 44 and 312 for RG and Stratascape, respectively. F-142 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting accounts and commissions) are estimated to be as follows: SEC Registration Fee........................................ $ 68,392.00 Accountants' Fees and Expenses.............................. 20,000.00 Legal Fees and Expenses..................................... 20,000.00 Printer fees................................................ 20,000.00 Miscellaneous............................................... 21,608.00 ----------- Total....................................................... $150,000.00 ===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of Delaware permits indemnification of directors, officers and employees of a corporation under certain conditions and subject to certain limitations. Article VI of the By-Laws of the Registrant contains provision for the indemnification of directors, officers and employees within the limitations permitted by Section 145. In addition, the Company has entered into Indemnity Agreements with its directors and officers which provide the maximum indemnification allowed by Section 145. The Company's officers and directors are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES 1. On August 26, 1997, we issued 270,056 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in connection with the acquisition of Austin Knight Limited and its subsidiaries. 2. On May 6, 1998, we issued 1,542,706 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Johnson, Smith & Knisely Inc. 3. On August 31, 1998, we issued 3,407,788 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of TASA Holding AG. 4. On September 30, 1998, we issued 1,014,164 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Stackig Inc. 5. On October 2, 1998, we issued 208,084 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Recruitment Solutions, Inc. 6. On November 2, 1998, we issued 619,404 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding units in SunQuest, LLC d/b/a The SMART Group. II-1 7. On December 2, 1998, we issued 493,212 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of The Consulting Group (International) Limited. 8. On January 28, 1999, we issued 10,296,582 shares of our common stock pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Morgan & Banks Limited. 9. On March 5, 1999, we issued 146,828 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of Van Ram Associates International B.V. 10. On April 30, 1999, we issued 353,390 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Interquest Pty Limited. 11. On May 19, 1999, we issued 225,212 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of LIDA Advertising, Inc. 12. On May 20, 1999, we issued 220,000 shares of our common stock in a private placement transaction pursuant to Regulation S of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Maes & Lunau. 13. On May 28, 1999 we issued 578,062 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of IN2, Inc. 14. On May 28, 1999, we issued 245,816 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Lemming & Levan, Inc. 15. On May 28, 1999, we issued 178,000 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Yellow Pages Unlimited, Inc. 16. On August 2, 1999, we issued 840,000 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Cameron-Newell Adversting, Inc. 17. On August 3, 1999, we issued 261,800 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Brook Street Bureau Pty, Ltd. 18. On August 30, 1999, we issued 259,280 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Fox Advertising, Inc. 19. On August 31, 1999, we issued 826,192 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Lampen Group Limited. 20. On October 21, 1999, we issued 1,398,666 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding units of Highland Search Group, LLC. II-2 21. On October 27, 1999, we issued 118,560 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of TMC S.r.l. 22. On February 10, 2000, we issued 169,764 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Baumgartner & Partner GmbH & Co. KG. 23. On February 16, 2000, we issued 715,769 shares of our common stock pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of HW Group PLC. 24. On February 16, 2000, we issued 689,090 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of Mircrosurf, Inc., and in connection with issuances of stock related stay bonuses. 25. On February 29, 2000, we issued 52,190 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Burlington Wells, Inc., Burlington Wells Information Systems, Inc. and Burlington Wells South Florida, Inc. 26. On February 29, 2000, we issued 54,940 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Medios Publicitaros Activos MPS, S.A. 27. On March 1, 2000, we issued 246,702 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of 577139 Ontario Ltd., d/b/a Illsley Bourbannais. 28. On March 21, 2000, we issued 13,080 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Curriculum S.A., Kerguelen, S.A. and Syntagme, S.A. (collectively, the "Curriculum Group"). 29. On April 3, 2000, we issued 1,022,257 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in System One Services, Inc. 30. On April 4, 2000 we issued 54,041 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in GTR Advertising, Inc. 31. On May 9, 2000 we issued 947,916 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Virtual Relocation.com, Inc. 32. On May 12, 2000 we issued 51,906 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of NIBO Holding B.V. 33. On May 17, 2000 we issued 205,703 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Business Technologies Limited. 34. On May 31, 2000 we issued 164,833 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Simpatix Inc., and in connection with issuances of stock related stay bonuses. II-3 35. On May 31, 2000 we issued 623,892 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Web Technology Partners, Inc. 36. On May 31, 2000 we issued 144,601 shares of our common stock in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Rollo Associates, Inc., and in connection with issuances of stock related stay bonuses. 37. On June 5, 2000 we issued 23,817 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Management Resources International B.V. 38. On August 31, 2000 we issued 43,535 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Rich, Gardner & Associates, Ltd. 39. On August 31, 2000 we issued 311,978 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in an exchange for all of the issued and outstanding shares of Stratascape, Inc. 40. On September 4, 2000 we issued 475,853 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933 as amended, in exchange for all of the outstanding shares of QD Group Limited. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 2.1 Scheme Implementation Agreement, dated August 17, 1998, between Morgan & Banks Limited and TMP Worldwide Inc.**** 2.2 Agreement and Plan of Merger, dated as of March 11, 1999, by and among TMP Worldwide Inc., TMP Florida Acquisition Corp. and LAI Worldwide, Inc.******* 3.1 Certificate of Incorporation.*** 3.2 Bylaws.*** 4.1 Form of Common Stock Certificate.*** 5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality. 10.1 Form of Employee Confidentiality and Non-Solicitation Agreement.*** 10.2 Form on Indemnification Agreement.*** 10.3 1996 Stock Option Plan.*** 10.4 Form of Stock Option Agreement under 1996 Stock Option Plan.*** 10.5 1996 Stock Option Plan for Non-Employee Directors.*** 10.6 Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.*** 10.7 Lease, dated as of October 31, 1978, between Telephone Marketing Programs, Inc. and PDC Realty Inc. as agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June 20, 1999.*** 10.8 Amendment and Restated Accounts Receivable Management and Security Agreement, dated as of June 27, 1996, between TMP Worldwide, Inc. and BNY Financial Corporation as amended by Amendment No. 1 to Amended and Restated Accounts Receivable Management and Security Agreement, dated as of August 29, 1996.*** 10.9 Lease Agreement, dated as of June 1, 1996 by and between TPH and AJM, a partnership, and Telephone Directory Advertising, Inc.*** 10.10 Agreement, dated as of March 17, 1998, between TMP Worldwide Inc. and George Eisele, as amended by Amendment 1 to Agreement, dated as of September 5, 1996.***
II-4 10.11 Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C. Ltd.*** 10.12 Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide Inc. as amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.** 10.13 Indenture, dated April 29, 1998, between International Drive, L.P. and Telephone Marketing Programs, Inc.*** 10.14 Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive Inc. and Jeffrey C. Taylor.*** 10.15 Second Amended and Restated Employment Agreement, dated November 2, 1999, by and among TMP Worldwide, Inc., TMP Interactive Inc. and Jeffrey C. Taylor.+++++ 10.16 Amendment No. 1 to the Employment Agreement, dated October 21, 1996, between TMP Worldwide Inc. and James J. Treacy.+ 10.17 Amendment No. 2 to Employment Agreement between TMP Worldwide Inc. and James J. Treacy, effective as of October 1, 1999.***** 10.18 Amendment No. 1 to Employment Agreement, dated November 15, 1998, between TMP Worldwide Inc. and Andrew J. McKelvey.+ 10.19 Amendment No. 2 to Employment Agreement, dated May 1, 1999, between TMP Worldwide Inc. and Andrew J. McKelvey.++++ 10.20 Warrant Agreement, dated October 13, 1993, between TMP Worldwide Inc. and BNY Financial Corporation, as amended by an amendment dated December 31, 1995.*** 10.21 Form of Option Agreement, dated as of January 1, 1995, relating to options issued to shareholders and/or principals of Kidd, Schneider & Dersch, Inc.*** 10.22 Amendment No. 3 to Amended and Restated Accounts Receivable Management and Security Agreement, dated as of May 15, 1997, between BNY Financial Corporation and TMP Worldwide Inc.** 10.23 Management Agreement, dated June 1, 1997, between Dir-Ad Services Inc./Les Services Dir-Ad Inc. and TMP Worldwide Ltd.** 10.24 Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of November 5, 1998, between BNY Financial Corporation and TMP Worldwide Inc.+ 10.25 Amendment No. 1 to Third Amended and Restated Accounts Receivable Management and Security Agreement.****** 10.26 Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement.****** 10.27 Content License and Interactive Marketing Agreement, dated as of December 1, 1999, between America Online, Inc. and TMP Interactive Inc.***** 10.28 Indenture of Lease, dated December 13, 1999, between the 622 Building Company LLC and TMP Worldwide Inc.***** 10.29 Warranty and Indemnity Agreement, dated July 18, 2000, relating to the entire issued share capital of QD Group Limited, between Mr. G. Quarry and TMP Worldwide Inc.* 10.30 Agreement and Plan of Merger, dated August 31, 2000, by and among TMP Worldwide Inc., Rich, Gardner & Associates, Ltd., Fred Rich and Furman Gardner. 10.31 Stock Purchase Agreement, dated August 31, 2000, by and among TMP Worldwide Inc., Stratascape, Inc. and the shareholders listed on Schedule A thereto. 21 Subsidiaries of the Company.** 23.1 Consent of Fulbright & Jaworski L.L.P. (included in 5.1). 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Pannell Kerr and Forster. 23.4 Consent of Arthur Andersen LLP. 23.5 Consent of BDO International GmbH. 23.6 Consent of Deloitte & Touche LLP. 23.7 Consent of Arthur Andersen.
II-5 23.8 Consent of BDO Seidman, LLP. 23.9 Consent of Finck, Rudnick & Company. 23.10 Consent of Arthur Andersen LLP. 24 Power of Attorney.*
(b) Financial Statements and Schedules The following financial statement schedules are filed herewith: Report of Independent Certified Public Accountants.......... S-1 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)............................ S-2 Schedule II--Valuation and Qualifying accounts for the years ended December 31, 1999, 1998 and 1997..................... S-3
All other schedules are omitted because they are not required or are not applicable or the information is included in the financial statements or notes thereto. - ------------------------ * Previously filed. ** Incorporated by reference to Exhibits to the Registration Statement on Form S-1 (Registration No. 333-31657). *** Incorporated by reference to Exhibits to the Registration Statement on Form S-1 (Registration No. 333-12471). **** Incorporated by reference to Exhibits to the Registration Statement on Form S-3 (Registration No. 333-63499). ***** Incorporated by reference to Exhibits to the Registration Statement on Form S-3 (Registration No. 333-93065). ****** Incorporated by reference to Exhibits to the Registration Statements on Form S-3 (Registration No. 333-82531). ******* Incorporated by reference to Exhibits to the Registration Statement on Form S-4 (Registration No. 333-82531). + Incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 (Registration No. 000-21571). ++ Incorporated by reference to Exhibits to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1997 (Registration No. 000-21571). +++ Incorporated by reference to Exhibits to the Company's Current Report on Form 8-K dated March 17, 1999. ++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999 (Commission File No 000-21571). +++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999 (Commission File No 000-21571).
ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; II-6 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement of any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; (4) To file a post-effective amendment to the Registration Statement to include any financial statements required by Rule 3-19. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person of the Registrant in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on September 15, 2000. TMP WORLDWIDE INC. By: /s/ ANDREW J. MCKELVEY ----------------------------------------- Andrew J. McKelvey CHAIRMAN AND CEO
POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ANDREW J. MCKELVEY Chairman, CEO and Director ------------------------------------------- (PRINCIPAL EXECUTIVE September 15, 2000 Andrew J. McKelvey OFFICER) /s/ JAMES J. TREACY Executive Vice President, ------------------------------------------- Chief Operating Officer September 15, 2000 James J. Treacy and Director /s/ BART W. CATALANE Chief Financial Officer ------------------------------------------- (PRINCIPAL FINANCIAL AND September 15, 2000 Bart W. Catalane ACCOUNTING OFFICER) * ------------------------------------------- Director September 15, 2000 George R. Eisele * ------------------------------------------- Director September 15, 2000 Michael Kaufman * ------------------------------------------- Director September 15, 2000 John Swann * ------------------------------------------- Director September 15, 2000 Ronald J. Kramer
*By: /s/ JAMES J. TREACY -------------------------------------- James J. Treacy ATTORNEY-IN-FACT
II-8 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TMP Worldwide Inc. New York, New York The audits referred to in our report dated June 26, 2000, relating to the consolidated financial statements of TMP Worldwide Inc. and Subsidiaries, included the audits of the consolidated financial statement schedule listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based upon our audits. We did not audit the financial statement schedule of LAI Worldwide, Inc. and subsidiaries which was combined with the Company's financial statement schedule. That financial statement schedule was audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LAI Worldwide, Inc., and subsidiaries is based solely on the report of the other auditor. In our opinion, based on our audits and the report of the other auditor, the consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP --------------------------------------------- BDO Seidman, LLP New York, New York June 26, 2000
S-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of LAI Worldwide, Inc. (not presented separately herein) 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 Item 16(b) of the index of exhibits and financial statement schedules 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, as it pertains to the 1997 and 1998 data related to LAI Worldwide, Inc., 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 consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999 S-2 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E -------- ------------ ----------------------- ---------- ---------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------ ------------ ---------- ---------- ---------- ---------- Allowance for doubtful accounts Year ended December 31, 1997.......... $10,132 $ 4,211 $ 3,326(1) $ 3,128 $14,541 Year ended December 31, 1998.......... $14,541 $ 6,394 $ 1,780(1) $ 4,123 $18,592 Year ended December 31, 1999.......... $18,592 $14,527 $ 283(1) $ 7,887 $25,515 Accrued integration and restructuring reserves Year ended December 31, 1997.......... $ -- $ -- $17,663 $ 862 $16,801 Year ended December 31, 1998.......... $16,801 $ 3,543 $10,020 $13,617 $16,747 Year ended December 31, 1999.......... $16,747 $38,401 $ 3,381 $37,076 $21,453
- ------------------------ (1) Initial reserves of acquired companies. S-3 EX-5.1 2 a2025293zex-5_1.txt EXHIBIT 5.1 EXHIBIT 5.1 [LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.] September 15, 2000 TMP Worldwide Inc. 1633 Broadway New York, New York 10019 Re: TMP Worldwide Inc. Registration Statement on Form S-1 -------------------------------------------------------- Dear Sirs: In connection with the Registration Statement on Form S-1 (the "Registration Statement") to be filed by TMP Worldwide Inc., a Delaware corporation (the "Company"), under the Securities Act of 1933, as amended, relating to the resale by certain stockholders of the Company of up to an aggregate of 2,553,504 shares (the "Shares") of Common Stock, par value $.001 per share, of the Company, we as counsel for the Company, have examined such corporate records, other documents and questions of law as we have deemed necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, we advise you that in our opinion the Shares have been duly and validly authorized, legally issued, fully paid and non-assessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus contained therein and elsewhere in the Registration Statement and Prospectus. This consent is not to be construed as an admission that we are a party whose consent is required to be filed with the Registration Statement under the provisions of the Securities Act of 1933, as amended. Very truly yours, /s/ Fulbright & Jaworski L.L.P. EX-10.30 3 a2025293zex-10_30.txt EXHIBIT 10.30 Exhibit 10.30 AGREEMENT AND PLAN OF MERGER BY AND AMONG TMP WORLDWIDE INC., RICH, GARDNER & ASSOCIATES, LTD., FRED RICH, AND FURMAN GARDNER DATED AS OF AUGUST 31, 2000 TABLE OF CONTENTS Page ARTICLE I THE MERGER...........................................................1 1.1 The Merger.................................................1 1.2 Certificate of Incorporation...............................2 1.3 Bylaws.....................................................2 1.4 Directors and Officers.....................................2 1.5 Effective Time.............................................2 1.6 Filing of Certificate of Merger............................2 ARTICLE II CONVERSION OF SHARES; MANNER OF EXCHANGE............................2 2.1 TMP and Company Equity Interests...........................2 2.2 Further Assurances.........................................4 2.3 Tax Consequences...........................................5 2.4 Treatment of Certificates..................................5 ARTICLE III-A REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.....................................................5 3.1 Organization and Good Standing.............................5 3.2 Power and Authorization....................................5 3.3 Subsidiaries...............................................6 3.4 Organizational Documents...................................6 3.5 Ownership of the Company...................................6 3.6 No Violation...............................................7 3.7 No Consent Required........................................7 3.8 Financial Statements.......................................7 3.9 Absence of Undisclosed Liabilities.........................8 3.10 Compliance with Laws; Permits..............................8 3.11 Property...................................................8 3.12 Condition of Property and Related Matters..................9 3.13 Material Contracts.........................................9 3.14 Intellectual Property.....................................10 3.15 Accounts Receivable.......................................11 3.16 No Prebillings or Prepayments.............................11 3.17 Employee Benefit Plans....................................11 3.18 Salaries..................................................13 3.19 Personnel Agreements, Plans and Arrangements..............13 3.20 Customers.................................................14 3.21 Interest of the Company in Customers, etc.................14 3.22 Books and Records.........................................15 3.23 Insurance Policies........................................15 3.24 Bank Accounts.............................................15 3.25 Taxes.....................................................15 i 3.26 Litigation................................................18 3.27 Environmental and Safety Requirements.....................18 3.28 Conduct of the Business...................................19 3.29 Power of Attorney.........................................20 3.30 Brokers...................................................20 3.31 No Illegal or Improper Transactions.......................20 3.32 Computer Systems..........................................20 3.33 Accounting................................................20 3.34 No Misrepresentation......................................21 ARTICLE III-B REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS..............21 3.35 Shareholder Power and Authorization.......................21 3.36 Ownership of Shares.......................................21 3.37 Securities Matters........................................21 3.38 Shareholder Accounting....................................23 3.39 Regulatory Matters........................................24 3.40 Power of Attorney.........................................24 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TMP..............................24 4.1 Organization and Good Standing; Power.....................24 4.2 Authorization.............................................24 4.3 No Violation..............................................24 4.4 No Consent Required.......................................25 4.5 TMP Filings...............................................25 4.6 Compliance with Rule 144..................................25 4.7 Issuance..................................................26 4.8 TMP Shares................................................26 ARTICLE V [INTENTIONALLY OMITTED].............................................26 ARTICLE VI CONDITIONS PRECEDENT TO THE CLOSING................................26 6.1 Conditions Precedent to Obligations of TMP ...............26 6.2 Conditions Precedent to Obligations of the Company and the Shareholders..........................................27 ARTICLE VII CLOSING 29 7.1 Closing...................................................29 7.2 Deliveries by the Company and the Shareholders............29 7.3 Deliveries by TMP.........................................30 7.4 Filings at the Closing....................................31 ARTICLE VIII OTHER AGREEMENTS.................................................31 8.1 Confidentiality...........................................31 ii 8.2 Trading Prohibition.......................................33 8.3 Survival of Representation and Warranties.................33 8.4 Cooperation After the Closing.............................33 8.5 Registration of TMP Shares................................34 8.6 Tax Matters...............................................35 8.7 Company 401(k) Plan.......................................36 ARTICLE IX INDEMNIFICATION....................................................36 9.1 Indemnification by the Company and the Shareholders.......36 9.2 Indemnification by TMP....................................37 9.3 Procedure for Indemnification.............................38 9.4 Additional Limitations on Indemnification Rights..........38 9.5 Waiver of Claims..........................................39 9.6 Sole Remedy for Damages...................................39 ARTICLE X MISCELLANEOUS.......................................................40 10.1 Notices, Consents, etc....................................40 10.2 Severability..............................................41 10.3 Amendment and Waiver......................................41 10.4 Documents.................................................41 10.5 Counterparts..............................................42 10.6 Expenses..................................................42 10.7 Governing Law.............................................42 10.8 Headings..................................................42 10.9 Assignment................................................42 10.10 Definitions...............................................42 10.11 Entire Agreement..........................................43 10.12 Third Parties.............................................44 10.13 Interpretative Matters....................................44 10.14 No Strict Construction....................................44 10.15 Default...................................................44 iii AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is dated as of this 31st day of August, 2000, by and among TMP Worldwide Inc., a Delaware corporation ("TMP"), Rich, Gardner & Associates Ltd., a Georgia corporation (the "COMPANY"), Fred Rich ("RICH") and Furman Gardner ("GARDNER") (collectively, the "SHAREHOLDERS" and, individually, each a "SHAREHOLDER"). The Company and TMP are hereinafter sometimes collectively referred to as the "CONSTITUENT CORPORATIONS." WHEREAS, the Shareholders collectively own all of the equity interests in the Company (the "EQUITY INTERESTS"), as set forth on SCHEDULE A hereto; WHEREAS, the Boards of Directors of TMP and the Company deem it advisable and in the best interests of each corporation and its shareholders that TMP and the Company combine in order to advance the long-term business interests of TMP and the Company, and the Shareholders so agree to the merger of the Company with and into TMP (the "MERGER") ; WHEREAS, for federal income taX purposes, the parties intend that the Merger shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder; WHEREAS, for accounting purposes, the parties intend that the Merger shall be accounted for as pooling of interests; and WHEREAS, the parties wish to set forth certain other agreements among them. NOW THEREFORE, in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 THE MERGER. (a) In accordance with the provisions of this Agreement and the Delaware General Corporation Law (the "GCL"), at the Effective Time (as defined in SECTION 1.5), the Company shall be merged with and into TMP and TMP shall be the surviving corporation of the Merger (hereinafter sometimes called the "SURVIVING CORPORATION") and shall continue its corporate existence under the laws of the State of Delaware. The name of the Surviving Corporation shall continue to be the name of TMP prior to the Merger. At the Effective Time, the separate existence of the Company shall cease. 1 (b) The Surviving Corporation shall possess all the rights, privileges, immunities, powers and purposes of the Constituent Corporations and shall by operation of law assume and be liable for all the liabilities and obligations of the Constituent Corporations. 1.2 CERTIFICATE OF INCORPORATION. From and after the Effective Time, the certificate of incorporation of TMP shall be the certificate of incorporation of the Surviving Corporation, which certificate of incorporation may be amended after the Effective Time as set forth therein or in its bylaws or in accordance with the GCL. 1.3 BYLAWS. From and after the Effective Time, the bylaws of TMP shall be the bylaws of the Surviving Corporation which bylaws may be amended after the Effective Time as set forth therein or in its certificate of incorporation or in accordance with the GCL. 1.4 DIRECTORS AND OFFICERS. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, the officers and directors of TMP at the Effective Time shall be the officers and directors of the Surviving Corporation. 1.5 EFFECTIVE TIME. Subject to the provisions of this Agreement, the Merger shall become effective on the date and at the time of filing of the certificate of merger, in the form required by and executed in accordance with the GCL with the Secretary of State of the State of Delaware (the "CERTIFICATE OF MERGER") or at such other time specified in the Certificate of Merger. The time when the Merger shall become effective is herein referred to as the "EFFECTIVE TIME." 1.6 FILING OF CERTIFICATE OF MERGER. At the Closing (as defined in SECTION 7.1), each of TMP and the Company shall cause the Certificate of Merger to be executed and filed with the Secretary of State of the State of Delaware in accordance with the GCL, and shall take any and all other lawful actions and do any and all other lawful things to cause the Merger to become effective. ARTICLE II CONVERSION OF SHARES; MANNER OF EXCHANGE 2.1 TMP AND COMPANY EQUITY INTERESTS. (a) Each Equity Interest issued and outstanding immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall no longer be outstanding, shall be canceled and retired and shall cease to exist; and each 2 holder of certificates representing Equity Interests shall thereafter cease to have any rights with respect to such Equity Interests, except that all of such Equity Interests shall be converted into the right to receive such Shareholder's proportionate share (based on the number of outstanding Equity Interests on the Closing Date) of 43,535 unregistered shares of TMP Common Stock (as defined below) which equals that number of TMP Shares obtained by dividing $3,300,000 (the "MERGER CONSIDERATION") by $75.802, the average of the closing sale prices of a share of TMP Common Stock as reported by the Nasdaq National Market for the thirty (30) consecutive Nasdaq trading day period ending on August 11, 2000 (the "IMPUTED TMP SHARE VALUE"). As used herein, the term "TMP COMMON STOCK" means shares of common stock, $.001 par value per share, of TMP (or such other securities of TMP for which the outstanding TMP Common Stock is exchanged, without the receipt of new consideration by TMP, through a reorganization, reclassification or similar change). TMP shall not be required to issue fractional shares of TMP Common Stock, and any resulting fractional shares will be rounded up to the nearest whole share of TMP Common Stock. The shares of TMP Common Stock issuable to the Shareholders hereunder in exchange for the Equity Interests are sometimes collectively referred to as the "TMP SHARES" and individually as a "TMP SHARE." (b) Notwithstanding anything contained in this Section to the contrary, each Equity Interest of the Company held in the treasury of the Company immediately prior to the Effective Time shall be canceled without any conversion therefor, and no payment shall be made with respect thereto. (c) From and after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the Company's Equity Interests that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing the Company's Equity Interests are presented to the Surviving Corporation, they shall be canceled. (d) ADJUSTMENT. Notwithstanding anything to the contrary contained herein, as soon as practicable and in any event no later than thirty days after the Closing, the Shareholders shall deliver to TMP an unaudited balance sheet and statements of income and cash flows for the Company as of and for the period July 1, 2000 through the day immediately preceding the Closing Date (collectively, the "CLOSING DATE FINANCIALS"). The Closing Date Financials shall be prepared on the same basis as the Company's other financial statements set forth on SCHEDULE 3.8 hereto, include all normal and recurring adjustments necessary for a fair presentation of the information set forth therein. As soon as is reasonably practicable, but in any event within 45 days following the receipt of the Closing Date Financials, TMP shall complete a review of the Closing Date Financials and shall inform the Shareholders in writing that the Closing Date Financials are acceptable or object to the Closing Date Financials in writing, setting forth a specific description of TMP's objections. If TMP does not so object to the Closing Date Financials, then TMP will be deemed to have accepted the Closing Date Financials. If TMP so objects to the Closing Date Financials and the Shareholders do not agree with TMP's objections or such objections are not resolved on a mutually agreeable basis within 15 days of the Shareholders' receipt of TMP's objections, any such disagreements shall be promptly submitted by either party to a mutually agreeable independent certified public accounting firm (the "Independent Firm"). The Independent Firm shall resolve such dispute within 30 days after submission of the dispute by the parties. The decision of the Independent Firm shall be final and 3 binding upon the Shareholders and TMP and its fees, costs and expenses shall be borne by the party against which the Independent Firm shall rule or proportioned as deemed appropriate by such Independent Firm. (e) The Merger Consideration shall be adjusted upward, on a dollar-for-dollar basis, by the amount that Equity (as defined below) is greater than $0, as shown on the balance sheet included in the Closing Date Financials (the "CLOSING BALANCE SHEET"), as finally determined, or downward, on a dollar-for-dollar basis, by the amount that Equity is less than $0, as shown on the Closing Balance Sheet as finally determined. "EQUITY" is defined as total assets minus total liabilities, calculated using generally accepted accounting principles, consistently applied minus the aggregate cash surrender value as of the Closing Date of the life insurance policies held by the Company on the lives of the Shareholders as set forth on the Financial Statements. Total liabilities shall include a provision for any liability that may be imposed on the Company or TMP as a result of the change from the cash to the accrual method of accounting with respect to the Company. In the event of an upward adjustment in the Merger Consideration, TMP shall deliver to the Shareholders within 10 business days of the acceptance of the Closing Balance Sheet as finally determined one or more certificates representing additional whole shares of TMP Common Stock having a value equal to the amount of such upward adjustment divided by the Imputed TMP Share Value. In the event of a downward adjustment in the Merger Consideration, the Shareholders, shall deliver to TMP within 10 business days of the acceptance of the Closing Balance Sheet as finally determined one or more certificates representing whole shares of TMP Common Stock, along with executed stock powers, with all necessary stock transfer and other documentary stamps attached, free and clear of any Liens (defined below), having a value equal to the amount of such downward adjustment (based upon the Imputed TMP Share Value). The Merger Consideration, as adjusted pursuant to this Section 1.2 (b), shall be referred to as the "ADJUSTED MERGER CONSIDERATION." (f) EXCHANGE OF INTERESTS. As soon as practicable after the Effective Time, the Shareholders shall surrender to TMP certificate(s) representing all of the issued and outstanding Equity Interests, with all necessary stock transfer and other documentary stamps attached, stock powers and any other documents that are necessary to transfer to TMP good and marketable title to the Common Stock free and clear of all Liens (as defined in SECTION 10.10), including any and all assignment and transfer documents as reasonably requested by TMP (the "TRANSFER DOCUMENTS"). Upon such surrender, such certificates shall forthwith be canceled and the holders thereof shall be entitled to receive the Merger Consideration in accordance with this ARTICLE II, subject to the post-closing adjustment. (g) ISSUANCE OF TMP COMMON STOCK. Promptly after the surrender and delivery to TMP of the outstanding Equity Interests, duly endorsed in blank or accompanied by stock power(s) duly executed in blank, that are necessary to transfer to TMP good and marketable title to such Equity Interests free and clear of all Liens, TMP shall distribute the Merger Consideration. TMP will use its best efforts to deliver the certificates representing the Merger Consideration to the Shareholders at the Closing. 