-----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, VPi47jN7el2ikVabFqEZer8AyH0mjHUAfrrPPeFCw9p2LSme40+0M+bDUG343r98 4eBPwluylr2hsEeVQEnDKQ== 0000912057-99-005826.txt : 19991117 0000912057-99-005826.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005826 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TMP WORLDWIDE INC CENTRAL INDEX KEY: 0001020416 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 133906555 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21571 FILM NUMBER: 99753159 BUSINESS ADDRESS: STREET 1: 1633 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129774200 MAIL ADDRESS: STREET 1: 1633 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- FORM 10-Q |X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______. ----------------------- Commission File Number: 0-21571 TMP WORLDWIDE INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3906555 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) (212) 977-4200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date. Class Outstanding on November 9, 1999 ----- ------------------------------- Common Stock 37,844,448 Class B Common Stock 2,381,000 ================================================================================ TMP WORLDWIDE INC. AND SUBSIDIARIES INDEX
PAGE NO. PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets-- September 30, 1999 and December 31, 1998................................. 2 Consolidated Condensed Statements of Operations-- Three Months and Nine Months Ended September 30, 1999 and 1998........... 3 Consolidated Condensed Statements of Comprehensive Income (Loss)-- Three Months and Nine Months Ended September 30, 1999 and 1998........... 4 Consolidated Condensed Statement of Stockholders' Equity-- Nine Months Ended September 30, 1999..................................... 5 Consolidated Condensed Statements of Cash Flows-- Nine Months Ended September 30, 1999 and 1998............................ 6 Notes to Consolidated Condensed Financial Statements.............................. 7-18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 19-30 Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 31 PART II OTHER INFORMATION Item 2.(c) Changes In Securities and Use of Proceeds.................................. 32 Item 6. Exhibits and Reports on Form 8-K........................................... 33 Signatures................................................................. 34
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts)
September 30, December 31, 1999 1998 ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents.................................................... $ 59,565 $ 72,605 Accounts receivable, net..................................................... 414,182 346,501 Work-in-process.............................................................. 19,593 18,569 Prepaid and other............................................................ 24,940 30,932 -------- -------- Total current assets................................................... 518,280 468,607 Property and equipment, net..................................................... 61,876 72,729 Deferred income taxes........................................................... 15,817 11,618 Intangibles, net................................................................ 257,807 222,866 Other assets.................................................................... 17,139 18,896 -------- -------- $870,919 $794,716 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................. $302,005 $271,358 Accrued expenses and other liabilities....................................... 112,544 105,918 Accrued restructuring and integration costs.................................. 25,041 16,747 Deferred revenue............................................................. 47,016 13,945 Deferred income taxes........................................................ -- 4,000 Current portion of long term debt............................................ 8,805 16,148 -------- -------- Total current liabilities.............................................. 495,411 428,116 Long term debt, less current portion ........................................... 100,900 122,710 Other liabilities............................................................... 16,328 18,471 -------- -------- Total liabilities...................................................... 612,639 569,297 -------- -------- Minority interests.............................................................. -- 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--37,030,148 and 35,834,234 shares, respectively................................................... 37 36 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding--2,381,000 and 2,381,000 shares, respectively....................................................... 2 2 Additional paid-in capital................................................ 300,400 262,386 Other comprehensive loss.................................................. (4,339) (3,067) Unamortized stock-based compensation...................................... -- (2,732) Deficit................................................................... (37,820) (31,715) -------- -------- Total stockholders' equity.......................................... 258,280 224,910 -------- -------- $870,919 $794,716 ======== ========
See accompanying notes to consolidated condensed financial statements. 2 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Commissions and fees ................................. $ 196,461 $ 167,876 $ 539,546 $ 479,903 ----------- ----------- ----------- ----------- Operating expenses: Salaries and related costs ........................ 109,649 99,527 318,471 281,884 Office and general expenses ....................... 51,164 44,915 163,012 132,888 Merger and integration costs ...................... 34,808 7,090 46,262 9,577 Restructuring charges ............................. -- -- 2,789 -- Amortization of intangibles ....................... 2,921 2,013 8,564 7,394 CEO special bonus ................................. -- 375 -- 1,125 ----------- ----------- ----------- ----------- Total operating expenses ...................... 198,542 153,920 539,098 432,868 ----------- ----------- ----------- ----------- Operating income (loss) .............................. (2,081) 13,956 448 47,035 ----------- ----------- ----------- ----------- Other income (expense): Interest expense, net ............................. (2,041) (2,416) (6,308) (7,110) Other, net ........................................ (745) (580) (785) (932) ----------- ----------- ----------- ----------- Total other expense, net ...................... (2,786) (2,996) (7,093) (8,042) ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes, minority interests and equity in losses of affiliates .......................... (4,867) 10,960 (6,645) 38,993 Provision for income taxes ........................... 432 4,694 751 16,313 ----------- ----------- ----------- ----------- Income (loss) before minority interests and equity in losses of affiliates ............ (5,299) 6,266 (7,396) 22,680 Minority interests ................................... -- (17) 107 (18) Equity in losses of affiliates ....................... (100) (123) (300) (297) ----------- ----------- ----------- ----------- Net income (loss) applicable to common and Class B common stockholders ................... $ (5,399) $ 6,160 $ (7,803) $ 22,401 =========== =========== =========== =========== Net income (loss) per common and Class B common share: Basic ......................................... $ (0.14) $ 0.16 $ (0.20) $ 0.59 =========== =========== =========== =========== Diluted ....................................... $ (0.14) $ 0.16 $ (0.20) $ 0.57 =========== =========== =========== =========== Weighted average shares outstanding: Basic ......................................... 39,233 38,053 38,852 37,938 =========== =========== =========== =========== Diluted ....................................... 39,233 39,211 38,852 39,043 =========== =========== =========== ===========
See accompanying notes to consolidated condensed financial statements. 3 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 -------- -------- Net income (loss)........................................................ $(7,803) $22,401 Foreign currency translation adjustment.................................. (1,272) (580) --------- --------- Comprehensive income (loss).............................................. $(9,075) $21,821 ========= ========= THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1999 1998 -------- -------- Net income (loss)........................................................ $(5,399) $6,160 Foreign currency translation adjustment.................................. (1,291) (1,343) --------- --------- Comprehensive income (loss).............................................. $(6,690) $4,817 ========= =========
See accompanying notes to consolidated condensed financial statements. 4 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 ------------------ ----------------- Paid-in Comprehensive Shares Amount Shares Amount Capital Loss ------ ------ ------ ------ ------- ---- Balance, January 1, 1999 ................ 35,834,234 $36 2,381,000 $2 $ 262,386 $(3,067) Issuance of common stock in connection with the exercise of options 649,781 1 -- - 8,158 -- Issuance of common stock in connection with business combinations . 337,466 -- -- - 17,113 -- Issuance of common stock for matching contribution to 401(k) plan ........... 21,477 -- -- - 902 -- Issuance of common stock for employee stay bonuses .......................... 167,759 -- -- - 5,316 -- Issuance of common stock for purchase of minority interest .................. 19,431 -- -- - 1,210 -- Issuance of compensatory stock options .. -- -- -- - 134 -- Tax benefit from the exercise of stock options ......................... -- -- -- - 6,214 -- Forfeiture of stock based compensation due to departure of employees of pooled company ..................... -- -- -- - (1,033) -- Accelerated vesting of stock based compensation of pooled company ........ -- -- -- - -- -- Foreign currency translation adjustment . -- -- -- - -- (1,272) Net income (loss) ....................... -- -- -- - -- -- Pooled company losses included in current and previous years ............ -- -- -- - -- -- Dividends declared by pooled companies .. -- -- -- - -- -- ---------- --- --------- -- --------- ------- Balance, Sept. 30, 1999 ................. 37,030,148 $37 2,381,000 $2 $ 300,400 $(4,339) ========== === ========= == ========= ======= Unamortized Total Stock-based Stockholders' Compensation Deficit Equity ------------ ------- ------ Balance, January 1, 1999 ................ $(2,732) $(31,715) $ 224,910 Issuance of common stock in connection with the exercise of options -- -- 8,159 Issuance of common stock in connection with business combinations . -- -- 17,113 Issuance of common stock for matching contribution to 401(k) plan ........... -- -- 902 Issuance of common stock for employee stay bonuses .......................... -- -- 5,316 Issuance of common stock for purchase of minority interest .................. -- -- 1,210 Issuance of compensatory stock options .. -- -- 134 Tax benefit from the exercise of stock options ......................... -- -- 6,214 Forfeiture of stock based compensation due to departure of employees of pooled company ..................... 1,033 -- -- Accelerated vesting of stock based compensation of pooled company ........ 1,699 -- 1,699 Foreign currency translation adjustment . -- -- (1,272) Net income (loss) ....................... -- (7,803) (7,803) Pooled company losses included in current and previous years ............ -- 3,784 3,784 Dividends declared by pooled companies .. -- (2,086) (2,086) ------- -------- --------- Balance, Sept. 30, 1999 ................. $ 0 $(37,820) $ 258,280 ======= ======== =========
See accompanying notes to consolidated condensed financial statements. 5 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net income (loss)........................................................... $ (7,803) $ 22,401 --------- --------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ........................................... 29,797 24,409 Provision for doubtful accounts.......................................... 7,896 3,336 Common stock issued for bonuses and contribution to 401k plan............ 2,031 4,040 CEO bonus and indemnity payment.......................................... ---- 1,125 Minority interests....................................................... 107 (18) Net loss on disposal of fixed assets..................................... 7,297 13 Provision for deferred income taxes...................................... (8,202) 778 Tax benefit from the exercise of employee stock options.................. 6,214 ---- Effect of companies accounted for as poolings of interests included in both the current period and the previous year......................... 3,784 ---- Other.................................................................... ---- 497 Changes in assets and liabilities, net of effects of purchases of businesses: Increase in accounts receivable, net.................................... (68,674) (56,192) Increase in accounts payable, accrued expenses and other liabilities........................................................... 30,270 25,845 Decrease (increase) in work-in-process, prepaid and other............... 7,437 (8,275) Increase in deferred revenue............................................ 33,066 7,899 --------- --------- Total adjustments..................................................... 51,023 3,457 --------- --------- Net cash provided by operating activities............................. 43,220 25,858 --------- --------- Cash flows from investing activities: Capital expenditures..................................................... (19,617) (20,032) Proceeds from sale of assets............................................. 9,761 ---- Advances and loan repayments to shareholders & officers of pooled entities ---- (602) Investment in life insurance............................................. ---- (1,416) Purchases of investments by pooled company............................... ---- (33,363) Payments for purchases of businesses, net of cash acquired............... (22,029) (24,058) --------- --------- Net cash used in investing activities.................................. (31,885) (79,471) --------- --------- Cash flows from financing activities: Payments on capitalized leases........................................... (3,988) (2,250) Borrowings under lines of credit and proceeds from issuance of debt...... 926,951 756,338 Repayments under lines of credit and principal payments on debt.......... (952,768) (753,014) Cash received from the exercise of employee stock options................ 8,158 1,405 Dividends paid by pooled entities........................................ (2,086) (6,334) Proceeds from common stock offering of pooled company.................... ---- 41,392 Other.................................................................... ---- (307) --------- --------- Net cash (used in) provided by financing activities.................... (23,733) 37,230 --------- --------- Effect of exchange rate changes on cash......................................... (642) (59) --------- --------- Net decrease in cash and cash equivalents....................................... (13,040) (16,442) Cash and cash equivalents, beginning of period.................................. 72,605 54,591 --------- --------- Cash and cash equivalents, end of period........................................ $59,565 $ 38,149 ========= =========
See accompanying notes to consolidated condensed financial statements. 6 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 which, 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 Company's Annual Report on Form 10-K for the year ended December 31, 1998 and its supplemental consolidated financial statements included in the Company's Current Report on Form 8-K dated September 30, 1999. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods may not be indicative of annual results. For the period January 1, 1996 through September 30, 1999, the Company completed 58 acquisitions, which were accounted for under the purchase method, and 18 mergers, which were accounted for as poolings of interests. The 58 purchases, in the aggregate, had annual estimated gross billings of approximately $662.7 million. Of the eighteen mergers, the thirteen completed prior to July 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"), 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") in 1999. In connection with these transactions the Company issued 9,691,210 shares of its common stock in exchange for all of the outstanding common stock of the thirteen merged companies. In addition, during the period July 1, 1999 through September 30, 1999, the Company consummated mergers with the following companies (the "Third Quarter 1999 Pooled Companies"), in transactions which provided for the exchange of all of the outstanding stock of each entity for a total of 2,153,457 shares of TMP common stock and these transactions have been accounted for as poolings of interests (the "Third Quarter 1999 Mergers").
