-----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, N/uJVjAcpGkLyHXGlmz9icRMqdOhoyL/wkHjlBXp9fiYw9Laa+eNinemPdh7gHLl tZ8Rqjc33RalneNhg/Td1A== 0000950144-98-007246.txt : 19980610 0000950144-98-007246.hdr.sgml : 19980610 ACCESSION NUMBER: 0000950144-98-007246 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980609 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAMALIE ASSOCIATES INC CENTRAL INDEX KEY: 0001038315 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 592776441 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-52075 FILM NUMBER: 98644426 BUSINESS ADDRESS: STREET 1: 200 PARK AVE STREET 2: STE 3100 CITY: NEW YORK STATE: NY ZIP: 10166-0136 BUSINESS PHONE: 8139617494 MAIL ADDRESS: STREET 1: 3903 NORTHDALE BLVD CITY: TAMPA STATE: FL ZIP: 33624 S-1/A 1 LAMALIE ASSOCIATES, INC. PRE-EFFECTIVE AMD. #1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998 REGISTRATION STATEMENT NO. 333-52075 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- LAMALIE ASSOCIATES, INC. (Exact name of Registrant as specified in its charter) --------------------- FLORIDA 8741 59-2776441 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
--------------------- 200 PARK AVENUE, SUITE 3100 NEW YORK, NEW YORK 10166-0136 (212) 953-7900 (Address, including zip code, and telephone number including area code, of Registrant's principal executive offices) --------------------- JACK P. WISSMAN, EXECUTIVE VICE PRESIDENT LAMALIE ASSOCIATES, INC. 3903 NORTHDALE BOULEVARD TAMPA, FLORIDA 33624 (813) 961-7494 (Name, address, including zip code, and telephone number including area code, of agent for service) COPIES OF COMMUNICATIONS TO: RICHARD M. LEISNER, ESQUIRE HELEN N. KAMINSKI, ESQUIRE TRENAM, KEMKER, SCHARF, BARKIN NEAL, GERBER & EISENBERG FRYE, O'NEILL & MULLIS TWO NORTH LASALLE STREET P.O. BOX 1102 SUITE 2200 TAMPA, FLORIDA 33601-1102 CHICAGO, ILLINOIS 60602
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------- If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 9, 1998 PROSPECTUS 3,000,000 SHARES (LAI WARD HOWELL(TM) LOGO) LAMALIE ASSOCIATES, INC. COMMON STOCK --------------------------- Of the 3,000,000 shares of Common Stock offered hereby, 2,089,540 shares are being offered by Lamalie Associates, Inc. ("LAI" or the "Company") and 910,460 shares are being offered by certain stockholders of the Company named herein (the "Selling Stockholders"). The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The Company's Common Stock is traded on the Nasdaq National Market under the symbol "LAIX." On May 6, 1998, the last reported sale price of the Company's Common Stock on the Nasdaq National Market was $21.50 per share. See "Price Range of Common Stock." PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED UNDER THE CAPTION "RISK FACTORS" AT PAGE 7. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
======================================================================================================================= PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNTS(1) COMPANY(2) STOCKHOLDERS - ----------------------------------------------------------------------------------------------------------------------- Per Share.......................... $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------- Total(3)........................... $ $ $ $ =======================================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses, estimated at $400,000, all of which are payable by the Company. (3) The Company has granted to the several Underwriters a 30-day option to purchase up to 450,000 additional shares of Common Stock, on the same terms and conditions as set forth above, to cover over-allotments, if any. If this option is exercised in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------------------- The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the certificates representing shares of Common Stock will be made on or about , 1998 through the Depository Trust Company or at the offices of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin. ROBERT W. BAIRD & CO. INCORPORATED THE ROBINSON-HUMPHREY COMPANY J.C. BRADFORD & CO. THE DATE OF THIS PROSPECTUS IS JUNE , 1998 3 Inside front cover page of the prospectus: Left hand column contains the following one sentence description of LAI. "LAI Ward Howell is one of the largest and fastest growing executive search firms in the world. Our global search consultancy offers in-depth expertise in key industry sectors and specialized functional areas." The right hand column lists LAI's eight practice groups and functional group. The text is superimposed over a picture, that continues on the inside back cover of a hemisphere of a globe on a light blue background. At the bottom of the page, typed on a white background, is the following text: CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised and reflects financial and other data of acquired companies only from the dates of acquisition. All references in this Prospectus to fiscal years are to LAI's fiscal years ended on the last day of February each year (e.g., fiscal 1998 refers to LAI's fiscal year ended February 28, 1998). Unless the context otherwise requires, references to the "Company" or "LAI" are to Lamalie Associates, Inc. and its subsidiaries. THE COMPANY LAI is one of the largest and fastest growing executive search firms in the world. LAI provides consulting services aimed specifically at solving its clients' leadership needs by identifying, evaluating and