2.2 FURTHER ASSURANCES. 4 At the Closing and from time to time thereafter, the Shareholders shall execute such additional instruments and take such other actions as TMP may request in order to effectively sell, transfer and assign the Equity Interests to TMP and confirm TMP's title thereto. 2.3 TAX CONSEQUENCES. For federal income tax purposes, the Merger is intended to constitute a "reorganization" within the meaning of Section 368(a) of the Code. The parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations, and the parties agree to report and file all necessary documentation in a manner consistent with the characterization of the Merger as a "reorganization" within the meaning of Section 368(a) of the Code. 2.4 TREATMENT OF CERTIFICATES. Until surrendered in accordance with the provisions of this Section 2.4, each Certificate shall represent, for all purposes, only the right to receive the pro rata portion of the Merger Consideration subject to the post-closing adjustment pursuant to this Article II in respect of the number of Equity Interests previously evidenced by such Certificate. ARTICLE III-A REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS As an inducement to TMP to enter into and perform its obligations under this Agreement, the Company and the Shareholders, jointly and severally, represent and warrant to TMP (as of the Closing Date unless otherwise indicated) as follows: 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of Georgia. It has full power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. The Company is not, and is not required to be, licensed or qualified to do business in any other jurisdiction. 3.2 POWER AND AUTHORIZATION. (a) The Company has full corporate power and authority to execute and deliver this Agreement and any agreement, document, certificate or instrument being delivered pursuant to or in connection with the transactions contemplated by this Agreement (collectively the "MERGER DOCUMENTS") to which it is or will be a party, to perform its obligations hereunder and thereunder and to consummate the Merger. This Agreement and the Merger Documents to which it is or will be a party have been or will be duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. 5 (b) Each of the Shareholders has full power and authority to execute and deliver this Agreement and each of the Merger Documents to which he is a party, and to perform his obligations hereunder and thereunder and to consummate the Merger. This Agreement and the Merger Documents to which he is or will be a party have been or will be duly executed and delivered by such Shareholder, as applicable, and constitute the legal, valid and binding obligations of such Shareholder, enforceable against such Shareholder in accordance with their respective terms. (c) The execution and delivery of this Agreement and the Merger Documents, and the performance by the Company of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereunder and thereunder, have been or will be duly authorized by the Company and by the Shareholders. 3.3 SUBSIDIARIES. The Company does not own or control (directly or indirectly), or own or hold any right to acquire, any stock, partnership interest, joint venture interest, equity participation or other security or interest in any other entity, corporation, partnership, trust or any other business association. 3.4 ORGANIZATIONAL DOCUMENTS. The copies of the certificate of incorporation and bylaws of the Company, each as heretofore amended, which have been delivered to TMP, are true, complete and correct. The minute books of the Company made available to TMP are true, correct and complete and contain a summary of all meetings of directors and shareholders of the Company since the time of incorporation of the Company. 3.5 OWNERSHIP OF THE COMPANY. The authorized capital stock of the Company consists of 10,000 shares of common stock, 1,000 of which are issued and outstanding and are owned of record by the Shareholders as set forth on SCHEDULE A. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of the Equity Interests are as set forth in the certificate of incorporation of the Company, as amended to the date hereof, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. All of the Company's outstanding shares of capital stock have been duly authorized and validly issued, are fully paid and non-assessable, and were issued in compliance with all applicable federal and state securities laws. None of the outstanding securities has been issued in violation of any pre-emptive rights, rights of first refusal or similar rights. There are no contracts, commitments or undertakings of any kind for the issuance of additional shares of capital stock or other securities of the Company, nor is there in effect or outstanding any subscription, option, warrant or other right to acquire any shares of the Equity Interests or other instruments convertible into or exchangeable for such shares or interests, which will not be exercised on or prior to the Closing Date. There are no voting trust agreements or other contracts, agreements or arrangements restricting or otherwise relating to voting, dividend 6 or other rights with respect to the capital stock or Equity Interests, as applicable, of the Company to which the Company is a party or which are known to the officers of the Company. 3.6 NO VIOLATION. Except as set forth on SCHEDULE 3.6, the execution, delivery and performance by the of the Company and the Shareholders of this Agreement and the Merger Documents and the consummation of the transactions contemplated herein and therein do not and will not: (a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any Lien upon any assets or properties, or in any manner release any party thereto from any obligation under, any mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which the Company, or any of its properties or assets, may be bound or affected; (b) conflict with, violate or result in any loss of benefit under, any permit, concession, franchise, order, judgment, writ, injunction, regulation, statute or decree applicable to the Company; or (c) conflict with or violate any provision of the articles of incorporation or bylaws of the Company, each as heretofore amended. 3.7 NO CONSENT REQUIRED. Except as set forth in SCHEDULE 3.7, no consent, approval, order or authorization of, or declaration, filing or registration with, any person or governmental authority is required to be made or obtained by the Company in connection with the authorization, execution, delivery or performance of this Agreement, the Merger Documents or the Merger. Each consent set forth on SCHEDULE 3.7 has been obtained by the Company except as set forth thereon. 3.8 FINANCIAL STATEMENTS. SCHEDULE 3.8 contains the audited financial statements of and for the fiscal years ended December 31, 1998 and 1999, the unaudited balance sheet, statement of income and statement of stockholder's equity as of December 31, 1997, 1996 and 1995 and for the years then ended and the unaudited balance sheet, statement of income and statement of members' equity as of June 30, 2000 and for the six months ended June 30, 2000 and 1999. No later than thirty days after the Closing, the Shareholders shall deliver to TMP the Closing Date Financials. The materials included in SCHEDULE 3.8 hereto are sometimes collectively referred to herein as the "FINANCIAL STATEMENTS." The Financial Statements are, and the Closing Date Financials will be, consistent with the books and records of the Company and in accordance with the generally accepted accounting principles consistently applied on the accrual basis and fairly present the Company's financial condition, assets, liabilities and retained earnings as of their respective dates and the statements of income for the periods then ended. The statements of income included in the 7 Financial Statements do not, and included in the Closing Date Financials will not, contain any material items of special or non-recurring income or other income not earned in the ordinary course of business except as expressly specified on SCHEDULE 3.8. The Company has paid off all accounts payable owed and outstanding as of the Closing Date such that the amount of accounts payable set forth in the Closing Date Financials will be zero. Aggregate distributions paid to the Shareholders for the period from January 1, 2000 through August 31, 2000 are approximately equal to the taxable income of the Company for the same period. 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, unliquidated or otherwise and whether due or to become due whether known or unknown), including but not limited to liabilities or obligations on account of Taxes (as defined in SECTION 10.10) or governmental charges or penalties, assessments, interest or fines thereon or in respect thereof, except for debts, liabilities or obligations (a) reflected in the balance sheet as of December 31, 1999 or included as part of SCHEDULE 3.8, (b) under agreements, contracts, leases or commitments disclosed in this Agreement or in a Schedule hereto, (c) arising in the ordinary course of business, consistent in form and amount with past practice, since December 31, 1999, none of which debts, liabilities or obligations, individually or in the aggregate, is material in amount with respect to the business, prospects, results of operations, financial condition or assets of the Company, (d) set forth on SCHEDULE 3.9, and (e) associated with this Agreement and the Merger set forth on SCHEDULE 3.9. The Company is not under any obligation, contingent or otherwise, to refund or rebate any amounts paid or payable to it for services rendered prior to the date hereof. 3.10 COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance with all laws, regulations, rules, ordinances, orders and other requirements applicable to the operation, conduct or ownership of its property or business in all material respects. Neither the Company nor any Shareholders have received notice (written or oral) of the violation or of any claim of violation of any law, regulation, rule, ordinance, order or other requirement or Permit (as defined below) applicable to it. The Company holds all of the permits, licenses, approvals and authorizations of governmental authorities or third parties (collectively, "PERMITS") necessary for the conduct of its business. All such Permits are in full force and effect, and will remain with the Company upon, and will not be affected by, the Closing. There is no condition, nor has any event occurred, which constitutes a violation of the terms of any Permit and no cancellation, modification or revocation of any of the Permits is pending or, to the knowledge of the Company and the Shareholders, threatened. 3.11 PROPERTY. (a) Except as set forth on SCHEDULE 3.11(a), the Company does not own any real property. The Company has good and marketable title or rights as lessee to all material real, personal, mixed, tangible and intangible property of any kind or nature owned or used by it, and the Company owns each of the assets shown or reflected on the Financial Statements as belonging to it, free and clear of all Liens (as defined in SECTION 10.10), except for Liens identified on SCHEDULE 3.11(a) hereto. The assets and properties owned or leased by the 8 Company are sufficient to operate and conduct its Business in all respects in a manner consistent with the Company's past practice. (b) All material leases of real and personal property leased by the Company and utilized in its Business, including any and all leases with related parties or any Affiliates (as defined in SECTION 10.10 below) (collectively, the "LEASED PROPERTY"), are listed on SCHEDULE 3.11(b), and true, correct and complete copies previously have been furnished to TMP. All leases with Affiliates and related parties carry terms and conditions no less favorable nor more favorable in all material respects to the Company than those which could have been obtained in arms' length transactions with unrelated third parties. The Company enjoys peaceful and undisturbed possession under all such leases. Any real property that the Company occupies or leases under such leases is in good condition and repair, with adequate plumbing, heating and air conditioning and with access to public roads and utilities as required for the conduct of the Business. 3.12 CONDITION OF PROPERTY AND RELATED MATTERS. (a) All buildings, machinery, equipment and other tangible assets used by the Company are in good operating condition and repair, reasonable wear and tear excepted, are usable in the ordinary course of business and are adequate and suitable for the uses to which they are being put. None of such items requires any repairs or replacement except for maintenance in the ordinary course of business or such other repairs or replacements which are not material, individually or in the aggregate, in nature or cost. All such assets and property are located at the premises leased by the Company at Roswell Ridge Office Park, 8215 Roswell Road, Building 800 or as otherwise identified on SCHEDULE 3.12 hereto. (b) The properties and assets reflected in the balance sheet as of December 31, 1999 which is a part of the Financial Statements and the balance sheet to be included in the Closing Date Financials had, as of such date, in the aggregate a fair market or realizable value at least equal to the value thereof as reflected therein. The Company is not contemplating any capital expenditure in excess of $10,000 individually or in the aggregate which has not been disclosed to TMP in writing. 3.13 MATERIAL CONTRACTS. The Company has not entered into and is not bound by any material contract, agreement, relationship or commitment, written or oral, including without limitation any obligations for money borrowed or under leases, other than those identified on SCHEDULE 3.13 hereto (the "MATERIAL CONTRACTS"); true, correct and complete copies of all Material Contracts previously have been furnished to TMP or its counsel. Except as set forth on SCHEDULE 3.13, the Company is not in default, and no event has occurred which would constitute a default by the Company, or to the knowledge of the Company and the Shareholders, any other party under any Material Contract or any other material obligation owed by the Company and, to the knowledge of the Company and the Shareholders, no event has occurred which would constitute a default by any other party to any such Material Contract or obligation. Except as set forth on SCHEDULE 3.13, the continuation, validity and effectiveness of all Material Contracts will in no way be affected by the Merger and there are no negotiations pending to revise the terms of any such Material 9 Contracts. Except as set forth on SCHEDULE 3.13, the Company is not a party to or bound by any contract, agreement, relationship or commitment, whether or not deemed material, which in any way restricts or purports to restrict the ability of the Company to acquire any property or assets or conduct business or provide services to any person or entity anywhere in the world. 3.14 INTELLECTUAL PROPERTY. (a) The Company owns and possesses all right, title and interest in and to, or has a valid license to use, all of the Proprietary Rights (as defined below) necessary for the operation of the Business as presently conducted and none of such Proprietary Rights have been abandoned; (b) No claim by any third party contesting the validity, enforceability, use or ownership of any such Proprietary Rights has been made, is currently outstanding or, to the knowledge of the Company and the Shareholders, is threatened, and, to the knowledge of the Company and the Shareholders, there is no basis for any such claim; (c) None of the Company, any Shareholder nor any registered agent of the Company has received any notice of, nor is the Company or any Shareholder aware of any reasonable basis for any allegation of, any infringement or misappropriation by, or conflict with, any third party with respect to such Proprietary Rights, nor has the Company, the Shareholders, or any registered agent of any of them received any claim of infringement or misappropriation of or other conflict with any Proprietary Rights of any third party; (d) The Company has not infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties, and none of the Company or the Shareholders knows of any infringement, misappropriation or conflict which will occur as a result of the continued operation of the Company as presently operated and as contemplated to be operated or as a result of the consummation of the Merger; and (e) All personnel, including without limitation employees, agents, consultants and contractors, who have contributed to or participated in the conception and/or development of all or any part of the Proprietary Rights which are not licensed to the Company from a third party either (1) have been party to a "work for hire" arrangement or agreement with the Company, in accordance with applicable federal and state law, that has accorded the Company full, effective, exclusive, and original ownership of all tangible and intangible property thereby arising, or (2) have executed appropriate instruments of assignment in favor of the Company as assignee that have conveyed to the Company full, effective and exclusive ownership of all tangible and intangible property thereby arising. (f) As used herein, the term "PROPRIETARY RIGHTS" means all proprietary information of the Company, including all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice), all trademarks, service marks, trade dress, trade names, corporate names, domain names, copyrights, all trade secrets, confidential information, ideas, formulae, compositions, know-how, processes and techniques, drawings, specifications, designs, logos, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and 10 related information and all other proprietary, industrial or intellectual property rights relating to the Business, including those proprietary, industrial or intellectual property rights found at the Company's websites listed on SCHEDULE 3.14. (g) The consummation of the transactions contemplated by this Agreement will result in the Surviving Corporation having all right, title and interest in and to the Proprietary Rights and will not adversely affect the right of TMP or the Surviving Corporation to use the Proprietary Rights. To the extent that the registration of any Proprietary Right is required by law, such Proprietary Right has been duly and validly registered or filed, and any fees that are necessary to maintain in force any Proprietary Rights or registrations thereof have been paid. SCHEDULE 3.14 sets forth a list and description of the copyrights, trademarks, service marks, trade dress, trade names and domain names used or held by the Company and, where appropriate, the date, serial or registration number, and place of any registration thereof. 3.15 ACCOUNTS RECEIVABLE. SCHEDULE 3.15 is a true, correct and complete listing and aging of the accounts receivable of the Company as of December 31, 1999, determined in accordance with generally accepted accounting principles consistently applied and which Schedule is prepared on a basis that is consistent with the presentation in the Financial Statements and sets forth the standard billing practices of the Company. All of such accounts receivable have arisen in bona fide arm's length transactions in the ordinary course of business and are valid and binding obligations of the account debtors. None of the accounts receivable of the Company are subject to counterclaims or set-offs and all of the accounts receivable of the Company are collectible in full in the ordinary course of business within 120 days of the relevant invoice date, except to the extent that reserves for doubtful accounts have been established by the Company and set forth on SCHEDULE 3.15 and which reserves have been adequately reflected on, and are consistent with the presentation in, the Financial Statements attached hereto on the date hereof. 3.16 NO PREBILLINGS OR PREPAYMENTS. Except as set forth on SCHEDULE 3.16, the Company has not billed and will not bill, and the Company has not received any payments (in the form of retainers or otherwise) from, any of its customers or potential customers for services to be rendered or for expenses to be incurred subsequent to the Closing Date. To the extent that accounts receivable include pre-billed amounts, the corresponding liabilities have been accrued to the extent actual invoices representing such liabilities have not been recorded on the Company's books. 3.17 EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 3.17, neither the Company nor any Plan Affiliate (as defined in SECTION 10.10 below) has maintained, sponsored, adopted, entered into, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to or made any commitments to create any employee benefit plan, program or arrangement for the benefit of any current or former employee, officer, director or consultant of the Company or its predecessors (or any beneficiaries or dependents of such individuals) whether or not written or pursuant to a collective bargaining agreement, which has been in effect at any 11 time since January 1, 1996 or which could give rise to or result in the Company or Buyer having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due including, without limitation, any "employee pension benefit plan" (as defined in Section 3(2) of ERISA (as defined in SECTION 10.10 below)), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), "multi-employer plan" (as defined in Section 3(37) of ERISA), "employee benefit plan" (as defined in Section 3(3) of ERISA), plan of deferred compensation, medical plan, life insurance plan, disability plan, dental plan or other plan providing, personnel policy (including but not limited to vacation time, holiday pay, bonus programs, moving expense reimbursement programs and sick leave), excess benefit plan, bonus or incentive plan (including but not limited to stock options, restricted stock, phantom stock, stock bonus and deferred bonus plans), salary reduction agreement, change-of-control agreement, golden parachute, employment agreement, or consulting agreement or any other benefit program or contract (collectively, "EMPLOYEE BENEFIT PLANS"). True, correct and complete copies of all Employee Benefit Plans previously have been furnished to Buyer along with all applicable summary plan descriptions, material employee communications, annual reports for the two most recent years, the most recent annual and periodic accounting of plan assets, the most recent determination letter of the Internal Revenue Service and the most recent actuarial valuation relating thereto. Each Employee Benefit Plan (which, for purposes of this sentence and notwithstanding the reference to January 1, 1996 above, includes any such plan maintained, sponsored, adopted, contributed to or obligated to by the Company or any Plan Affiliate within the last six years) has been maintained in all material respects in compliance with governing documents and agreements and with applicable laws, regulations, rules, ordinances, orders and other requirement of law. The Company and the Plan Affiliates have fulfilled all applicable obligations under the minimum funding standards of ERISA and the Code (as defined in Section 10.10 below), have not incurred and will not incur any liability under Title IV of ERISA to the Pension Benefit Guaranty Corporation ("PBGC") and have not incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA). None of the Employee Benefits Plans is a "Multi-employer Plan" within the meaning of Section 3(37) of ERISA or is subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA and neither the Company nor any Plan Affiliate contributes to or has an obligation to contribute to, or has within the last six years contributed to or had an obligation to contribute to, a Multi-employer Plan. Each Employee Benefit Plan which is intended to be a tax qualified plan under Section 401(a) of the Code has been since its inception so qualified and is the subject of a favorable determination or opinion letter from the Internal Revenue Service with respect to such qualified status. No termination, cancellation, discontinuance or other fees are or would become payable as a result of the termination or discontinuance of any group annuity contract maintained under any Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code. All voluntary employee benefit associations have been submitted to and approved as exempt from federal income tax under Section 501(c)(9) of the Code by the Internal Revenue Service. With respect to each Employee Benefit Plan, there has occurred no transaction prohibited by Section 406 of ERISA or which constitutes a "prohibited transaction" under Section 4975(c) of the Code and with respect to which a prohibited transaction exemption is not currently in effect. The consummation of the transactions contemplated by this Agreement and the Merger Documents will not (either alone or in conjunction with another event, such as termination of employment or other services) entitle any employee or other person to receive severance or other 12 compensation which would not otherwise be payable absent the consummation of the transactions contemplated by this Agreement and the Merger Documents or cause the acceleration of the time of payment or vesting of any award or entitlement under any Employee Benefit Plan. Each Employee Benefit Plan may be unilaterally terminated and/or amended by the Company at any time without damage or penalty. All contributions, insurance premiums, benefits and other payments to or under each Employee Benefit Plan with respect to all through the Closing have or will be made prior to the Closing or have been accrued on the Financial Statements or will be accrued on the Closing Date Financials, in each case in accordance with GAAP consistently applied. With respect to each Employee Benefit Plan, (i) the Company has no knowledge of any application, proceeding or other matter that is pending before the Internal Revenue Service, the Department of Labor or any other governmental agency; (ii) no action, suit, proceeding or claim (other than routine claims for benefits) is pending or, to the Company's knowledge, threatened; and (iii) to the knowledge of the Company, no facts exist which are likely to give rise to an action, suit, proceeding or claim which, if asserted, could result in a material liability or expense to the Company or the plan assets. Neither the Company nor any Plan Affiliate maintains, contributes to, or is obligated under any plan, contract, policy or arrangement providing health or death benefits (whether or not insured) to current or former employees or other personnel beyond the termination of their employment or other services. 3.18 SALARIES. SCHEDULE 3.18 contains a true, complete and correct list setting forth (i) the names, job descriptions/titles, current compensation rate (including but not limited to salary, commission and bonus compensation), date of hire, vacation accrual rate and accrued vacation time of all individuals presently employed by the Company indicating whether they are employed on a salaried, hourly or piecework basis, and (ii) the names and total annual compensation for all independent contractors who render services on a regular basis to the Company whose current annual compensation is or is expected to be in excess of $50,000. Except as set forth on SCHEDULE 3.18 there has been no increase in the compensation of the foregoing individuals or independent contractors since December 31, 1999. There has not been any promise to the employees listed on SCHEDULE 3.18 orally or in writing of any bonus or increase in compensation, whether or not legally binding, except for increases in the ordinary course of business consistent with past compensation practices of the Company, and except for obligations incurred under existing bonus, insurance, pension or other Employee Benefit Plans described on SCHEDULE 3.17 or 3.18. The Company has not made any prepayments of salaries, bonuses or any other amounts due to any of its employees or former employees. 3.19 PERSONNEL AGREEMENTS, PLANS AND ARRANGEMENTS. Except as listed in SCHEDULES 3.17, 3.18, 3.19 and 3.26, the Company is not a party to or obligated with respect to any (a) outstanding contracts with current or former employees, agents, consultants, advisers, salesmen, sales representatives, distributors, sales agents, independent contractors, or dealers, or (b) collective bargaining agreements or contracts with any labor or trade union, employee bargaining agency or other representative of employees or any employee benefits provided for by any such agreement, true, correct and complete copies of which previously have been furnished to TMP. No strike, picketing, slow-down, work stoppage, lock-out, union organizational activity, allegation, charge or complaint of employment discrimination, 13 unfair labor practice or other similar occurrence has occurred or is pending or, to the knowledge of the Company and any of the Shareholders, is threatened against the Company nor do the Company or the Shareholders know any basis for any such allegation, charge, or complaint. The Company has complied in all material respects with all applicable laws relating to the employment of labor, including but not limited to provisions thereof relating to wages, hours, vacation pay, equal opportunity, collective bargaining and the payment, deduction and remittance of all amounts required to be deducted and/or remitted in respect of wages and salaries and of other Taxes and such deductions are consistent with past practices and in accordance with generally accepted accounting principles consistently applied and consistent with the Financial Statements, and either remitted same to the legally constituted authorities entitled to receive payment thereof or has reserved for same in its accounts and an amount of cash equal to the amount of such reserve has been set aside for payment thereof. The Company is not liable for any arrears of wages or any taxes or penalties with respect to the foregoing. The Company has not entered into and is not obligated to enter into any agreement relating to the payment of vacation pay to any employee, and it has no obligation to any employees to provide them with pay for vacation time other than as required by generally applicable provisions of law. Neither the Company nor any Shareholder has received notice from any employee of the Company that any such employee is terminating his or her employment with the Company, nor to the best knowledge of the Company and the Shareholders does any employee intend to terminate his or her employment with the Company as a result of the Merger. There are no administrative charges or court complaints pending or, to the knowledge of the Company and the Shareholders, threatened against the Company concerning alleged employment discrimination or any other matters relating to the employment of labor. No trade union, counsel of trade unions, employee bargaining agency or affiliated bargaining agent (i) holds bargaining rights with respect to any of the Company's employees by way of certification, interim certification, voluntary recognition, designation or successor right, (ii) has applied to be certified as the bargaining agent of the Company's employees, or (iii) has applied to have the Company declared a related employer pursuant to the provision of applicable law. Except as set forth in SCHEDULE 3.19, no claim, injunction, fact, event or condition exists which would give rise to a material claim by any employee or former employee (including dependents and spouses thereof and other individuals covered thereunder) of the Company under any workers compensation laws, regulations, requirements or programs. 3.20 CUSTOMERS. SCHEDULE 3.20 is a complete list by dollar volume of billings (for the fiscal year ended December 31, 1999) of the Company's top twenty customers by revenue. Except as set forth on SCHEDULE 3.20, since December 31, 1999, none of these customers has canceled or otherwise terminated, or, to the knowledge of the Company and the Shareholders, threatened to cancel or otherwise terminate, its relationship with the Company or reduced, or to the knowledge of the Company and the Shareholders, threatened to reduce, its business with the Company. Neither the Company nor any of the Shareholders have received any notice or has any knowledge or reason to believe that any customer intends to cancel or otherwise modify its relationship with the Company on account of the Merger or otherwise. 3.21 INTEREST OF THE COMPANY IN CUSTOMERS, ETC. 14 Except as set forth on SCHEDULE 3.21, neither the Company, the Shareholders nor any of their respective Affiliates has any direct or indirect ownership interest in or other business relationship with any competitor, supplier or customer of the Company, or in any person from whom or to whom the Company leases any real or personal property or in any other person with whom the Company has any business relationship. SCHEDULE 3.21 describes (i) all management, administrative, computer, telephone or other services provided to the Company by any of the Company's Affiliates, or any of the Affiliates of the officers or Shareholders of the Company, and all such services provided by the Company to any of such persons and entities, and (ii) all other contracts, agreements, arrangements or transactions (including the purchase and sale of inventory, supplies and other goods) between the Company, on the one hand, and any of such individuals or entities on the other hand, currently in effect, including, without limitation any agreement or arrangement relating to indebtedness to or from any of such individuals or entities, in each case setting forth the terms thereof if not effected on an arm's-length basis. 3.22 BOOKS AND RECORDS. All the books, records and accounts of the Company are in all material respects accurate and complete, accurately reflect all matters normally entered into the books, records or accounts maintained by similar small businesses, are in all material respects in accordance with all laws, regulations and rules applicable to the Company and accurately present and reflect in all material respects all of the transactions described therein. The Company has accounting controls sufficient to ensure that its transactions are in all material respects executed in accordance with its management's general or specific authorization. 