NATURE REGION NUMBER OF TMP ENTITY OF OPERATIONS OF OPERATIONS ACQUISITION DATE SHARES ISSUED - ---------------------------- --------------------------- ------------------------ ------------------ --------------- Cameron-Newell Advertising, Inc. ("CNA") Recruitment advertising North America August 2, 1999 420,000 Brook Street Bureau (QLD) Pty Ltd Temporary contracting ("Brook St.") and search & selection Asia\Pacific Region August 3, 1999 130,900 LAI Worldwide, Inc. ("LAI") Search & selection North America August 26, 1999 1,059,821 Fox Advertising Inc. ("Fox") Yellow page advertising North America August 30, 1999 129,640 Lampen Group Limited Temporary contracting Asia\Pacific Region & ("Lampen") and search & selection United Kingdom August 31, 1999 413,096
7 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) Accordingly, the consolidated condensed financial statements included herein for the 1998 periods have been retroactively restated to reflect the mergers in 1998 completed after October 1, 1998 (the results of JSK and TASA were included in the Company's consolidated condensed financial statements filed in its Quarterly Report on Form 10-Q for the period ended September 30, 1998, because they were completed prior to that date), the M&B merger, the Second Quarter 1999 Mergers and the Third Quarter 1999 Mergers, and as a result, the financial position, results of operations and statements of cash flows are presented as if the combining companies had been consolidated for all periods presented. Given the significant number of acquisitions in each of the periods presented, the results of operations from period to period may not necessarily be comparable. TEMPORARY CONTRACTING COMMISSIONS AND FEES The presentation of Temporary Contracting Revenue and Costs has changed from that in the Form 8-K filed June 10, 1999. The amounts charged to clients for Temporary Contracting services are now reported after deducting the costs of the temporary contractor. The details for such amounts are (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ---- ---- Temporary Contracting Revenue............................................ $245,015 $184,942 Temporary Contracting Costs.............................................. 200,149 151,915 -------- -------- Temporary Contracting commissions & fees................................ $ 44,866 $ 33,027 ======== ======== THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1999 1998 ---- ---- Temporary Contracting Revenue............................................ $88,089 $64,913 Temporary Contracting Costs.............................................. 72,666 51,093 -------- -------- Temporary Contracting commissions & fees................................ $15,423 $13,820 ======== ========
EARNINGS (LOSS) PER SHARE Basic earnings per share assumes no dilution, and is computed by dividing income available to common and Class B common shareholders 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 effects of common shares issuable upon exercise of stock options and warrants, and contingent shares. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ---- ---- Basic .................................................................. 38,852 37,938 Effect of assumed conversion of stock options and other.................. * 1,105 -------- -------- Diluted.................................................................. 38,852 39,043 ======== ======== THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---- ---- Basic .................................................................. 39,233 38,053 Effect of assumed conversion of options and other........................ * 1,158 -------- -------- Diluted.................................................................. 39,233 39,211 ======== ========
*Effect of diluted shares is anti-dilutive. 8 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: recruitment advertising, yellow page advertising, Internet, search & selection and temporary contracting. The Company earns commission income for selling and placing recruitment and yellow page advertising to a large number of customers in many different industries, fees for executive and mid-level search & selection services, fees for advertisements placed on its Internet Websites and other Internet related recruitment and advertising services and fees in connection with providing temporary contracting services. The Company operates principally throughout North America, the Asia\Pacific Region, the United Kingdom and Continental Europe. NOTE 3 - BUSINESS ACQUISITIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period July 1, 1999 through September 30, 1999, the Company completed the following acquisitions which provided for the exchange of all the outstanding stock of each entity for shares of TMP common stock and are being accounted for as poolings of interests:
NATURE OF REGION OF NUMBER OF TMP ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED ------ ---------- ---------- ---------------- ------------- CNA............ Recruitment advertising North America August 2, 1999 420,000 Brook St....... Temporary contracting and Asia\Pacific Region August 3, 1999 130,900 search & selection LAI............ Search & selection North America August 26, 1999 1,059,821 Fox............ Yellow page advertising North America August 30, 1999 129,640 Lampen......... Temporary contracting and Asia\Pacific August 31, 1999 413,096 search & selection Region & United Kingdom
9 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) (unaudited) NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED) Commissions & fees, net income applicable to common and Class B common stockholders and net income per common and Class B common share of the combining companies, after giving retroactive effect to the pooling of interests transactions, are as follows:
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER SEPTEMBER --------- --------- 30, 1998 30, 1998 -------- -------- COMMISSIONS & FEES: TMP revenue, as previously reported on Form 10-Q\A............................... $103,737 $ ---- TMP revenue, as previously reported on Form 8-K filed on March 16, 1999.......... ---- 488,908 Less: Temporary contracting costs................................................ ---- (111,227) -------- --------- Commissions & fees............................................................... 103,737 377,681 Morgan & Banks................................................................... 29,986 ---- Interquest....................................................................... 1,074 3,284 LIDA............................................................................. 890 2,169 M & L............................................................................ 846 2,538 IN2.............................................................................. 342 964 L & L............................................................................ 789 2,367 YPU.............................................................................. 332 996 CNA.............................................................................. 2,566 7,433 Brook St. ....................................................................... 619 1,812 LAI.............................................................................. 23,311 70,984 Fox.............................................................................. 789 1,897 Lampen........................................................................... 2,595 7,778 -------- --------- TMP, as restated................................................................. $167,876 $479,903 ======== =========
10 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) (unaudited) NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1998 1998 ---- ---- NET INCOME APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS: TMP, as previously reported on Form 10-Q\A...................................... $3,139 $ ---- TMP, as previously reported on Form 8-K filed on March 16, 1999................. ---- 15,575 Morgan & Banks.................................................................. 2,158 ---- Interquest...................................................................... 225 670 LIDA............................................................................ (64) (280) M & L........................................................................... 445 1,336 IN2............................................................................. 83 382 L & L........................................................................... (117) (351) YPU............................................................................. 146 438 CNA............................................................................. (475) 142 Brook St........................................................................ 145 436 LAI............................................................................. 12 2,381 Fox............................................................................. 203 352 Lampen.......................................................................... 260 1,320 ------ ------- TMP, as restated................................................................ $6,160 $22,401 ====== ======= NET INCOME PER COMMON AND CLASS B COMMON SHARE: As previously reported on Form 10-Q\A: Basic......................................................................... $0.11 ---- Diluted....................................................................... $0.11 ---- As previously reported on Form 8-K filed on March 16, 1999: Basic......................................................................... ---- $0.45 Diluted....................................................................... ---- $0.43 Restated: Basic......................................................................... $0.16 $0.59 Diluted....................................................................... $0.16 $0.57
MERGER AND 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 $46,262 for the nine months ended September 30, 1999. Of this amount $21,018 is for merger costs and $25,244 is for integration. The merger costs for the nine months ended September 30, 1999, consist of (1) $3,251 of non-cash employee stay bonuses, which include (a) $2,133 for the amortization of prepaid compensation paid with TMP common stock, (b) $351 which is related to an option grant to employees of a pooled company and which represents the difference between the option exercise 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) $1,132 paid in cash to key personnel of pooled companies as employee stay bonuses, (3) $11,850 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) $4,785 in severance costs for managers of LAI, who, in accordance with the terms of their employment agreements, chose to resign 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 ACQUISITIONS (CONTINUED) from LAI after the merger with TMP seemed likely. The $25,244 of integration costs consist of: (a) $8,703 for assumed obligations of closed facilities, (b) $12,110 for consolidation of acquired facilities, (c) $575 for severance, relocation and other employee costs and (d) a $3,856 provision for uncollectible accounts receivable. See schedule in ACCRUED RESTRUCTURING AND INTEGRATION COSTS in the section below. During the nine months ended September 30, 1998, the Company expensed merger and integration costs of $9,577 which were related to the pooling of interests transaction with JSK, TASA and Stackig, and are comprised of transaction costs and the amortization of employee stay bonuses. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, in the nine month period ended September 30, 1999, the Company completed seventeen acquisitions using the purchase method of accounting: eight search & selection companies, seven recruitment advertising companies, one Internet company and one yellow page advertising company. The purchase price of these acquisitions was approximately $45.8 million, including 337,466 shares of TMP common stock. 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 nine month periods ended September 30, 1999 and 1998 and the year ended December 31, 1998 assume that the acquisitions in 1999 and 1998 occurred as of the beginning of each of the periods presented.
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------- ------------ 1999 1998 1998 ---- ---- ---- Commissions and fees............................. $551,990 $503,289 $677,918 Net income (loss) applicable to common and Class B common stockholders.............................. $ (7,573) $ 20,779 $ 12,986 Net income (loss) per common and Class B common share: Basic......................................... $(0.19) $0.54 $0.34 Diluted....................................... $(0.19) $0.52 $0.33
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 RESTRUCTURING AND INTEGRATION COSTS In connection with the acquisitions made in 1997 and accounted for using the purchase method, the Company developed plans to restructure the operations of the acquired companies. Such plans involve the closure of certain offices of the acquired companies and the termination of certain management and employees. The objective of the plans is to create a single brand in the related markets in which the 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 ACQUISITIONS (CONTINUED) Company operates. The preliminary plans were finalized in July 1998. In addition, in 1999 LAI completed plans to close its London, England and Hong Kong offices and, in connection with these office closings, charged earnings for the nine months ended September 30, 1999 for $2,789. Including the effects of integration plans related to business combinations accounted for as poolings of interest discussed above, the costs and liabilities of these plans include:
BALANCE APPLIED AGAINST BALANCE 12/31/98 EXPENSED RELATED ASSET PAYMENTS 9/30/99 -------- -------- ------------- -------- ------- Assumed obligations on closed leased facilities.......... $9,590 $9,219 $ -- $(1,333) $17,476 Consolidation of acquired facilities..................... 2,745 13,145 (9,255) (2,321) 4,314 Contracted lease payments exceeding current market costs. 707 -- -- (108) 599 Severance, relocation and other employee costs........... 1,952 1,813 -- (2,844) 921 Provision for uncollectable receivables.................. -- 3,856 (3,856) -- -- Pension obligations...................................... 1,753 -- -- (22) 1,731 ------- ------- --------- -------- ------- Total.................................................... $16,747 $28,033 $(13,111) $(6,628) $25,041 ======= ======= ========= ======== =======
Accrued liabilities for surplus properties in the amount of $17,476 as of September 30, 1999 relate to 20 leased office locations of the acquired companies that were either unutilized prior to the acquisition date or were closed by September 30, 1999 in connection with the restructuring and integration plans. The amount is based on the present value of minimum future lease obligations, net of sublease revenue on existing leases. Other costs associated with the closure of existing offices of acquired companies in the amount of $4,314 as of September 30, 1999, relate to the termination costs of contracts relating to billing systems, external reporting systems and other contractual agreements with third parties. Above market lease costs in the amount of $599 as of September 30, 1999 relate to the present value of contractual lease payments in excess of current market lease rates. Estimated severance payments, employee relocation expenses and other employee costs in the amount of $921 as of September 30, 1999 relate to estimated severance for terminated employees at closed locations, costs associated with employees to be transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate locations as well as duplicate corporate headquarters' management and administrative personnel. As of September 30, 1999, the accrual related to approximately 40 employees including senior management, sales, service and administrative personnel. Pension obligations in the amount of $1,731 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. Additional future costs incurred, resulting from revised plan actions will be charged to operations in the period in which they occur. 13 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: recruitment advertising, yellow page advertising, Internet, search and selection and temporary contracting. Operations are conducted in several geographic regions: North America, the Asia\Pacific Region (primarily in Australia, New Zealand and Japan) the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic segment, for the nine months ended September 30, 1999 and 1998.