recommending qualified candidates for senior level positions. The Company, which conducts business under the name "LAI Ward Howell," principally serves Fortune 500 and large private companies. LAI provides executive search services exclusively on a retained basis, and charges a fee typically equal to one-third of the first year cash compensation for the position being filled. During fiscal 1998, the average first year cash compensation for positions being filled by LAI was approximately $226,000. Industry Revenue in the global executive search industry has grown at a 17% compound annual growth rate from approximately $3.5 billion in 1993 to approximately $6.5 billion in 1997. The industry is expected to continue to grow at a 15% annual rate with global revenue projected to reach $10.0 billion by the year 2000. LAI believes that a number of favorable trends are generating significant growth in the executive search industry, including: (i) a greater demand for managers with broad leadership skills, (ii) the rapid growth in outsourcing non-core activities, (iii) the growth in the number and scope of multinational businesses, (iv) an increase in executive turnover and (v) an increase in executive compensation levels. The executive search industry is highly fragmented, consisting of more than 4,000 firms worldwide. Retained search firms generally are compensated for an assignment whether or not they are successful in placing a recommended candidate, while contingency search firms are not compensated for an assignment unless they place a recommended candidate. Business LAI's objective is to be a global leader in providing comprehensive consulting services aimed specifically at solving its clients' senior leadership needs. To achieve this objective, LAI has developed a knowledge-based search practice organized around eight industry groups and one functional group. The industry groups execute searches for clients in the following business sectors: automotive; communications, entertainment and technology; consumer products and services; energy and natural resources; financial services; health care and pharmaceuticals; industrial; and insurance and risk management. The functional group executes searches for specific functional positions, including board of directors, human resources and legal. These practice groups enable LAI's consultants to better understand each client's business strategy and industry and position LAI as a consulting partner to its clients. LAI's clients are among the most prominent companies in their industries and include General Motors, Lucent Technologies, PepsiCo, Enron, Lehman Brothers, Bristol-Myers Squibb, AlliedSignal and Prudential. LAI emphasizes long-term relationships with clients, rather than one-time projects or assignments, and has represented the foregoing clients for an average of 14 years. More than 65% of the Company's fiscal 1998 fee revenue was attributable to companies for which LAI conducted one or more searches during the prior two fiscal years. 3 5 LAI's knowledge-based practice consists of 114 consultants supported by 116 associates, researchers and information technology ("IT") professionals as of April 30, 1998. In order to readily identify the universe of qualified executive candidates, search consultants must understand a client's business practices, strategies, culture, industry and competitors. LAI's associates, researchers and IT professionals support the Company's consultants by, among other things, gathering and analyzing information obtained from numerous electronic databases, trade journals and directories, the Internet and other sources. LAI's research staff is organized by practice group, with most researchers specializing in one or two specific industries. LAI also maintains a proprietary database containing professional information on more than 100,000 executive candidates. Consultants can query this database on a variety of attributes, including demographic information, work experience, compensation and personal interview results. LAI's wide area computer network provides remote document sharing and data search capabilities, groupware features and real-time updates on ongoing search engagements. LAI's support functions are coordinated from its Tampa, Florida office. LAI believes that its industry specialization and technological capabilities enable it to consistently provide superior research and, ultimately, deliver higher quality search results to its clients. LAI has been successful in attracting and retaining some of the most productive executive search consultants in the industry, as measured by fee revenue per consultant. The Company attributes its success to its premium reputation, performance-based compensation system, entrepreneurial culture and commitment to providing strong research, technology and administrative support. The Company has increased its staff from 36 consultants located in seven domestic offices at the end of fiscal 1993 to 114 consultants located in 17 domestic offices and one international office as of May 1998. The Company has experienced an average annual turnover rate among its consultants of less than 8% over the last five fiscal years. Most of LAI's consultants held senior level positions with leading companies in LAI's targeted industry sectors and many had experience in the executive search business prior to joining LAI. The Company's Practice Leaders and Managing Partners have an average of more than 14 years experience in