3.23 INSURANCE POLICIES. SCHEDULE 3.23 is a correct and complete list and description, including policy numbers, of all insurance policies owned or held by the Company or otherwise covering the Company, its employees or assets. Such policies are in full force and effect, and the Company is not in default under any of them. The Company has not received any notice of non-renewal, cancellation or intent to cancel, not renew or increase premiums or deductibles with respect to such insurance policies nor, to the knowledge of the Company and the Shareholders, is there any basis for any such action. SCHEDULE 3.23 also contains a list of all pending claims with any insurance company (other than health, medical and dental insurance claims of employees) and any instances within the previous three years of a denial of coverage of the Company by any insurance company. 3.24 BANK ACCOUNTS. SCHEDULE 3.24 is a complete and correct list of each bank and brokerage firm in which the Company has an account or safe deposit box, the number of each such account or box and the names of all persons authorized to draw thereon or to have access thereto. 3.25 TAXES. Except as set forth on SCHEDULE 3.25: (a) All Tax Returns (as defined in SECTION 10.10) required to be filed by or on behalf of the Company have been properly prepared and duly and timely filed with the 15 appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns were true, complete and correct in all material respects. (b) All Taxes (whether or not shown on any Tax Return) payable by or on behalf of the Company or with respect to its income, assets or operations have been fully and timely paid. The cash reserves or accruals, if any, for Taxes provided in the books and records of the Company with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing are, or prior to the Closing Date, will be, sufficient for all unpaid Taxes of the Company through and including the Closing Date (including, without limitation, any Taxes resulting from the transactions contemplated by this Agreement). The Company has no liability for Taxes of any other person as a transferee, successor, by contract or otherwise. (c) The Company has not executed or filed with the Internal Revenue Service (the "IRS") or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitations), and no power of attorney granted by the Company with respect to any Tax matter is currently in force. (d) The Company has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws. (e) TMP has been provided complete copies of (i) all U.S. federal, state and local, and foreign income or franchise Tax Returns of the Company relating to the taxable periods beginning after 1995 and (ii) any audit report issued within the last three years relating to Taxes due from or with respect to the Company and its income, assets or operations. SCHEDULE 3.25 lists the income and franchise Tax Returns filed by or on behalf of the Company that have been examined by the relevant taxing authority. (f) SCHEDULE 3.25 lists all material types of Taxes paid and material types of Tax Returns filed by or on behalf of the Company and indicates those Taxes with respect to which the Company is or has been a member of an Affiliated Group for any Tax purpose. No claim has been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction. (g) All deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Company have been fully paid and there are no other audits or investigations by any taxing authority or proceedings in progress, nor has the Company or the Shareholders received any notice from any taxing authority that it intends to conduct such an audit or investigation. No issue has been raised by a U.S. federal, state, local or foreign taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period. 16 (h) Neither the Company nor any other Person on behalf of the Company has (A) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Company, (B) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company, or has otherwise taken any action that would have the effect of deferring any liability for Taxes from any taxable period ending on or before the Closing to any taxable period ending thereafter, (C) executed or entered into closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to the Company, or (D) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed. (i) No property owned by the Company is (i) property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code or (iii) is "tax-exempt bond financed property" within the meaning of Section 168(g) of the Code. (j) The Company is not a party to any tax sharing or similar agreement or arrangement (whether or not written) pursuant to which it will have any obligation to make any payments after the Closing. (k) There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by TMP by reason of Section 280G of the Code, or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code. (l) The Company is not subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities. (m) There are no Liens as a result of any unpaid Taxes upon any of the assets of the Company. (n) All material Federal Tax elections of the Company are clearly set forth in the Tax Returns described in Section 3.25(e)(i). (o) The Company has never been a member of any affiliated group within the meaning of Section 1504 of the Code or any similar group defined under a similar provision of state, local or foreign law, including, but not limited to, any combined, consolidated or unitary group. The Company does not own any interest in any entity that is treated as a partnership for U.S. federal income tax purposes or would be treated as a pass-through or transparent entity for tax purposes. 17 (p) No shares of capital stock of the Company have been (or, prior to the Closing Date, will be) redeemed prior to or in connection with the transactions contemplated by this Agreement, and the Company has not made (and, prior to the Closing Date, will not make) any extraordinary distribution (within the meaning of Section 1.368-IT(e) of the Treasury Regulations) with respect to its stock prior to or in connection with the Merger. The consummation of the Merger will not result in Taxes payable by the Company. (q) To the knowledge of the Company and the Shareholders, the Company has not taken or agreed to take any action that would, or has knowledge of, any fact or circumstance that is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. (r) The Company has properly and timely elected under Section 1362 of the Code, and under each analogous or similar provision of state or local law in each jurisdiction where it is required to file a Tax Return to be treated as an "S" corporation for all taxable periods since its incorporation. There has been no voluntary or involuntary termination or revocation of any such election. Other than the Georgia net worth tax, the Company is not subject to any entity-level income, franchise or similar Taxes imposed by any taxing authority. (s) None of the Shareholders is a foreign person within the meaning of Section 1445 of the Code. 3.26 LITIGATION. Except as set forth in SCHEDULE 3.26, there is no claim, counter-claim, action, suit, order, proceeding or investigation pending or, to the knowledge of the Company and the Shareholders, threatened against or involving the Company (or pending or, to the knowledge of the Company and the Shareholders, threatened against any of the officers, directors or key employees of the Company with respect to business activities on behalf of the Company) with respect to or affecting the Company, its accounts, business, properties, assets or rights, or relating to the Merger, before any court, agency, regulatory, administrative or other governmental body or officer or before any arbitrator; nor, to the knowledge of the Company and the Shareholders, is there any reasonable basis for any such claim, action, suit, proceeding or governmental, administrative or regulatory investigation. The Company is not directly subject to or affected by any order, judgment, decree or ruling of any court or governmental agency. Neither the Company nor any Shareholder has received any written opinion or memorandum of legal advice from legal counsel to the effect that any of them are exposed to any liability which may be material to the business, prospects, results of operations, financial condition or assets of the Company. The Company is not engaged in any legal action to recover monies due it or for damages sustained by it, and none of the assets of the Company nor any of its business practices is in any manner, directly or indirectly, affected by injunction of any court or governmental, administrative or regulatory agency, body or officer. 3.27 ENVIRONMENTAL AND SAFETY REQUIREMENTS. The Company is, in all material respects, in compliance with all applicable Environmental and Safety Requirements (as defined below), and possesses all required permits, licenses and 18 certificates, and has filed all notices or applications, required thereby. Neither the Company nor any Shareholder has received any notice or other communication from any party with respect to the failure by the Company to comply with Environmental and Safety Requirements. For purposes of this Agreement, "ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, foreign and local laws, bylaws, rules, regulations, ordinances, decrees, orders, statutes, actions, guidelines, standards, arrangements, injunctions, policies and requirements relating to public health and safety, worker health and safety, pollution and protection of the environment (including without limitation the handling of any polluted, toxic or hazardous materials), all as amended or hereafter amended. The Company has no, nor are its properties subject to, nor are there any facts or circumstances which the Company or the Shareholders reasonably believe could form the basis for, any liability, contingent or otherwise, arising out of any Environmental and Safety Requirements. The Company does not have in its possession or under its control any hazardous substances. 3.28 CONDUCT OF THE BUSINESS. Except as set forth on SCHEDULE 3.28, since December 31, 1999, the Company has conducted its business only in the ordinary course of business consistent with past custom and practice, and has incurred no liabilities or obligations whatsoever other than in the ordinary course of business consistent with past custom and practice and there has been no material adverse change in the assets, condition (financial or otherwise), results of operations, employee or customer relations, business activities or business prospects of the Company, nor does the Company or the Shareholders know of any such change which is threatened, nor has there been any damage, destruction or loss materially adversely affecting any of the assets, or the business condition (financial or otherwise), results of operations, prospects or activities of the Company, whether or not covered by insurance. Without limitation of the foregoing and except as set forth on SCHEDULE 3.28, since December 31, 1999, the Company has not: (a) voluntarily or involuntarily sold, transferred, abandoned, surrendered, subjected to a Lien or otherwise disposed of any material assets or property rights except in the ordinary course of business consistent with past custom or practice; (b) changed any accounting principles, methods or practices utilized by it or changed any of its depreciation rates or amortization policies or rates; (c) made any loan or advance to any party in excess of $5,000; (d) issued, redeemed or purchased any stock, bond or corporate security or declared or made any payment or distribution on or with respect to its capital stock; (e) incurred debt, liabilities, or obligations of any nature whether accrued, absolute, contingent, direct, indirect, perfected or otherwise and whether due or to become due except current liabilities incurred and liabilities under contracts entered into in the ordinary course of business consistent with past custom and practice; (f) increased the compensation payable to any of its officers, employees or agents; 19 (g) paid any amounts to or for the benefit of any of the Shareholders or; (h) entered into any other material transaction, or committed to any of the foregoing. 3.29 POWER OF ATTORNEY. Neither the Company nor any Shareholder has given to any person or entity for any purpose any power of attorney which is currently in effect. 3.30 BROKERS. Neither the Company nor any Shareholder has incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees or commissions in connection with the transactions contemplated by this Agreement or the Merger Documents. 3.31 NO ILLEGAL OR IMPROPER TRANSACTIONS. Neither of the Company, nor any Shareholder nor any of the Company's directors or officers has, directly or indirectly, used funds or other assets of the Company, or made any promise or undertaking in such regard, for (a) illegal contributions, gifts, entertainment or other expenses relating to political activity; (b) illegal payments to or for the benefit of governmental officials or employees, whether domestic or foreign; (c) illegal payments to or for the benefit of any person, firm, corporation or other entity, or any director, officer, employee, agent or representative thereof; or (d) the establishment or maintenance of a secret or unrecorded fund; and there have been no false or fictitious entries made in the books or records of the Company. 3.32 COMPUTER SYSTEMS. The computer systems of the Company listed on SCHEDULE 3.32 (including without limitation all software, hardware, workstations and related components, automated devices, embedded chips and other date sensitive equipment such as security systems, alarms, elevators and HVAC systems) constitute all computer systems necessary to conduct the Business as presently conducted. The Company has not experienced any material problems or difficulties with such computer systems related to or resulting from the "Year 2000" concern. 3.33 ACCOUNTING. Neither the Company nor any of the Company's directors or officers has taken any action nor is the Company or any of the Shareholders aware of any facts or circumstances in respect of the Company or its accounting procedures which such person believes may have the effect of precluding accounting for the transactions contemplated by this Agreement and the Merger Documents as a "pooling of interests," which facts or circumstances have not been disclosed to TMP or to its independent auditors. Except as disclosed on SCHEDULE 3.33, since April 1, 1998: (i) the Company has not in any way changed the equity interests of its securities; (ii) the Company has not acquired any treasury securities; and (iii) the Company has not disposed of significant assets, and any changes in equity interests, acquisitions of treasury securities or 20 disposal of assets disclosed on SCHEDULE 3.33 were not in contemplation of the transactions contemplated by this Agreement. 3.34 NO MISREPRESENTATION. The representations and warranties of the Company and the Shareholders set forth in this Agreement or any of the Merger Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein in light of the circumstances in which they were made, not misleading as of the Closing Date. There is no material fact or information particular to the business of the Company which has not been disclosed to TMP in writing which materially adversely affects or could reasonably be anticipated to materially adversely affect the business, condition (financial or otherwise), property or assets of the Company or the ability of the Company to consummate the Merger as of the Closing Date. ARTICLE III-B REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS As an inducement to TMP to enter into and perform its obligations under this Agreement, each Shareholder severally (and not jointly with the Company or any other Shareholder) represents and warrants to TMP (as of the Closing Date unless otherwise indicated) as follows: 3.35 SHAREHOLDER POWER AND AUTHORIZATION. Each of the Shareholders has full power and authority to execute and deliver this Agreement and each of the other Merger Documents to which he is or will be a party, and to perform his obligations hereunder and thereunder and to consummate the Merger. This Agreement and the Merger Documents to which each of them is or will be a party, have been or will be duly executed and delivered by such Shareholder and constitute the legal, valid and binding obligations of such Shareholder, enforceable against such Shareholder in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy and other laws of general application relating to creditors' rights and general principles of equity. 3.36 OWNERSHIP OF SHARES. Such Shareholder is the legal record and beneficial owner of the Equity Interests set forth on SCHEDULE A hereto. Such Shareholder owns his Equity Interests free and clear of any Liens. 3.37 SECURITIES MATTERS. Except as set forth on SCHEDULE 3.37: (a) Such Shareholder has such knowledge and experience in financial and business matters and such experience in evaluating and investing in companies such as TMP as to be capable of evaluating the merits and risks of an investment in the TMP Common Stock. 21 Such Shareholder has the financial ability to bear the economic risk of his investment in the TMP Common Stock being acquired hereunder, has adequate means for providing for his current needs and contingencies and has no need for liquidity with respect to his investment in TMP. (b) Such Shareholder is acquiring the TMP Shares for his own account, for investment purposes only, and not with the view to, or for resale in connection with, any distribution thereof. Such Shareholder understands that the TMP Shares have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or under the securities laws of various states, by reason of a specified exemption from the registration provisions thereunder which depends upon, among other things, the bona fide nature of such Shareholder's investment intent as expressed herein. Such Shareholder acknowledges that his representations and warranties contained herein are being relied upon by TMP as a basis for the exemption of the issuance of the TMP Common Stock hereunder from the registration requirements of the Securities Act and any applicable state securities laws. (c) Such Shareholder acknowledges that the TMP Shares must be held indefinitely unless they are subsequently registered under the Securities Act and under applicable state securities laws or an exemption from such registration is available. Such Shareholder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of the securities purchased in a private placement subject to the satisfaction of certain conditions including, among other things, the availability of certain current public information about TMP and compliance with applicable requirements regarding the holding period and the amount of securities to be sold and the manner of sale. Such Shareholder understands that only TMP can take action to register the TMP Shares. (d) Such Shareholder has relied upon independent investigations made by such Shareholder and is fully familiar with the business, results of operations, financial condition, prospects and other affairs of TMP and realizes the TMP Shares are a speculative investment involving a high degree of risk for which there is no assurance of any return. Such Shareholder has, among other things, accessed and carefully reviewed (i) TMP's Annual Report on Form 10-K for the year ended December 31, 1999, (ii) TMP's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, (iii) TMP's Proxy Statement dated May 19, 2000, (iv) TMP's Registration Statement on Form S-1 (SEC file number 333-41996) and all amendments thereto, (v) TMP's current Reports on Form 8-K filed in 2000, and (vi) all other information filed by TMP pursuant to the Securities Act or the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") since January 1, 2000. Such Shareholder acknowledges that in connection with the Merger, neither TMP nor anyone acting on its behalf or any other person has made, and such Shareholder is not relying upon, any representations, statements or projections concerning TMP, its present or projected results of operations, financial condition, prospects, present or future plans, acquisition plans, products and services, or the value of the TMP Shares or TMP's business or any other matter in relation to TMP's business or affairs. Such Shareholder has had an opportunity to discuss TMP's business, management, financial affairs and acquisition plans with TMP's management, to review TMP's facilities, and to obtain such additional information concerning such Shareholder's investment in the TMP Shares in order for such Shareholder to evaluate its merits and risks, and such Shareholder has determined that the TMP Shares are a suitable investment for such Shareholder and that at this time such Shareholder could bear a complete loss of his investment. 22 (e) Such Shareholder is aware that no federal or state or other agency has passed upon or made any finding or determination concerning the fairness of the transactions contemplated by this Agreement and the Merger Documents or the adequacy of the disclosure of the exhibits and schedules hereto or thereto and such Shareholder must forego the security, if any, that such a review would provide. (f) Such Shareholder understand and acknowledge that neither the IRS nor any other tax authority has been asked to rule on the tax consequences of the Merger or by the Merger Documents and, accordingly, in making his decision to acquire the TMP Shares such Shareholder has relied upon the investigations of such Shareholder's own tax and business advisers in addition to such Shareholder's own independent investigations, and that such Shareholder and such Shareholder's advisers have fully considered all the tax consequences of such Shareholder's acquisition of the TMP Shares. (g) Except as set forth on SCHEDULE A, such Shareholder is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D under the Securities Act by reason of being a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. (h) Such Shareholder understands that all certificates for the TMP Shares issued to the Shareholders shall bear a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS." 3.38 SHAREHOLDER ACCOUNTING. Such Shareholder has not taken or agreed to take any action, and is not aware of any facts or circumstances in respect of the Company or its accounting procedures, which is reasonably likely to prevent the transactions contemplated by this Agreement and the Merger Documents from being accounted for as a "pooling of interests." Such Shareholder has not (i) sold, transferred or assigned any securities of the Company or (ii) at any time in any way reduced his risk or committed to reduce his risk with respect to the capital stock owned by such Shareholder. Such Shareholder has not at any time in any way reduced his risk or committed to reduce his risk with respect to the TMP Shares to be acquired by such Shareholder hereunder, whether by entering into a put, collar, option, margin or other arrangement. Between January 1, 1998 and the Closing Date, such Shareholder has not owned any shares of TMP Common Stock. 23 3.39 REGULATORY MATTERS. Such Shareholder has not taken or agreed to take any action that would, or has knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger contemplated hereby from qualifying as a reorganization within the meaning of Section 368(a) of the Code, or (ii) materially impede or delay receipt of any consents of any governmental authorities referred to in SECTION 6.2(C) hereof. 3.40 POWER OF ATTORNEY. Such Shareholder has not given to any person or entity for any purpose any power of attorney with respect to the Merger. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TMP As an inducement to the Company and the Shareholders to enter into and perform their respective obligations under this Agreement, TMP hereby represents and warrants to the Company and the Shareholders as follows: 4.1 ORGANIZATION AND GOOD STANDING; POWER. TMP is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. TMP has full power and authority to execute and deliver this Agreement and the Merger Documents, to perform its obligations hereunder and thereunder and to consummate the Merger contemplated hereby and thereby. 4.2 AUTHORIZATION. The execution and delivery of this Agreement and the Merger Documents, and the performance by TMP of its obligations hereunder and thereunder, and the consummation of the Merger have been duly authorized by TMP. This Agreement and the Merger Documents have been duly executed and delivered by TMP and constitute the legal, valid and binding obligations of TMP, enforceable against TMP in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy and other laws of general application relating to creditors' rights or general principles of equity. 4.3 NO VIOLATION. The execution, delivery and performance by TMP of this Agreement and the Merger Documents and the consummation of the transactions contemplated herein and therein do not and will not: (a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any Lien upon any assets or properties, or in any manner release any party thereto from any obligation 24 under, any mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which TMP or any of its properties or assets may be bound or affected; (b) conflict with, violate or result in any loss of benefit under, any permit, concession, franchise, order, judgment, writ, injunction, regulation, statute or decree; or (c) conflict with or violate any provision of the certificate of incorporation or bylaws, each as heretofore amended, of TMP. 4.4 NO CONSENT REQUIRED. No consent, approval, order or authorization of, or declaration, filing or registration with, any person or governmental authority is required to be made or obtained by TMP in connection with the authorization, execution, delivery or performance of this Agreement, the Merger Documents or the Merger. 4.5 TMP FILINGS. The following information with respect to TMP is available in the Edgar database on the website of the U.S. Securities and Exchange Commission (the "SEC") at HTTP://WWW.SEC.GOV: (i) TMP's Annual Report on Form 10-K for the year ended December 31, 1999, (ii) TMP's Proxy Statement dated May 19, 2000, (iii) TMP's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, (iv) TMP's Registration Statement on Form S-1 (SEC file number 333-41996) and all amendments thereto and (v) TMP's Current Reports on Form 8-K filed in 2000 (collectively referred to herein as the "Exchange Act Filings"). None of the Exchange Act Filings, as of their respective filing date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading (except any statement or omission therein which has been corrected or otherwise disclosed or updated in a subsequent Exchange Act Filing). Except as disclosed to the Shareholders in writing, in materials filed by TMP pursuant to the Securities Act or the Exchange Act, or set forth in press releases that have been made public by TMP (including but not limited to those from time to time posted at or available through Nasdaq's website at HTTP://WWW.NASDAQ.COM), there has been no material adverse change in the financial condition of TMP since January 1, 2000, and as of the date hereof and the Closing Date, taken collectively, the Exchange Act Filings and such press releases do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances in which they were made, not misleading. 4.6 COMPLIANCE WITH RULE 144. TMP agrees to (i) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about TMP; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required to be filed by TMP under the Exchange Act; and (iii) furnish to the Shareholders upon request (x) a written statement by TMP as to its compliance with the requirements of said Rule 144(c), and the 25 reporting requirements of the Exchange Act; (y) a copy of the most recent annual or quarterly report of TMP and (z) such other reports and documents of TMP as the Shareholders may reasonably request. 4.7 ISSUANCE. The TMP Shares to be delivered by TMP hereunder have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable and will not be issued in violation of any preemptive rights, rights of first refusal or similar rights. 4.8 TMP SHARES. The TMP Shares to be delivered to the Shareholders hereunder constitute "voting stock" within the meaning of Section 368(a)(2)(B) of the Code. ARTICLE V [INTENTIONALLY OMITTED] ARTICLE VI CONDITIONS PRECEDENT TO THE CLOSING 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF TMP. The obligations of TMP under this Agreement to consummate the Merger will be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived at the option of TMP: (a) NO BREACH OF COVENANTS; TRUE AND CORRECT REPRESENTATIONS AND WARRANTIES. There shall have been no material breach by the Company or the Shareholders in the performance of any of their respective covenants herein to be performed by it in whole or in part prior to the Closing, and the representations and warranties of the Company and the Shareholders contained in this Agreement shall be true and correct in all material respects as of the Closing, except for representations or warranties that are made by their terms as of a date specified by month, day and year (it being understood that representations and warranties made "as of the date hereof" are not as of a date specified by month, day and year), which shall be true and correct in all material respects as of such specified date. TMP shall receive at the Closing a certificate dated and validly executed on behalf of the Company and the Shareholders certifying, in such detail as TMP may reasonably require, the fulfillment of the foregoing conditions, and restating and reconfirming as of the Closing all of the covenants, representations and warranties of the Company and the Shareholders contained in this Agreement, specifying in detail the extent of any breaches thereof. 26 (b) DELIVERY OF DOCUMENTS. TMP shall have received all documents and other items to be delivered under Section 7.2. (c) NO LEGAL OBSTRUCTION. No suit, action or proceeding not disclosed in the Schedules to this Agreement by any person, entity or governmental agency shall be pending or threatened in writing, which if determined adverse to the Company, the Shareholders or TMP's interests, could reasonably be expected to have a material adverse effect upon (i) the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company, (ii) TMP or its Affiliates, or (iii) the benefits to TMP or its Affiliates of the Merger. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the Merger or restraining or prohibiting the consummation of such transactions or compelling TMP to dispose of or discontinue or materially restrict the operations of a significant portion of the Company. All Requisite Regulatory Approvals (as defined in SECTION 10.10) shall have been made, obtained or expired, as the case may be, and all such Requisite Regulatory Approvals shall be in full force and effect. (d) DAMAGE OR DESTRUCTION. From the date hereof until the Closing, there shall have been no material loss or destruction of any portion of the properties or assets of the Company, nor any institution or threat of any condemnation or other proceedings to acquire or limit the use of any of the properties or assets of the Company. (e) NO MATERIAL ADVERSE CHANGE. From the date hereof until the Closing, there shall have been no material adverse change in the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company. (f) APPROVAL BY TMP'S COUNSEL AND ACCOUNTANTS. All actions, proceedings, instruments and documents reasonably required to carry out this Agreement and all other related legal and accounting matters shall have been reasonably approved as to form and substance by counsel and accountants for TMP including, without limitation, such accountants' conclusion that the acquisition of the Equity Interests by TMP may be accounted for by TMP as a pooling of interests. (g) TERMINATION OF COMPANY 401(k) PLAN. The Board of Directors of the Company shall have adopted a resolution terminating the Rich, Gardner & Associates, Ltd. 401(k) Retirement Plan (the "Company 401(k) Plan") as of a date prior to the Closing Date. (h) PAYMENT OF ACCOUNTS PAYABLE. The Company shall have paid all accounts payable owed and outstanding as of the Closing Date. 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The obligations of the Company and the Shareholders under this Agreement to consummate the Merger contemplated hereby will be subject to the satisfaction, at or prior to the Closing, of all 27 the following conditions, any one or more of which may be waived at the option of the Company and the Shareholders: (a) NO BREACH OF COVENANTS; TRUE AND CORRECT REPRESENTATIONS AND WARRANTIES. There shall have been no material breach by TMP in the performance of any of the covenants herein to be performed by it in whole or in part prior to the Closing, and the representations and warranties of TMP contained in this Agreement shall be true and correct in all material respects as of the Closing, except for representations or warranties that are made by their terms as of a date specified by month, day and year (it being understood that representations and warranties made "as of the date hereof" are not as of a date specified by month, day and year), which shall be true and correct in all material respects as of such specified date. The Company on behalf of itself and the Shareholders shall receive at the Closing a certificate dated as of the Closing and executed on behalf of TMP, certifying in such detail as the Company may reasonably require, as to the fulfillment of the foregoing conditions, and restating and reconfirming as of the Closing all of the covenants, representations and warranties of TMP contained in this Agreement, specifying in detail the extent of any breaches thereof. (b) DELIVERY OF DOCUMENTS. The Company on behalf of itself and the Shareholders shall have received all documents and other items to be delivered by TMP under SECTION 7.3. (c) NO LEGAL OBSTRUCTION. No suit, action or proceeding not disclosed in the Schedules to this Agreement by any person, entity or governmental agency shall be pending or threatened in writing, which if determined adverse to the Company, the Shareholders or TMP's interests, would have a material adverse effect upon (i) the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company, (ii) TMP or its Affiliates, or (iii) the benefits to TMP or its Affiliates of the Merger. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the Merger or restraining or prohibiting the consummation of such transactions or compelling TMP to dispose of or discontinue or materially restrict the operations of a significant portion of the Company. Requisite Regulatory Approvals shall have been obtained, made or expired, as the case may be, and all such Requisite Regulatory Approvals shall be in full force and effect. (d) APPROVAL BY COUNSEL AND ACCOUNTANTS. All actions, proceedings, instruments and documents reasonably required to carry out this Agreement and all other related legal and accounting matters shall have been reasonably approved as to form and substance by counsel and accountants for the Company. (e) NO MATERIAL ADVERSE CHANGE. From the date hereof until the Closing, there shall have been no material adverse change in the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company. 28 ARTICLE VII CLOSING 7.1 CLOSING. The consummation of the Merger shall be closed (the "Closing") at the office of Fulbright & Jaworski L.L.P., 666 5th Avenue, New York, NY 10103 no later than the third business day after the satisfaction or waiver of the conditions to the parties' obligations set forth in ARTICLE VI hereof (other than the delivery of certificates and opinions contemplated to be delivered at the Closing, which shall be delivered at the Closing) or at such other time or place as the parties may mutually agree (the "Closing Date"). In the event that the Merger has not closed on or before August 31, 2000, and (i) on such date the Company and the Shareholders on the one hand or TMP on the other is ready, willing and able to satisfy the conditions precedent to Closing of the other parties (the "Ready Party") and the other parties are not so ready, willing and able, or (ii) the conditions to a party's obligations set forth in Article VI hereof are not satisfied (except as a result of a material default or breach of this Agreement by such party) (the "Specified Party"), then the Ready Party or Specified Party may, in addition to any other remedies it may have, terminate this Agreement upon written notice to the others without liability to such other parties. 