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL - ------------------------------- ----------- ----------- -------- --------- ----------- ----- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 Commissions and fees Traditional sources............. $134,928 $79,522 $ --- $197,278 $44,866 $456,594 Internet........................ 8,526 3,223 66,243 4,026 934 82,952 -------- ------- ------- -------- ------- -------- Commissions and fees.................. 143,454 82,745 66,243 201,304 45,800 539,546 -------- ------- ------- -------- ------- -------- Operating expenses: Salaries & related costs and office & general expenses....... 117,690 51,609 ---- 195,039 31,418 395,756 Internet expenses (a)........... 7,694 3,127 62,071 12,287(b) 548 85,727 Merger and integration costs.... 401 376 ---- 44,575 910 46,262 Restructuring charges........... ---- ---- ---- 2,789 ---- 2,789 Amortization of intangibles..... 4,833 1,550 175 1,923 83 8,564 -------- ------- ------- -------- ------- -------- Total expenses........................ 130,618 56,662 62,246 256,613 32,959 539,098 -------- ------- ------- -------- ------- -------- Operating income (loss): Traditional sources............. 12,004 25,987 ---- (47,048) 12,455 3,398 Internet........................ 832 96 3,997 (8,261) 386 (2,950) -------- ------- ------- -------- ------- -------- Operating income (loss)............... $12,836 $26,083 $3,997 $ (55,309) $12,841 448 ======== ======= ====== ========= ======= Other expense: Interest expense, net........... * * * * * (6,308) Other, net...................... * * * * * (785) -------- Loss before provision for income taxes, minority interests and equity in losses of affiliates........ * * * * * $ (6,645) ========
- ------------ (a) Is comprised of salaries & related costs and office & general expenses. (b) Includes $8,823 for the marketing of search & selection related Internet services offered by LAIcompass. * Not allocated 14 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)
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL - ------------------------------- ----------- ----------- -------- --------- ----------- ----- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Commissions and fees: Traditional sources ............ $ 133,858 $82,534 $ -- $197,796 $33,027 $ 447,215 Internet ....................... 4,560 1,751 26,377 -- -- 32,688 --------- ------- ------- -------- ------- --------- Commissions and fees ............... 138,418 84,285 26,377 197,796 33,027 479,903 --------- ------- ------- -------- ------- --------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus .................. 126,263 49,409 -- 179,984 28,367 384,023 Internet expenses(a) ........... 4,747 1,210 25,917 -- -- 31,874 Merger and integration costs ... 36 -- -- 9,541 -- 9,577 Amortization of intangibles .... 4,088 1,788 173 1,257 88 7,394 --------- ------- ------- -------- ------- --------- Total expenses ..................... 135,134 52,407 26,090 190,782 28,455 432,868 --------- ------- ------- -------- ------- --------- Operating income (loss): Traditional sources ............ 3,471 31,337 -- 7,014 4,572 46,394 Internet ....................... (187) 541 287 -- -- 641 --------- ------- ------- -------- ------- --------- Operating income (loss) ............ $ 3,284 $31,878 $ 287 $ 7,014 $ 4,572 47,035 ========= ======= ======= ======== ======= Other expense: Interest expense, net ........ * * * * * (7,110) Other, net ................... * * * * * (932) --------- Income before provision for income taxes, minority interests and equity in losses of affiliates ............ * * * * * $ 38,993 =========
(a) Is comprised of salaries & related costs and office & general expenses. * Not allocated 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 (CONTINUED)
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL - ------------------------------- ----------- ----------- -------- --------- ----------- ----- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 Commissions and fees: Traditional sources ............ $43,024 $ 28,540 $ -- $ 72,835 $15,423 $ 159,822 Internet ....................... 2,879 1,571 30,264 1,608 317 36,639 ------- -------- ------- --------- ------- --------- Commissions and fees ............... 45,903 30,111 30,264 74,443 15,740 196,461 ------- -------- ------- --------- ------- --------- Operating expenses: Salaries & related costs and office & general expenses ..... 36,539 18,299 -- 65,500 8,852 129,190 Internet expenses(a) ........... 2,751 1,638 25,727 1,403 104 31,623 Merger and integration costs ... 203 346 -- 33,952 307 34,808 Amortization of intangibles .... 1,598 244 54 1,010 15 2,921 ------- -------- ------- --------- ------- --------- Total expenses ..................... 41,091 20,527 25,781 101,865 9,278 198,542 ------- -------- ------- --------- ------- --------- Operating income (loss): Traditional sources ............ 4,684 9,651 -- (27,627) 6,249 (7,043) Internet ....................... 128 (67) 4,483 205 213 4,962 ------- -------- ------- --------- ------- --------- Operating income (loss) ............ $ 4,812 $ 9,584 $ 4,483 $ (27,422) $ 6,462 (2,081) ======= ======== ======= ========= ======= Other expense: Interest expense, net .......... * * * * * (2,041) Other, net ..................... * * * * * (745) --------- Income (loss) before provision for income taxes, minority interests and equity in losses of affiliates ..... * * * * * $ (4,867) =========
(a) Is comprised of salaries & related costs and office & general expenses. * Not allocated 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)
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL - ------------------------------- ----------- ----------- -------- --------- ----------- ----- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 Commissions and fees Traditional sources .......... $ 42,306 $32,124 $ -- $ 65,972 $13,820 $ 154,222 Internet ..................... 1,398 488 11,768 -- -- 13,654 -------- ------- ------- -------- ------- --------- Commissions and fees ............... 43,704 32,612 11,768 65,972 13,820 167,876 -------- ------- ------- -------- ------- --------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus ............ 46,970 12,403 -- 59,976 12,743 132,092 Internet expenses(a) ......... 979 455 11,291 -- -- 12,725 Merger and integration costs . 36 -- -- 7,054 -- 7,090 Amortization of intangibles .. 1,132 504 63 291 23 2,013 -------- ------- ------- -------- ------- --------- Total expenses ..................... 49,117 13,362 11,354 67,321 12,766 153,920 -------- ------- ------- -------- ------- --------- Operating income (loss): Traditional sources .......... (5,832) 19,217 -- (1,349) 1,054 13,090 Internet ..................... 419 33 414 -- -- 866 -------- ------- ------- -------- ------- --------- Operating income (loss) ............ $ (5,413) $19,250 $ 414 $ (1,349) $ 1,054 13,956 ======== ======= ======= ======== ======= Other expense: Interest expense, net ........ * * * * * (2,416) Other, net ................... * * * * * (580) --------- Income before provision for income taxes, minority interests and equity in losses of affiliates ............ * * * * * $ 10,960 =========
(a) Is comprised of salaries & related costs and office & general expenses. * Not allocated 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)
UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA ASIA\PACIFIC REGION KINGDOM EUROPE TOTAL - -------------------------------- ------------- ------------------- ------- ------ ----- FOR THE NINE MONTHS ENDED: SEPTEMBER 30, 1999 Commissions and fees ............. $ 290,102 $121,244 $ 66,864 $ 61,336 $ 539,546 Income (loss) before income taxes, minority interests and equity in losses of affiliates ........ $ (27,925) $ 17,909 $ (710) $ 4,081 $ (6,645) SEPTEMBER 30, 1998 Commissions and fees ............. $ 280,727 $ 95,310 $ 65,188 $ 38,678 $ 479,903 Income (loss) before income taxes, minority interests and equity in losses of affiliates ........ $ 11,332 $ 11,668 $ 9,221 $ 6,772 $ 38,993 FOR THE THREE MONTHS ENDED: SEPTEMBER 30, 1999 Commissions and fees ............. $ 107,424 $ 43,415 $ 24,505 $ 21,117 $ 196,461 Income (loss) before income taxes, minority interests and equity in losses of affiliates ........ $ (11,382) $ 8,661 $ 935 $ (3,081) $ (4,867) SEPTEMBER 30, 1998 Commissions and fees ............. $ 101,741 $ 36,150 $ 17,503 $ 12,482 $ 167,876 Income (loss) before income taxes, minority interests and equity in losses of affiliates ........ $ (4,207) $ 3,788 $ 8,874 $ 2,505 $ 10,960
NOTE 5-SUBSEQENT EVENT-HIGHLAND SEARCH GROUP L.L.C. ACQUISITION On October 21, 1999 the Company and Highland Search Group L.L.C. ("Highland") entered into a merger agreement by which the Company acquired all of the outstanding shares of Highland in exchange for 699,333 shares of TMP common stock. The transaction is being accounted for as a pooling of interests. Highland is engaged in the executive search business. In addition, the Company has entered into a Co-op Advertising Agreement with Highland. 18 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING THE COMPANY'S OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, GROSS BILLINGS, COMMISSIONS AND FEES, EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. IN ADDITION, WHEN USED HEREIN, THE WORDS "ESTIMATE", "PROJECT", "BELIEVE", "ANTICIPATE", AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WHICH REFLECT OUR CURRENT VIEWS AS TO FUTURE EVENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS, AND UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, (I) THE UNCERTAIN ACCEPTANCE OF THE INTERNET AND THE COMPANY'S INTERNET CONTENT, (II) THAT THE COMPANY HAS GROWN RAPIDLY AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL CONTINUE TO BE ABLE TO GROW PROFITABLY OR MANAGE ITS GROWTH, (III) RISKS ASSOCIATED WITH ACQUISITIONS, (IV) COMPETITION, (V) THE COMPANY'S QUARTERLY OPERATING RESULTS HAVE FLUCTUATED IN THE PAST AND ARE EXPECTED TO FLUCTUATE IN THE FUTURE, (VI) THE COMPANY'S BUSINESS EXPERIENCES SEASONALITY, (VII) THE LOSS OF SERVICES OF CERTAIN KEY INDIVIDUALS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS, (VIII) THE CONTROL OF THE COMPANY BY ANDREW J. MCKELVEY, (IX) CERTAIN TRANSACTIONS WITH AFFILIATED PARTIES AND (X) THE OTHER RISKS DETAILED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998. Overview We are a marketing services, communications, search and selection, and technology company. We provide comprehensive, individually tailored advertising services, including development of creative content, media planning, production and placement of corporate advertising, market research, direct marketing and other ancillary services and products, search and selection services and temporary contracting services. We are one of the world's largest recruitment advertising agencies, the world's largest yellow page advertising agency and a leader in the use of the Internet for recruiting. A substantial part of our growth has been achieved through acquisitions. For the period January 1, 1996 through September 30, 1999, we completed 58 acquisitions, which were accounted for under the purchase method, and 18 mergers, which were accounted for as poolings of interests. The 58 purchases, in the aggregate, had annual estimated gross billings of approximately $662.7 million. Of the eighteen mergers, the thirteen completed prior to July 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"), 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") in 1999. In connection with these transactions we issued approximately 9.7 million shares of our common stock in exchange for all of the outstanding common stock of the thirteen merged companies. In addition, from July 1, 1999 through September 30, 1999, we completed mergers with the five companies listed below (the "Third Quarter 1999 Pooled 19 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Companies"), which have been accounted for as poolings of interests (the "Third Quarter 1999 Mergers"). In connection with these transactions we issued a total of approximately 2.2 million shares of TMP common stock in exchange for all of the outstanding stock of the Third Quarter 1999 Pooled Companies. THE THIRD QUARTER 1999 POOLED COMPANIES ARE: - --------------------------------------------
NATURE OF REGION OF NUMBER OF TMP ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED ------ ---------- ---------- ---------------- ------------- Cameron-Newell Advertising, Recruitment advertising North America August 2, 1999 420,000 Inc.("CNA") Brook Street Bureau (QLD) Pty Temporary contracting and search Ltd ("Brook St.") & selection Asia\Pacific Region August 3, 1999 130,900 LAI Worldwide, Inc. ("LAI") Search & selection North America August 26, 1999 1,059,821 Fox Advertising Inc. ("Fox") Yellow page advertising North America August 30, 1999 129,640 Lampen Group Limited ("Lampen") Temporary contracting and search Asia\Pacific August 31, 1999 413,096 & selection Region & United Kingdom
Accordingly, the consolidated condensed financial statements included herein for the 1998 periods have been retroactively restated to reflect the mergers in 1998 completed after October 1, 1998 (the results of JSK and TASA were included in the Company's consolidated condensed financial statements filed in its Quarterly Report on Form 10-Q for the period ended September 30, 1998, because they were completed prior to that date), the M&B merger, the Second Quarter 1999 Mergers and the Third Quarter 1999 Mergers, and as a result, the financial position, results of operations and statements of cash flows are presented as if the combining companies had been consolidated for all periods presented. Given the significant number of acquisitions in each of the periods presented, the results of operations from period to period may not necessarily be comparable. Gross billings refer to billings for advertising placed in telephone directories, newspapers, new media and other media, and associated fees for related services, fees earned for search & selection and related services, and commissions and fees from temporary contracting services. Gross billings 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 directly impact our total commissions and fees earned. For recruitment and yellow page advertising, we earn commissions based on a percentage of the media advertising purchased at a rate established by the related publisher, and associated fees for related services. Publishers typically bill us for the advertising purchased by clients and we in turn bill our clients for this amount. Generally, the payment terms with yellow page clients require payment to us prior to the date payment is due to publishers. The payment terms with recruitment advertising clients typically require payment when payment is due to publishers. Historically, we have not experienced substantial problems with unpaid accounts. 20 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For recruitment advertising placements in the U.S., publisher commissions average approximately 15% of recruitment advertising gross billings. We also earn fees from related services such as campaign development and design, retention and referral programs, 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, ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. During the nine months ended September 30, 1999, we acquired seven recruitment advertising firms, five with operations in Continental Europe and two with operations in North America and merged in a pooling of interests transaction in August, 1999, with Cameron-Newell, the ninth largest recruitment advertising agency in the U.S. We design and execute yellow page advertising programs, receiving an effective commission rate from directory publishers which historically approximated 20% of yellow page gross billings. However, due to reductions in commission rates by the publishers and higher discounts granted by us to clients, the rate has declined and effective for the current year is approximately 19% and is expected to decline to approximately 18%. In general, publishers consider orders renewed unless actively canceled. In addition to base commissions, certain yellow page publishers pay increased commissions for volume placement by advertising agencies. We typically recognize this additional commission, if any, in the fourth quarter when it is certain that such commission has been earned. The amounts reported in the fourth quarters of 1998, 1997 and 1996 were $0.9 million, $2.2 million and $3.5 million, respectively. During the nine months ended September 30, 1999, we merged, in pooling of interests transactions with three yellow page advertising firms and purchased one yellow page advertising firm. Through our search & selection services, we identify and screen candidates for hiring by clients based on criteria established by such clients. We entered this business in 1998 by acquiring, JSK, the 12th largest executive search firm in the U.S. according to Kennedy Publications, an official ranking service for the search industry, and TASA, an international executive search firm, both of which were accounted for as poolings of interests and five regional European firms, including TCG, whose acquisition was accounted for as a pooling of interests. During the first nine months of 1999 we merged with M&B, the largest search & selection firm in Australia, LAI, one of the largest providers of executive search services in the United States, L & L, in Atlanta, Georgia and M & L in the Netherlands in pooling of interests transactions and acquired eight search & selection firms, four with operations in Continental Europe, one with operations in the United Kingdom, two with operations in the Asia\Pacific region and one with operations in Eastern Europe. In addition, this division acquired an Australian based provider of on-line training, in September of 1999. In addition, we expanded our temporary contracting business in the Asia\Pacific region by merging with, in pooling of interests transactions, Interquest in April 1999, and Brook St. and Lampen, both in August 1999. In addition, Lampen's UK temporary contracting business has been combined with that of M&B's. Commissions & fees related to our Internet business are derived from (1) recruitment advertisement and related services placed on the Internet, primarily TMP's own Website, Monster.com, (2) employment searches and temporary contracting assignments sourced through the Internet, (3) Internet related advertising services provided to our yellow page advertising clients and (4) the providing of interactive advertising services and technologies, which allow advertisers to measure and track sales, repeat traffic and other key brand and e-commerce metrics, enabling such advertisers to greatly reduce costs as they attract the most qualified users to their Websites. 21 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Based on our consolidated results for the nine months ended September 30, 1999 and 1998, 46.2% and 41.5%, respectively, of our consolidated commissions and fees were attributable to clients outside North America.