the executive search business. In addition, LAI believes its status as a public company provides a further competitive advantage in attracting and retaining highly qualified consultants. Common Stock and stock options are broadly held among LAI's consultants, and the Company believes that this equity ownership fosters a team-oriented working environment and aligns the interests of its consultants with the Company's investors. Strategy LAI believes that several competitive factors distinguish it from other executive search firms. These factors include (i) a focus on knowledge-based practice groups, which enables LAI's consultants to provide more specialized services and position LAI as a partner to its clients, (ii) a consultative approach that emphasizes a thorough understanding of each client's organizational structure, history, culture, strategic objectives and leadership needs, (iii) a commitment to improving consultant productivity through the use of industry focused research and innovative technology, (iv) an ability to attract, motivate and retain some of the most productive search consultants in the industry, (v) an entrepreneurial environment based on broad equity ownership by consultants, a performance-based compensation system and stock incentive plans and (vi) an ability to aggressively pursue acquisitions on a global scale using its publicly traded stock, stock options and a well capitalized balance sheet. LAI believes that global search fulfillment capabilities are critical to attracting and retaining multinational clients. To better leverage its knowledge-based expertise and technological capabilities, capitalize on its existing relationships with multinational clients and ensure the quality and consistency of its services, LAI recently initiated an international strategy of directly owning offices in major business and financial centers around the world. In May 1998, LAI opened an office in London, England and is currently targeting other major markets in which to establish offices. In international markets where LAI does not own an office, it will continue to provide clients with search fulfillment capabilities by using existing and developing new referral 4 6 relationships with executive search firms located in those markets. Through these referral relationships, LAI executes domestic search assignments on behalf of non-U.S. executive search firms and refers to such firms international search assignments for LAI's domestic clients. Recent Acquisitions LAI recently completed two acquisitions which have significantly expanded the Company's practice group coverage, provided broader geographic reach and enhanced the Company's competitive position. On February 27, 1998, LAI completed the acquisition of Ward Howell International, Inc. ("WHI"), which was the ninth largest executive search firm in the United States with fee revenue of $26.5 million for the year ended December 31, 1997. On January 2, 1998, LAI completed the acquisition of Chartwell Partners International, Inc. ("CPI"), a prominent executive search firm based in California specializing primarily in the financial services industry. CPI had fee revenue of $3.4 million for the year ended December 31, 1997. The acquisitions of WHI and CPI strengthened LAI's existing practice groups, particularly in the areas of financial services, health care and technology, and added new practice groups in the areas of automotive, insurance, and media and entertainment. These acquisitions also have expanded the Company's domestic office network, adding six new offices and providing an active presence on the West Coast with offices in Los Angeles, San Francisco and Phoenix. LAI is a Florida corporation. Its headquarters are located at 200 Park Avenue, Suite 3100, New York, NY 10166-0136, and its telephone number is (212) 953-7900. The Company's World Wide Web address is www.laix.com. THE OFFERING Common Stock offered by the Company..... 2,089,540 shares Common Stock offered by the Selling Stockholders............................ 910,460 shares Common Stock to be outstanding after the Offering................................ 7,761,956 shares(1) Use of Proceeds......................... For general corporate purposes, including additional acquisitions and opening new offices in major business and financial centers around the world; computer software and hardware purchases, upgrades and enhancements; and working capital. See "Use of Proceeds." Nasdaq National Market symbol........... LAIX - --------------- (1) Does not include 1,192,115 shares of Common Stock issuable on the exercise of stock options outstanding as of May 29, 1998. See "Management -- Director Compensation" and "Management -- Incentive and Benefit Plans." 5 7 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