7.2 DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS. At the Closing, the Company and the Shareholders shall deliver or cause to be delivered to TMP: (a) STOCK CERTIFICATES AND INSTRUMENTS OF CONVEYANCE. Certificate(s) for all of the Company's outstanding Equity Interests, accompanied by stock power(s) duly executed in blank, with all necessary stock transfer and other documentary stamps attached, and all Transfer Documents, including evidence that any capital stock which was converted for a share of Equity Interests, has terminated and is of no force or effect; (b) CONSENTS. Copies of all written consents required to be obtained by either of them in connection with the mergers contemplated by this Agreement and the Merger Documents, if any, in form and substance reasonably satisfactory to TMP; (c) OPINION OF COUNSEL. An opinion of counsel for the Company, dated as of the Closing Date, in form and substance reasonably satisfactory to TMP, addressing the matters set forth in SECTIONS 3.1, 3.2(A), 3.5, 3.6, 3.7 and 3.26; (d) CORPORATE DOCUMENTS. The articles of incorporation of the Company certified by an appropriate official of its jurisdiction of incorporation as being in effect as of a recent date, and bylaws of the Company certified by an appropriate officer of the Company as in effect at the Closing; (e) CERTIFICATE OF GOOD STANDING. Certificate of good standing, dated as of a recent date, issued by an appropriate official of the State of Georgia; (f) BOARD AND SHAREHOLDER RESOLUTIONS. A copy of the resolutions of the Board of Directors and of the Shareholders of the Company certified by the secretary of the Company as having been duly and validly adopted and in full force and effect as of the Closing Date, 29 authorizing execution and delivery of this Agreement and the Merger Documents and performance, and the appointment and elections of officers and directors of the Company and consummation of the Merger contemplated hereby and thereby by the Company; (g) BOARD RESOLUTIONS FOR 401(k) PLAN TERMINATION. A copy of the resolutions of the Board of Directors of the Company certified by the secretary of the Company as having been duly and validly adopted and in full force and effect as of the Closing Date, authorizing the termination of the Company 401(k) Plan in accordance with Section 6.1(g) of this Agreement. (h) RESIGNATIONS. Resignations of all of the directors and officers of the Company, effective as of the Closing; (i) OTHER DOCUMENTS. Such other documents and instruments as TMP or its counsel or accountants reasonably shall deem necessary to consummate the Merger; (j) LEASE AGREEMENT. The Lease Agreement attached hereto as Exhibit A duly executed by Rich Gardner Property, LLC; (k) EMPLOYMENT AGREEMENT. An employment agreement, duly executed by Fred Rich, substantially in the form attached hereto as EXHIBIT B (the "Employment Agreement"); and (l) CERTIFICATE OF MERGER. The Certificate of Merger, duly executed by the Company. (m) LIEN SEARCHES. Such lien searches and such other instruments showing that there were no financing statements, judgments, taxes or other liens recorded against either Company or any of their assets or properties as of a date that is not more than ten (10) days prior to the Closing Date. (n) TERMINATION OF SHAREHOLDER AGREEMENTS AND ORAL LEASE. Terminations of all Shareholders agreements, buy-sell agreements or similar agreements among the Shareholders of the Company as well as a termination of the oral lease with Rich Gardner Property LLC for the condominium at the Inlet Reef Club. (o) CAR LEASES AND INSURANCE. The car leases identified in paragraphs (e) and (f) of Schedule 3.11(b) have been transferred to Rich and Gardner, respectively and the insurance policies relating to all automobiles have been terminated or transferred to Rich and Gardner or shall be terminated or transferred within 30 days of the Closing. (p) LIFE INSURANCE. The life insurance policies held by the Company on the lives of Rich and Gardner, respectively, have been transferred to Rich and Gardner or will be transferred within 30 days of the Closing. All documents delivered to TMP shall be in form and substance reasonably satisfactory to counsel and accountants for TMP. 7.3 DELIVERIES BY TMP. 30 At the Closing, TMP will deliver to the Company and/or the Shareholders, simultaneously with delivery of the items referred to in SECTION 7.2 above: (a) LEASE AGREEMENT. The Lease Agreement attached hereto as Exhibit A duly executed by TMP; (b) EMPLOYMENT AGREEMENT. The Employment Agreement attached hereto as Exhibit B duly executed by TMP; (c) CERTIFICATE OF MERGER. The Certificate of Merger, duly executed by TMP; and (d) OTHER DOCUMENTS. Such other documents and instruments as the Company, the Shareholders or their counsel or accountants reasonably shall deem necessary to consummate the Merger. All documents delivered to the Company and/or the Shareholders shall be in form and substance reasonably satisfactory to counsel for the Company and the Shareholders. 7.4 FILINGS AT THE CLOSING. Subject to the provisions of this ARTICLE VII, TMP shall file at the Closing the Certificate of Merger and shall cause the Certificate of Merger to be recorded in accordance with the applicable provisions of the GCL, and shall take any and all other lawful actions and do any and all other lawful things necessary to cause the Merger to become effective. ARTICLE VIII OTHER AGREEMENTS 8.1 CONFIDENTIALITY. (a) After the Closing, such Shareholder and his Affiliates shall strictly maintain the confidentiality of all information, documents and materials relating to the mergers contemplated by this Agreement, including without limitation the existence of this Agreement and the terms thereof, except to the extent disclosure of any such information is required by law or authorized by TMP, or otherwise made publicly available by TMP, or reasonably occurs in connection with disputes over the terms of this Agreement. In the event that such Shareholder reasonably believes after consultation with counsel that it is required by law to disclose any confidential information described in this SECTION 8.1, such Shareholder will (i) provide TMP with prompt notice before such disclosure in order that TMP may attempt to obtain a protective order or other assurance that confidential treatment will be accorded to confidential information, and (ii) cooperate with TMP in attempting to obtain such order or assurance. The provisions of this SECTION 8.1 shall not apply to any information, documents or materials which are in the public domain or shall come into the public domain, other than by reason of default by such Shareholder or his Affiliates of this Agreement or becomes known in the industry through no wrongful act on the part of such Shareholder or any of his Affiliates. 31 (b) NONCOMPETITION. Each of Rich and Gardner acknowledges that he has extensive knowledge and a unique understanding of the Business, has been directly involved with the establishment and continued development of the Company's client relations and has had access to the proprietary and confidential information used in the Business. Each of Rich and Gardner further acknowledges that if he was to compete, directly or indirectly, with TMP in the Business following the Closing, great harm would come to TMP thereby potentially decreasing any value associated with the Merger. In furtherance of the Merger, by virtue of the transactions contemplated hereby and to more effectively protect the value of the Company after the Merger, each of Rich and Gardner covenants and agrees that, for a period beginning on the Closing and ending on the date which is three years after the Closing Date, neither of Rich or Gardner shall, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any person, firm, corporation or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the Business anywhere in or into the United States (the "TERRITORY"), other than on behalf of and as an employee of TMP or an Affiliate of TMP. Notwithstanding the foregoing, nothing contained in this SECTION 8.1(b) shall prohibit the Shareholders from owning, directly or indirectly, not more than an aggregate of one percent (1%) of any class of stock of any company which is listed on a national securities exchange or traded in the over-the-counter market. Each of the Shareholders acknowledges that the covenants contained in this ARTICLE VIII are essential conditions for TMP entering into this Agreement without which TMP would not have entered into this Agreement or have paid the consideration payable by it. Each of the Shareholders acknowledges that the restrictions set forth herein are reasonable, valid and necessary for the protection of the legitimate interest of TMP. (c) NONSOLICITATION. Without limiting the provisions of SECTION 8.1(a) or (b) hereof, each of Rich and Gardner agrees that, for a period beginning on the Closing Date and ending on the date which is three years after the Closing Date, neither Rich nor Gardner shall directly or indirectly, as employee, agent, consultant principal or otherwise (i) solicit any Business from, provide any services related to the Business to, in any way transact or seek to transact any Business with or otherwise seek to influence or alter the relationship between TMP or any of its Affiliates with any person or entity both (x) to whom the Company, TMP or any of their respective Affiliates provided services at any time during the one year period preceding the date Rich or Gardner, as the case may be, ceases to be employed by TMP or an Affiliate of TMP, or to whom the Company, TMP or any of their respective Affiliates made a presentation at any time during the six month period preceding such date, and (y) with whom Rich or Gardner or any employee or consultant reporting to Rich or Gardner has or had any involvement or interaction while an employee of the Company, TMP or any of their respective Affiliates, including, without limitation, in the context of marketing, recruiting, client development or provision of services, or (ii) employ or solicit for employment or other services or otherwise seek to influence or alter the relationship between the Company or any of its Affiliates with any person who is or was an employee of the Company, TMP or any of their respective Affiliates at any time during the one year period preceding the date Rich or Gardner, as the case may be, ceases to be employed by the Company, TMP or an Affiliate of TMP, other than on behalf of and as an employee of the Company, TMP or an Affiliate of TMP. 32 (d) Without limiting the right of TMP to pursue all other legal and equitable rights available to it, including without limitation, damages for the actual or threatened violation of this SECTION 8.1 by each Shareholder, or any of his respective Affiliates, it is agreed that other remedies cannot fully compensate TMP for such a violation and that TMP shall be entitled to injunctive relief and/or specific performance to prevent violation or continuing violation thereof, without bond and without the necessity of showing actual money damages. It is the intent and understanding of each party hereto that if, in any action before any court or agency legally empowered to enforce this SECTION 8.1, any term, restriction, covenant or promise in this SECTION 8.1 is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. 8.2 TRADING PROHIBITION. The Company and each Shareholder hereby acknowledge that the Merger and information disclosed and to be disclosed to the Company, such Shareholder and their representatives may, from time to time, constitute or include material non-public information concerning TMP. The Company and each Shareholder acknowledges that they are aware, and that they have advised and will continue to advise all employees and representatives of the Company or such Shareholder to whom the existence of the Merger or any such information has been or may be disclosed that (i) the federal securities laws may prohibit a person who has material, non-public information from purchasing or selling securities of any company to which such information relates and (ii) material non-public information shall not be communicated to any other person except as expressly permitted by this Agreement. The Shareholders will not in any way sell, transfer or assign any TMP Shares to be acquired by them, reduce their risk or commit to reduce their risk with respect to the TMP Shares to be acquired by them, whether by entering into a put, collar, option, margin or other arrangement, until after the filing with the SEC of financial results of TMP covering at least 30 days of post-Closing combined operations of TMP and the Company. 8.3 SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations and warranties contained in this Agreement shall survive the Closing and shall remain in full force and effect for the applicable period of time set forth in this SECTION 8.3. Any representations, warranties or portion thereof the breach or misrepresentation with respect to which would be expected to be encountered or discerned in the audit of the financial statements of TMP for the fiscal year ending December 31, 2000 shall survive until the date TMP's independent certified public accountants issue their final report and opinion on such audit. Any other representations and warranties shall survive for a period of one year after the Closing. 8.4 COOPERATION AFTER THE CLOSING. The Shareholders will, at any time, and from time to time, after the Closing Date, execute and deliver such further instruments of conveyance and transfer and take such additional action as may be reasonably necessary to effect, consummate, confirm or evidence the transactions contemplated by this Agreement and the Merger Documents, including transfer of automobile leases and insurance policies after the Closing. Without limiting the other obligations of the 33 Shareholders hereunder, each of the Shareholders agrees that, after the Closing, he shall provide reasonable cooperation and assistance to TMP, at TMP's sole cost and expense, with respect to any matters, disputes, suits or claims by or against any person not a party to this Agreement. 8.5 REGISTRATION OF TMP SHARES. (a) REGISTRATION. TMP shall, for the benefit of each Shareholder, at TMP's expense, (i) use its best efforts to cause to be filed with the SEC within 120 days after the Closing a resale registration statement (the "REGISTRATION STATEMENT") to register 100% of the TMP Shares issued to the Shareholders at Closing, (ii) use its commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act by the SEC as soon as practicable and (iii) use its commercially reasonable efforts to keep such Registration Statement effective until the first anniversary of the Closing Date. The foregoing obligation of TMP shall be subject to TMP's receipt of all necessary accountants' consents and TMP's ability to comply with (i) all applicable federal and state securities laws, including those pertaining to the Registration Statement and (ii) all applicable confidentiality agreements. Each of the Shareholders hereby agrees to furnish to TMP all information with respect to such Shareholder necessary to make the disclosure in the Registration Statement with respect to such Shareholder not materially misleading. TMP further agrees, if necessary, to use commercially reasonable efforts to supplement or amend the Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by TMP for such Registration Statement or by the Securities Act or by any other rules and regulations thereunder for resale registrations, subject to TMP's receipt of all necessary accountants' consents and TMP's ability to comply with (i) all applicable federal and state securities laws, including those pertaining to the Registration Statement and (ii) all applicable confidentiality agreements. Notwithstanding the foregoing, if in TMP's opinion, the disclosure of information required to make the Registration Statement not materially misleading would cause harm to TMP, TMP may prevent such Shareholder from using the Registration Statement until such time as TMP discloses such information as may be necessary so that the Registration Statement is no longer materially misleading. In such event, TMP agrees to release such information as soon as is reasonably practicable. (b) DISPOSITION. Notwithstanding the generality of the foregoing clauses, each Shareholder agrees that upon notice from TMP at any time or from time to time during the time the prospectus relating to the securities proposed to be sold by such Shareholder is required to be delivered under the Securities Act of the happening of any event as a result of which, in TMP's opinion, the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, such Shareholder will forthwith discontinue such Shareholders' disposition of such securities pursuant to the Registration Statement until the time of such Shareholder's receipt of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include, in TMP's opinion, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. It is understood and agreed that, after the Registration Statement has been declared effective, its effectiveness may be suspended pursuant to this SECTION 8.5(b) 34 on one more occasions for up to an aggregate of 90 days; PROVIDED, that no single suspension of such effectiveness shall be in effect for more than 45 consecutive days. (c) USE OF REGISTRATION STATEMENT. Each Shareholder agrees that it will give TMP five business days notice in writing prior to any proposed utilization of the Registration Statement specifying the proposed number of shares of TMP Common Stock to be sold and the proposed dates of sale (which date shall be no more than ten days from the date of notice) and also specifying the proposed manner of sale. Such notice to be given by facsimile transmission for the attention of Myron Olesnyckyj, Esq., telecopy number (212) 940-3908. TMP must, if it wishes to prevent any Shareholder from using the Registration Statement, give notice to such effect to such Shareholder by the expiration of such five business day period. To the extent that any sale is not consummated within seven days of the proposed date of sale indicated in the original notice from any Shareholder, any proposed sale utilizing the Registration Statement shall once again be subject to the provisions of SECTION 8.5(b) and this SECTION 8.5(c). It is understood that TMP's failure to respond to any notice of proposed sale shall not be construed as permission to sell TMP shares in contravention of any other obligation of such Shareholder (such as contractual restrictions of resale set forth elsewhere in this Agreement). (d) PUBLIC INFORMATION. During the one-year period commencing on the first anniversary of the Closing, for so long as TMP is subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any of the TMP Shares are not freely tradable, TMP will use its best efforts to file the reports required to be filed by it under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder, or, if it ceases to be so required to file such reports, it will, upon the request of the Shareholders who then own TMP shares delivered to turn at the Closing (i) make publicly available such information as is necessary to permit sales of TMP Shares pursuant to Rule 144 under the Securities Act and (ii) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable the Shareholders to sell their TMP Shares without registration under the Securities Act as provided by Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar rules or regulations hereafter adopted by the SEC. 8.6 TAX MATTERS. (a) TAX RETURNS. TMP shall be responsible for preparing or causing to be prepared, and filing Tax Returns required to be filed by the Company after the Closing Date; PROVIDED, HOWEVER, that the Shareholders shall have the right to prepare and file, at their sole cost and expense, the Tax Returns of the Company for the "S short year" (within the meaning of Section 1362(e)(1)(A) of the Code), which shall be delivered to TMP for filing no later than thirty (30) days prior to the filing of such returns, and shall be prepared in a manner consistent with prior practice unless otherwise required by applicable laws. (b) PRE-CLOSING PERIOD/POST-CLOSING PERIOD. For purposes of this Agreement, (i) the allocation of Taxes for a Straddle Period (as defined in SECTION 10.10 below) between the period prior to the Closing Date (the "PRE-CLOSING PERIOD") and the period after the Closing Date (the "POST-CLOSING PERIOD") shall be made on the basis of an interim Closing of the books as of the end of the Closing Date, except as otherwise provided in clause (iii) of this SECTION 8.6(b); 35 (ii) any Tax resulting from any transaction undertaken pursuant to or contemplated by this Agreement is attributable to the Pre-Closing Period; and (iii) the portion of any franchise Taxes based on capitalization, debt or shares of stock authorized, issued and outstanding and AD VALOREM Taxes attributable to the Straddle Period shall be divided between the Pre-Closing Period and the Post-Closing Period based on the number of days in the period ending on the Closing Date. TMP agrees to make available, upon reasonable notice, any books or records of the Company reasonably required by the Company or the Shareholders after the Closing. (c) NOTIFICATION. TMP and the Shareholders shall promptly notify each other in writing of any notice of any Tax audits of or assessments against the Company for any Pre-Closing Periods. The failure of one party to notify the other party of any such audit or assessment shall not relieve the other party of its indemnification obligations under this Agreement except to the extent any such failure actually prejudices the defense of any Tax claim. The Shareholders shall, at their sole expense and in their reasonable discretion, either settle any Tax claim with respect to any Tax assessed directly against the Shareholders for any Pre-Closing Period at such time and on such terms as they shall deem appropriate or assume the entire defense thereof; PROVIDED, HOWEVER, that the Shareholders shall in no event take any position in such settlement or defense that subjects TMP or any affiliate thereof, or the Company to any civil fraud or any civil or criminal penalty. Notwithstanding the foregoing, the Shareholders shall not settle any Tax claim without the prior written consent of TMP, which prior written consent shall not be unreasonably withheld, to any change in the treatment of any item which would, in any manner whatsoever, increase the Tax liability of TMP or the Company for any Post-Closing Period. Except as set forth in this SECTION 8.6(C), the Shareholders shall not file or cause to be filed any amended Tax Return for a Pre-Closing Period on behalf of the Company without the prior written consent of TMP. 8.7 COMPANY 401(k) PLAN. Prior to the Closing, the Company will take such actions as may be required in order to effect, as of a date prior to the Closing, the termination of the Company 401(k) Plan. ARTICLE IX INDEMNIFICATION 9.1 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. (a) Subject to SECTION 9.1(b), from and after the Closing, the Company and each Shareholder agree, jointly and severally, to indemnify, defend and save TMP and its Affiliates, and each of their respective officers, directors, employees, agents, employee benefit plans and fiduciaries, plan administrators or other parties dealing with any such plans (each, an "INDEMNIFIED TMP PARTY"), harmless from and against, and to promptly pay to an Indemnified TMP Party or reimburse an Indemnified TMP Party for, any and all liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies, demands, claims, suits, actions, or causes of action, assessments, losses, costs, expenses, interest, fines, penalties, actual or punitive damages or costs or expenses of any and all investigations, 36 proceedings, judgments, environmental analyses, remediations, settlements and compromises (including reasonable fees and expenses of attorneys, accountants and other experts incurred by any indemnified party in any action or proceeding between such indemnified party and the indemnitor or between any indemnified party and any third party or otherwise) (individually a "LOSS" and collectively, the "LOSSES") sustained or incurred by any Indemnified TMP Party relating to, resulting from, arising out of or otherwise by virtue of (i) any misrepresentation or breach of a representation or warranty made herein by the Company or any Shareholder, (ii) any non-compliance with or breach by the Company or any Shareholder, or any Affiliate of the Company or any Shareholder, of any of their respective covenants or agreements contained in this Agreement or the Merger Documents to be performed by the Company, Shareholders, or any Affiliate of the Company or the Shareholders, (iii) allegations by a third party that is not an Indemnified TMP Party which, if true, would constitute a misrepresentation or breach of a representation or warranty made herein by the Company or any Shareholder or non-compliance with or breach by the Company or any Shareholder of any of their respective covenants or agreements contained in this Agreement or the Merger Documents to be performed by any Shareholder, the Company or any or their respective Affiliates, (iv) any claims, suits, actions, complaints, allegations or demands which have been or may be brought against the Company, any of the Shareholders, TMP, and their respective Affiliates and any of their respective officers, directors, employees or agents, including by the Specified Entities (as defined below), relating to the claims set forth on Schedule 3.26 or arising from similar facts and circumstances as any claims brought by the Specified Entities, and (v) Taxes owed by the Company pursuant to SECTION 8.6 hereof. (b) Notwithstanding SECTION 9.1(a), no Indemnified TMP Party shall be entitled to indemnification under this SECTION 9.1 until the total Losses under SECTION 9.1(A) shall exceed $100,000 (the "INDEMNIFICATION THRESHOLD"). Once total Losses under SECTION 9.1(A) exceed the Indemnification Threshold, each Indemnified TMP Party shall be entitled to indemnification for the full amount of any and all such Losses, including the first $100,000 of Losses applied to the Indemnification Threshold. The Indemnification Threshold shall not apply to any Loss arising out of a breach of a representation or warranty made in SECTIONS 3.5, 3.25 and 3.30; in the event of such a breach by the Company or the Shareholders, the Indemnified TMP Party shall be entitled to full recovery of all Losses under SECTION 9.1(A) to the extent of the Purchase Price. In addition, the aggregate maximum amount of Losses for which the Shareholders shall be liable pursuant to SECTION 9.1 hereof shall be the Purchase Price. (c) If the Indemnified TMP Party is TMP or another non-natural person Affiliate of TMP, then the Shareholders shall be entitled, at their sole option, to satisfy their indemnification obligations under this SECTION 9.1 by surrendering that number of TMP Shares obtained by dividing (i) the amount of such indemnification obligation by (ii) the Imputed TMP Share Value. 9.2 INDEMNIFICATION BY TMP. From and after the Closing, TMP agrees to indemnify, defend and save each Shareholder and his Affiliates, and each of their respective officers, directors, employees, agents, Employee Benefit Plans and fiduciaries, plan administrators or other parties dealing with such plans (each, an "Indemnified Seller Party") harmless from and against, and to promptly pay to an Indemnified 37 Seller Party or reimburse an Indemnified Seller Party for, any and all Losses sustained or incurred by any Indemnified Seller Party relating to, resulting from, arising out of or otherwise by virtue of (i) any misrepresentation or breach of a representation or warranty made herein by TMP or (ii) any non-compliance with or breach by TMP or any Affiliate of TMP of any of the covenants or agreements contained in this Agreement or the Merger Documents to be performed by TMP or any of its Affiliates. 9.3 PROCEDURE FOR INDEMNIFICATION. The following procedure shall apply to the foregoing agreements to indemnify and hold harmless: (a) The party who is seeking indemnification (the "CLAIMANT") shall give written notice to the party from whom indemnification is sought (the "INDEMNITOR") promptly after the Claimant learns of the claim or proceeding; PROVIDED, that the failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it is actually damaged thereby. (b) With respect to any third-party claims or proceedings as to which the Claimant is entitled to indemnification, the Indemnitor shall have the right to select and employ counsel of its own choosing to defend against any such claim or proceeding, to assume control of the defense of such claim or proceeding, and to compromise, settle or otherwise dispose of the same, if the Indemnitor deems it advisable to do so, all at the expense of the Indemnitor. The parties will fully cooperate in any such action, and shall make available to each other any books or records useful for the defense of any such claim or proceeding. The Claimant may elect to participate in the defense of any such third party claim, and may, at its sole expense, retain separate counsel in connection therewith. Subject to the foregoing (i) the Claimant shall not settle or compromise any such third party claim without the prior written consent of the Indemnitor and (ii) the Indemnitor shall not settle or compromise any such third party claim without the prior written consent of the Claimant, in each case of (i) and (ii) which consent shall not be unreasonably withheld. 9.4 ADDITIONAL LIMITATIONS ON INDEMNIFICATION RIGHTS. (a) Subject to the provisions of SECTIONS 9.4(b) and (c) below it is understood and agreed that no claim for recovery of indemnifiable damages may be asserted based on a representation, warranty or applicable portion thereof set forth in this Agreement or the Merger Documents after such representation, warranty or applicable portion thereof has been extinguished in accordance with SECTION 8.3 hereof. The date on which a claim would be extinguished in accordance with SECTION 8.3 but for the provisions of this SECTION 9.4 is sometimes referred to as the "EXPIRATION DATE" of such claim. (b) Notwithstanding anything in this Agreement or this SECTION 9.4 to the contrary, any and all Losses sustained or incurred by any Indemnified TMP Party relating to, resulting from, arising out of, or otherwise by virtue of any and all claims, suits, actions, complaints, allegations or demands of the persons or entities described in SCHEDULE 3.26 (the "SPECIFIED ENTITIES") shall be subject to the indemnification obligations of the Company and the 38 Shareholders under, and shall be deemed Losses for which the Indemnified TMP Parties are entitled to indemnification under, SECTIONS 9.1 and 9.3 hereof, despite the disclosure of some or all of such matters or potential matters in the Schedules to this Agreement (including but not limited to SCHEDULE 3.26). The particular indemnification obligation relating to the Specified Entities shall survive until the later of (i) thirty days after the expiration of all applicable statutes of limitations (including extensions thereof) applicable to any claims, suits, actions, complaints, allegations or demands the Specified Entities may bring relating to, resulting from, arising out of or otherwise by virtue of any acts or omissions or alleged acts or omissions of the Company or any of its employees or representatives, or (ii) the Shareholders' or the Company's satisfaction in full of any and all obligations (contingent or otherwise) the Company, TMP or the Shareholders may have upon the rendering of a final and unappealable judgment of a court of competent jurisdiction with respect to any and all claims, suits, actions, complaints, allegations or demands the aforesaid Specified Entities may bring relating to, resulting from, arising out of or otherwise by virtue of any acts or omissions or alleged acts or omissions of the Company or its employees or representatives. (c) In order to ensure that the transactions contemplated by this Agreement and the Merger Documents qualify for treatment as a pooling of interests, the parties agree that any dispute, disagreement or controversy between any party relating to a warranty or representation or applicable portion thereof set forth in this Agreement or Merger Documents that is not resolved by the applicable Expiration Date shall promptly be submitted to the American Arbitration Association to be resolved by binding arbitration in accordance with their rules, it being understood that this SECTION 9.4(c) does not apply to any claims, suits, actions, complaints, allegations or demands brought by or related to the Specified Entities. The place of arbitration shall be New York, New York. The arbitration tribunal shall be composed of three arbitrators, one of which shall be appointed by TMP within ten (10) business days prior to the applicable Expiration Date and one of whom shall be appointed by the other party or parties to the dispute, disagreement or controversy within ten (10) business days prior to the applicable Expiration Date and one of whom shall be appointed by such two arbitrators within five (5) business days prior to the applicable Expiration Date. The arbitrators will be directed to and shall resolve such dispute, disagreement or controversy on the basis of the information provided to them or soon as practicable and, in any event, by the Expiration Date. The decision of the arbitrators shall be binding on all parties thereto and the party against which a finding is made shall be responsible for all costs, fees and expenses of such arbitration in addition to any damages or other amounts awarded. 9.5 WAIVER OF CLAIMS. Without in any way limiting the obligations of the Shareholders under this Agreement, each Shareholders hereby expressly and irrevocably waive any rights of contribution, subrogation, recoupment, counterclaim, set-off or indemnification that such Shareholders may have against the Company. 9.6 SOLE REMEDY FOR DAMAGES. Subject to the provisions of the next sentence of this SECTION 9.6, the indemnification obligations of the parties set forth in this ARTICLE IX shall constitute the sole and exclusive remedy of the 39 parties for the recovery of money damages with respect to any and all matters arising out of this Agreement. Notwithstanding the foregoing, the terms of this SECTION 9.6 shall not be construed as limiting in any way whatsoever any remedy to which any party may be entitled other than the recovery of money damages, including but not limited to equitable remedies, specific performance, injunctive relief and rescission. ARTICLE X MISCELLANEOUS 10.1 NOTICES, CONSENTS, ETC. Any notices, consents or other communication required to be sent or given hereunder to any of the parties shall in every case be in writing and shall be deemed properly served if (i) delivered personally, (ii) delivered by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (iii) delivered by courier, at the addresses as set forth below or at such other addresses as may be furnished in writing. All such notices and communications shall be deemed received upon the actual delivery thereof in accordance with the foregoing: (a) If to the Shareholders: Fred Rich 765 Danbridge Way Roswell, Georgia 30076 Furman Gardner 8015 Innsbruck Drive Dunwoody, Georgia 30350 With a copy to: Kaufman, Chaiken, Miller & Klorfein 400 Perimeter Center Terrace Suite 700 Atlanta, GA 30346 Attn: Robert J. Kaufman, Esq. Fax: (770) 395-6720 40 (b) If to the Company prior to the Closing: Rich/Gardner & Associates Ltd. Roswell Ridge Office Park 8215 Roswell Road, Building 800 Atlanta, GA 30350 Fax: (770) 698-0620 With a copy to: Kaufman, Chaiken, Miller & Klofein 400 Perimeter Center Terrace Suite 700 Atlanta, GA 30346 Attn: Robert Kaufman, Esq. Fax: (770) 395-6720 (c) If to TMP or the Company after the Closing: TMP Worldwide Inc. 622 Third Avenue New York, NY 10017 Attn: Mr. Nigel Crouch With a copy to: TMP Worldwide Inc. 622 Third Avenue New York, NY 10017 Attn: Myron Olesnyckyj, Esq. 10.2 SEVERABILITY. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision which shall remain in full force and effect and be enforceable to the fullest extent permitted by law. 10.3 AMENDMENT AND WAIVER. This Agreement may not be amended orally. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. 10.4 DOCUMENTS. Each party will execute all documents and take such other actions as any other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement. 41 10.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 10.6 EXPENSES. The Shareholders shall pay their and the Company's costs and expenses, and TMP shall pay its costs and expenses, in each case incurred or to be incurred in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement and the Merger Documents, including without limitation all legal and accounting fees and expenses and fees and expenses relating to the preparation of the Financial Statements. 10.7 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York without giving effect to provisions thereof regarding conflicts of law. 10.8 HEADINGS. The subject headings of Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 10.9 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated in any manner whatsoever, whether directly or by operation of law or otherwise, without the prior written consent of TMP. 10.10 DEFINITIONS. For purposes of this Agreement, the following terms have the meaning set forth below: "AFFILIATE" shall have the meaning ascribed to that term in Rule 405 of the Securities Act of 1933, as amended, and shall include each past and present Affiliate of such person or entity. "AFFILIATED GROUP" shall mean any affiliated group within the meaning of Section 1504 of the Code or any similar group defined under a similar provision of state, local or foreign law, including, but not limited to, any combined, consolidated or unitary group. "BUSINESS" shall mean the recruitment advertising business. "CODE" means the Internal Revenue Code of 1986, as amended. 42 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "LIENS" means any liens, claims, mortgages, charges, security interests, pledges or other encumbrances or adverse claims or interests of any nature. "PLAN AFFILIATE" means any person or entity with which the Company constitutes all or part of a controlled group of corporations, a group of trades or businesses under common control or an affiliated service group, as each of those terms is defined in Section 414 of the Code. "POST-CLOSING PERIOD" means any taxable period or portion thereof that is not a Pre-Closing Period. "PRE-CLOSING PERIOD" means a taxable period or portion thereof that ends on or prior to the Closing Date. If a taxable period begins on or prior to the Closing Date and ends after the Closing Date, then the portion of the taxable period that ends on (and including) the Closing Date shall constitute a Pre-Closing Period. "REQUISITE REGULATORY APPROVALS" means the approval or consent of any court, administrative agency or commission or other federal, state or local government or governmental authority or instrumentality. "STRADDLE PERIOD" means a taxable period that begins prior to the Closing Date and ends after the Closing Date. "TAX" AND "TAXES" includes any federal, state, local or foreign income, gross receipts, capital, franchise, import, goods and services, value added, sales and use, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any Affiliated Group, as defined in Section 1504 of the Code (or being included (or required to be included) in any Tax Return relating thereto). "TAX RETURNS" means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting Schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes. 10.11 ENTIRE AGREEMENT. This Agreement, the Merger Documents, and the documents, schedules and exhibits described herein or attached or delivered pursuant hereto collectively constitute the sole and only 43 agreement among the parties with respect to the subject matter hereof. Any agreements, representations or documentation respecting the transactions contemplated by this Agreement, including without limitation, any correspondence, discussions or course of dealing, which are not expressly set forth in this Agreement, the Merger Documents, or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto or are null and void, it being understood that no party has relied on any representation not set forth in this Agreement, the Merger Documents or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto. 10.12 THIRD PARTIES. Except as expressly set forth in ARTICLE VI, VII or VIII of this Agreement, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement. 10.13 INTERPRETATIVE MATTERS. Unless the context otherwise requires, (a) all references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, (b) words in the singular or plural include the singular and plural, (c) pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, and (d) the term "including" shall mean by way of example and not by way of limitation. 10.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 10.15 DEFAULT. The mere lapse of time for performing any obligation or covenant contained herein shall serve to put the party who is obliged to perform or fulfill such obligation or covenant in default, without any notice or demand being required therefor. 44 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TMP WORLDWIDE INC. By: /s/ THOMAS G. COLLISON ----------------------------- Name: Thomas G. Collison Title: Vice Chairman RICH, GARDNER & ASSOCIATES, LTD. By: /s/ FRED RICH ----------------------------- Name: Fred Rich Title: President /s/ FRED RICH --------------------------------- Fred Rich /s/ FURMAN GARDNER --------------------------------- Furman Gardner SCHEDULE A Name Stock Ownership - ---- --------------- Fred Rich 525 Shares of Common Stock Furman Gardner 475 Shares of Common Stock EX-10.31 4 a2025293zex-10_31.txt EXHIBIT 10.31 EXHIBIT 10.31 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of this 31st day of August, 2000, by and among TMP Worldwide Inc., a Delaware corporation ("TMP" or "Buyer"), Stratascape, Inc., a California corporation (the "Company"), and the Shareholders of the Company listed on SCHEDULE A hereto (each a "Shareholder" and collectively the "Shareholders"). WHEREAS, the Shareholders collectively own 200 shares of the common stock of the Company (the "Company Stock"); WHEREAS, the 200 shares of the Company Stock referred to in the previous recital (collectively, the "Company Shares," and individually, a "Company Share") constitute all of the issued and outstanding capital stock of the Company; WHEREAS, the Shareholders desire to sell the Company Shares to Buyer, and Buyer desires to purchase the Company Shares from the Shareholders, upon the terms and conditions set forth herein (the "Transaction"); WHEREAS, for federal income tax purposes, the parties intend that the Transaction shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder; WHEREAS, for accounting purposes, the parties intend that the Transaction shall be accounted for as pooling of interests; WHEREAS, all annexes, disclosure schedules, exhibits and other attachments hereto are incorporated herein by reference and, taken together with this Agreement, including the foregoing Recitals, shall constitute but a single agreement; and WHEREAS, the parties wish to set forth certain other agreements among them. NOW THEREFORE, in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE 1.1 SHARES. On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 7.1 hereof) and upon the basis of the representations, warranties, covenants and agreements contained herein, the Shareholders shall sell, convey, transfer and deliver to Buyer, and Buyer shall purchase from the Shareholders, the Company Shares in consideration for the issuance to the Shareholders of an aggregate of that number of unregistered shares of TMP Common Stock (as defined below) that is determined by dividing twenty-three million four hundred and thirty thousand dollars ($23,430,000) by the average of the closing sale price per share of TMP Common Stock as reported by the Nasdaq National Market for the 30-consecutive trading day period preceding the third business day prior to the Closing Date (such average being hereinafter referred to as the "Stated Price") rounded up to nearest whole number of shares of TMP Common Stock (collectively, the "Purchase Price") pro-rata in accordance with the percentages set forth on SCHEDULE A. As used herein, the term "TMP Common Stock" means shares of common stock, $.001 par value per share, of Buyer. The shares of TMP Common Stock issuable to the Shareholders hereunder in exchange for the Company Shares are sometimes collectively referred to as the "TMP Shares" and individually as a "TMP Share". ARTICLE II MANNER OF EXCHANGE 2.1 EXCHANGE OF SHARES. At the Closing, the Shareholders shall deliver to Buyer a certificate or certificates representing all of the Company Shares, accompanied by a stock power or powers duly executed in blank, with all necessary stock transfer and other documentary stamps attached, and Buyer shall deliver to the Shareholders, certificates representing the shares of TMP Common Stock due to the Shareholders issued in the respective names of the Shareholders, pro-rata in accordance with the percentages set forth on SCHEDULE A; provided, however, that such certificates may be issued in the respective names of any other person designated by the Shareholders and agreed to by the Buyer as set forth on SCHEDULE 2.1 hereto. 2.2 FURTHER ASSURANCES. At the Closing and from time to time thereafter, the Shareholders shall execute such additional instruments and take such other actions as Buyer may request in order to effectively sell, transfer and assign the Company Shares to Buyer and confirm Buyer's title thereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS As an inducement to Buyer to enter into and perform its obligations under this Agreement, the Company and the Shareholders, jointly and severally, represent and warrant to Buyer as follows: 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of California and has full power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. The Company is duly licensed and qualified to do business and is in good standing as a foreign corporation in each other jurisdiction set forth on SCHEDULE 3.1 hereto, which are all jurisdictions where the character of its business or the nature of its properties or assets makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified, licensed or in good standing would not individually or in the aggregate have a material adverse effect on the business, results of operations, financial condition or assets of the Company. -2- 3.2 POWER AND AUTHORIZATION. The Company has full power and authority to execute and deliver this Agreement and any agreement, document, certificate or instrument being delivered pursuant to or in connection with the transactions contemplated by this Agreement (collectively the "Transaction Documents") to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Each Shareholder has full power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is or will be a party, and to perform his obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents, and the performance by the Company of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereunder and thereunder, have been duly authorized by the Company and by the Shareholders of the Company. The execution and delivery of this Agreement and the Transaction Documents, and the performance by the Shareholders of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereunder and thereunder, have been duly authorized by the unanimous vote of the Shareholders. This Agreement and the Transaction Documents have been duly executed and delivered by the Company and by each Shareholder and constitute the legal, valid and binding obligations of the Company and of each Shareholder, enforceable against the Company and each Shareholder in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally or by general principles of equity. 3.3 SUBSIDIARIES. The Company does not own or control (directly or indirectly), or own or hold any right to acquire, any stock, partnership interest, joint venture interest, equity participation or other security or interest in any other entity, corporation, partnership, trust or any other business association. 3.4 ORGANIZATIONAL DOCUMENTS. The copies of the Certificate of Incorporation and Bylaws of the Company, each as heretofore amended, which have been delivered to Buyer are true, complete and correct. The minute books of the Company made available to Buyer are true, correct and complete and contain a complete summary of all meetings of directors and stockholders since the time of incorporation of the Company and accurately reflect all transactions referred to in such minutes in all material respects, and all material corporate actions and decisions taken by the Company's board of directors, shareholders and any committees of the board of directors. SCHEDULE 3.4 contains a true and complete list of all officers and directors of the Company. 3.5 OWNERSHIP OF THE COMPANY. The authorized capital stock of the Company consists of 1,500 shares of Company Stock, of which 200 are issued and outstanding, all of which are owned of record and beneficially by the Shareholders, free and clear of any and all Liens (as defined in Section 10.10). The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of the Company Stock are as set forth in the Certificate of Incorporation of the Company, as amended to the date hereof, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. All outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, and were issued in compliance with all applicable federal and state securities laws. None of the outstanding securities of the Company have been issued in violation of any -3- pre-emptive rights, rights of first refusal or similar rights applicable to the Company. No contract, commitment or undertaking of any kind has been made for the issuance of additional shares of capital stock or other securities of the Company, nor is there in effect or outstanding any subscription, option, warrant or other right to acquire any shares of the Company Stock or other instruments convertible into or exchangeable for such shares. There are no voting trust agreements or other contracts, agreements or arrangements restricting or otherwise relating to voting, dividend or other rights with respect to the Company's capital stock, except for such agreements that will be terminated prior to the Closing as set forth on SCHEDULE 3.5 hereto. The Company does not hold any shares of capital stock in its treasury. Upon delivery of the Company Shares to Buyer pursuant to the provisions of this Agreement, Buyer will acquire good, valid and marketable title to the Company Shares, free and clear of any and all Liens. All transfer taxes imposed by law in connection with sale, transfer and delivery of the Company Shares to Buyer have been paid. 3.6 NO VIOLATION. The execution, delivery and performance by the Company and the Shareholders of this Agreement and the Transaction Documents and the consummation of the transactions contemplated herein and therein do not and will not: (a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any Lien upon any assets or properties, or in any manner release any party thereto from any obligation under, any material mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which the Company or any Shareholder, or any of their respective properties or assets, may be bound or affected; (b) conflict with, violate or result in any loss of benefit under, any permit, concession, franchise, order, judgment, writ, injunction, regulation, statute or decree applicable to the Company; or (c) conflict with or violate any provision of the Certificate of Incorporation or Bylaws, each as heretofore amended, of the Company. 3.7 NO CONSENT REQUIRED. Except as set forth on SCHEDULE 3.7, no consent, approval, order or authorization of, or declaration, filing or registration with, any person, entity or governmental authority is required to be made or obtained by the Company or any Shareholder in connection with the authorization, execution, delivery or performance of this Agreement, the Transaction Documents or the transactions contemplated hereby and thereby. 3.8 FINANCIAL STATEMENTS. As of the date hereof, SCHEDULE 3.8 contains the following: unaudited balance sheet and statements of income, stockholders' equity and cash flows as of, and for the fiscal year ended, December 31, 1997 (the "Historical Unaudited Financial Statements"), audited balance sheets and statements of income, stockholders' equity and cash flows as of, and for the fiscal years ended, December 31, 1998 and 1999, respectively (the "Historical Audited Financial Statements"), and unaudited balance sheet as of June 30, 2000 and statements of income, stockholders' equity and cash flows for the six-months ended June 30, 1999 and 2000 (the "Interim Financial Statements"); SCHEDULE 3.8 also contains unaudited balance sheets and statements of income, stockholders' equity and cash flows as of and for the -4- period January 1, 2000 through July 31, 2000 (the "Closing Date Financials"). Since July 31, 2000 through the date hereof, there has been no material adverse change in the business, financial condition, assets, liabilities or retained earnings of the Company, and neither the Company nor the Shareholders know of any such change that is threatened or pending, nor has there been any damage, destruction or loss, whether or not covered by insurance, which could reasonably be anticipated to have a Material Adverse Effect (as defined in Section 10.10 hereof) on the Company. The materials included and to be included in SCHEDULE 3.8 hereto are sometimes collectively referred to herein as the "Financial Statements". Each of the Financial Statements is true, complete and correct in all material respects, is consistent with the books and records of the Company and is in accordance with GAAP (as defined in Section 10.10 hereof) consistently applied and fairly presents the Company's financial condition, assets, liabilities and retained earnings as of their respective dates and the statements of income, stockholders' equity and cash flows for the periods related thereto, subject in the case of the Interim Financial Statements and Closing Date Financials, to normal year-end adjustments and the absence of footnote disclosure. Insofar as the representations set forth in the preceding sentence relate to the Closing Date Financials only, such representations are made as of the date of delivery of the Closing Date Financials. All material liabilities and obligations, whether accrued, absolute, contingent, direct or indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due, which existed as of December 31,1999, June 30, 2000 and July 31, 2000, have been disclosed in the balance sheets included in the Historical Unaudited Financial Statements, Historical Audited Financial Statements, the Interim Financial Statements and the Closing Date Financials, respectively, or in the notes thereto. The statements of income included or to be included in the Financial Statements do not contain any material items of special or non-recurring income or other income not earned in the ordinary course of business except as expressly specified on SCHEDULE 3.8 as attached hereto on the date hereof. All amounts billed to the Company's customers and clients reflected or to be reflected on the Financial Statements and SCHEDULE 3.15 hereto are for Business (as defined in Section 10.10 hereof) activities and not for any other business. 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date hereof, the Company has not, and as of the Closing Date, the Company will not have, any debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due) arising out of transactions entered into on or prior to the Closing Date, or any transaction, series of transactions, action or inaction occurring on or prior to the Closing Date, or any state of facts or condition existing on or prior to the Closing Date (regardless of when such liability or obligation is asserted), including but not limited to liabilities or obligations on account of Taxes (as defined in Section 10.10 hereof) or governmental charges or penalties, assessments, interest or fines thereon or in respect thereof, except for (a) liabilities specifically delineated in the Historical Unaudited Financial Statements, Historical Audited Financial Statements and/or the Interim Financial Statements, which are set forth on SCHEDULE 3.8 as attached hereto on the date hereof, (b) liabilities and obligations under agreements, contracts, leases or commitments disclosed in this Agreement or in a schedule hereto (none of which relates to any breach of contract, breach of warranty, tort, injury caused to another, infringement, claim, lawsuit or violation of law or the allegation or claim thereof), and (c) liabilities and obligations arising in the ordinary course of business, consistent in form and amount with past practice, since December 31, 1999, none of which, individually or in the aggregate, is material in amount with respect to the business, results -5- of operations, financial condition or assets of the Company. Except as disclosed on SCHEDULE 3.9, the Company is not under any obligation, contingent or otherwise, to refund or rebate any amounts paid or payable to it for services rendered prior to the date hereof. As of the date hereof, the Company does not have, and as of the Closing Date, the Company will not have, any debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due) to, or owing from, any shareholder of the Company. 3.10 COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance with all laws, regulations, rules, ordinances, orders and other requirements applicable to the operation, conduct or ownership of its property or business in all material respects. Neither the Company nor any Shareholder has received notice (written or oral) of the violation or of any claim of violation of any law, regulation, rule, ordinance, order or other requirement or Permits (as defined below) applicable to it. The Company holds all of the permits, licenses, approvals and authorizations of governmental authorities or third parties (collectively, "Permits") necessary or appropriate for the conduct of its business. All such Permits are in full force and effect, and will remain with the Company upon, and will not be affected by, the Closing; there is no condition, nor has any event occurred, which constitutes or with the giving of notice or passage of time or both would constitute a violation of the terms of any Permit and no cancellation, modification or revocation of any of the Permits is pending or, to the knowledge of the Company or either Shareholder, threatened. 3.11 PROPERTY. The Company owns no real property. The Company has good and marketable title or rights as lessee to all real, personal, mixed, tangible and intangible property of any kind or nature owned or used by the Company, and the Company owns each of the assets shown or reflected or to be shown or reflected on the Financial Statements, in each case free and clear of all Liens, except for Liens identified on SCHEDULE 3.11 hereto on the date hereof. The assets and properties owned or leased by the Company are sufficient to operate and conduct the business of the Company in a manner consistent with at least the same standards of quality and reliability as have been achieved as of the date hereof. All leases of real property and all material leases of personal property leased by the Company and utilized in its business, including any and all leases with related parties or any Affiliate (as defined in Section 10.10 hereof) of the Company (collectively, the "Leased Property"), are listed on SCHEDULE 3.13, and true, correct and complete copies previously have been furnished to Buyer. All leases with Affiliates and/or related parties carry terms and conditions no less favorable nor more favorable in all material respects to the Company than those which could have been obtained in arm's length transactions with unrelated third parties. The Company enjoys peaceful and undisturbed possession under all such leases. Any real property that the Company occupies or leases is in good condition and repair with adequate plumbing, heating and air conditioning and with access to public roads and utilities as required for the conduct of its business, except for such deficiencies which are not material, individually or in the aggregate, in nature or cost. 3.12 CONDITION OF PROPERTY AND RELATED MATTERS. (a) All buildings, machinery, equipment and other tangible assets used by the Company are in fair or good operating condition and repair, reasonable wear and -6- tear excepted, are usable in the ordinary course of business and are adequate and suitable for the uses to which they are being put. None of such items requires any repairs or replacement except for maintenance in the ordinary course of business or such other repairs or replacements which are not material, individually or in the aggregate, in nature or cost. All such assets and property, including excluded assets and property, are located at real property locations constituting the Leased Property, or as otherwise identified on SCHEDULE 3.12 hereto. (b) The properties and assets reflected in the balance sheet included in the Historical Unaudited Financial Statements, Historical Audited Financial Statements and the Interim Financial Statements, and to be included in the Closing Date Financials, have, in the aggregate, a fair market or realizable value at least equal to the value thereof reflected therein. The Company is not contemplating, nor is the Company obligated to make, any capital expenditure in excess of $10,000 individually or in the aggregate which has not been disclosed to Buyer in writing. 3.13 MATERIAL CONTRACTS. The Company has not entered into nor is it bound by any material contract, agreement, relationship or commitment, written or oral, including without limitation any obligations for money borrowed or under material leases, or any arrangements with customers, other than those identified on SCHEDULE 3.13 hereto (the "Material Contracts"); true, correct and complete copies of all written Material Contracts and true and complete descriptions of all oral Material Contracts previously have been furnished to Buyer. Except as set forth on SCHEDULE 3.13, the Company is not in default, and no event has occurred which with the giving of notice or the passage of time or both would constitute a default by the Company, or to the knowledge of the Company and the Shareholders, any other party under any Material Contract or any other obligation owed by the Company, and, to the knowledge of the Company and the Shareholders, no event has occurred which with the giving of notice or the passage of time or both would constitute a default by any other party to any such Material Contract or obligation. The consummation of the transactions contemplated by the Transaction Documents will not result in a breach of any Material Contract or the right of any other party to the Material Contract to terminate the same and there are no negotiations pending to revise the terms of any such Material Contracts. The Company is not a party to or bound by any contract, agreement, relationship or commitment, whether or not deemed material, which in any way restricts or purports to restrict the Company's ability to acquire any property or assets or conduct business or provide services to any person or entity anywhere in the world. Without limiting the foregoing, except as set forth on SCHEDULE 3.13, neither the Company nor any Shareholder is a party to, or obligated to any party under, any (i) shareholders' agreement, buy/sell agreement or any other agreement, written or oral, relating to or in any way affecting the disposition of the capital stock of the Company or (ii) any agreement, written or oral, relating to the indemnification of directors and/or officers of the Company. -7- 3.14 INTELLECTUAL PROPERTY. (a) the Company owns and possesses all right, title and interest in and to, or has a valid license to use, all of the Proprietary Rights (as defined below) necessary for the operation of the its business as presently conducted and none of such Proprietary Rights have been abandoned; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any such Proprietary Rights has been made, is currently outstanding or, to the knowledge of the Company or the Shareholders, is threatened, and neither the Company nor the Shareholders is aware of any reasonable basis for any such claim; (c) neither the Company, any Shareholder nor any registered agent of any of the foregoing has received any notice of, nor is the Company or any Shareholder aware of any reasonable basis for an allegation of, any infringement or misappropriation by, or conflict with, any third party with respect to such Proprietary Rights, nor has the Company, any Shareholder, or any registered agent of any of them received any claim of infringement or misappropriation of or other conflict with any Proprietary Rights of any third party; (d) to the knowledge of the Company and the Shareholders, the Company has not infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties, and neither the Company nor any Shareholder is aware of any infringement, misappropriation or conflict which will occur as a result of the continued operation of the Company as presently operated and as contemplated to be operated or as a result of the consummation of the transactions contemplated hereby; (e) none of the Company's personnel, including without limitation employees, agents, consultants and contractors, have contributed to or participated in the conception and/or development of any Proprietary Rights which are not licensed to the Company from a third party. As used herein, the term "Proprietary Rights" means all proprietary information of the Company, including all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice), all trademarks, service marks, trade dress, trade names, corporate names, domain names, copyrights, all trade secrets, confidential information, ideas, formulae, compositions, know-how, processes and techniques, drawings, specifications, designs, logos, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and related information and all other proprietary, industrial or intellectual property rights relating to the Company's businesses, including but not limited to those found at the website at HTTP://WWW.STRATASCAPE.COM. The consummation of the transactions contemplated by this Agreement and the Transaction Documents will not adversely affect the right of Buyer or the Company to continue to use the Company's Proprietary Rights. To the extent that registration of any Proprietary Right is useful or required by law, such Proprietary Right has been duly and validly registered or filed, and any fees that are necessary to maintain in force any Proprietary Rights or registrations thereof have been paid. SCHEDULE 3.14 sets forth a list and description of the copyrights, trademarks, service marks, trade dress and trade names used or held by the Company and, where appropriate, the date, serial or registration number, and place of any -8- registration thereof. 3.15 ACCOUNTS RECEIVABLE. SCHEDULE 3.15 is a true, correct and complete listing and aging of the Company's accounts receivable as of the last day of the last full calendar month preceding the date hereof determined in accordance with GAAP consistently applied and determined in a manner consistent with the presentation in the Financial Statements. All of such accounts receivable have arisen in bona fide arm's length transactions in the ordinary course of business and are valid and binding obligations of the account debtors. Such accounts receivable are not subject to counterclaims or set-offs and are collectible in full in the ordinary course of business within 120 days of the relevant invoice date, except to the extent that reserves for doubtful accounts have been established by the Company and are set forth on SCHEDULE 3.15 and which reserves have been adequately reflected on, and are consistent with presentation in, the Financial Statements attached hereto on the date hereof. Promptly after the Closing Date but in no event later than thirty (30) days thereafter, the Shareholders will deliver to Buyer a true, correct and complete listing and aging of the Company's accounts receivable as of the day immediately preceding the Closing Date determined in accordance with GAAP consistent with the presentation in the Financial Statements (the "Closing Date Receivables"), to be appended as part of SCHEDULE 3.15 hereto. SCHEDULE 3.15 shall be deemed amended to include such listing upon delivery to Buyer thereof. As of the Closing Date, the Closing Date Receivables have arisen in bona fide arm's length transactions in the ordinary course of business and are valid and binding obligations of the account debtors. Such accounts receivable are not subject to counterclaims or set-offs and are collectible in full in the ordinary course of business within 120 days of the relevant invoice date, except to the extent that reserves for doubtful accounts are established by the Company and are set forth on the Financial Statements and SCHEDULE 3.15, in each case as attached hereto on the date hereof. The reserves for doubtful accounts established by the Company and reflected or to be reflected on SCHEDULE 3.15 or on the Financial Statements have been or shall be determined in accordance with GAAP consistently applied and are and shall be consistent with the presentation in the Financial Statements, it being understood that in no event shall the reserve with respect to the Closing Date Receivables exceed 1% of the total face amount of the Closing Date Receivables. 