Results of Operations THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- (dollars in thousands) GROSS BILLINGS: Recruitment advertising $198,647 $210,695 $ 615,488 $ 646,141 Yellow page advertising 156,580 156,737 413,692 406,349 Search & selection 74,017 66,302 199,764 198,661 Internet(1) 41,439 14,923 93,734 36,077 Temporary contracting(2) 15,423 13,820 44,866 33,027 -------- -------- ---------- ---------- Total $486,106 $462,477 $1,367,544 $1,320,255 ======== ======== ========== ========== COMMISSIONS AND FEES: Recruitment advertising $ 43,024 $ 42,306 $ 134,928 $ 133,858 Yellow page advertising 28,540 32,124 79,522 82,534 Search & selection 72,835 65,972 197,278 197,796 Internet(1) 36,639 13,654 82,952 32,688 Temporary contracting(2) 15,423 13,820 44,866 33,027 -------- -------- ---------- ---------- Total $196,461 $167,876 $ 539,546 $ 479,903 ======== ======== ========== ========== COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS: Recruitment advertising 21.7% 20.1% 21.9% 20.7% Yellow page advertising 18.2% 20.5% 19.2% 20.3% Search & selection 98.4% 99.5% 98.8% 99.6% Internet(1) 88.4% 91.5% 88.5% 90.6% Temporary contracting(2) 100.0% 100.0% 100.0% 100.0% Total 40.4% 36.3% 39.5% 36.3%
22 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 -------- -------- -------- -------- (dollars in thousands) EBITDA(3) $ 8,255 $ 21,760 $ 29,053 $ 70,233 Cash provided by operating activities $ 34,001 $ 16,846 $ 43,220 $ 25,858 Cash used in investing activities $ 1,544 $ (6,324) $(31,885) $(79,471) Cash provided by (used in) financing activities $(35,288) $ (7,271) $(23,733) $ 37,230 Effect of exchange rate changes on cash $ (1,050) $ 1,105 $ (642) $ (59)
- -------------- (1) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet and employment searches and temporary contracting services sourced through the Internet. (2) Amounts for temporary contracting are reported after the costs paid to the temporary contractor. (3) Earnings before interest, income taxes, depreciation and amortization. "EBITDA" is presented to provide additional information about the Company's ability to meet its future debt service, capital expenditures and working capital requirements and is one of the measures which determines the Company's ability to borrow under its credit facility. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. EBITDA for the indicated periods is calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 1999 1998 1999 1998 -------- ------- -------- ------- (in thousands) Net income (loss) $ (5,399) $ 6,160 $ (7,803) $22,401 Interest expense, net 2,041 2,416 6,308 7,110 Income tax expense 432 4,694 751 16,313 Depreciation and amortization 11,181 8,490 29,797 24,409 -------- ------- -------- ------- EBITDA $ 8,255 $21,760 $ 29,053 $70,233 ======== ======= ======== =======
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Gross billings for the nine months ended September 30, 1999 were $1,367.5 million, a net increase of $47.2 million or 3.6% from $1,320.3 million for the nine months ended September 30, 1998. Commissions and fees for the nine months ended September 30, 1999 were $539.5 million, an increase of $59.6 million or 12.4% from $479.9 million in the first nine months of 1998. Recruitment commissions and fees were $134.9 million for the nine months ended September 30, 1999 compared with $133.9 million for the nine months ended September 30, 1998, an increase of $1.0 million or 0.8% due primarily to lower discounts to clients and increased ancillary services in North America offset, in part, by a loss of business in the Asia\Pacific Region which was ameliorated by an increase in business in Europe. Yellow page commissions and fees were $79.5 million for the nine months ended September 30, 1999, a decrease of $3.0 million or 3.6% from $82.5 million in the first nine months of 23 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 1998 primarily due to increased discounts to clients and lower commissions paid by publishers offset, in part by higher gross billings from internal growth and acquisitions. Search & selection commissions and fees were $197.3 million, virtually flat compared to $197.8 million for the comparable nine months of 1998, due primarily to acquisitions and growth in Continental Europe offset by a decline in executive search due to a loss of consultants, as anticipated, at LAI and TASA, which resulted from the merger and integration of these companies. Internet commissions and fees for the nine months ended September 30, 1999 were $83.0 million, an increase of 153.8% or $50.3 million as compared with $32.7 million for the nine months ended September 30, 1998. This increase in Internet commissions and fees is due to: (i) an increasing acceptance of our Internet services and products from existing clients, new clients and Internet users, (ii) the benefits of TMP'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. Temporary contracting commissions and fees were $44.9 million, up $11.9 million or 35.8% from $33.0 million for the period ended September 30, 1998. TMP's temporary contracting operations are primarily conducted in Australia and New Zealand. The 35.8% increase reflects an increase in the number of contractors placed, especially information technology personnel and executives, which have higher margins than general and support staff. Operating expenses for the nine months ended September 30, 1999 were $539.1 million compared with $432.9 million for the same period in 1998. The increase of $106.2 million or 24.5% is due to an increase of $36.7 million in merger and integration costs related to mergers accounted for as poolings of interests, acquisitions accounted for as purchases, higher operating and marketing costs to support our expanding Internet operations and $2.8 million in restructuring expenses resulting from the closings of LAI's Hong Kong and London offices. Salaries and related costs for the nine months ended September 30, 1999 were $318.5 million or 59.0% of commissions and fees, compared with $281.9 million or 58.7% of commissions and fees for the same period in 1998. The increase of $36.6 million or 13.0% is primarily due to increased staff for Internet operations additions and acquisitions in search & selection. Office and general expenses for the nine months ended September 30, 1999 were $163.0 million or 30.2% of commissions and fees, compared with $132.9 million or 27.7% of commissions and fees for the same period in 1998. The increase of $30.1 million or 22.7% is primarily due to acquisitions and higher costs for our Internet operations, partially offset by reductions in expenses for the yellow page advertising and recruitment advertising businesses, due to improved efficiencies. Included in the increase for Internet was $15.9 million more in marketing costs for Monster.com and $ 8.8 million for LAIcompass' search related internet services. The higher ratio of 30.2% compared to 27.7% is due primarily to a slight increase in costs at LAI combined with a decline in commissions & fees. (Please see discussion above.) Merger and integration costs for the nine months ended September 30, 1999 were $46.3 million compared with $9.6 million for the same period in 1998 an increase of $36.7 million or 383.1%. This increase primarily resulted from the pooling of interests transactions that occurred in the quarter ended September 30, 1999 and the planned integration of such companies and is due to: (1) $4.8 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, (2) $7.8 million more of transaction related costs, which include legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares 24 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) issued in the transactions and (3) $25.2 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, partially offset by $1.1 million less for employee stay bonuses paid with TMP shares and options to certain key personnel of the merged companies. Approximately $18.5 million of the $46.3 million are non-cash charges. The after tax effect of these charges on diluted earnings per share is $(0.73) and $(0.16) for the nine months ended September 30, 1999 and 1998, respectively. Restructuring charges for the nine months ended September 30, 1999 were $2.8 million or, on an after tax basis, $(0.05) per diluted share. These charges relate to LAI's closing of its London and Hong Kong offices, and 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 nine months ended September 30, 1999 decreased $46.6 million or 99.0% to $0.4 million from $47.0 million for the comparable period last year. Net interest expense for the nine months ended September 30, 1999 was $6.3 million, a decrease of $0.8 million or 11.3% from $7.1 million for the same period in 1998, reflecting lower interest rates and borrowing costs resulting from the amended and restated financing agreement entered into by the Company on November 5, 1998, partially offset by increased borrowings. Taxes on income for the nine months ended September 30, 1999 were $0.8 million on a $6.6 million pretax loss, resulting in an effective tax rate of (11.3)% compared with a tax expense of $16.3 million on a $39.0 million pretax profit, resulting in an effective tax rate of 41.8% for the same period last year. The negative effective tax rate for the 1999 period is caused by expenses that are not tax deductible. Such expenses are primarily related to merger costs from pooling of interests transactions and amortization of intangible assets. As a result of all of the above, the net loss available to common and Class B common stockholders for the nine months ended September 30, 1999 was $7.8 million, a decrease of $30.2 million from a profit of $22.4 million for the nine months ended September 30, 1998. On a diluted per share basis, the net income (loss) available to common and Class B common stockholders for the nine months ended September 30, 1999 was $(0.20), a decrease of $0.77 or 135.1% from the $0.57 for the comparable 1998 period. THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998 Gross billings for the three months ended September 30, 1999 were $486.1 million, a net increase of $23.6 million or 5.1% from $462.5 million for the three months ended September 30, 1998. Commissions and fees for the three months ended September 30, 1999 were $196.5 million, an increase of $28.6 million or 17.0% from $167.9 million in the comparable three months of 1998. Recruitment advertising commissions and fees were $43.0 million for the three months ended September 30, 1999 compared with $42.3 million for the three months ended September 30, 1998, an increase of $0.7 million or 1.7%. This increase was primarily due to acquisitions and lower discounts to clients in the U.S. substantially offset by net decreases in Continental Europe and Australia. Yellow page advertising commissions and fees were $28.5 million for the three months ended September 30, 1999 compared to $32.1 million for the three months ended September 30, 1998, reflecting the effect of reduced commission rates paid by the publishers and higher discounts to clients. Search & selection commissions and fees increased 25 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) $6.8 million or 10.4% to $72.8 million for the three months ended September 30, 1999 from $66.0 million for the three months ended September 30, 1998. This increase is due primarily to organic growth and acquisitions in selection, partially offset by a decline in executive search due to consultant turnover, as anticipated, at LAI and TASA, which resulted from the merger and integration of these companies. Internet commissions and fees for the three months ended September 30, 1999 were $36.6 million an increase of 168.3% or $22.9 million over the $13.7 million for the three months ended September 30, 1998. This increase reflects (i) an increasing acceptance of the Company's Internet products from existing and new clients and Internet users, (ii) the benefits of media advertising, (iii) increases in services and content available on our Websites, (iv) expansion in European markets and (v) price increases on certain products. Temporary contracting commissions and fees were $15.4 million, up $1.6 million or 11.6% from $13.8 million for the three months ended September 30, 1998. Temporary contracting operations for TMP are primarily conducted in Australia and New Zealand and the increase reflects an increase in the number of contractors placed due to a greater need for information technology personnel and an increase in the executive temporary contracting business, which has a mark-up higher than for general and support staff. Operating expenses for the three months ended September 30, 1999 were $198.5 million, compared with $153.9 million for the same period in 1998. The increase of $44.6 million or 29.0% is primarily due to higher merger and integration costs, higher salaries and related costs due to search & selection acquisitions, and higher operating and marketing costs to support our expanding Internet operations partially offset by lower expenses in yellow pages due to improved efficiencies. Salaries and related costs for the three months ended September 30, 1999 were $109.6 million or 55.8% of commissions and fees, compared with $99.5 million or 59.3% of commissions and fees for the same period in 1998. The increase of $10.1 million or 10.2% is primarily due to increased acquisitions in selection and Internet growth. The decline for 1999 as compared to 1998 in these expenses as a per cent of related commissions & fees is primarily due to higher Internet revenue. Office and general expenses for the three months ended September 30, 1999 were $51.2 million or 26.0% of commissions and fees, compared with $44.9 million or 26.8% of commissions and fees for the same period in 1998. The increase of $6.2 million or 13.9% is primarily due to higher costs for our Internet operations partially offset by reductions in yellow page and recruitment advertising expenses due to improved efficiencies. Included in the increase for Internet was $5.5 million more in marketing costs for Monster.com. Merger and integration costs for the three months ended September 30, 1999 were $34.8 million compared with $7.1 million for the same period in 1998, an increase of $27.7 million or 390.9%. The increase consists of (1) $2.7 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, (2) $3.8 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 and (3) $23.6 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, partially offset by $2.4 million less for employee stay bonuses paid with TMP shares and options to certain key personnel of the merged companies. Approximately $26.5 million of the $34.8 million are non-cash charges. 