YEAR ENDED FEBRUARY 28 OR 29, --------------------------------------------------------------- PRO FORMA 1994 1995 1996 1997 1998 1998(1) -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Fee revenue, net............................. $ 21,144 $ 28,262 $ 35,088 $ 46,437 $ 61,803 $ 91,730 Compensation and benefits.................... 17,725 23,991 30,693 39,928 46,513 69,053 General and administrative expenses.......... 2,080 2,333 4,467 6,685 8,680 13,736 -------- -------- -------- -------- -------- -------- Operating income (loss)...................... 1,339 1,938 (72) (176) 6,610 8,941 Net interest income (expense)................ 14 (6) (40) (376) 197 (649) -------- -------- -------- -------- -------- -------- Income (loss) before provision for income taxes...................................... 1,353 1,932 (112) (552) 6,807 8,292 Provision for income taxes................... 97 671 90 15 2,927 3,807 -------- -------- -------- -------- -------- -------- Net income (loss)................... $ 1,256 $ 1,261 $ (202) $ (567) $ 3,880 $ 4,485 ======== ======== ======== ======== ======== ======== Diluted earnings per share................... $ 0.82 ======== Pro forma net income (loss)(2)............... $ 785 $ 1,121 $ (202) $ (567) $ 3,880 $ 4,485 ======== ======== ======== ======== ======== ======== Pro forma diluted earnings per share......... $ 0.90 ======== Diluted weighted average shares outstanding................................ 4,751 4,961 OTHER DATA: Number of consultants employed as of fiscal year end................................... 38 46 54 62 111 Average fee revenue per consultant employed during entire fiscal year.................. $602,000 $689,000 $706,000 $740,000 $989,000 Average cash compensation of positions filled(3).................................. $172,000 $180,000 $196,000 $226,000 $226,000
AS OF FEBRUARY 28, 1998 ------------------------ ACTUAL AS ADJUSTED(4) ------- -------------- BALANCE SHEET DATA: Working capital............................................. $ 9,815 $ 52,036 Total assets................................................ 88,916 131,137 Total long-term debt........................................ 9,125 9,125 Total stockholders' equity.................................. 35,471 77,692
- --------------- (1) The unaudited pro forma financial information for the year ended February 28, 1998 (i) reflects the results of operations of LAI as if the acquisitions of WHI and CPI were completed on March 1, 1997, (ii) assumes that the WHI and CPI consultants were paid according to the LAI consultant compensation plan, the effect of which was to decrease compensation and benefits expense and increase operating income by approximately $3.6 million, (iii) reflects an increase in goodwill amortization and a decrease in net interest income as a result of the two acquisitions and (iv) was prepared using the historical audited financial statements of WHI and CPI for the year ended December 31, 1997. See Unaudited Pro Forma Combined Statement of Operations. (2) For periods prior to November 1, 1994, the Company had elected to be taxed as an S corporation for federal and certain state income tax purposes. The pro forma net income (loss) for each period shown reflects a provision for income taxes as if the Company were a C corporation for income tax purposes during such periods at an assumed effective tax rate of 42%. (3) Represents the average first year cash compensation of positions for which LAI conducted searches during the fiscal year. (4) Adjusted to give effect to the sale of 2,089,540 shares of Common Stock offered by the Company hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 6 8 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors, as well as the other information in this Prospectus, before investing in shares of the Common Stock offered hereby. This Prospectus contains certain forward-looking statements that involve risks and uncertainties. Future events and the Company's actual results could differ materially from the results reflected in these forward-looking statements. DEPENDENCE ON ATTRACTING AND RETAINING QUALIFIED EXECUTIVE SEARCH CONSULTANTS LAI's success depends upon its ability to attract and retain qualified executive search consultants who possess the skills and experience necessary to fulfill its clients' executive search needs. Competition for qualified consultants is intense and many firms in LAI's industry have experienced high consultant turnover rates. There can be no assurance that LAI will continue to be successful in identifying and hiring consultants with substantial experience and established client relationships. LAI believes it has been able to attract and retain highly qualified, productive executive search consultants as a result of its premium reputation and its performance-based consultant compensation, which LAI believes is among the highest in the industry as a percentage of fee revenue generated. Although consultants are paid base salaries, a significant portion of most consultants' compensation consists of incentive compensation that is dependent primarily upon the amount of fee revenue they generate. The majority of LAI's executive search consultants are not subject to any employment, noncompetition or similar agreement. Any reduction in LAI's compensation levels or any decline in the market price of LAI's Common Stock could impair LAI's ability to retain existing or attract additional qualified consultants. Any such occurrence could have a material adverse effect on LAI's business, financial condition and results of operations. See "-- Portability of Client Relationships" and "Business -- Business Strategy." PORTABILITY OF CLIENT RELATIONSHIPS LAI's success depends upon the ability of its executive search consultants to develop and maintain strong, long-term relationships with its clients. Usually, only one or two consultants have primary responsibility for a client relationship. When a consultant leaves one search firm and joins another, clients that have established relationships with the departing consultant may move their business to the consultant's new employer. The loss of one or more clients is more likely to occur if