3.16 NO PREBILLINGS OR PREPAYMENTS. Except as set forth on SCHEDULE 3.16, the Company has not billed and the Company will not bill, and the Company has not received any payments (in the form of retainers or otherwise) from, any of its customers or potential customers for services to be rendered or for expenses to be incurred subsequent to the Closing Date. 3.17 EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 3.17, neither the Company nor any Plan Affiliate (as defined in Section 10.10 hereof) has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to or made any commitments to create any "employee pension benefit plan" (as defined in Section 3(2) of ERISA (as defined in Section 10.10 hereof)), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), "multi-employer plan" (as defined in Section 3(37) of ERISA), "employee benefit plan" (as defined in Section 3(3) of ERISA), plan of deferred compensation, medical plan, life insurance plan, disability plan, dental plan or other plan providing benefits for the welfare of the Company's or any Plan Affiliate's current employees or former employees, officers, directors or consultants or beneficiaries thereof, personnel policy (including but not limited to vacation time, holiday pay, bonus -9- programs, moving expense reimbursement programs and sick leave), excess benefit plan, bonus or incentive plan (including but not limited to stock options, restricted stock, phantom stock, stock bonus and deferred bonus plans), salary reduction agreement, change-of-control agreement, golden parachute, employment agreement, consulting agreement or any other benefit, program or contract (collectively, "Employee Benefit Plans"), whether or not written or pursuant to a collective bargaining agreement, which has been in effect at any time since January 1, 1997 or which could give rise to or result in the Company or Buyer having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due. True, correct and complete copies of all Employee Benefit Plans previously have been furnished to Buyer along with all applicable summary plan descriptions, material employee communications, the annual reports for the two most recent years and the annual and periodic accounting of plan assets. The Employee Benefit Plans (which, for purposes of this sentence and notwithstanding the reference to January 1, 1997 above, include any such plan maintained, sponsored, adopted, contributed to or obligated to by the Company or any Plan Affiliate within the last six years) have been maintained in all material respects in compliance with governing documents and agreements and with applicable laws, regulations, rules, ordinances, orders and other requirement of law. The present value of all benefits, determined as of the most recent valuation date for such benefits, vested under each Employee Benefit Plan that is a "plan" (as defined in Section 3(3) of ERISA) does not exceed the value of the assets of such "plan" allocable to such vested benefits, determined as of such date. None of the Employee Benefits Plans is a "Multi-employer Plan" within the meaning of Section 3(37) of ERISA and neither the Company nor any Plan Affiliate contributes to or has an obligation to contribute to, or has within the last six years contributed to or had an obligation to contribute to, a Multi-employer Plan. Neither the Company nor any Plan Affiliate (i) has ever established, maintained or contributed to (A) a plan intended to be tax qualified under Section 401(a) of the Code, or a pension plan subject to Title IV of ERISA or to the minimum funding standards under Section 412 of the Code or Section 302 of ERISA, or (B) a voluntary employee benefit association or (ii) has incurred or will incur any liability under Title IV of ERISA. With respect to each Employee Benefit Plan, there has occurred no transaction prohibited by Section 406 of ERISA or which constitutes a "prohibited transaction" under Section 4975(c) of the Code and with respect to which a prohibited transaction exemption is not currently in effect. Except as set forth in SCHEDULE 3.17, the consummation of the transactions contemplated by this Agreement and the Transaction Documents will not (either alone or in conjunction with another event, such as termination of employment or other services) entitle any employee or other person to receive severance or other compensation which would not otherwise be payable absent the consummation of the transactions contemplated by this Agreement and the Transaction Documents or cause the acceleration of the time of payment or vesting of any award or entitlement under any Employee Benefit Plan. Each Employee Benefit Plan may be unilaterally terminated and/or amended by the Company at any time without damage or penalty. All contributions, insurance premiums, benefits and other payments to or under each Employee Benefit Plan with respect to all periods through the Closing have or will be made prior to the Closing or have been accrued on the Financial Statements or will be accrued on the Closing Date Financials, in each case in accordance with GAAP consistently applied. With respect to each Employee Benefit Plan, (i) no application, proceeding or other matter is pending before the Internal Revenue Service, the Department of Labor or any other governmental agency; (ii) no action, suit, proceeding or claim (other than routine claims for benefits) is pending or, to the Company's knowledge, threatened; and (iii) to the knowledge of the Company and the Shareholders, no facts exist which could give -10- rise to an action, suit, proceeding or claim which, if asserted, could result in a material liability or expense to the Company or the plan assets. Except to the extend required under Section 601 et. seq. of ERISA, Section 4980-B of the Code or applicable state laws, neither the Company nor any Plan Affiliate maintains, contributes to, or is obligated under any plan, contract, policy or arrangement providing health or death benefits (whether or not insured) to current or former employees or other personnel beyond the termination of their employment or other services. 3.18 SALARIES. SCHEDULE 3.18 contains a true, complete and correct list setting forth (i) the names, job descriptions/titles, current compensation rate (including but not limited to salary, commission and bonus compensation), date of hire, vacation accrual rate and accrued vacation time of all individuals presently employed by the Company indicating whether they are employed on a salaried, hourly or piecework basis, and (ii) the names and total annual compensation for all independent contractors who render services on a regular basis to, or on behalf of, the Company whose current annual compensation is or is expected to be in excess of $20,000. Except as set forth on SCHEDULE 3.18, there has been no increase in the compensation of the foregoing individuals or independent contractors since June 30, 1999. Except as set forth on SCHEDULE 3.18, there has not been any promise to the employees listed on SCHEDULE 3.18 orally or in writing of any bonus or increase in compensation, whether or not legally binding, except for increases in the ordinary course of business consistent with the Company's past compensation practices and except for obligations incurred under existing bonus, insurance, pension or other Employee Benefit Plans described on SCHEDULE 3.17 or 3.18. The Company has not made any prepayments of salaries, bonuses or any other amounts due to any of its employees or former employees. All obligations to employees, whether for salaries, commissions, bonuses, vacation or otherwise, which are required to be accrued on the Financial Statements in accordance with GAAP consistently applied have been accrued on the Financial Statements or will be accrued on the Closing Date Financials, in each case in accordance with GAAP consistently applied. 3.19 PERSONNEL AGREEMENTS, PLANS AND ARRANGEMENTS. Except as listed in SCHEDULE 3.17, 3.18 or 3.19, the Company is not a party to or obligated with respect to any (a) outstanding contracts with current or former employees, agents, consultants, advisers, salesmen, sales representatives, distributors, sales agents, independent contractors, or dealers, or (b) collective bargaining agreements or contracts with any labor or trade union, employee bargaining agency or other representative of employees or any employee benefits provided for by any such agreement. True, correct and complete copies of all items listed on SCHEDULES 3.17, 3.18 and 3.19 previously have been furnished to Buyer. No strike, picketing, slow-down, work stoppage, lock-out, union organizational activity, allegation, charge or complaint of employment discrimination, unfair labor practice or other similar occurrence has occurred or is pending or, to the knowledge of the Company and the Shareholders, is threatened against the Company nor do the Company or the Shareholders know of any basis for any such allegation, charge, or complaint. The Company has complied in all material respects with all applicable laws relating to the employment of labor, including but not limited to provisions thereof relating to wages, hours, vacation pay, equal opportunity, collective bargaining and the payment, deduction and remittance of all amounts required to be deducted and/or remitted in respect of wages and salaries and of other Taxes (as defined in Section 10.10) and such deductions are consistent with past practices and in accordance with GAAP consistently applied and consistent with the Financial Statements and either remitted same to the legally constituted authorities entitled to receive payment thereof or has reserved for same in its accounts and an amount of cash equal to the amount of such reserve has been set aside for payment thereof. The Company is not liable -11- for any arrears of wages or any Taxes or penalties with respect to the foregoing. The Company has not entered into and the Company is not obligated to enter into any agreement relating to the payment of vacation pay to any employee, and the Company has no obligation to any employees to provide them with pay for vacation time other than as required by generally applicable provisions of law or as otherwise set forth on SCHEDULE 3.19. Neither the Company nor any Shareholder has received notice from any employee of the Company that any such employee is terminating his or her employment with the Company, except for Kaajal Narain and Abha Singhvi, who intend to terminate their employment with the Company concurrently with the Closing, nor to the knowledge of the Company and the Shareholders does any employee intend to terminate his or her employment with the Company as a result of the transactions contemplated hereby. There are no administrative charges or court complaints pending or, to the knowledge of the Company and the Shareholders, threatened against the Company concerning alleged employment discrimination or any other matters relating to the employment of labor. No trade union, counsel of trade unions, employee bargaining agency or affiliated bargaining agent (i) holds bargaining rights with respect to any of the Company's employees by way of certification, interim certification, voluntary recognition, designation or successor right, (ii) has applied to be certified as the bargaining agent of the Company's employees, or (iii) has applied to have the Company declared a related employer pursuant to the provision of applicable law. To the knowledge of the Company and the Shareholders, no claim, injunction, fact, event or condition exists which would give rise to a material claim by any employee or former employee (including dependents and spouses thereof and other individuals covered thereunder) of the Company under any workers compensation laws, regulations, requirements or programs or for other medical costs and expenses. 3.20 CUSTOMERS. SCHEDULE 3.20 is a complete list by dollar volume of billings for each month during the period January 1, 1999 through the last day of the last full calendar month preceding the date hereof to the twenty (20) largest customers of the Company. Except as set forth on SCHEDULE 3.20, none of the customers for whom the Company provided services at any time since January 1, 1999, whether or not one of the Company's twenty (20) largest, has canceled or otherwise terminated, or, to the knowledge of the Company and the Shareholders, threatened to cancel or otherwise terminate, its relationship with the Company or materially reduced, or to the knowledge of the Company and the Shareholders, threatened to materially reduce, its business with the Company. Except as set forth on SCHEDULE 3.20, none of the customers for whom the Company provided services on a project-by-project basis at any time since January 1, 1999, whether or not one of the Company's twenty (20) largest, has canceled or terminated, or, to the knowledge of the Company and the Shareholders, threatened to cancel or terminate its relationship with the Company prior to the expiration of the engagement relating to the particular project for which the Company was retained, or, to the knowledge of the Company and the Shareholders, threatened to cease utilizing the Company's services or to materially reduce the project-by-project business generally provided by the Company. Neither the Company nor any Shareholder has received any notice and have no knowledge or reason to believe that any customer intends to cancel or otherwise modify its relationship with the Company on account of the transactions contemplated hereby or otherwise. 3.21 INTEREST OF THE COMPANY IN CUSTOMERS, ETC. Except as set forth in SCHEDULE 3.21, neither the Company, the Shareholders nor any of their respective Affiliates has any direct or indirect interest in any competitor, supplier or customer of the Company or in any person from whom or to whom the Company leases any real or personal property or in any other -12- person with whom the Company has any business relationship. SCHEDULE 3.21 also describes, (i) all management, administrative, computer, telephone or other services provided by any of the Company's Affiliates, any Shareholder or any of the Affiliates of any Shareholder to the Company and all such services provided by the Company to any of such persons and entities, and (ii) all other material contracts, agreements, arrangements or transactions (including the purchase and sale of inventory, supplies and other goods) between the Company, on the one hand, and any of such individuals or entities on the other hand, currently in effect, including, without limitation any agreement or arrangement relating to indebtedness to or from any of such individuals or entities, in each case setting forth the terms thereof if not effected on an arm's length basis. 3.22 BOOKS AND RECORDS. All the books, records and accounts of the Company are in all material respects accurate and complete, accurately reflect all matters normally entered into the books, records or accounts maintained by similar businesses, are in all material respects in accordance with all laws, regulations and rules applicable to the Company and accurately present and reflect in all material respects all of the transactions described therein. The Company has accounting controls sufficient to ensure that its transactions are (i) in all material respects executed in accordance with its management's general or specific authorization and (ii) recorded in conformity with GAAP. 3.23 INSURANCE POLICIES. SCHEDULE 3.23 is a correct and complete list and description, including policy numbers, of all insurance policies owned or held by the Company or otherwise covering the Company, its employees or assets. Such policies are in full force and effect, and the Company is not in default under any of them. Such insurance is of the kind and in the amount not less than customarily obtained by corporations or other entities of established reputation engaged in the same or similar business and similarly situated. The Company has not received any notice of non-renewal, cancellation or intent to cancel, not renew or increase premiums or deductibles with respect to such insurance policies nor, to the knowledge of the Company and the Shareholders, is there any basis for any such action. SCHEDULE 3.23 also contains a list of all pending claims with any insurance company (other than health, medical and dental insurance claims of employees) and any instances within the previous three years of a denial of coverage of the Company by any insurance company. 3.24 BANK ACCOUNTS. SCHEDULE 3.24 is a complete and correct list of each bank and brokerage firm in which the Company has an account or safe deposit box, the number of each such account or box, the names of all persons authorized to draw thereon or to have access thereto, the amount on deposit in each such account and a description of the items in each such box as of a date not more than seven days prior to the date hereof. 3.25 TAXES. Except as set forth on SCHEDULE 3.25: (a) All Tax Returns (as defined in Section 10.10) required to be filed by or on behalf of the Company on or before the Closing Date have been or will be properly prepared and timely filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings) and all such Tax Returns were or will be true, complete and correct in all material respects. -13- (b) All Taxes (whether or not shown on any Tax Returns) payable by or on behalf of the Company on or before the Closing Date have been or will be fully and timely paid. The cash reserves or accruals for Taxes provided in the books and records of the Company with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing are, or prior to the Closing Date (as defined in Section 7.2 hereof), will be, sufficient for all unpaid Taxes of the Company through and including the Closing Date (including, without limitation, with respect to any Taxes resulting from the Transactions contemplated by this Agreement). The Company has no liability for Taxes of any other person as a transferee, successor, by contract or otherwise. (c) The Company has not executed or filed with the Internal Revenue Service or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force. (d) The Company has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods ending on or prior to the Closing Date under all applicable laws. (e) Buyer has received complete copies of (A) all U.S. federal, state, local and foreign income or franchise Tax Returns of the Company relating to the taxable periods beginning after 1996 and (B) any audit report issued within the last three years relating to Taxes due from or with respect to the Company and its income, assets or operations. All income and franchise Tax Returns filed by or on behalf of the Company for the taxable years ended on the respective dates set forth on the SCHEDULE 3.25 have been examined by the relevant taxing authority or the statute of limitations with respect to such Tax Returns has expired. (f) SCHEDULE 3.25 lists all material types of Taxes paid and material types of Tax Returns filed by or on behalf of the Company. No claim has been made by a taxing authority in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction. (g) All deficiencies asserted or assessments made as a result of any examinations by the Internal Revenue Service or any other taxing authority of the Tax Returns of or covering or including the Company have been fully paid, and, to the knowledge of the Shareholders, there are no other audits or investigations by any taxing authority or proceedings in progress, nor have the Shareholders or the Company received any notice from any taxing authority that it intends to conduct such an audit or investigation. No issue has been raised by a U.S. federal, state, local or foreign taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed material deficiency for any subsequent taxable period. (h) Neither the Company nor any other Person (as defined in Section 10.10) on behalf of the Company or any of its subsidiaries has (A) filed a consent pursuant to -14- Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Company, (B) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or has any knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company or has otherwise taken any action that would have the effect of deferring any liability for Taxes from any taxable period ending on or before the Closing to any taxable period ending thereafter, (C) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to the Company, or (D) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed when due. (i) No property owned by the Company is (i) property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code or (iii) is "tax-exempt bond financed property" within the meaning of Section 168(g) of the Code. (j) The Company is not a party to any tax sharing or similar agreement or arrangement (whether or not written) pursuant to which it will have any obligation to make any payments after the Closing. (k) There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by Buyer or any of its Affiliates by reason of Section 280G of the Code, or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code. (l) The Company is not the subject of any private letter ruling of the Internal Revenue Service or comparable rulings of other taxing authorities. (m) There are no Liens as a result of any unpaid Taxes upon any of the assets of the Company. (n) All material Tax elections of the Company are clearly set forth in the Tax Returns described in Section 3.25(e)(A). The Company has not had elections in effect for U.S. federal income tax purposes under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code. (o) The Company has never been a member of any Affiliated Group of corporations for any Tax purposes. The Company does not own any interest in any entity that is treated as a partnership for U.S. federal income tax purposes or would be treated as a pass-through or transparent entity for any tax purpose. -15- (p) The Company is not a United States Real Property Holding Corporation ("USRPHC") within the meaning of Section 897 of the Code and neither was a USRPHC on any "determination date" (as defined in Section 1.897-2(c) of the Treasury regulations under the Code) that occurred in the five year period preceding the Closing. (q) The Company has properly and timely elected under Section 1362 of the Code, and under each analogous or similar provision of state or local law in each jurisdiction where it is required to file a Tax Return to be treated as an "S" corporation for all taxable periods since its incorporation. There has been no voluntary or involuntary termination or revocation of any such election. The Company is not subject to any entity-level income, franchise or similar Taxes imposed by any taxing authority, except for the California entity-level franchise tax. 3.26 LITIGATION. Except as set forth in SCHEDULE 3.26, there is no claim, counter-claim, action, suit, order, proceeding or investigation pending or, to the knowledge of the Company and the Shareholder, threatened against or involving the Company (or pending or, to the knowledge of the Company and the Shareholders, threatened against any of the officers, directors or key employees of the Company with respect to business activities on behalf of the Company) with respect to or affecting the Company, its accounts, business, properties, assets or rights, or relating to the transactions contemplated hereby, before any court, agency, regulatory, administrative or other governmental body or officer or before any arbitrator; nor, to the knowledge of the Company and the Shareholders, is there any reasonable basis for any such claim, action, suit, proceeding or governmental, administrative or regulatory investigation. The Company is not directly subject to or affected by any order, judgment, decree or ruling of any court or governmental agency. Neither the Company nor any Shareholder has received any written opinion or memorandum of legal advice from legal counsel to the effect that either of them is exposed to any liability which may be material to the business, prospects, results of operations, financial condition or assets of the Company. The Company is not engaged in any legal action to recover monies due it or for damages sustained by it, and none of the assets of the Company nor any of its business practices is in any manner, directly or indirectly, affected by injunction of any court or governmental, administrative or regulatory agency, body or officer. 3.27 ENVIRONMENTAL AND SAFETY REQUIREMENTS. The Company is in material compliance with all applicable Environmental and Safety Requirements (as defined below), and the Company possesses all required permits, licenses and certificates, and has filed all notices or applications, required thereby. Neither the Company nor any Shareholder has received any notice or other communication from any party with respect to the Company's failure to comply with Environmental and Safety Requirements. For purposes of this Agreement, "Environmental and Safety Requirements" means all federal, provincial, foreign and local laws, bylaws, rules, regulations, ordinances, decrees, orders, statutes, actions, guidelines, standards, arrangements, injunctions, policies and requirements relating to public health and safety, worker health and safety, pollution and protection of the environment (including without limitation the handling of any polluted, toxic or hazardous materials), all as amended. The Company has no, nor are its properties subject to any, nor are there any facts or circumstances which the Company or any Shareholder reasonably believes could form the basis for any, liability, contingent or otherwise arising out of any Environmental and Safety Requirements. The Company does not have in its possession or under its control any hazardous substances, except those Hazardous Substances as -16- are used in the ordinary course of the business of the Company and are used or maintained in compliance with the Environmental and Safety Requirements. 3.28 CONDUCT OF THE BUSINESS. Except as set forth on SCHEDULE 3.28, since January 1, 1998, the Company has conducted its business only in the ordinary course of business consistent with past custom and practice, and has incurred no liabilities or obligations whatsoever other than in the ordinary course of business consistent with past custom and practice and there has been no material adverse change in the assets, condition (financial or otherwise), results of operations, employee or customer relations or business activities of the Company, nor does the Company or any Shareholder know of any such change which is threatened, nor has there been any damage, destruction or loss materially adversely affecting any of the assets, or the business condition (financial or otherwise), results of operations, prospects or activities of the Company, whether or not covered by insurance. Without limitation of the foregoing and except as set forth on SCHEDULE 3.28, since January 1, 1998, the Company has not: (a) voluntarily or involuntarily sold, transferred, abandoned, surrendered, subjected to a Lien or otherwise disposed of any assets or property rights except in the ordinary course of business consistent with past custom and practice; (b) changed any accounting principles, methods or practices utilized by it or changed any of its depreciation rates or amortization policies or rates; (c) made any loan or advance to any party in excess of $5,000; (d) issued, redeemed or purchased any stock, bond or corporate security or declared or made any payment or distribution on or with respect to its capital stock (except for cash distributions made to the Shareholders prior to Closing as set forth on SCHEDULE 5.3); (e) incurred debt, liabilities, or obligations of any nature whether accrued, absolute, contingent, direct, indirect, perfected or otherwise and whether due or to become due except (i) current liabilities incurred and liabilities under contracts entered into in the ordinary course of business consistent with past custom and practice and (ii) bonus obligations to a Shareholder incurred in the ordinary course of business consistent with past custom and practice; (f) increased the compensation payable to any of its officers, employees or agents, except for increases of more than 5% as set forth on SCHEDULE 3.28(f); (g) paid any amounts to or for the benefit of the Shareholder, or any officer, employee, consultant, contractor or agent other than salaries at the rates set forth on SCHEDULE 3.18; (h) waived any rights of substantial value; (i) transferred or disposed of any cash or cash equivalents outside of the ordinary course of business, consistent with past custom and practice; -17- (j) entered into any other material transaction, except for such transactions set forth on SCHEDULE 3.28(j); or (k) committed to any of the foregoing. 3.29 POWER OF ATTORNEY. Neither the Company nor any Shareholder has given to any person or entity for any purpose any power of attorney which is currently in effect. 3.30 BROKERS. Except for the fee payable to Roth Capital Partners, Inc. set forth on SCHEDULE 3.30, neither the Company nor any Shareholder has (i) incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees or commissions in connection with the transactions contemplated by this Agreement or the Transaction Documents or (ii) made any statement or representation or entered into any discussion which could give rise to any such obligation or liability. 3.31 OWNERSHIP OF BUYER COMMON STOCK. Neither the Company nor any Shareholder, nor, to the best knowledge of the Company and the Shareholders, any of the employees of the Company, own any shares of TMP Common Stock. 3.32 NO ILLEGAL OR IMPROPER TRANSACTIONS. None of the Company, any Shareholder or any of the Company's directors, officers or employees has, directly or indirectly used funds or other assets of the Company, or made any promise or undertaking in such regard, for (a) illegal contributions, gifts, entertainment or other expenses relating to political activity; (b) illegal payments to or for the benefit of governmental officials or employees, whether domestic or foreign; (c) illegal payments to or for the benefit of any person, firm, corporation or other entity, or any director, officer, employee, agent or representative thereof; or (d) the establishment or maintenance of a secret or unrecorded fund; and there have been no false or fictitious entries made in the books or records of the Company. 3.33 SECURITIES MATTERS. (a) Each Shareholder has such knowledge and experience in financial and business matters and such experience in evaluating and investing in companies such as the Buyer as to be capable of evaluating the merits and risks of an investment in the TMP Shares. Each Shareholder has the financial ability to bear the economic risk of such Shareholder's investment in the TMP Shares being acquired by such Shareholder hereunder, has adequate means for providing for her current needs and contingencies and has no need for liquidity with respect to her investment in Buyer. (b) Each Shareholder is acquiring the TMP Shares for investment for his/her own account, for investment purposes only, and not with the view to, or for resale in connection with, any distribution thereof. Each Shareholder understands that the TMP Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of various states, by reason of a specified exemption from the registration provisions thereunder which depends upon, among other things, the bona fide nature of the Shareholder's investment intent as expressed herein. (c) Each Shareholder acknowledges that the TMP Shares must be held indefinitely unless they are subsequently registered under the Securities Act and under -18- applicable state securities laws or an exemption from such registration is available. Each Shareholder has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of the securities purchased in a private placement subject to the satisfaction of certain conditions including, among other things, the availability of certain current public information about Buyer and compliance with applicable requirements regarding the holding period and the amount of securities to be sold and the manner of sale. (d) Each Shareholder has relied upon independent investigations made by such Shareholder or her representatives and is fully familiar with the business, results of operations, financial condition, prospects and other affairs of Buyer and realizes the TMP Shares are a speculative investment involving a high degree of risk for which there is no assurance of any return. Each Shareholder has, among other things, received and carefully reviewed (i) TMP's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and all amendments thereto, (ii) TMP's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2000 and June 30, 2000, and all amendments thereto, (iii) TMP's Proxy Statement filed April 20, 2000, (iv) TMP's Current Reports on Form 8-K dated January 4, 2000, January 11, 2000, June 30, 2000, July 12, 2000 and August 2, 2000, and all amendments thereto (the items referred to in (i) through (iv) are collectively referred to herein as the "Exchange Act Filings") and (v) all other information filed by TMP pursuant to the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each Shareholder acknowledges that in connection with the transactions contemplated hereby, neither Buyer nor anyone acting on its behalf or any other person has made, and such Shareholder is not relying upon, any representations, statements or projections concerning Buyer, its present or projected results of operations, financial condition, prospects, present or future plans, acquisition plans, products and services, or the value of the TMP Shares or TMP's business or any other matter in relation to TMP's business or affairs. Each Shareholder has had an opportunity to discuss TMP's business, management, financial affairs and acquisition plans with its management, to review TMP's facilities, and to obtain such additional information concerning such Shareholder's investment in the TMP Shares in order for such Shareholder to evaluate its merits and risks, and such Shareholder has determined that the TMP Shares are a suitable investment for such Shareholder and that at this time such Shareholder could bear a complete loss of such Shareholder's investment. (e) Each Shareholder is aware that no federal or state or other agency has passed upon or made any finding or determination concerning the fairness of the transactions contemplated by this Agreement and the Transaction Documents or the adequacy of the disclosure of the exhibits and schedules hereto or thereto and such Shareholder must forego the security, if any, that such a review would provide. (f) Each Shareholder understands and acknowledges that neither the Internal Revenue Service nor any other tax authority has been asked to rule on the tax consequences of the transactions contemplated hereby or by the Transaction Documents and, accordingly, in making such Shareholder's decision to acquire the TMP Shares such Shareholder has relied upon the investigations of such Shareholder's own tax and business advisers in addition to such Shareholder's own independent investigations, and that such Shareholder and such Shareholder's advisers have fully considered all the tax consequences of such Shareholder's acquisition of the TMP Shares. -19- (g) Each Shareholder is an "Accredited Investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act by reason of being a natural person who had an individual income in excess of $200,000 in cash of the two most recent years and has a reasonable expectation of reaching the same income level in the current year. Each Shareholder understands that all certificates for the TMP Shares issued to such Shareholder shall bear a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS." 3.34 ACCOUNTING MATTERS. Neither the Company nor any Shareholder, nor, to the knowledge of the Company and the Shareholders, any of the Company's directors or officers, has taken any action or is aware of any facts or circumstances in respect of the Company or its accounting procedures which would have the effect of precluding accounting for the transactions contemplated by this Agreement and the Transaction Documents as a "pooling of interests." Except as set forth on SCHEDULE 3.34, since January 1, 1998, the Company has not issued, redeemed or purchased any Company Shares, bond or corporate security or otherwise altered its equity interests. No Shareholder has (i) since January 1, 1998 sold, transferred or assigned any securities of the Company or (ii) at any time in any way reduced its risk or committed to reduce its risk with respect to the Company Shares owned by such Shareholder or the TMP Shares to be acquired by such Shareholder hereunder, whether by entering into a put, collar, option, margin or other arrangement. Without in any way limiting the other provisions of this Section, the Company is autonomous and is not currently, and has not been since January 1, 1998, a division or subsidiary of another enterprise. The Company is independent of Buyer and, except as disclosed on SCHEDULE 3.34, between January 1, 1998 and the Closing Date, neither the Company nor any Shareholder owned any shares of TMP Common Stock. Except as disclosed on SCHEDULE 3.34, since January 1, 1998: the Company has not: (a) in any way changed the equity interests of its securities or (b) disposed of significant assets, and any changes in equity interests, acquisitions of treasury securities or disposal of assets disclosed on SCHEDULE 3.34 were not in contemplation of the transactions contemplated by this Agreement. Any transactions or acquisitions of shares disclosed on SCHEDULE 3.34 were not in contemplation of the transactions contemplated by this Agreement. 