26 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The after tax effect of these charges on diluted earnings per share is $(0.53) and $(0.11) for the three months ended September 30, 1999 and 1998, respectively. As a result of the above, the operating loss for the three months ended September 30, 1999 was $2.1 million, compared to an operating profit of $14.0 million for the comparable period last year. Net interest expense for the three months ended September 30, 1999 was $2.0 million, a decrease of $0.4 million or 15.5% from $2.4 million for the same period in 1998, reflecting lower interest rates and borrowing costs resulting from the amended and restated financing agreement entered into by the Company on November 5, 1998. Taxes on income for the three months ended September 30, 1999 were $0.4 million on a pretax loss of $4.9 million, for an effective tax rate of (8.9%). This compares with a provision for income taxes of $4.7 million for the same period last year on a pretax profit of $11.0 million, for an effective tax rate of 42.8%. The decrease of $4.3 million is primarily the result of the $15.9 million decline in pretax results. The negative effective tax rate for the three months ended September 30, 1999 period is caused by expenses that are not tax deductible. Such expenses are primarily related to merger costs from pooling of interests transactions and amortization of intangible assets. As a result of all of the above, the net loss available to common and Class B common stockholders for the three months ended September 30, 1999 was $5.4 million, a decrease of $11.6 million or 187.6% from a profit of $6.2 million for the three months ended September 30, 1998. Per diluted share, the net income (loss) for the three months ended September 30, 1999 was $(0.14), a decrease of $.30 or 187.5% from the $.16 for the three months ended September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the nine months ended September 30, 1999 was $43.2 million compared with $25.9 million provided by operating activities for the nine months ended September 30, 1998, an increase of $17.3 million. This increase was primarily due to (a) the net increase in funds from a $25.2 million greater increase in deferred revenue for the 1999 period over the 1998 period, related mostly to Internet operations (b) a $15.7 million increase in cash from work-in-process and prepaid and other assets, (c) $6.2 million more from tax benefits from the exercise of employee stock options and (d) a $3.8 million effect from inclusion, in both the current period and the previous year, losses of companies accounted for as poolings of interest, because of overlapping reporting periods, reduced by a $25.5 million decline in earnings after adjusting for non-cash items and a $8.1 million net increase in the use of funds from increases in accounts receivable over increases in accounts payable and accrued expenses for the 1999 period over the 1998 period. EBITDA was $29.1 million for the nine months ended September 30, 1999, a decrease of $41.1 million or 58.6 % from $70.2 million for the nine months ended September 30, 1998. The decrease reflects, for the 1999 period, a $46.6 million decrease in operating profits partially offset by $5.4 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA decreased to 5.4% for the nine months ended September 30, 1999 as compared with 14.6% for the nine months ended September 30, 1998. The lower percent reflects the increase in merger & integration and restructuring costs, which were 9.1% and 2% of commissions and fees for the 1999 and 1998 periods, respectively 27 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Our investing activities for the nine months ended September 30, 1999 used cash of $31.9 million, which is $47.6 million less than the $79.5 million for the nine months ended September 30, 1998. This decrease was primarily due to $35.5 million more used for business acquisitions in the 1998 period and $9.8 million received from the sale of fixed assets, primarily our plane, in the 1999 period. We estimate that our expenditures for computer equipment and software, furniture and fixtures and leasehold improvements will be approximately $30 million for the year ended 1999. Our financing activities include borrowings and repayments under its bank financing agreements and issuance of and payments against installment notes used principally to finance acquisitions and equipment. Our financing activities for the nine months ended September 30, 1999 used net cash of $23.7 million but provided $37.2 million for the nine months ended September 30, 1998. The change of $60.9 million resulted primarily from $41.4 million in proceeds from a common stock offering by LAI in the 1998 period and net repayments in the 1999 period of $29.8 million against credit facilities and capitalized lease obligations compared with a net borrowing of $1.1 million in the prior year period, offset in part by a $6.8 million increase in cash received from the exercise of employee stock options and a $4.2 million decline in dividends paid by pooled companies in the 1999 period from the 1998 period. At September 30, 1999, we had a $185 million committed line of credit from our primary lender pursuant to a revolving credit agreement expiring June 30, 2001. Of such line, at September 30, 1999, approximately $58.2 million was unused and accounts receivable as defined in the agreement is sufficient to allow draw down of the entire amount. In addition, we have lines of credit aggregating $20.6 million for our operations in Australia, New Zealand, France, Belgium and the Netherlands of which approximately $12.0 million was unused at September 30, 1999. Cash and cash equivalents at September 30, 1999 equaled $59.6 million; this was an increase of $21.5 million from $38.1 million at September 30, 1998. Management believes that the aggregate lines of credit available to us, plus funds provided by operations will be adequate to support our short-term cash requirements for acquisitions, capital expenditures, repayment of debt and maintenance of working capital. We anticipates that future cash flows from operations plus funds available under existing line of credit facilities will be adequate to support our long term cash requirements as presently contemplated. However, if we determine that conditions are favorable, we would consider additional corporate finance or capital transactions. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. 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. 28 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) YEAR 2000 ISSUE Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with such Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. STATE OF READINESS Since early in 1999, we have been working to position TMP as Year 2000 ready before December 31, 1999. We have developed a comprehensive plan to deal with the Year 2000 issue and have engaged internal and external resources to focus on this effort. The plan is an evolving document as we continue to acquire and integrate companies throughout 1999. The plan is intended to achieve three basic objectives: to ensure that computer systems and other equipment function in the same manner after December 31, 1999 as it did before the century date change, to ensure that each business unit follows a consistent approach for assessment renovation, and validation of all IT and non-IT assets, and to track the status of all Year 2000 efforts. In addition to our internal assets, we are assessing and monitoring the Year 2000 readiness of our key vendors and service providers. We are also monitoring the readiness of public infrastructure service providers such as power, communications, and transportation providers. Our Year 2000 task force has conducted an inventory of and has developed testing procedures for all software and other systems that we believe might be affected by Year 2000 issues. Since third parties developed and currently support many of the systems used, a significant part of this effort will be to ensure that these third-party systems are Year 2000 ready. Our plan is to confirm this readiness by obtaining representations by these third parties that their products' are year 2000 ready and through specific testing of these systems. We have substantially completed this process as of the end of the third quarter of 1999 and plan to complete this process by the end of the fourth quarter. Until such testing is completed and such vendors and providers are contacted, we will not be able to completely evaluate whether our systems will need to be revised or replaced. COSTS We expect to incur approximately $3.0 million, globally, during 1999 in connection with identifying, evaluating and addressing Year 2000 readiness issues. Most of these costs relate to time spent by employees and consultants in making our systems Year 2000 ready. Such costs are not expected to have a material adverse effect on the Company's business, results of operations and financial condition. RISKS While we are making every effort to address the Year 2000 issue, there are inherent risks. We are not currently aware of any Year 2000 readiness problems relating to our systems that would have a material adverse effect on our business, results of operations and financial condition, without taking into account our efforts to avoid or fix such problems. There can be no assurance that we will not discover Year 2000 readiness problems in our efforts to avoid or fix such problems. There can be no assurance that we will not discover Year 2000 readiness problems in our systems and equipment that will require substantial 29 TMP WORLDWIDE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) revision. In addition, there can be no assurance that third-party software, hardware or services incorporated into our material systems will not need to be revised or replaced, all of which could be time-consuming and expensive. Our failure to fix or replace our internally developed proprietary software or third-party software, hardware or services on a timely basis could result in lost commissions and fees, increased operating costs, the loss of customers and other business interruptions, any of which could have a material adverse effect on our business, results of operations and financial condition. Moreover, the failure to adequately address Year 2000 readiness issues in our internally developed proprietary software could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. We are heavily dependent on a significant number of third party vendors to provide both network services and equipment. A significant Year 2000 related disruption of the network, services or equipment that third-party vendors provide to us could cause our members and visitors to consider seeking alternate providers or cause an unmanageable burden on our technical support, which in turn could materially and adversely affect our business, financial condition and results of operations. In addition, we cannot assure you that governmental agencies, utility companies, internet access companies, third party service providers and others outside of our control will be Year 2000 ready. The failure by such entities to be Year 2000 ready could result in a systemic failure beyond our control, such as a prolonged internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our customers, decrease the use of the internet or prevent users from accessing our websites which could have a material adverse effect on our business, results of operations and financial condition. CONTINGENCY PLAN We are currently developing contingency plans for those systems and equipment which we consider at risk of not being Year 2000 ready at least four weeks before year-end. The results of our Year 2000 simulation testing and the responses received from third-party vendors and service providers will be taken into account in determining the nature and extent to which our contingency plans will be implemented. In addition, we are developing an event planning procedure to monitor the function of our global operations before, during and after the century date change. 30 TMP WORLDWIDE INC. ITEM 3. 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 $110.6 million as of September 30, 1999. Interest on the outstanding balance is charged based on a variable interest rate related to the higher of the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus a margin specified in the agreement, and is thus subject to market risk in the form of fluctuations in interest rates. The Company does not trade in derivative financial instruments. The Company also conducts operations in various foreign countries, including Australia, Belgium, Canada, France, Germany, Japan, the Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the period ended September 30, 1999 approximately 47.6% of our commissions and fees were earned outside the United States and collected in local currency. In addition, we generally pay operating expenses in the corresponding local currency and will be subject to increased risk for exchange rate fluctuations between such local currencies and the dollar. We do not conduct any significant hedging activities. 31 TMP WORLDWIDE INC. PART II OTHER INFORMATION Item 2(c). Changes in Securities and Use of Proceeds (i) On July 9, 1999, we issued to the former stockholders of The Consulting Group (International) Limited an aggregate of 31,034 shares of our common stock in a private placement transaction. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"). (ii) On July 15, 1999, we issued 41,496 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Help Ad, Inc., a Kentucky corporation. Such securities were issued pursuant to the exemption contained in Section 4(2) of the Act. (iii) On July 15, 1999, we issued 19,220 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Pereire Conseil, a French corporation. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. (iv) On August 2, 1999, we issued 420,000 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Cameron-Newell Advertising Inc., a Texas corporation. Such securities were issued pursuant to the exemption contained in Section 4(2) of the Act. (v) On August 3, 1999, we issued 130,900 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Brook Street Bureau (Qld) Pty Ltd., an Australian corporation. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. (vi) On August 30, 1999, we issued 129,640 shares of our common stock in a private placement transaction in exchange for all the outstanding stock of Fox Advertising inc., a Texas corporation. Such securities were issued pursuant to the exemption contained in Section 4(2) of the Act. (vii) On August 31,1999, we issued 413,096 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Lampen Group Limited, a New Zealand corporation, with operations in New Zealand, the United Kingdom and Australia. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. (viii) On September 9, 1999, we issued 19,681 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Techworks Learning Pty Limited, an Australian corporation. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. (ix) On September 21, 1999, we issued 22,293 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Andale Limited at Auckland, a New Zealand Corporation. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. (x) On September 24, 1999, we issued 29,981 shares of our common stock in a private placement transaction in exchange for all of the outstanding stock of Skippers, S.r.l., an Italian corporation. Such securities were issued pursuant to the exemption contained in Regulation S promulgated under the Act. 32 TMP WORLDWIDE INC. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as a part of this report: 10.1 Second Amended and Restated Employment Agreement, dated as of November 2, 1999, by and among TMP worldwide, Inc., TMP Interactive Inc. and Jeffrey C. Taylor 27.1 Financial Data Schedule 27.2 Financial Data Schedule (b) (i) The Company's Current Report on Form 8-K, dated September 30, 1999, which includes the supplemental consolidated financial statements relating to the restatement of the Company's consolidated financial statements as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 and the supplemental consolidated condensed financial statements as of June 30, 1999 and for the six month periods ended June 30, 1999 and 1998 to reflect the mergers with, Cameron-Newell Advertising, Inc. on August 2, 1999, Brook Street Bureau (QLD) Pty Ltd on August 3, 1999, LAI Worldwide, Inc. on August 26, 1999, Fox Advertising Inc. on August 30, 1999 and Lampen Group Limited on August 31, 1999 which have been accounted of as pooling of interests transactions. In addition, the Company's historical consolidated financial statements included therein reflect the mergers with Morgan & Banks Limited as of January 28, 1999, InterQuest Pty. Limited on April 30, 1999, LIDA Advertising, Inc. on May 19, 1999, Maes & Lunua on May 20, 1999, Lemming/LeVan, Inc. on May 28, 1999, IN2, Inc. on May 28, 1999 and Yellow Pages Unlimited, Inc. on May 28, 1999. which were accounted for as a pooling of interests transactions. All other items of this report are inapplicable. 