the departing consultant enjoys widespread name recognition or has developed a reputation as a specialist in executing searches in a particular industry. Although client portability historically has not caused significant problems for LAI, the failure to retain its most productive consultants or maintain the quality of service to which its clients are accustomed, and the ability of a departing consultant to move business to his or her new employer, could have a material adverse effect on LAI's business, financial condition and results of operations. See "-- Dependence on Attracting and Retaining Qualified Executive Search Consultants," "Business -- Services" and "Business -- Marketing and Clients." RISKS OF GROWTH THROUGH ACQUISITIONS A key component of LAI's growth strategy is to acquire executive search firms that expand the breadth of its practice groups and strategically extend the Company's geographic presence. Since January 1, 1998, LAI has acquired two executive search firms, thereby adding an aggregate of 37 consultants and a net total of six offices. As a result of the disparate corporate cultures of executive search firms, there can be no assurance that LAI will be able to (i) successfully integrate the acquired firms into its existing operations while maintaining the high quality of LAI's services and its unique corporate culture, (ii) retain and motivate key consultants previously associated with acquired firms or (iii) realize the expected levels of revenue and productivity of such acquisitions. Growth through acquisitions also could adversely affect LAI's business and financial 7 9 condition by diverting management's attention from the Company's executive search business; exacerbating LAI's blocking conflicts; decreasing LAI's profitability as a result of incurring liabilities that were not known at the time of acquisition or creating tax and accounting problems. There also can be no assurance that LAI will be successful in identifying suitable acquisition candidates or completing any acquisitions of such firms. MANAGEMENT OF GROWTH The Company currently is experiencing rapid growth that could strain the Company's managerial, financial, administrative and operational resources. To effectively manage its growth, the Company may be required to improve its internal operational processes and controls, expand its technological and financial systems, assimilate divergent corporate cultures of acquired executive search firms, eliminate or consolidate redundant capabilities, and maintain the consistency and high quality of its services. Moreover, the Company may open offices in new locations, which would entail certain startup costs. If the Company is unable to manage its growth effectively, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Growth Strategy." COMPETITION The executive search industry is extremely competitive and highly fragmented. Some of LAI's competitors possess greater resources and greater name recognition than LAI. There are limited barriers to entry into the executive search industry and new executive search firms continue to enter the market. Many executive search firms have a smaller client base than LAI and therefore may be subject to fewer blocking restraints than LAI. See "-- Blocking Arrangements." In addition, a client will sometimes request a discounted search fee when the client offers the prospect of multiple search engagements or in exchange for designating a search firm as the client's "preferred provider" of search services. Such pricing pressure may constitute an additional competitive factor. The Company competes for search assignments with the human resources and recruiting personnel employed by some of its clients and prospective clients. There can be no assurance that LAI will be able to continue to compete effectively with existing or potential competitors or that significant clients or prospective clients of LAI will not decide to perform search services using in-house personnel. See "Business -- Competition." BLOCKING ARRANGEMENTS Executive search firms frequently agree to refrain, for a specified period of time, from recruiting employees of a client and possibly affiliates of such client, when conducting searches on behalf of other clients (a "blocking" arrangement). Blocking arrangements generally remain in effect for one or two years. However, the duration and scope of the blocking or "off limits" period, including whether it covers all operations or only certain divisions of the client, generally depend on factors such as the length of the client relationship, the number of searches to be performed by the executive search firm and the amount of fee revenue generated or expected to be generated by the executive search firm. Some of LAI's clients are recognized as industry leaders and/or employ a significant number of qualified executives who are potential recruitment candidates for other companies in those clients' industries. LAI's inability to recruit employees of such industry leading clients may make it difficult for LAI to obtain search assignments from, or to fulfill search assignments for, other companies while employees of such industry leading clients are off limits. As LAI's client base grows and as LAI acquires additional executive search firms, blocking arrangements increasingly may impede LAI's growth or its ability to attract and serve new clients, which could have a material adverse effect on LAI's business, financial condition and results of operations. See "Business -- Marketing and Clients." 