3.35 NO MISREPRESENTATION. None of the representations and warranties of the Company and the Shareholders set forth in this Agreement or any of the Transaction Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances in which they were made. To the knowledge of the Company and the Shareholders, there is no -20- material fact or information which has not been disclosed to Buyer in writing which materially adversely affects or could reasonably be anticipated to materially adversely affect the business, condition (financial or otherwise), property or assets of the Company or the ability of the Company and the Shareholders to consummate the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER As an inducement to the Company and the Shareholders to enter into and perform their respective obligations under this Agreement, Buyer hereby represents and warrants to the Company and the Shareholders as follows: 4.1 ORGANIZATION AND GOOD STANDING; POWER. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority to conduct its business as it is now being conducted and to own, operate or lease the properties and assets it currently owns, operates or holds under lease. The Buyer is duly licensed and qualified to do business and is in good standing as a foreign corporation in each other jurisdiction, which are all jurisdictions where the character of its business or the nature of its properties or assets makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified, licensed or in good standing would not individually or in the aggregate have a material adverse effect on the business, results of operations, financial condition or assets of the Buyer. 4.2 AUTHORIZATION. The Buyer has full power and authority to execute and deliver this Agreement and any agreement, document, certificate or instrument being delivered pursuant to or in connection with the transactions contemplated by this Agreement, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Transaction Documents, and the performance by the Buyer of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereunder and thereunder, have been duly authorized by the Buyer. This Agreement and the Transaction Documents have been duly executed and delivered by the Buyer and constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally or by general principles of equity. 4.3 NO VIOLATION. The execution, delivery and performance by Buyer of this Agreement and the Transaction Documents and the consummation of the transactions contemplated herein and therein do not and will not: (a) conflict with, result in the breach, modification, termination or violation of, or loss of any benefit under, constitute a default under, accelerate the performance required by, result in or give rise to a right to amend or modify the terms of, result in the creation of any Lien upon any assets or properties, or in any manner release any party thereto from any obligation under, any mortgage, note, bond, indenture, contract, agreement, lease, license or other instrument or obligation of any kind or nature by which Buyer or any of its properties or assets may be bound or affected; -21- (b) conflict with, violate or result in any loss of benefit under, any permit, concession, franchise, order, judgment, writ, injunction, regulation, statute or decree; or (c) conflict with or violate any provision of the Certificate of Incorporation or Bylaws, each as heretofore amended, of Buyer. 4.4 NO CONSENT REQUIRED. No consent, approval, order or authorization of, or declaration, filing or registration with, any person, entity or governmental authority is required to be made or obtained by Buyer in connection with the authorization, execution, delivery or performance of this Agreement, the Transaction Documents or the transactions contemplated hereby. 4.5 BUYER FILINGS. None of the Exchange Act Filings, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed to the Shareholders in writing, in materials filed by Buyer pursuant to the Securities Act or the Exchange Act, or set forth in press releases that have been made public by Buyer (including but not limited to those from time to time posted at or available through Nasdaq's website at HTTP://WWW.NASDAQ.COM), there has been no material adverse change in the financial condition of Buyer since March 31, 2000. 4.6 ISSUANCE. The TMP Shares to be delivered by Buyer hereunder have been duly authorized and, when issued and delivered in accordance with the terms of this agreement, will be validly issued, fully paid and non-assessable and will not be issued in violation of any preemptive rights, rights of first refusal or similar rights. ARTICLE V PRE-CLOSING COVENANTS AND OTHER TERMS 5.1 PUBLIC ANNOUNCEMENTS. Prior to the Closing, no party will issue or cause the publication of any press release or other public announcement with respect to this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby without the prior consent of Buyer (in the case of the Company and the Shareholders) or the Company (in the case of Buyer), provided, however, that (i) nothing herein will prohibit any party from issuing or causing publication of any such press release or public announcement to the extent that such party determines such action to be required by law, or the regulations of any government agency or the Nasdaq National Market in which case the party making such determination will, if practicable in the circumstances, use reasonable efforts to allow the other parties reasonable time to comment on such release or announcement in advance of its issuance; (ii) the Company and the Shareholders may disclose this Agreement and the Transaction Documents and the transactions contemplated hereby or thereby to third parties in connection with securing consents of such third parties and in connection with any permits, approvals, filings or consents required by law to be obtained; and (iii) Buyer may disclose this Agreement and the Transaction Documents and the transactions contemplated hereby or thereby to third parties in connection with securing consents of third parties and in connection with any permits, approvals, filings or consents required by law to be obtained. To the extent feasible, prior to the -22- Closing, all press releases or other announcements or notices regarding the transactions contemplated by this Agreement or the Transaction Documents shall be made jointly by the parties. 5.2 INVESTIGATION BY BUYER. Prior to the Closing, the Shareholders and the Company will afford to the officers, attorneys, accountants or other authorized representatives of Buyer reasonable access during normal business hours to, and otherwise make available to Buyer, the offices, facilities, properties, files, documents, contracts, insurance policies, books and records of the Company so as to afford Buyer the opportunity to make such review, examination and investigation of the Company as Buyer may request and the Shareholders and the Company will cooperate with Buyer in connection with any permits, approvals, filings or consents required by law to be obtained. Buyer will be permitted to make extracts from or to make copies of such books and records as may be reasonably necessary. No investigation, review, study or examination by Buyer or its representatives shall offset, limit or diminish the scope of the representations and warranties of the Company and the Shareholders in this Agreement or reduce or limit the liability of the Company and the Shareholders for any breach thereof. 5.3 CONDUCT OF BUSINESS. From the date hereof through the Closing, except as otherwise expressly provided for in this Agreement, the Company covenants and agrees that it will, and the Shareholders agree to cause the Company to, carry on the Company's business diligently, in the ordinary course and in substantially the same manner as such business has previously been carried out. Without limiting the foregoing or the other provisions of this Agreement, the Company and the Shareholders, jointly and severally, covenant and agree that: (a) Except as otherwise expressly permitted in this Agreement, the Company will not (i) increase in any manner the base compensation of, or enter into any new bonus or incentive agreement or arrangement with, any of the Company's employees, consultants or contractors, (ii) pay or agree to pay any additional pension, retirement allowance or other employee benefit to any such employee, consultant or contractor whether past or present, (iii) enter into any new employment, severance, consulting, or other compensation agreement with any existing employee, consultant or contractor, (iv) hire or offer to hire any new employees, consultants or contractors, (v) pay any amount to or for the benefit of any Shareholder or any officer, employee, consultant, contractor or agent other than salaries at the rates set forth on SCHEDULE 3.18, except for (1) payments made in the ordinary course of business consistent with past custom or practice and (2) Shareholder distributions, as set forth on SCHEDULE 5.3, or (vi) amend any existing or enter into any new Employee Benefit Plan. (b) The Company will use its best efforts to keep available the services of its present employees, consultants and contractors and preserve the goodwill, reputation and present relationships of the Company with its suppliers, customers, licensors and others having business relations with the Company. (c) The Company shall not create any obligation or liability (absolute or contingent) in excess of $1,000, except for current liabilities incurred in the ordinary course of business consistent with past custom and practice, obligations under contracts entered into in the ordinary course of business consistent with past custom and practice and expenses incurred in connection with this Agreement (including, without limitation, reasonable attorneys fees, -23- accounting fees and fees payable to Roth Capital Partners, Inc.); provided, however, such expenses incurred in connection with this Agreement must be paid by the Company prior to the Closing in accordance with SECTION 10.6 hereof. (d) The Company will (i) maintain its property and assets in good repair, order and condition (ordinary wear and tear excepted), (ii) maintain and keep in full force existing insurance, (iii) maintain the books and records in the usual, regular and ordinary manner on a basis consistent with past practices, and (iv) perform and comply with its contractual obligations, including without limitation obligations under Material Contracts and Permits. The Company shall not mortgage, hypothecate, grant Liens in or otherwise encumber its interest in the Leased Property, or sublease its interest in the Leased Property or amend any lease to which it is a party or by which it is bound. (e) The Company shall not amend its Certificate of Incorporation or Bylaws. (f) Except in the ordinary course of business consistent with past custom and practice or as otherwise expressly provided for in this Agreement, the Company shall not: (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, including without limitation cash and cash equivalents, (ii) create or permit to exist any new Lien on any of its properties or assets, (iii) enter into any joint venture, partnership or other similar arrangement, (iv) accelerate or delay any service to be rendered to a customer of the Company in a manner inconsistent with past practices, (v) make any new commitments for capital expenditures, or (vi) enter into any commitment to borrow money. (g) The Company shall duly and timely file all Tax Returns and information returns and pay all Taxes when due. (h) The Company shall not undertake any action or fail to take any action that will result in a breach of the representations and warranties set forth in ARTICLE III hereof as if made on and as of the Closing Date. (i) The Company will not declare or pay any dividend or make any other distribution to any shareholder with respect to the capital stock of the Company, will not purchase or redeem any of its shares of capital stock, will not issue rights or options to purchase or subscribe to any shares of its capital stock, issue or sell any shares of its capital stock or alter its equity interests. (j) The Company will not grant any power of attorney. (k) The Company and the Shareholders will promptly supply to Buyer copies of all litigation or legal proceedings pertaining in any way to the Company or the assets or business which may arise after the date hereof and will advise the Buyer promptly in writing of any threat of litigation or other legal proceedings pertaining thereto. 5.4 NON-NEGOTIATION. In consideration of the substantial expenditure of time, effort and expense undertaken by Buyer in connection with its due diligence review and the preparation and execution of this Agreement and the Transaction Documents, the Company and -24- the Shareholders jointly and severally agree that none of the Company, the Shareholders or any of their respective representatives, agents or employees will, after the execution of this Agreement until the earlier of (i) the termination of this Agreement, or (ii) the Closing, directly or indirectly, solicit, encourage, initiate, negotiate or discuss with any third party (including by way of furnishing any information concerning the Company) or permit the consummation of any acquisition proposal relating to or affecting the Company or any part of the Company, or any direct or indirect interests in the Company, whether by purchase of assets or stock, purchase of interests, business combination, merger or other transaction, and that the Company and the Shareholders will promptly advise Buyer of the terms of any communications the Company or any Shareholder may receive or become aware of relating to any bid for all or any part of any such interest in the Company. 5.5 BEST EFFORTS. The Company and the Shareholders will each use their best efforts between the date hereof and the Closing to secure fulfillment of all of the conditions precedent to Buyer's obligations hereunder, and Buyer will use its best efforts between the date hereof and the Closing to secure fulfillment of all of the conditions precedent to the obligations of the Company and the Shareholders hereunder. 5.6 SHAREHOLDER. The Shareholders will cause the Company to comply with the provisions of this ARTICLE V. The Shareholders further agree not to grant any power of attorney with respect to the Company Shares, the Company, or the Company's business or assets. No Shareholder will sell any Company Shares (except to Buyer pursuant to this Agreement) or in any way reduce prior to the Closing his risk or commit to reduce his risk with respect to Company Shares owned by such Shareholder or the TMP Shares to be acquired by such Shareholder hereunder, whether by entering into a put, collar, option, margin or other arrangement. 5.7 CLOSING DATE FINANCIALS. SCHEDULE 3.8 shall be deemed amended to include the Closing Date Financials upon receipt thereof by the Buyer from the Company. ARTICLE VI CONDITIONS PRECEDENT TO THE CLOSING 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer under this Agreement to consummate the transactions contemplated hereby will be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived at the option of Buyer: (a) NO BREACH OF COVENANTS; TRUE AND CORRECT REPRESENTATIONS AND WARRANTIES. There shall have been no material breach by the Company or any Shareholder in the performance of any of their respective covenants herein to be performed by any or all of them in whole or in part prior to the Closing, and the representations and warranties of the Company and the Shareholders contained in this Agreement, if specifically qualified by materiality, shall be true and correct as of the Closing and, if not so qualified, shall be true and correct in all material respects as of the Closing, except for representations or warranties that are made by their terms as of a date specified by month, day and year, which shall be true and correct or true and correct in all material respects, as applicable, as of such specified date. -25- Buyer shall receive at the Closing a certificate dated and validly executed on behalf of the Company and the Shareholders certifying, in such detail as Buyer may reasonably require, the fulfillment of the foregoing conditions, and restating and reconfirming as of the Closing all of the covenants, representations and warranties of the Company and the Shareholders contained in this Agreement, specifying in detail the extent of any breaches thereof. (b) DELIVERY OF DOCUMENTS. Buyer shall have received all documents and other items to be delivered under Section 7.2. (c) NO LEGAL OBSTRUCTION. No suit, action or proceeding not disclosed in the Schedules to this Agreement by any person, entity or governmental agency shall be pending or threatened in writing, which if determined adverse to the Company, any Shareholder or Buyer's interests, could reasonably be expected to have a material adverse effect upon (i) the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company, (ii) Buyer or its Affiliates, or (iii) the benefits to Buyer or its Affiliates of the transactions contemplated hereby. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the transactions contemplated hereby or restraining or prohibiting the consummation of such transactions or compelling Buyer to dispose of or discontinue or materially restrict the operations of a significant portion of the Company. All material permits, approvals, filings and consents required or advisable to be obtained or made, and all waiting periods required or contemplated to expire, prior to the consummation of the transactions contemplated hereby under applicable federal laws of the United States or applicable laws of any state or foreign country having jurisdiction over the transactions contemplated hereby shall have been obtained, made or expired, as the case may be (all such permits, approvals, filings and consents and the lapse of all such waiting periods being referred to as the "Requisite Regulatory Approvals"), and all such Requisite Regulatory Approvals shall be in full force and effect. (d) DAMAGE OR DESTRUCTION. From the date hereof until the Closing, there shall have been no material loss or destruction of any portion of the properties or assets of the Company, nor any institution or threat of any condemnation or other proceedings to acquire or limit the use of any of the properties or assets of the Company. (e) NO MATERIAL ADVERSE CHANGE. From the date hereof until the Closing, there shall have been no material adverse change in the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of the Company and the Company shall not have lost any material customer (or, in the aggregate, any material portion of the Company's business). (f) APPROVAL BY BUYER'S COUNSEL AND ACCOUNTANTS. All actions, proceedings, instruments and documents reasonably required to carry out this Agreement and all other related legal and accounting matters shall have been reasonably approved as to form and substance by counsel and accountants for Buyer. (g) POOLING OF INTERESTS. Buyer shall be satisfied that the transactions contemplated hereby may be accounted for as a pooling of interests. -26- (h) SHAREHOLDER LOANS. Any and all loans from the Company to any Shareholder or any Affiliate of the Company shall have been repaid to the Company in full, and documentation evidencing such repayment, in form and substance satisfactory to Buyer, shall have been delivered to Buyer. (i) LEASE(S). The leases entered into by the Company for the premises located at 1050 Chestnut Street Menlo Park, California, Suites 201 and 202, shall have been amended, if necessary, to the satisfaction of the Buyer in connection with the assumption of such leases by the Buyer. 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The obligations of the Company and the Shareholders under this Agreement to consummate the transactions contemplated hereby will be subject to the satisfaction, at or prior to the Closing, of all the following conditions, any one or more of which may be waived at the option of the Company and the Shareholders: (a) NO BREACH OF COVENANTS; TRUE AND CORRECT REPRESENTATIONS AND WARRANTIES. There shall have been no material breach by Buyer in the performance of any of the covenants herein to be performed by it in whole or in part prior to the Closing, and the representations and warranties of Buyer contained in this Agreement, if specifically qualified by materiality, shall be true and correct as of the Closing and, if not so qualified, shall be true and correct in all material respects as of the Closing, except for representations or warranties that are made by their terms as of a date specified by month, day and year, which shall be true and correct or true and correct in all material respects, as applicable, as of such specified date. The Company and the Shareholders shall receive at the Closing a certificate dated as of the Closing and executed on behalf of Buyer, certifying in such detail as the Company and the Shareholders may reasonably require, the fulfillment of the foregoing conditions, and restating and reconfirming as of the Closing all of the covenants, representations and warranties of Buyer contained in this Agreement, specifying in detail the extent of any breaches thereof. (b) DELIVERY OF DOCUMENTS. The Company and the Shareholders shall have received all documents and other items to be delivered by Buyer under Section 7.3. (c) NO LEGAL OBSTRUCTION. No suit, action or proceeding not disclosed in this Agreement by any person, entity or governmental agency shall be pending or threatened in writing, which if determined adverse to the Buyer, could reasonably be expected to have a material adverse effect upon (i) the Buyer or (ii) the benefits to the Company or the Shareholders of the transactions contemplated hereby. No injunction, restraining order or order of any nature shall have been issued by or be pending before any court of competent jurisdiction or any governmental agency challenging the validity or legality of the transactions contemplated hereby or restraining or prohibiting the consummation of such transactions or compelling the disposition of or discontinue or materially restrict the operations of a significant portion of the Buyer. All material permits, approvals, filings and consents required or advisable to be obtained or made, and all waiting periods required or contemplated to expire, prior to the consummation of the transactions contemplated hereby under applicable federal laws of the United States or applicable laws of any state or foreign country having jurisdiction over the transactions contemplated hereby shall have been obtained, made or expired, as the case may be, and all such Requisite Regulatory Approvals shall be in full force and effect. -27- (d) APPROVAL BY COUNSEL AND ACCOUNTANTS. All actions, proceedings, instruments and documents reasonably required to carry out this Agreement and all other related legal and accounting matters shall have been reasonably approved as to form and substance by counsel and accountants for the Company and the Shareholders. (e) NO MATERIAL ADVERSE CHANGE. From the date hereof until the Closing, there shall have been no material adverse change in the properties, assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, business activities or business prospects of Buyer. ARTICLE VII CLOSING 7.1 CLOSING. The consummation of the transactions that are the subject of this Agreement are being closed (the "Closing") at the office of Buyer, 622 3rd Avenue, 39th Floor, New York, NY 10017 no later than the third business day after the satisfaction or waiver of the conditions to the parties' obligations set forth in ARTICLE VI hereof (other than the delivery of certificates and opinions contemplated to be delivered at the Closing, which shall be delivered at the Closing) or at such other time or place as the parties may mutually agree (the "Closing Date"). In the event that the transactions contemplated hereby have not closed on or before September 30, 2000, and (i) on such date the Company and the Shareholders on the one hand or Buyer on the other is ready, willing and able to satisfy the conditions precedent to Closing of the other party or parties (the "Ready Party"), and the other party or parties is or are not so ready, willing and able, or (ii) the conditions to a party's obligations set forth in ARTICLE VI hereof are not satisfied (except as a result of a material default or breach of this Agreement by such party) (the "Specified Party"), then the Ready Party or Specified Party may, in addition to any other remedies it may have, terminate this Agreement upon written notice to the others without liability to such other parties. 7.2 DELIVERIES BY THE COMPANY AND THE SHAREHOLDER. At the Closing, the Company and the Shareholders shall deliver or cause to be delivered to Buyer: (a) STOCK CERTIFICATES AND INSTRUMENTS OF CONVEYANCE. Certificates for all of the Company Shares, accompanied by stock powers duly executed in blank, with all necessary stock transfer and other documentary stamps attached; (b) CONSENTS. Copies of all written consents required to be obtained by the Company or any Shareholder in connection with the transactions contemplated by this Agreement and the Transaction Documents, if any, in form and substance reasonably satisfactory to Buyer; (c) OPINION OF COUNSEL. An opinion of counsel for the Company and the Shareholders, dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer; -28- (d) CORPORATE DOCUMENTS. The Certificate of Incorporation of the Company, as heretofore amended, certified by an appropriate official of its jurisdiction of incorporation as being in effect as of a recent date, and the Company's Certificate of Incorporation and Bylaws certified by an appropriate officer of the Company as in effect at the Closing; (e) CERTIFICATES OF GOOD STANDING AND TAX CLEARANCE. Certificates of good standing and tax clearance, dated as of a recent date, issued by an appropriate official of each of the state of California and of each other jurisdiction in which the Company is qualified to do business; (f) RESOLUTIONS. A copy of the resolutions of the Board of Directors of the Company and of the Shareholders certified by the secretary of the Company as having been duly and validly adopted and in full force and effect as of the Closing Date authorizing execution and delivery of this Agreement and the Transaction Documents and performance, and the appointment and elections of officers and directors of the Company nominated by Buyer, and consummation of the transactions contemplated hereby and thereby by the Company; (g) RESIGNATIONS. Resignations of all of the directors and officers of the Company, effective as of the Closing; (h) LIEN SEARCHES. Such lien searches and such other instruments showing that there were no financing statements, judgments, taxes or other Liens outstanding against the Company or any of its assets or properties as of the Closing Date or a date that is not more than ten days prior to the Closing Date; (i) TERMINATION OF SHAREHOLDERS' AGREEMENT. The Buyer shall have received the unanimous written consent of each of the parties to the Shareholders' Agreement dated March 19, 1998, as amended, terminating such Agreement pursuant to Section 6.1(a) thereto effective as of the date immediately prior to the Closing Date; and (j) OTHER DOCUMENTS. Such other documents and instruments as Buyer or its counsel or accountants reasonably shall deem necessary to consummate the transactions contemplated hereby. All documents delivered to Buyer shall be in form and substance reasonably satisfactory to counsel and accountants for Buyer. 7.3 DELIVERIES BY BUYER. At the Closing, Buyer will deliver to the Company and/or the Shareholders, simultaneously with delivery of the items referred to in Section 7.2 above: (a) TMP SHARES. Certificates representing the TMP Shares being issued to the Shareholders (or the permitted designees set forth on SCHEDULE 2.1), issued in the name of the Shareholders, pro-rata in accordance with the percentages set forth on SCHEDULE A or a letter to Bank of New York, as transfer agent and registrar to Buyer, authorizing such issuance; and -29- (b) OTHER DOCUMENTS. Such other documents and instruments as the Company, the Shareholders or their counsel or accountants reasonably shall deem necessary to consummate the transactions contemplated hereby. All documents delivered to the Company and/or the Shareholders shall be in form and substance reasonably satisfactory to counsel for the Company and the Shareholder. ARTICLE VIII OTHER AGREEMENTS 8.1 NONCOMPETITION; NONSOLICITATION AND CONFIDENTIALITY. (a) NONCOMPETITION. Each Shareholder acknowledges that it has extensive knowledge and a unique understanding of the business of the Company, has been directly involved with the establishment and continued development of the Company's customer relations and has had access to all of the proprietary and confidential information used in the business of the Company. Each Shareholder further acknowledges that if she or any of her Affiliates were to compete with the Company or Buyer in such business following the Closing, great harm would come to Buyer thereby destroying any value associated with the purchase of the Company and the goodwill of the Company. In furtherance of the sale of the Company Shares to Buyer hereunder by virtue of the transactions contemplated hereby and to more effectively protect the value of the Company so sold, each Shareholder covenants and agrees that, for a period beginning on the Closing Date and ending on the date which is three years after the date such Shareholder ceases to be employed by the Company, Buyer or an Affiliate of Buyer (the "Term"), such Shareholder shall not, and such Shareholder shall cause her Affiliates not to, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any person, firm, corporation or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the Business anywhere in or into the United States (the "Territory"), other than on behalf of and as an employee of the Company, the Buyer or an Affiliate of the Buyer. Notwithstanding the foregoing, nothing contained in this Section 8.1(a) shall prohibit a Shareholder or its respective Affiliates from (i) owning not more than an aggregate of one percent (1%) of any class of stock of any company which is listed on a national securities exchange or traded in the over-the-counter market and which is engaged in the Business, (ii) being employed in the human resources department of a company that is not engaged in the Business, (iii) acting as a consultant to the human resources department of a company that is not engaged in the Business, provided that such Shareholder is acting in her individual capacity and not in concert with other persons performing similar consulting services, whether pursuant to a business enterprise or otherwise, and provided, further, that such consulting services are not being rendered for the purpose of assisting the third party to engage in the Business, and (iv) being employed by or providing services to PaperFly Corporation (the "PaperFly"), provided that PaperFly does not engage in the Business. Each Shareholder acknowledges that the covenants contained in this ARTICLE VIII are essential conditions for Buyer entering into this Agreement without which -30- Buyer would not have entered into this Agreement or have paid the consideration payable by it. Each Shareholder acknowledges that the restrictions set forth herein are reasonable, valid and necessary for the protection of the legitimate interest of Buyer and the Company. (b) NONSOLICITATION. Without limiting the provisions of Section 8.1(a) hereof, each Shareholder agrees that, during the Term, neither such Shareholder nor her respective Affiliates will, directly or indirectly, as employee, agent, consultant principal or otherwise (i) solicit any Business from or in any way transact or seek to transact any Business with or otherwise seek to influence or alter the relationship between the Company or any of its Affiliates with any person or entity to whom the Company or any of its Affiliates provided services or to whom the Company or any of its Affiliates made a presentation at any time during the one year period preceding the date such Shareholder ceases to be employed by the Company, Buyer or an Affiliate of Buyer, or (ii) solicit for employment or other services or otherwise seek to influence or alter the relationship between the Company or any of its Affiliates of any person who is or was an employee of the Company or any of its Affiliates at any time during the one year period preceding the date such Shareholder ceases to be employed by the Company, Buyer or an Affiliate of Buyer, other than on behalf of and as an employee of the Company, Buyer or an Affiliate of Buyer; provided, however, if Joann Bianchi remains employed with the Company, Buyer or an Affiliate of Buyer during the 90 business day period following the Closing Date, and is contemporaneously during such 90 day period or subsequently, employed as employee, agent, consultant principal or otherwise, by PaperFly, the Shareholders or their respective Affiliates, the Shareholders shall not be in breach of this Section 8.1(b). (c) CONFIDENTIALITY. After the Closing, each Shareholder and its Affiliates shall strictly maintain the confidentiality of all information, documents and materials relating to the Company or the transactions contemplated by this Agreement, including without limitation the existence of the Agreement and the terms thereof, except to the extent disclosure of any such information is required by law or authorized by Buyer or reasonably occurs in connection with disputes over the terms of this Agreement. In the event that such Shareholder reasonably believes after consultation with counsel that it is required by law to disclose any confidential information described in this Section 8.1(c), such Shareholder will (i) provide Buyer with prompt notice before such disclosure in order that Buyer may attempt to obtain a protective order or other assurance that confidential treatment will be accorded to confidential information, and (ii) cooperate with Buyer in attempting to obtain such order or assurance. The provisions of this Section 8.1(c) shall not apply to any information, documents or materials which (a) is or becomes available to the public generally (other than as a result of a disclosure by a Shareholder or one of her representatives), or (b) which are in the public domain or shall come into the public domain, other than by reason of default by such Shareholder or any of its Affiliates of this Agreement or becomes known in the industry through no wrongful act on the part of such Shareholder or any of its Affiliates. (d) REMEDIES. Without limiting the right of Buyer to pursue all other legal and equitable rights available to it, including without limitation, damages for the actual or threatened violation of this Section 8.1 by any Shareholder or any of its Affiliates, it is agreed that other remedies cannot fully compensate Buyer for such a violation and that Buyer shall be entitled to injunctive relief and/or specific performance to prevent violation or continuing violation thereof, without bond and without the necessity of showing actual monetary damages. -31- It is the intent and understanding of each party hereto that if, in any action before any court or agency legally empowered to enforce this Section 8.1, any term, restriction, covenant or promise in this Section 8.1 is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. 