33 TMP WORLDWIDE INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TMP WORLDWIDE INC. --------------------------------- (Registrant) Date: November 12, 1999 /s/ Bart Catalane ------------------------------------- BART CATALANE CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 34 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as of November 2, 1999, by and among TMP WORLDWIDE INC., a Delaware corporation ("TMP"), TMP INTERACTIVE INC., a Delaware corporation (the "Company"), and JEFFREY C. TAYLOR ("Employee"). PRELIMINARY RECITALS A. In connection with (i) that certain Asset Purchase Agreement dated as of November 10, 1995 (the "Adion Purchase Agreement"), by and among Adion, Inc., a Massachusetts corporation ("Adion"), Employee, HGI Acquisition Corp., a Delaware corporation ("HGI"), and another party, providing for, among other things, the acquisition of substantially all of the assets of Adion by HGI and (ii) that certain Asset Purchase Agreement dated as of November 10, 1995 (the "AIS Purchase Agreement"), by and among Adion Information Services, Inc., a Massachusetts corporation ("AIS"), Employee, the Company, and another party, providing for, among other things, the acquisition of substantially all of the assets of AIS by the Company, Employee and the Company entered into an Employment Agreement, dated as of November 10, 1995 (the "Prior Employment Agreement"). B. Prior to the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement, Adion and AIS were engaged in the business of placing "help wanted" and other personnel recruitment advertising in newspapers, magazines and other media (including but not limited to the provision of such advertising through the Internet and other on-line services), and providing related advertising and human resource communication services (collectively, the "Business"). C. Prior to the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement, Employee was an employee of Adion and AIS since their respective inceptions, most recently serving as their President, and has extensive knowledge and a unique understanding of the Business and has longstanding business relationships with many customers of Adion and AIS, who, subsequent to the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement, have been transacting business with the Company and HGI and their respective successors and affiliates (as defined in SECTION 3.2 below). D. The Company has and its affiliates are also engaged in the yellow pages advertising business, including but not limited to the provision of yellow pages advertising through the Internet and on-line services (the "Yellow Pages Business"). E. Immediately prior to the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement, Employee owned 287.50 shares of the outstanding common stock of Adion and 287.50 shares of the outstanding common stock of AIS -1- and Employee was and continues to be directly benefitting from the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement. It was a condition to the execution, delivery and consummation of the Adion Purchase Agreement and the AIS Purchase Agreement that the Company and Employee enter into the Prior Employment Agreement and that Employee agree to the Restrictive Covenants (as defined below) set forth herein. F. Subsequent to the execution of the Prior Employment Agreement, Employee and the Company entered into an Amended and Restated Employment Agreement, dated as of September 11, 1996 (the "Amended and Restated Employment Agreement"). G. The parties wish to amend and restate the provisions of the Amended and Restated Employment Agreement on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT. 1.1 ENGAGEMENT OF EMPLOYEE. The Company agrees to employ Employee and Employee agrees to accept employment as Chief Executive Officer of the Company, all in accordance with the terms and conditions of this Agreement. 1.2 DUTIES AND POWERS. During the Employment Period (as defined below), Employee will serve as Chief Executive Officer of the Company and will have such responsibilities, duties and authorities, and will render such services of an executive and administrative character or act in such other executive capacity for the Company and its affiliates as shall from time to time be reasonably directed by the Company's board of directors (the "Board") or Chairman reasonably consistent with Employee's role as Chief Executive Officer of the Company. Employee shall devote Employee's best efforts, energies and abilities and Employee's full business time, skill and attention to the business and affairs of the Company. Employee shall perform the duties and carry out the responsibilities assigned to Employee to the best of Employee's ability, in a diligent, trustworthy, businesslike and efficient manner for the purpose of advancing the business of the Company and its affiliates. Employee acknowledges that Employee's duties and responsibilities will require Employee's full-time business efforts and agrees that during the Employment Period Employee will not engage in any business pursuits or interests which interfere or conflict with the performance of Employee's duties hereunder, provided, that nothing in this SECTION 1.2 shall be deemed to prohibit Employee from making Permitted Investments (as defined below). Without limiting the foregoing, it is understood that Employee may engage in civic and board activities so long as such activities do not interfere with his obligations hereunder in any material respect or conflict with the other provisions of this Agreement, including without limitation the Restrictive Covenants. -2- 1.3 EMPLOYMENT PERIOD. Employee's employment under this Agreement shall begin retroactively as of August 28, 1998 shall continue through and until December 31, 2001 (the "Initial Employment Period"). Thereafter, the term of this Agreement shall automatically be renewed for successive one year terms (each, a "Renewal Period") unless either party shall give the other notice of nonrenewal at least sixty (60) days prior to the expiration of the then current Initial Employment Period or Renewal Period, as the case may be. Notwithstanding anything to the contrary contained herein, the Initial Employment Period and each Renewal Period are subject to termination pursuant to SECTION 1.4 below. The Initial Employment Period and all Renewal Periods are sometimes collectively referred to herein as the "Employment Period". 1.4 TERMINATION BY THE COMPANY. In addition to the termination rights of the Company set forth in SECTION 1.3 hereof, the Company has the right to terminate the Employment Period (and, consequently, Employee's employment under this Agreement), by notice to Employee in writing at any time, (i) for "Cause" or (ii) by thirty (30) days prior written notice to Employee for any or no reason not constituting Cause, subject to the applicable provisions of SECTION 2.2 or 2.3. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 9.7. "Cause" as used herein means the occurrence of any of the following events: (a) the willful failure or gross negligence of Employee to perform Employee's duties or comply with reasonable directions of the Board or the Chairman that continues for thirty (30) days after the Board or the Chairman has given written notice to Employee specifying in reasonable detail the manner in which Employee has failed to perform such duties or comply with such directions; (b) the determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts constituting (i) dishonesty or disloyalty with respect to the Company, which if capable of being cured has not been cured to the reasonable satisfaction of the Board within thirty (30) days of the date that written notice of such dishonesty or disloyalty has been provided to Employee (which notice shall specify in reasonable detail the dishonesty or disloyalty at issue) or (ii) fraud; (c) conviction of (i) a felony or (ii) any crime involving moral turpitude; (d) a material breach by Employee of any of the Restrictive Covenants; or (e) a material breach by Employee of any of the terms or conditions of this Agreement (other than the Restrictive Covenants) that continues for thirty (30) days after the Board or the Chairman has given written notice to Employee specifying in reasonable detail the manner in which Employee has breached the Agreement. -3- 1.5 TERMINATION BY EMPLOYEE. In addition to the termination rights of Employee set forth in SECTION 1.3 hereof, Employee has the right to terminate the Employment Period (and, consequently, Employee's employment under this Agreement) (i) by prior written notice to the Company at any time for "Good Reason" or (ii) by ninety (90) days prior written notice to the Company for any or no reason not constituting Good Reason (a "Voluntary Termination"). Notwithstanding anything to the contrary contained herein, the Company may accelerate the effective date of a Voluntary Termination to any date including, but not limited to, the date on which notice is received by the Company. Following a notice of Voluntary Termination, Employee agrees to fulfill Employee's duties hereunder and shall cooperate fully in completion and turnover of all matters involving Employee until such termination becomes effective, unless otherwise consented to by the Company. "Good Reason" as used herein shall mean the Company (i) has altered in any manner Employee's title as Chief Executive Officer of the Company; (ii) has transferred Employee's primary office location to a location greater than 50 miles from the City of Boston, Massachusetts; (iii) has altered Employee's direct reporting structure such that he no longer reports directly to either (A) the Chairman of the Board of the Company, who shall at all times be the Chairman of the Board of TMP or (B) to the Board; or (iv) has otherwise materially altered or reduced Employee's responsibilities, duties and authorities with the Company such that Employee no longer is the Chief Executive Officer of the Company with responsibility for all of the Company's operations in accordance with this Agreement or Employee no longer is responsible for overseeing and directing the development, marketing, strategy, management, sales and implementation of substantially all of the interactive or Internet-based operations of TMP (other than as a result of Employee's failure to perform Employee's duties and responsibilities in accordance with this Agreement), any of which actions listed in (i) though (iv) above (a) has not been consented to by Employee and (b) continues for a period of thirty (30) days after Employee has given written notice to the Company specifying in reasonable detail the manner in which the Company or TMP has taken such action or actions. 1.6 AUTOMATIC TERMINATION. The Employment Period shall automatically terminate upon Employee's death or Disability. Employee shall be deemed to have a "Disability" for purposes of this Agreement if Employee is unable to perform, by reason of physical or mental incapacity, Employee's duties or obligations under this Agreement, for a total period of 60 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of Employee has occurred. Such determination shall be made by the Board in the exercise of reasonable discretion. 2. COMPENSATION AND BENEFITS. 2.1 SALARY. In consideration of Employee performing Employee's duties under this Agreement and the Restrictive Covenants set forth herein, commencing retroactively as of August 28, 1998, during the Employment Period, the Company will pay Employee a base salary at a rate of $400,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Company shall also perform an annual review of Employee's Base Salary based on the Employee's performance of Employee's duties and the Company's other compensation policies in order to determine whether Employee's Base Salary -4- should be increased, it being understood that any increases in compensation shall be subject to the sole discretion of the Company's Chairman and Board. If the Employment Period is terminated pursuant to SECTION 1.4, SECTION 1.5 or SECTION 1.6 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee. 2.2 COMPENSATION AFTER TERMINATION THAT OCCURS PRIOR TO CHANGE OF CONTROL. (a) If the Employment Period or this Agreement is terminated (i) by the Company for Cause prior to the occurrence of a Change in Control (as defined in SECTION 2.3 below), (ii) by Employee pursuant to a Voluntary Termination prior to the occurrence of a Change in Control, or (iii) through expiration of the Employment Period, then the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination date (except payment of Employee's Base Salary and benefits described in SECTION 2.4 hereof, in each case which have accrued through the date of termination or expiration), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 and 4 at law or in equity). If the Employment Period or this Agreement is terminated by virtue of Employee's death or Disability, then the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination date (except payment of Employee's Base Salary and benefits described in SECTION 2.4 hereof through the date which is ninety (90) days after such termination) and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 and 4 at law or in equity). (b) If the Employment Period or this Agreement is terminated by the Company without Cause prior to the occurrence of a Change in Control or by Employee for Good Reason prior to the occurrence of a Change in Control, then (i) Employee shall be entitled to receive as severance pay in a single lump sum payable concurrently with or prior to the effective time of such termination (and as a condition to any termination by the Company without Cause prior to the occurrence of a Change in Control) (A) an amount equal to Employee's then-applicable Base Salary (but not less than $400,000), and (B) an amount equal to the bonus paid to Employee pursuant to SECTION 2.4(D) below for the calendar year immediately preceding the year in which the effective date of such termination occurs or, in the event that the bonus for such preceding calendar year has not been paid as of the effective date of termination, a minimum of $100,000, (ii) all outstanding options theretofore granted to Employee to purchase shares of TMP Common Stock shall automatically and immediately become fully vested and exercisable for the remaining balance of the ten year term provided by the applicable stock option agreement, subject to all other terms of any such agreement not inconsistent with this SECTION 2.2(B)(II), and (iii) for a period of one year after the effective date of termination, TMP or the Company shall make available to Employee and his immediate family medical, dental, basic life, accidental -5- death and dismemberment, long term disability, unreimbursed medical expense, dependent day care and AFLAC benefits to the same extent and on the same terms and conditions as would have been made available to Employee and his immediate family had he remained employed by the Company or one of its affiliates during such one-year period (including, but not limited to, the Company's payment of 100% of medical and dental premiums consistent with past practice) except that Employee will not be permitted to make any changes in coverage during such one-year period except for the addition of new immediate family members and changes in beneficiaries which are effected by Employee pursuant to the terms and conditions of the applicable benefit programs. 