8 10 RISKS OF INTERNATIONAL OPERATIONS LAI recently opened an office in London, England and is pursuing further international expansion. LAI is subject to certain risks that are inherent in conducting international business, such as exposure to currency fluctuations, difficulties in integrating and standardizing operational procedures and corporate cultures, potentially adverse tax consequences, difficulties in staffing and managing foreign operations and the burden of complying with a wide variety of foreign laws and regulations. There can be no assurance that one or more of such risks will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Growth Strategy." RELIANCE ON INFORMATION PROCESSING SYSTEMS LAI's success depends in large part upon its ability to gather, store, retrieve and process substantial amounts of information. To achieve its operational goals and to remain competitive, LAI believes that it must continue to automate its search execution process and further improve its information processing system, which may require the acquisition of equipment and the acquisition or development, either internally or through independent consultants, of new proprietary software. If LAI does not maintain an information processing system that provides the capabilities necessary for LAI to compete effectively, LAI's business, financial condition and results of operations could be materially adversely affected. Additionally, in the event the Company experiences an interruption or loss of its information processing capabilities, through casualty, operating malfunction or otherwise, the Company's business could be materially adversely affected. See "Use of Proceeds" and "Business -- Research and Technology." BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS The Selling Stockholders, all of whom are consultants, executive officers and/or directors of the Company, will receive substantial proceeds and certain other benefits from the Offering. The Selling Stockholders will receive approximately $18.6 million of the aggregate proceeds of the Offering, net of underwriting discounts. In addition, the Offering will increase the number of shares of Common Stock freely traded in the public market. This increased public float will provide increased liquidity to the Selling Stockholders and to other existing stockholders of the Company with respect to the shares of Common Stock they will continue to own after the Offering. See "-- Shares Eligible for Future Sale" and "Principal and Selling Stockholders." EXECUTIVE SEARCH LIABILITY RISK LAI is exposed to potential claims from clients for such matters as breaching a blocking arrangement or recommending a candidate who later proves to be unsuitable for the position filled. In addition, employment candidates could assert claims against LAI for such matters as failure to maintain the confidentiality of the candidate's employment search or for alleged discrimination or other employment law violations made by a client of LAI. The Company maintains professional liability insurance in such amounts and with such coverage and deductibles as management believes are adequate; however, there can be no assurance that the Company's insurance will cover all such claims or that insurance coverage will continue to be available at economically feasible rates. See "Business -- Insurance." EFFECT OF ANTI-TAKEOVER PROVISIONS LAI's Articles of Incorporation and Bylaws and applicable law contain provisions that could have the effect of inhibiting a non-negotiated merger or unsolicited change of control of LAI. In particular, LAI's Articles of Incorporation provide for a staggered Board of Directors, permit the removal of directors for cause only, and authorize its Board of Directors to issue shares of preferred stock and fix the rights and preferences 9 11 thereof, without a vote of its stockholders. Although no shares of preferred stock currently are outstanding and the Company has no present plans to issue any shares of preferred stock, the rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Certain of these provisions may delay, deter or prevent a change in control of LAI that stockholders might consider in their best interests. Moreover, the existence of these provisions may depress the market price of the Common Stock. See "Description of Capital Stock." POSSIBLE VOLATILITY OF STOCK PRICE Since the Company's initial public offering was completed in July 1997 (the "Initial Public Offering"), the closing sale price of the Common Stock has fluctuated between $15.875 per share and $23.25 per share. See "Price Range of Common Stock." The market price of the Common Stock may be subject to significant fluctuations in response to various factors, such as quarterly fluctuations in LAI's operating results, changes in securities analysts' estimates of LAI's future earnings, LAI's loss of key consultants or clients, or significant business developments relating to LAI or its competitors. The market price of the Common Stock also may be affected by the Company's ability to meet analysts' expectations and any failure to meet such expectations, even if minor, could have a material adverse effect on the market price of the Common Stock. The trading volume of the Common Stock has been lower than the trading volume of publicly traded shares of many other companies, in part because certain LAI stockholders have agreed not to sell, contract to sell or otherwise