8.2 TRADING PROHIBITION. The Company and each Shareholder hereby acknowledge that the transactions contemplated hereby and information disclosed and to be disclosed to the Company, such Shareholder and their representatives may, from time to time, constitute or include material non-public information concerning Buyer. The Company and each Shareholder acknowledge that they are aware, and that they have advised and will continue to advise all employees and representatives of the Company or any Shareholder to whom the existence of this transaction or any such information has been or may be disclosed that (i) the federal securities laws may prohibit a person who has material, non-public information from purchasing or selling securities of any company to which such information relates and (ii) material non-public information shall not be communicated to any other person except as expressly permitted by this Agreement. Between the date of this Agreement and the Closing neither the Company nor any Shareholder (nor any trustees or beneficiaries of the Shareholder) will acquire any shares of common stock, $.001 par value per share, of Buyer, except that the Shareholders may acquire the TMP Shares at Closing as contemplated herein. Each Shareholder will not, and it will cause any of its trustees and beneficiaries not to, in any way sell, transfer or assign any Company Shares owned by any Shareholder or the TMP Shares to be acquired by any Shareholder hereunder, or reduce his risk or commit to reduce his risk with respect to the Company Shares owned by any Shareholder or TMP Shares to be acquired by any Shareholder hereunder, whether by entering into a put, collar, option, margin or other arrangement, until, in the case of TMP Shares, after the filing with the SEC (as defined in Section 8.5) of financial results of Buyer covering at least 30 days of post-Closing combined operations of Buyer and the Company, except for the sale of Company Shares to Buyer as contemplated hereunder. 8.3 SURVIVAL OF REPRESENTATION AND WARRANTIES. All of the representations and warranties set forth in this Agreement or in any of the Transaction Documents shall survive the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, regardless of any investigation, inquiry or examination made for or on behalf of or any knowledge of Buyer, the Company or any Shareholder or any of their respective Affiliates, officers, directors, employees, agents, or representatives or the acceptance by any of them of any certificate or opinion for the applicable period of time set forth in the following sentences. Any representations, warranties or portions thereof the breach of or misrepresentation with respect to which would be expected to be encountered or discerned in Buyer's audit of the financial statements containing combined operations of Buyer and the Company for the fiscal year in which the Closing occurs shall survive until the date Buyer's independent certified public accountants issue their final report and opinion on such audit. Any other representations, warranties or portions thereof shall survive for a period of one year after Closing. The covenants set forth in Sections 9.1 (iv) and 9.2 (iii) shall for purposes of this Section 8.3 be deemed a representation and warranty and shall be subject to the applicable survival periods described above. 8.4 COOPERATION AFTER THE CLOSING. Buyer, the Company and the Shareholders will, at any time, and from time to time, after the Closing Date, execute and deliver -32- such further instruments of conveyance and transfer and take such additional action as may be reasonably necessary to effect, consummate, confirm or evidence the transactions contemplated by this Agreement and the Transaction Documents. Without limiting the other obligations of the Shareholders hereunder, the Shareholders agree that, after the Closing, the Shareholders shall provide reasonable cooperation and assistance to Buyer or the Company, at Buyer's or the Company's sole cost and expense, with respect to any matters, disputes, suits or claims by or against any person not a party to this Agreement. 8.5 REGISTRATION OF TMP SHARES. (a) REGISTRATION. Buyer shall, for the benefit of the Shareholders, at Buyer's expense, (x) use its best efforts to cause to be filed within 120 days after the Closing Date with the Securities and Exchange Commission (the "SEC") a resale registration statement on any appropriate form (the "Registration Statement") to register the TMP Shares held by the Shareholders, (y) use commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act of 1933, as amended (the "Securities Act") by the SEC as soon thereafter as practicable and (z) use commercially reasonable efforts to keep such Registration Statement effective until the first anniversary of the Closing Date, in each case subject to Buyer obtaining the necessary accountants' consents and its ability to comply with applicable securities laws (including those pertaining to the applicable registration form) and applicable confidentiality agreements. The Shareholders, hereby agree to furnish to Buyer all information with respect to the Shareholders necessary to make the disclosure in the Registration Statement with respect to the Shareholders not materially misleading. Buyer further agrees, if necessary, to supplement or amend the Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by Buyer for such Registration Statement or by the Securities Act or by any other rules and regulations thereunder for resale registrations, in each case subject to Buyer obtaining the necessary accountants' consents and its ability to comply with applicable securities laws (including those pertaining to the applicable registration form) and applicable confidentiality agreements. (b) DISPOSITION OF TMP SHARES. Notwithstanding the foregoing, the Shareholders agree that upon Buyer's notice at any time or from time to time during the time a prospectus relating to the TMP Shares proposed to be sold by the Shareholders is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, the Shareholders will forthwith discontinue their disposition of TMP Shares pursuant to the Registration Statement until the time of the effectiveness of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such TMP Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. (c) NOTICE. The Shareholders agree that they will give Buyer three business days notice in writing prior to any proposed utilisation of the Registration Statement specifying the proposed number of shares of TMP Common Stock to be sold and the proposed date of sale (which date shall be no more than ten days from the date of notice) and also -33- specifying the proposed manner of sale. Such notice to be given by facsimile transmission for the attention of Myron Olesnyckyj, Esq., telecopy number (212) 940-3908. Buyer must, if it wishes to prevent any Shareholder from using the Registration Statement, give notice to such effect to such Shareholder by the expiration of such five business day period (or three business day period, if applicable). To the extent that any sale is not consummated within seven days of the proposed date of sale indicated in the original notice from any Shareholder, any proposed sale utilising the Registration Statement shall once again be subject to the provisions of Section 8.5(b) and this Section 8.5(c). -34- 8.6 TAX MATTERS. (a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Shareholders shall be responsible for the preparation of the Tax Returns of the Company for all taxable periods ending on or prior to the Closing Date. Such Tax Returns, together with all work papers and schedules related thereto, shall be delivered to Buyer for its review and acceptance no later than thirty (30) days prior to the earlier of (i) the date on which Buyer anticipates that Buyer's independent certified public accountants will issue their final report and opinion with respect to Buyer's audit of the financial statements containing combined operations of Buyer and the Company for the fiscal year in which the Closing occurs and (ii) the filing of such returns, and shall be prepared in a manner consistent with prior practice unless otherwise required by applicable laws. (b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Company for all periods which begin on or prior to the Closing Date and end after the Closing Date. (c) PRE-CLOSING PERIOD/POST-CLOSING PERIOD. For purposes of this Agreement, the allocation of Taxes for a straddle period between the period prior to the Closing Date (the "Pre-Closing Period") and the period after the Closing Date (the "Post-Closing Period") shall be made on the basis of an interim Closing of the books as of the end of the Closing Date; (b) any Tax resulting from any transaction undertaken pursuant to or contemplated by this Agreement is attributable to the Pre-Closing Period; and (c) any franchise Taxes based on capitalization, debt or shares of stock authorized, issued and outstanding and AD VALOREM Taxes, attributable to a Straddle Period, the portion of such Taxes attributable to the Pre-Closing Period shall be the pro rata portion of the amount of such Taxes based on the number of days in the period ending on the Closing Date. (d) NOTIFICATION. Buyer and the Shareholders shall promptly notify each other in writing of any notice of any Tax audits of or assessments against the Company for any Pre-Closing Periods. The failure of one party to notify the other party of any such audit or assessment shall not relieve the other party of its indemnification obligations under this Agreement except to the extent any such failure actually prejudices the defense of any Tax claim. The Shareholders shall, at their sole expense and in their reasonable discretion, either settle any Tax claim with respect to any Tax assessed directly against the Shareholders for any Pre-Closing Period at such time and on such terms as they shall deem appropriate or assume the entire defense thereof; PROVIDED, HOWEVER, that the Shareholders shall in no event take any position in such settlement or defense that subjects Buyer or any affiliate thereof, or the Company, to any civil fraud or any civil or criminal penalty. Notwithstanding the foregoing, the Shareholders shall not settle any Tax claim without the prior written consent of Buyer, which prior written consent shall not be unreasonably withheld, to any change in the treatment of any item which would, in any manner whatsoever, increase the Tax liability of Buyer or the Company for any Post-Closing Period. Except as set forth in this Section 8.6(d), the Shareholders shall not file or cause to be filed any amended Tax Return for a Pre-Closing Period on behalf of the Company without the prior written consent of Buyer. -35- (e) ACCESS TO INFORMATION. For the purposes of this Section 8.6, the Company and the Buyer agree that, the Shareholders (including their legal advisors and accountants) shall be entitled to make such examinations of the books and records of the Company as reasonably requested for the purposes of preparing or filing Tax returns and settling any Tax claim, and to make extracts and copies of such books and records. Any such examination shall be conducted during regular business hours and under reasonable circumstances, and the Buyers shall cooperate, and shall cause the Company to cooperate, fully therein. ARTICLE IX INDEMNIFICATION 9.1 INDEMNIFICATION BY THE SHAREHOLDERS. From and after the Closing, the Shareholders agrees to indemnify, defend and save Buyer and its Affiliates, and each of their respective officers, directors, employees or agents (each, an "Indemnified Buyer Party"), harmless from and against, and to promptly pay to an Indemnified Buyer Party or reimburse an Indemnified Buyer Party for, any and all liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies, demands, claims, suits, actions, or causes of action, assessments, losses, costs, expenses, interest, fines, penalties, actual or punitive damages or costs or expenses of any and all investigations, proceedings, judgments, environmental analyses, remediations, settlements and compromises (including reasonable fees and expenses of attorneys, accountants and other experts incurred by any indemnified party in any action or proceeding between such indemnified party and the indemnitor or between any indemnified party and any third party or otherwise) (individually a "Loss" and collectively, the "Losses") sustained or incurred by any Buyer Indemnified Party relating to, resulting from, arising out of or otherwise by virtue of (i) any misrepresentation or breach of a representation or warranty made herein by the Company or any Shareholder, (ii) any non-compliance with or breach by the Company or any Shareholder, or any Affiliate of the Company or any Shareholder, of any of their respective covenants or agreements contained in this Agreement or the Transaction Documents to be performed by the Company, any Shareholder, or any Affiliate of the Company or any Shareholder, (iii) any allegations by a third party that is not an Indemnified Buyer Party which, if true, would constitute a misrepresentation or breach of a representation or warranty made herein by the Company or any Shareholder or non-compliance with or breach by the Company or any Shareholder, or any Affiliate of the Company or any Shareholder of any of their respective covenants or agreements contained in this Agreement or the Transaction Documents to be performed by any Shareholder, the Company or any or their respective Affiliates, (iv) any failure to obtain the consents set forth on SCHEDULE 3.7 hereto or (v) any obligation or liability, contingent or otherwise, of the Company or any Shareholder for brokers' or finders' fees or commissions in connection with the transactions contemplated by this Agreement or the Transaction Documents. 9.2 INDEMNIFICATION BY BUYER. From and after the Closing, Buyer agrees to indemnify, defend and save the Shareholders and its Affiliates, and each of their respective officers, directors, employees, agents, Employee Benefit Plans and fiduciaries, plan administrators or other parties dealing with such plans (each, an "Indemnified Seller Party") harmless from and against, and to promptly pay to an Indemnified Seller Party or reimburse an Indemnified Seller Party for, any and all Losses sustained or incurred by any Seller Indemnified -36- Party relating to, resulting from, arising out of or otherwise by virtue of (i) any misrepresentation or breach of a representation or warranty made herein by Buyer, (ii) any non-compliance with or breach by Buyer or any Affiliate of Buyer of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by Buyer or any of its Affiliates, (iii) any allegations by a third party that is not an Indemnified Seller Party which, if true, would constitute a misrepresentation or breach of a representation or warranty made herein by the Buyer or non-compliance with or breach by the Buyer, or any Affiliate of the Buyer of any of their respective covenants or agreements contained in this Agreement or the Transaction Documents to be performed by the Buyer, or any or its respective Affiliates or (iv) any obligation or liability, contingent or otherwise, of Buyer for brokers' or finders' fees or commissions in connection with the transactions contemplated by this Agreement or the Transaction Documents 9.3 PROCEDURE FOR INDEMNIFICATION. The following procedure shall apply to the foregoing agreements to indemnify and hold harmless: (a) The party who is seeking indemnification (the "Claimant") shall give written notice to the party from whom indemnification is sought (the "Indemnitor") promptly after the Claimant learns of the claim or proceeding, provided that the failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it is actually damaged thereby. (b) With respect to any third-party claims or proceedings as to which the Claimant is entitled to indemnification, the Indemnitor shall have the right to select and employ counsel of its own choosing to defend against any such claim or proceeding, to assume control of the defense of such claim or proceeding, and to compromise, settle or otherwise dispose of the same, if the Indemnitor deems it advisable to do so, all at the expense of the Indemnitor. The parties will fully cooperate in any such action, and shall make available to each other any books or records useful for the defense of any such claim or proceeding. The Claimant may elect to participate in the defense of any such third party claim at its sole expense, and may, at its sole expense, retain separate counsel in connection therewith. Subject to the foregoing (i) the Claimant shall not settle or compromise any such third party claim without the prior written consent of the Indemnitor and (ii) the Indemnitor shall not settle or compromise any such third party claim without the prior written consent of the Claimant, in each case of (i) and (ii) which consent shall not be unreasonably withheld. 9.4 LIMITATION ON INDEMNIFICATION RIGHTS. (a) Subject to the provisions of Sections 9.4(b) and 9.4(c) below it is understood and agreed that no claim for recovery of indemnifiable damages may be asserted based on a representation, warranty or applicable portion thereof set forth in this Agreement or the Transaction Documents after it has been extinguished in accordance with Section 8.3 hereof. The date on which a claim would be extinguished in accordance with Section 8.3 but for the provisions of this Section 9.4 is sometimes referred to as the "Expiration Date" of such claim. (b) In order to ensure that the transactions contemplated by this Agreement and the Transactions Documents qualify for treatment as a pooling of interests, the -37- parties agree that any dispute, disagreement or controversy between any party relating to a warranty or representation or applicable portion thereof set forth in this Agreement or Transaction Documents that is not resolved by the applicable Expiration Date shall promptly be submitted to the American Arbitration Association to be resolved by binding arbitration in accordance with their rules. The place of arbitration shall be New York, New York. The arbitration tribunal shall be composed of three arbitrators, one of which shall be appointed by Buyer within ten business days of the applicable Expiration Date and one of whom shall be appointed by the other party or parties to the dispute, disagreement or controversy within ten business days of the applicable Expiration Date and one of whom shall be appointed by such two arbitrators within 15 business days of the applicable Expiration Date. The arbitrators will be directed to and shall resolve such dispute, disagreement or controversy on the basis of the information provided to them or soon as practicable and, in any event, by the applicable Expiration Date. (c) Notwithstanding anything to the contrary contained in this Agreement, neither the Indemnified Buyer Parties, on the one hand, nor the Indemnified Seller Parties, on the other hand, shall be entitled to be indemnified pursuant to Section 9.1, Section 9.2 or any other provision hereof unless and until the aggregate of all Losses incurred by Indemnified Buyer Parties or the Indemnified Seller Parties, as the case may be, exceeds $100,000 ("Basket"), at which time the indemnifying party shall be obligated to indemnify the indemnified party for all Losses and not merely Losses in excess of such $100,000; provided, however, that the Basket shall not be applicable, and the Shareholders shall be required to pay the entire amount of all Losses with respect to (i) accounts receivables from Break Through Software, Inc., Creditland, Inc. and Informative, Inc., as set forth on SCHEDULE 3.15, and (ii) any taxes indicated on the document to be delivered pursuant to Section 7.2(e). In the event that the Indemnified Buyer Parties are indemnified by the Shareholders for any Losses resulting from clauses (i) and (ii) above, the Indemnified Buyer Parties shall release any and all claims to such Losses thereunder. Notwithstanding anything to the contrary contained in this Agreement, the indemnification obligations of the Shareholders under Section 9.1 hereof shall not exceed $24,000,000 (the "Shareholders' Cap"); provided, however, that the Shareholders' Cap shall not be applicable, and the Shareholders shall be required to pay the entire amount of all Losses with respect to which indemnification is provided hereunder, in the event that any claim for indemnification shall be based upon or attributable to, or shall result from, the breach of the representations and warranties set forth in Sections 3.2, 3.5, 3.7, 3.17, 3.25, 3.27 and 3.33 hereof. (d) The Shareholders shall be entitled, at their sole option, to satisfy their indemnification obligations to the Indemnified Buyer Parties under Section 9.1 hereof by surrendering that number of shares of TMP Common Stock obtained by dividing (i) the amount of such indemnification obligation by (ii) the Stated Price. 9.5 WAIVER OF CLAIMS. Without in any way limiting the obligations of the Shareholders under this Agreement, each Shareholder hereby expressly and irrevocably waives any rights of contribution, subrogation, recoupment, counterclaim, set-off or indemnification that such Shareholder may have against the Company. 9.6 SOLE REMEDY FOR DAMAGES. Subject to the provisions of the next sentence of this Section 9.6, the indemnification obligations of the parties set forth in this ARTICLE -38- IX shall constitute the sole and exclusive remedy of the parties for the recovery of money damages with respect to any and all matters arising out of this Agreement. Notwithstanding the foregoing, the terms of this Section 9.6 shall not be construed as limiting in any way whatsoever any remedy to which any party may be entitled other than the recovery of money damages, including but not limited to equitable remedies, specific performance, injunctive relief and rescission. ARTICLE X MISCELLANEOUS 10.1 NOTICES, CONSENTS, ETC. Any notices, consents or other communication required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) delivered by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by courier, at the addresses as set forth below or at such other addresses as may be furnished in writing. All such notices and communications shall be deemed received upon the actual delivery thereof in accordance with the foregoing. (a) If to the Shareholders: c/o Abha Singhvi 1148 Village Drive Belmont, California 94002 and Kaajal Narain 18596 Arbolado Way Saratoga, California 95070 (b) If to the Company (prior to the Closing): Stratascape, Inc. 1050 Chestnut Street Suite 201 Menlo Park, California 94025 Attn: Kaajal Narain If prior to the Closing, with a copy to: Squire, Sanders & Dempsey L.L.P. Two Renaissance Square, Suite 2700 40 North Central Ave. Phoenix, Arizona 85004 Attn: Gregory R. Hall, Esq. If to Buyer or, after the Closing, the Company: -39- TMP Worldwide Inc. 622 3rd Avenue 39th Floor New York, New York 10017 Attn: Andrew J. McKelvey with copies to: TMP Worldwide Inc. 622 Third Avenue 39th Floor New York, New York 10017 Attn: Myron Olesnyckyj, Esq. 10.2 SEVERABILITY. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision which shall remain in full force and effect and be enforceable to the fullest extent permitted by law. 10.3 AMENDMENT AND WAIVER. This Agreement may not be amended orally. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. 10.4 DOCUMENTS. Each party will execute all documents and take such other actions as any other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement. 10.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 10.6 EXPENSES. Subject to the prior approval of Buyer, which approval shall not be unreasonably withheld, the Company may pay, prior to Closing, all reasonable costs and expenses incurred or to be incurred by the Shareholders and/or the Company in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement and the Transaction Documents, including without limitation legal and accounting fees and expenses and fees and expenses relating to the preparation of the Financial Statements, and the Shareholders and the Company agree that such costs and expenses shall be deemed obligations of the Company for purposes of the Financial Statements. 10.7 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York, without giving effect to provisions thereof regarding conflicts of law. 10.8 HEADINGS. The subject headings of Articles and Sections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. -40- 10.9 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated by the Shareholders in any manner whatsoever, whether directly or by operation of law or otherwise, without the prior written consent of Buyer. 10.10 DEFINITIONS. For purposes of this Agreement, the following terms have the meaning set forth below: "AFFILIATE" shall have the meaning ascribed to that term in Rule 405 of the Securities Act of 1933, as amended. "BUSINESS" shall mean the provision of services and products relating to human capital management, including, but not limited to finding, assessing and selecting individuals to fill permanent and temporary positions. "CODE" means the Internal Revenue Code of 1986, as amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "GAAP" means United States generally accepted accounting principles as of the date hereof. "LIENS" means any liens, claims, mortgages, charges, security interests, pledges or other encumbrances or adverse claims or interests of any nature. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" with respect to a party shall mean an event, change or occurrence which, individually or together with any other event, change, or occurrence, has a material adverse impact on (i) the financial position, business, or results of operations of such party and its subsidiaries, if any, taken as a whole or (ii) the ability of such party to perform its obligations under this Agreement or to consummate the transactions contemplated by this Agreement. "PERSON" means any Shareholder, individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, regulatory body or other entity. "PLAN AFFILIATE" means any person or entity with which the Company constitutes all or part of a controlled group of corporations, a group of trades or businesses under common control or an affiliated service group, as each of those terms is defined in Section 414 of the Code. "TAX" and "TAXES" includes any federal, state, local or foreign income, gross receipts, capital, franchise, import, goods and services, value added, sales and use, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, -41- customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a Shareholder of any Affiliated Group, as defined in Section 1504 of the Code (or being included (or required to be included) in any Tax Return relating thereto). "TAX RETURNS" means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting Schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes. 10.11 ENTIRE AGREEMENT. This Agreement, the Transaction Documents, and the documents, schedules and exhibits described herein or attached or delivered pursuant hereto and the Confidentiality Agreement executed by Buyer and the Company as of June 28, 2000, (the "Confidentiality Agreement") collectively constitute the sole and only agreement among the parties with respect to the subject matter hereof. Any agreements, representations or documentation respecting the transactions contemplated by this Agreement, including without limitation, the Letter Agreement, dated August 2, 2000, between Buyer and the Company, and any correspondence, discussions or course of dealing which are not expressly set forth in this Agreement, the Transaction Documents, or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto or are null and void, it being understood that no party has relied on any representation not set forth in this Agreement, the Transaction Documents or the documents, schedules and exhibits described herein or attached or delivered pursuant hereto. It is expressly understood and agreed that upon Closing, the Confidentiality Agreement shall automatically be rendered null and void to the same extent as if it were never executed. 10.12 THIRD PARTIES. Except as expressly set forth in ARTICLE VIII or IX of this Agreement, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement. 10.13 INTERPRETATIVE MATTERS. Unless the context otherwise requires, (a) all references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, and (b) words in the singular or plural include the singular and plural, pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, and (d) the term "including" shall mean by way of example and not by way of limitation. 10.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. -42- 10.15 DEFAULT. The mere lapse of time for performing any obligation or covenant contained herein shall serve to put the party who is obliged to perform or fulfill such obligation or covenant in default, without any notice or demand being required therefor. -43- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TMP WORLDWIDE INC. By: /s/ Thomas G. Collison -------------------------------- Name: Thomas G. Collison Title: Vice Chairman STRATASCAPE, INC. By: /s/ Abha Singhvi -------------------------------- Name: Abha Singhvi Title: Chief Executive Officer /s/ Abha Singhvi ----------------------------------- Abha Singhvi /s/ Kaajal Narain ----------------------------------- Kaajal Narain -44- SCHEDULES TO STOCK PURCHASE AGREEMENT The following schedules (each a "Schedule" and together the "Schedules") to the Stock purchase Agreement (the "Agreement"), dated as of the 31st day of August, 2000, by and among TMP Worldwide Inc., a Delaware corporation ("TMP" or "Buyer"), Stratascape, Inc., a California corporation (the "Company"), and the Shareholders of the Company listed on Schedule A hereto (each a "Shareholder" and collectively, the "Shareholders") are incorporated by reference in and made a part of the Agreement. Capitalized terms used but not defined in the Schedules have the meanings ascribed thereto in the Agreement. Each disclosure in a particular Schedule is made specifically, and a disclosure made in any particular Schedule or section thereof shall not be deemed to have been disclosed in any other section of such Schedule or in any other Schedule. -45- SCHEDULE A - -------------------------------------------------------------- NAME AND ADDRESS OF NUMBER OF SHARES EACH SHAREHOLDER OF COMMON STOCK % OF COMPANY SHARES - -------------------------------------------------------------- Abha Singhvi 100 50% 1148 Village Drive Belmont, CA 94002 - -------------------------------------------------------------- Kaajal Narain 100 50% 18596 Arbolado Way Saratoga, CA 95070 - -------------------------------------------------------------- -46- EX-23.2 5 a2025293zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TMP Worldwide Inc. New York, New York We hereby consent to the use in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 of our report dated June 26, 2000, relating to the consolidated financial statements of TMP Worldwide Inc. and Subsidiaries, which is contained in that Prospectus, and of our report dated June 26, 2000 relating to the schedule, which is contained in Part II of the Post-Effective Amendment No. 1 to the Registration Statement. We also consent to all references to our firm under the caption "Experts" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement. /s/ BDO Seidman, LLP -------------------------------------- BDO SEIDMAN, LLP New York, New York September 15, 2000 EX-23.3 6 a2025293zex-23_3.txt EXHIBIT 23.3 EXHIBIT 23.3 The Board of Directors Morgan & Banks Limited Level 11, Grosvenor Place 225 George Street SYDNEY NSW 2000 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We hereby consent to the use of our report dated 15 April 1999, relating to the consolidated balance sheets of Morgan & Banks Limited as at 31 December 1998, and the profit statements for the years ended 31 December 1998 and 31 March 1998, and the cash flow statements for the nine month period ended 31 December 1998 and the years ended 31 March 1998 in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 of TMP Worldwide Inc. We also consent to the reference to us under the caption "Experts" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement. Sydney, Australia 15 September 2000 Pannell Kerr Forster /s/ PANNELL KERR FORSTER EX-23.4 7 a2025293zex-23_4.txt EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made a part of Registration Statement File No. 333-41996. /s/ Arthur Andersen LLP Tampa, Florida September 15, 2000 EX-23.5 8 a2025293zex-23_5.txt EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF INDEPENDENT BDO INTERNATIONAL GMBH Baumgartner + Partner Personalberatung GmbH Sindelfingen, Germany We hereby consent to the inclusion in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 of our report dated June 20, 2000, relating to the financial statements of Baumgartner & Partner Personalberatung GmbH, which is contained in that Prospectus. We also consent to the reference to our firm under the caption "Experts" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement. /s/ BDO International GmbH -------------------------------------- BDO International GmbH Frankfurt am Main, Germany September 15, 2000 EX-23.6 9 a2025293zex-23_6.txt EXHIBIT 23.6 EXHIBIT 23.6 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 1 to Registration Statement No. 333-41996 of TMP Worldwide Inc. of our report dated February 4, 2000 (relating to the consolidated financial statements of System One Services, Inc. and subsidiaries not presented separately herein) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Tampa, Florida September 15, 2000 EX-23.7 10 a2025293zex-23_7.txt EXHIBIT 23.7 EXHIBIT 23.7 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this Post-Effective Amendment No. 1 to the registration statement. Arthur Andersen Chartered Accountants 20 Old Bailey London EC4M 7AN England 15 September 2000 EX-23.8 11 a2025293zex-23_8.txt EXHIBIT 23.8 EXHIBIT 23.8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Rich, Gardner & Associates, Ltd. Atlanta, Georgia We hereby consent to the use in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 of our report dated August 11, 2000, except for Note 8 for which the date is August 31, 2000, relating to the financial statements of Rich, Gardner and Associates, Ltd., which is contained in that Prospectus. We also consent to all references to our firm under the caption "Experts" in the Prospectus constituting a part of this Post Effective Amendment No. 1 to the Registration Statement. /s/ BDO Seidman, LLP -------------------------------------- BDO SEIDMAN, LLP New York, New York September 15, 2000 EX-23.9 12 a2025293zex-23_9.txt EXHIBIT 23.9 EXHIBIT 23.9 INDEPENDENT AUDITORS' CONSENT We consent to the inclusion in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registration Statement of TMP Worldwide, Inc. on Form S-1 of our report dated August 24, 2000, relating to the financial statements of Stratascape, Inc. September 15, 2000 /s/ FINCK, RUDNICK & COMPANY FINCK, RUDNICK & COMPANY Menlo Park, California EX-23.10 13 a2025293zex-23_10.txt EXHIBIT 23.10 EXHIBIT 23.10 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this Post-Effective Amendment No. 1 to the registration statement of our report dated February 25, 2000 included herein and to all references to our Firm included in this Post-Effective Amendment No. 1 to the registration statement. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts September 15, 2000 -----END PRIVACY-ENHANCED MESSAGE-----