2.3 COMPENSATION AFTER TERMINATION THAT OCCURS AFTER A CHANGE IN CONTROL. (a) As used in this Agreement, "Change in Control" shall be deemed to occur if and only if (1) there shall be consummated (A) any consolidation, merger or reorganization involving TMP, unless such consolidation, merger or reorganization is a "Non-Control Transaction" (as defined below) or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of TMP, or (2) the stockholders of TMP shall approve any plan or proposal for liquidation or dissolution of TMP, or (3) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the combined voting power of TMP's then outstanding voting securities other than (a) a person who owns or owned shares of Class B Common Stock of TMP as of the date of this Agreement or (b) pursuant to receipt of such shares from a stockholder of TMP pursuant to such stockholder's will or the laws of descent and distribution, or (4) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors of TMP shall cease for any reason to constitute a majority thereof unless the election or the nomination for election by TMP's stockholders of each new director was approved by a vote of at least two-thirds of the directors of TMP then still in office who were either (x) directors at the beginning of the period or (y) directors whose election or nomination was approved by a vote of at least two-thirds of the directors who at the time of such election or nomination were either (I) directors at the beginning of the period (directors who receive such approval are sometimes referred to as "Approved Directors") or (II) Approved Directors. A "Non-Control Transaction" shall mean a consolidation, merger or reorganization of TMP where (1) the stockholders of TMP immediately before such consolidation, merger or reorganization own, directly or indirectly, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such consolidation, merger or reorganization (the "Surviving Corporation"), (2) the individuals who were members of the Board of Directors of TMP immediately prior to the execution of the agreement providing for such consolidation, merger or reorganization constitute at least 50% of the members of the Board of Directors of the Surviving Corporation, or a corporation directly or indirectly beneficially owning a majority -6- of the voting securities of the Surviving Corporation and (3) no person (other than (a) TMP, (b) any subsidiary of TMP, (c) any employee benefit plan (or any trust forming a part thereof) maintained by TMP, the Surviving Corporation or any subsidiary, or (d) any person who, immediately prior to such consolidation, merger or reorganization, beneficially owned more than 50% of the combined voting power of TMP's then outstanding voting securities) beneficially owns more than 50% of the combined voting power of the Surviving Corporation's then outstanding voting securities. (b) If the Employment Period or this Agreement is terminated by the Company or Employee for any reason (whether or not for Cause or Good Reason, including but not limited to a Voluntary Termination), within the earlier of (x) a period of twelve months following a Change of Control or (y) the expiration of the Employment Period in accordance with the second sentence of SECTION 1.3 above, then (i) Employee shall be entitled to receive as severance pay in a single lump sum payable concurrently with or prior to the effective time of such termination an amount equal to two times the sum of (I) Employee's then-applicable Base Salary (but not less than $400,000), and (II) the bonus paid to Employee pursuant to SECTION 2.4(D) below for the calendar year immediately preceding the year in which the effective date of such termination occurs or, in the event the bonus for such preceding calendar year has not been paid as of the effective date of termination, a minimum of $100,000, and (ii) for a period of one year after the effective date of termination, TMP or the Company shall make available to Employee and his immediate family medical, dental, basic life, accidental death and dismemberment, long term disability, unreimbursed medical expense, dependent day care and AFLAC benefits to the same extent and on the same terms and conditions as would have been made available to Employee and his immediate family had he remained employed by the Company during such one-year period (including, but not limited to, the Company's payment of 100% of medical and dental premiums consistent with past practice) except that Employee will not be permitted to make any changes in coverage during such one-year period except for the addition of new immediate family members and changes in beneficiaries which are effected by Employee pursuant to the terms and conditions of the applicable benefit programs. Notwithstanding anything in this Agreement to the contrary, any termination of the Employment Period or this Agreement that occurs after the expiration of twelve months following a Change in Control shall be governed by the provisions of SECTION 2.2 above to the same extent as if a Change in Control had not occurred. Nothing in this SECTION 2.3 is intended to limit Employee's rights to indemnification pursuant to any agreement, policy, understanding or charter or bylaw provision. (c) Notwithstanding anything in this Agreement to the contrary, Employee shall in no event be entitled to any payment or other benefit that would cause any portion of the amount received by Employee to constitute an "excess parachute payment" as defined under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). In furtherance of the provisions of this SECTION 2.3(C), the following provisions shall apply: -7- (1) Anything in this Agreement to the contrary notwithstanding, in the event that any payment or distribution by TMP or the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment") would be nondeductible by TMP or the Company for federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of Employee pursuant to this Agreement shall be reduced to the Reduced Amount (as defined below). Any such reduction shall be accomplished first by reducing the number of options to acquire TMP Common Stock which otherwise would have immediately vested in full, as determined in the reasonable discretion of the Board of Directors of TMP (provided that any options so reduced shall continue to vest in accordance with the terms of such options as if the employment of Employee had not been terminated or, if earlier, the date or dates on which such options can vest without being deemed nondeductible, as determined in the reasonable discretion of the Board of Directors of TMP); and second, if necessary, by reducing cash payments constituting part of the payments or other consideration to which the Employee has become entitled (collectively, such cash payments, other consideration and the aggregate present value of the immediate vesting of options (calculated in accordance with Section 280G of the Code and any regulations promulgated thereunder) are referred to as the "Severance Amount"). (2) The "Reduced Amount" shall be the amount, expressed in present value, which maximizes the aggregate present value of the Severance Amount without causing any Payment to be nondeductible by the Company or TMP because of Section 280G of the Code. For purposes of this clause (2), present value shall be determined in accordance with Section 280(d)(4) of the Code. (3) All determinations required to be made under this SECTION 2.3(C) shall be made by TMP's independent public accountants (the "Accounting Firm") which shall provide detailed supporting calculations to TMP, the Company and Employee. Any such determination by the Accounting Firm shall be binding upon TMP, the Company and Employee. (4) It is possible that as a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm, a portion of the Severance Amount will have been made by TMP or the Company which should not have been made ("Overpayment") or that an amount in addition to the Severance Payment which will not have been made could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. (x) OVERPAYMENT. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service -8- against Employee which the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by TMP or the Company to or for the benefit of the Employee shall be treated for all purposes as a loan ab initio (from the beginning) to Employee which Employee shall repay to the Company or TMP together with interest at the applicable federal rate provided for in Section 1274(d) of the Code. (y) UNDERPAYMENT. If precedent or other substantial authority indicates that an Underpayment has occurred, any such Underpayment shall be promptly paid by TMP or the Company to or for the benefit of Employee together with interest at the applicable federal rate provided for in Section 1274(d) of the Code. (d) VESTING OF OPTIONS. Subject to the provisions of SECTION 2.3(C) above, in the event of a Change in Control, all outstanding options theretofore granted to Employee to purchase shares of TMP Common Stock shall automatically and immediately become fully vested and exercisable for the balance of the ten year term provided by the applicable stock option agreement (in lieu of any shorter period of exercisability that may have otherwise been provided by the applicable stock option agreement in connection with any Change in Control), subject to all other terms of any such agreement not inconsistent with this SECTION 2.3(D). 2.4 OTHER BENEFITS. (a) VACATION AND INSURANCE. During the Employment Period, the Company will provide Employee four (4) weeks vacation per year (prorated for periods of less than a full year), and will provide other employee fringe benefits substantially comparable to the benefits which the Company regularly provides for other key management employees, including medical, dental and disability insurance to the extent offered by the Company, and in amounts consistent with Company policy, for key management employees as reasonably determined by the Board, it being understood that 100% of any medical and dental insurance premiums on the policies offered by the Company for the benefit of Employee and his family shall be paid by the Company. (b) BUSINESS EXPENSES. During the Employment Period, the Company will reimburse Employee in accordance with Company policy for Employee's normal out-of-pocket expenses incurred in the course of performing Employee's duties hereunder. Employee shall provide the Company with all receipts and documentation supporting such expenses as may reasonably be requested by the Company. (c) AUTOMOBILE EXPENSES. During the Employment Period, the Company will reimburse Employee, or pay on Employee's behalf, $4,200 on a quarterly basis -9- consistent with past practices for the costs of (i) the lease of an automobile for Employee, (ii) gas, insurance and routine maintenance with respect to such automobile, and (iii) gas with respect to any substitute for such vehicle that Employee may from time to time utilize in lieu of such vehicle. (d) BONUSES. With respect to each calendar year of the Employment Period and for the period August 31, 1998 through December 31, 1998, Employee shall be entitled to a bonus of up to a dollar amount equal to a percentage of Employee's then-applicable Base Salary as follows: CALENDAR YEAR BONUS ------------- ----- 1998 25% 1999 25% 2000 32.5% 2001 40% 2002 45% 2003 50% It is understood that for periods of less than a full calendar year of the Employment Period, the maximum bonus shall be calculated on the basis of the Base Salary actually paid during the portion of the calendar year which falls within the Employment Period. By way of example, the maximum bonus for the period August 31, 1998 though December 31, 1998 shall be 25% of the Base Salary actually paid under this Agreement with respect to that four month period. It is understood and agreed that determination of the annual bonus will be based upon the Company's achievement of its budget for the applicable year and/or other relevant goals as determined by mutual agreement of the parties. In no event shall the bonus payable in respect of any calendar year be less that $75,000, prorated for periods of less than one year, $50,000 of such annual minimum bonus shall be payable quarterly in advance, with $12,500 of such advance being payable on or prior to March 31, June 30, September 30 and December 31 of each calendar year. The remaining portion of the bonus shall be paid in a single lump sum not more than ninety (90) days after the end of the calendar year for which the bonus is awarded. The Chairman of the Board of TMP and Employee shall discuss in good faith the basis upon which bonus payments shall be made in respect of each calendar year with a view towards agreeing on such basis for determining Employee's bonus no later than December 31 of the year preceding the year in respect of which the bonus shall be paid. It is understood and agreed that the terms and conditions of any bonuses for the calendar years or portions thereof during the Employment Period commencing after calendar 2003 shall be determined by mutual agreement of the parties. (e) STOCK OPTION GRANTS. In addition to the bonus amounts described in SECTION 2.4(D) above, with respect to each calendar year of the Employment Period commencing with calendar year 2000, at the Company's sole and absolute discretion Employee may be granted options to acquire up to an aggregate 50,000 shares of TMP -10- Common Stock on such terms and conditions as the Company may determine in its sole and absolute discretion. (f) RELOCATION. The Company agrees that the location of the office at which Employee is based under this Agreement shall not be moved outside the greater Boston, Massachusetts area without Employee's consent. Without limiting the foregoing, the Company shall during the Employment Period provide Employee office space in Manhattan, New York City, at a location and consisting of such resources as are reasonably necessary for Employee to perform his duties hereunder. 2.5 TAXES, ETC. All compensation payable to Employee hereunder is stated in gross amount and shall be subject to all applicable withholding taxes, other normal payroll deductions and any other amounts required by law to be withheld. 2.6 EXPENSES. The Company will reimburse Employee for reasonable attorneys' fees and expenses relating to the negotiation of this Agreement. 3. COVENANT NOT TO COMPETE. 3.1 EMPLOYEE'S ACKNOWLEDGMENT. Employee agrees and acknowledges that in order to assure the Company and the Company's affiliates that they will retain their respective value and that of the Business and the Yellow Pages Business, it is necessary that Employee undertake not to utilize the special knowledge of the Business and the Yellow Pages Business that the Employee has or may acquire and Employee's relationships with customers and suppliers to compete with the Company and its affiliates. Employee further acknowledges that: (a) from and after the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement, the Company has been engaged in the Business and in the Yellow Pages Business; (b) the Company's affiliates are engaged in the Business and the Yellow Pages Business and may from time to time be engaged in other business; (c) Employee is one of a limited number of persons who helped develop the Business of Adion and AIS and of the Company and its affiliates; (d) Employee has occupied a position of trust and confidence with Adion and AIS prior to the consummation of the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement and, during such period and during Employee's employment under the Prior Employment Agreement, the Amended and Restated Employment Agreement and this Agreement, Employee has and will continue to become familiar with the proprietary and confidential information of Adion and AIS, the Company and the Company's affiliates; -11- (e) the agreements and covenants contained in this SECTION 3 are essential to protect the Company, its affiliates and the goodwill of the Business and the Yellow Pages Business and were a condition precedent to the Company's willingness to consummate the transactions contemplated by the Adion Purchase Agreement and the AIS Purchase Agreement and the transactions contemplated by the Prior Employment Agreement, the Amended and Restated Employment Agreement and this Agreement; (f) the Company and its affiliates would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; (g) the scope and duration of the Restrictive Covenants are reasonably designed to protect a protectable interest of the Company and its affiliates and are not excessive in light of the circumstances; (h) Employee has a means to support Employee and Employee's dependents, if any, other than by engaging in activities prohibited by this SECTION 3; and (i) the provisions of this SECTION 3 shall not in any way be deemed to limit or modify the provisions of the Adion Purchase Agreement, the AIS Purchase Agreement, the Noncompetition and Confidentiality Agreement, dated as of November 10, 1995, among the Company, HGI and Employee (the "Noncompetition Agreement") or any other confidentiality, noncompetition and/or nonsolicitation agreements between Employee on the one hand and the Company and/or one or more of its affiliates on the other hand. 3.2 NON-COMPETE. Employee hereby agrees that for a period commencing on the date hereof and ending two years following the termination or expiration of Employee's employment with the Company (the "Restricted Period"), except on behalf of the Company and its affiliates in accordance with this Agreement, Employee shall not, 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, the Yellow Pages Business or any other business in which the Company or its affiliates are or become engaged at any time prior to the termination of Employee's employment with the Company ("Other Business") anywhere in or into the United States (it being understood that the Business, the Yellow Pages Business and any Other Business are not limited to any particular region of the United States and that such businesses may be engaged in effectively from any location) (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in the stock of any competing corporation listed on a national securities exchange or traded in the over-the-counter market, but only if Employee is not involved in the business of said corporation and if Employee, Employee's associates (as such term -12- is defined in Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended), and Employee's affiliates collectively do not own more than an aggregate of two percent of the stock of such corporation ("Permitted Investments"). Unless the Employment Period has been terminated by the Company for Cause, Employee may, upon thirty (30) days' written notice of termination of the provisions of this SECTION 3.2 (the "Specified Notice") given at any time after the one year anniversary of the end of the Employment Period, terminate the provisions of this SECTION 3.2 (but not any other provisions of this Agreement, including but not limited to the provisions of SECTIONS 3.3, 3.4 and 4 hereof), unless within such thirty day period the Company provides written notice to Employee electing to extend the applicability of the provisions of SECTION 3.2 by confirming that it will pay Employee, as severance, a monthly amount equal to $19,791.67 (the "Monthly Amount") for either (i) each calendar month within the period of time from the date of delivery of the Specified Notice until the end of the Restricted Period or (ii) each calendar month from the date of delivery of the Specified Notice until such date (which date may not be later than the last day of the Restricted Period) as the Company may specify, in either case to be paid in regular installments no later than the last day of the month to which it relates. During any month for which the Company is obligated to make payments of the Monthly Amount in accordance with the preceding sentence, the Company shall make available to Employee and his immediate family medical, dental, basic life, accidental death and dismemberment, long term disability, unreimbursed medical expense, dependent day care and AFLAC benefits to the same extent and on the same terms and conditions as would have been made available to Employee and his immediate family had he remained employed by the Company or one of its affiliates during any such month (including, but not limited to, the Company's payment of 100% of medical and dental premiums consistent with past practice) except that Employee will not be permitted to make any changes in coverage during any such month except for the addition of new immediate family members and changes in beneficiaries which are effected by Employee pursuant to the terms and conditions of the applicable benefit programs. In case the Company gives the foregoing notice of election, the provisions of SECTION 3.2 shall continue to bind Employee for the period of time that Employee is entitled to the additional severance as specified in the Company's notice. It is understood and agreed that the terms "Business," "Yellow Pages Business" and "Other Business" encompass the recruitment advertising business, yellow pages advertising business, the search and selection business and any other business in which the Company or its affiliates are or become engaged at any time prior to the termination or expiration of Employee's employment, in and any and all forms and through the use of any and all media, including but not limited to such advertising or business provided through the Internet or through on-line services. The foregoing reference to the Internet or to on-line services is not, however, intended to preclude Employee from becoming involved in Internet or on-line services or businesses that are not involved in the recruitment advertising business, the yellow pages advertising business, the search and selection business and any other business in which the Company or its affiliates are or become engaged at any time prior to the termination or expiration of Employee's employment. As used in this Agreement, the term "affiliate" shall have the meaning ascribed to that term in Rule 405 of the Securities Act of 1933, as amended, and shall include each past and present affiliate of such person or entity. -13- 3.3 NON-SOLICITATION. Without limiting the generality of the provisions of SECTION 3.2 above, Employee hereby agrees that during the Restricted Period, except on behalf of the Company and its affiliates in accordance with this Agreement, Employee will not, directly or indirectly, call on, solicit, or participate as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity in any business which calls on or solicits business from any person, firm, corporation or other entity which is or was a customer or supplier of the Company or any of the Company's affiliates during the Restricted Period, or is a "Prospective Customer or Supplier" of the Company or any of the Company's affiliates, or from any successor in interest to any such person, firm, corporation or other entity, for the purpose of marketing, selling or providing any such party, or obtaining from any such party, any services or products relating to the Business, the Yellow Pages Business or any Other Business, or encouraging any such party to terminate or otherwise alter his, her or its relationship with the Company or any of the Company's affiliates. For purposes of this Agreement, "Prospective Customer or Supplier" shall mean any party to whom the Company or any of the Company's affiliates has made a personal presentation during the Restricted Period for the purpose of developing a customer or supplier relationship. 3.4 INTERFERENCE WITH RELATIONSHIPS. During the Restricted Period Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity, employ or engage, recruit, call on or solicit for employment or engagement, any person who is or was during the Restricted Period employed or engaged by the Company or any of its affiliates, or becomes employed or engaged by the Company or any of its affiliates (during the Restricted Period), or otherwise seek to influence or alter any such person's relationship with the Company or any of its affiliates. 3.5 BLUE-PENCIL. If any court of competent jurisdiction shall at any time deem the term of this Agreement or any particular Restrictive Covenant too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restricted Period shall be deemed to be the longest period permissible by law under the circumstances and the Territory shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the Restricted Period and/or Territory to permissible duration or size. 4. CONFIDENTIAL INFORMATION. During the term of this Agreement and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Board, furnish, make available or disclose to any third party or use for the benefit of Employee or any third party, any Confidential Information. As used in this SECTION 4, "Confidential Information" shall mean any trade secret, proprietary or confidential information relating to the business or affairs of the Company, the Business, the Yellow Pages Business, any Other Business, or the Company's affiliates, including but not limited to information relating to financial statements, customer identities, potential customers, employees, suppliers, servicing methods, equipment, pro grams, strategies and information, analyses, profit margins or other trade secret, proprietary or confidential information used by the Company or its affiliates, including, without limitation, computer, software, hardware and related information; provided, however, that Confidential -14- Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and/or its affiliates. 5. EFFECT ON TERMINATION. If this Agreement or the Employment Period expires or is terminated for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.2, 2.3, 2.5, 3, 4, 5, 6, 7 and 8 hereof shall remain in full force and effect. 6. REMEDIES. Employee acknowledges and agrees that the covenants set forth in SECTIONS 3 and 4 of this Agreement (collectively, the "Restrictive Covenants") are reasonable and necessary for the protection of the business interests of the Company and its affiliates, that irreparable injury will result to the Company and its affiliates if Employee breaches any of the terms of the Restrictive Covenants, and that in the event of Employee's actual or threatened breach of any such Restrictive Covenants, the Company and its affiliates will have no adequate remedy at law. Employee accordingly agrees that in the event of any actual or threatened breach by Employee of any of the Restrictive Covenants, the Company and its affiliates shall be entitled to injunctive relief, specific performance and other equitable relief, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company and its affiliates from pursuing any other remedies available to them for such breach or threatened breach, including but not limited to the recovery of damages. It is understood and agreed that the Restrictive Covenants set forth in this Agreement are in addition to, and not in lieu of, any similar restrictions imposed upon Employee under the Adion Purchase Agreement, the AIS Purchase Agreement, the Noncompetition Agreement and/or any other confidentiality, noncompetition and/or nonsolicitation agreements between Employee on the one hand and the Company and/or one or more of its affiliates on the other hand, and that the termination or expiration of any of the Restrictive Covenants hereunder shall not affect the duration, validity or enforceability of any such similar restrictions set forth in the Adion Purchase Agreement, the AIS Purchase Agreement, the Noncompetition Agreement and/or any other confidentiality, noncompetition and/or nonsolicitation agreements between Employee on the one hand and the Company and/or one or more of its affiliates on the other hand. 7. INCOME TAX TREATMENT. Employee and the Company acknowledge that it is the intention of the Company to deduct any and all amounts paid under SECTION 2 and SECTION 3.2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that Employee will treat all such amounts as required pursuant to all applicable tax laws and regulations, and should Employee fail to report such amounts as required, Employee will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 8. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants that Employee is free to enter into this Agreement and to perform the duties required under this -15- Agreement, and that there are no employment or consulting contracts, restrictive covenants or other restrictions preventing the performance of Employee's duties hereunder. 9. MISCELLANEOUS. 9.1 ASSIGNMENT. No party hereto may assign or delegate any of its rights, interests or obligations hereunder without the prior written consent of the other party hereto, whether by operation of law or otherwise; provided, however, that the Company and TMP shall have the right to assign all or any part of its rights and obligations under this Agreement without the prior written consent of Employee (i) any successor to all or substantially all of its assets or any direct or indirect subsidiary or (ii) in connection with the sale of all or a substantial portion of its assets. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, successors and assigns of the parties hereto whether so expressed or not. 9.2 GUARANTEE. TMP hereby unconditionally guarantees the full and timely payment of all amounts due Employee under this Agreement. 9.3 ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, effective as of August 28, 1998, this Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof, including but not limited to the Prior Employment Agreement and the Amended and Restated Employment Agreement. 9.4 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.5 AMENDMENT; MODIFICATION. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 9.6 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York without giving effect to provisions thereof regarding conflict of laws. -16- 9.7 NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by courier, or (C) delivered by certified or registered mail, return receipt requested and first class postage prepaid, in each case to the parties at their addresses set forth below or such other addresses as the recipient party has specified by prior written notice to the sending party. All such notices and communications shall be deemed received upon the actual delivery thereof in accordance with the foregoing. (a) If to Employee: Jeffrey C. Taylor 80 Alpine Drive Holliston, MA 01746 with a copy to: Foley, Hoag & Eliot LLP One Post Office Square Boston, MA 02109 Attn: David Feinberg (b) If to the Company or TMP: TMP Worldwide Inc. 1633 Broadway, 33rd Floor New York, NY 10019 Attention: Andrew J. McKelvey Myron F. Olesnyckyj 9.8 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 9.9 DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 9.10 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. -17- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: TMP INTERACTIVE INC. By: /s/ Andrew J. McKelvey ------------------------------------ Name: Andrew J. McKelvey Title: Chairman TMP: TMP WORLDWIDE INC. By: /s/ Andrew J. McKelvey ------------------------------------ Name: Andrew J. McKelvey Title: Chairman and Chief Executive Officer EMPLOYEE: /s/ Jeffrey C. Taylor ------------------------------------ Jeffrey C. Taylor -18- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 59,565 0 436,907 22,725 0 518,280 142,530 80,654 870,919 495,411 100,900 0 0 37 258,243 870,919 539,546 539,546 0 534,515 785 4,583 6,308 (6,645) 751 (7,803) 0 0 0 (7,803) (0.20) (0.20)
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1998 SEP-30-1998 38,149 0 415,940 17,166 0 515,022 134,621 68,616 816,557 446,491 133,335 0 0 27 224,555 816,557 479,903 479,903 0 428,404 932 4,464 7,110 38,993 16,313 22,401 0 0 0 22,401 0.59 0.57
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