dispose of an aggregate of 2,329,924 shares of Common Stock for certain periods of time, without the prior written consent of Robert W. Baird & Co. Incorporated. See "-- Shares Eligible for Future Sale," "Shares Eligible for Future Sale" and "Underwriting." Because of this reduced trading volume, the market price of Common Stock may be more susceptible to fluctuation. In addition, the stock market has experienced a high level of price and volume volatility, and market prices of equity securities of many companies have experienced wide price fluctuations not necessarily related to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of the Common Stock. In the past, securities class action lawsuits frequently have been instituted against companies following periods of volatility in the market price of such companies' securities. If any such litigation is instigated against the Company, it could result in substantial costs to the Company and a diversion of management's attention and resources, which could have a material adverse effect on the Company's business, results of operations or financial condition. ABSENCE OF DIVIDENDS LAI does not anticipate paying cash dividends on its Common Stock at any time in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, there will be 7,761,956 shares of Common Stock outstanding (8,211,956 if the Underwriters' over-allotment option is exercised in full), substantially all of which will be freely tradable without restriction. In addition, an aggregate of 1,192,115 shares of Common Stock are or will be issuable upon exercise of stock options currently outstanding under LAI's 1997 Omnibus Stock and Incentive Plan and 1998 Omnibus Stock and Incentive Plan (the "Employee Stock Plans") and Non-Employee Directors' Stock Plan (the "Directors' Stock Plan"), which shares, upon issuance, also will be freely tradable without restriction. Sales of such shares in the public market, or the perception that such sales may occur, could adversely affect the market price of the Common Stock or impair LAI's ability to raise additional capital in the future through the sale of equity securities. Certain existing stockholders of LAI have agreed not to sell, contract to sell or otherwise dispose of an aggregate of 426,000 shares of Common Stock until at least July 2, 1999; an additional 25,707 shares until at least January 2, 2000; an additional 189,677 10 12 shares until at least February 27, 2000; and an additional 1,688,540 shares until at least June 10, 2000 (two years after the date of this Prospectus), without the prior written consent of Robert W. Baird & Co. Incorporated. See "-- Possible Volatility of Stock Price." In addition, the Selling Stockholders and LAI's executive officers and directors have agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Robert W. Baird & Co. Incorporated. Additionally, the Company has agreed for a period of 90 days after the date of this Prospectus, not to sell, contract to sell or otherwise dispose of any shares of Common Stock without the prior written consent of Robert W. Baird & Co. Incorporated, other than shares of Common Stock issued in the Offering, under its 1997 Employee Stock Purchase Plan, or upon exercise of stock options granted pursuant to the Employee Stock Plans or the Directors' Stock Plan. See "Management -- Incentive and Benefit Plans," "Shares Eligible for Future Sale" and "Underwriting." 11 13 USE OF PROCEEDS The net proceeds to LAI from the sale of the 2,089,540 shares of Common Stock offered hereby, after deducting the underwriting discounts and estimated offering expenses, are estimated to be approximately $42.2 million ($51.4 million if the Underwriters' over-allotment option is exercised in full). The Company will not receive any proceeds from the sale by the Selling Stockholders of shares of Common Stock in the Offering. LAI intends to use the net proceeds of the Offering to further implement the Company's expansion strategy, which includes both additional acquisitions and opening new offices in major business and financial centers around the world. The Company also intends to use a portion of the net proceeds of the Offering for computer software and hardware purchases, upgrades and enhancements and for general corporate purposes, including working capital. Pending such uses, LAI intends to invest the net proceeds from the Offering in short-term, investment grade securities, certificates of deposit or direct guaranteed obligations of the United States government. PRICE RANGE OF COMMON STOCK The following table sets forth, for the periods indicated, the range of high and low closing sale prices for the Common Stock, as reported on the Nasdaq National Market since trading began on July 2, 1997, the date of the Company's Initial Public Offering, at $12.00 per share, under the symbol LAIX.
HIGH LOW ------- ------- FISCAL YEAR 1998: Second Quarter (from July 2, 1997).......................... $21.250 $15.875 Third Quarter............................................... 22.875 17.750 Fourth Quarter.............................................. 21.250 16.375 FISCAL YEAR 1999: First Quarter (through May 6, 1998)......................... $23.250 $19.500
On May 6, 1998, the last reported sales price of the Common Stock on the Nasdaq National Market was $21.50 per share. As of May 6, 1998, there were approximately 145 holders of record of the Common Stock. DIVIDEND POLICY LAI has not paid dividends in fiscal 1997, 1998 or 1999 and does not intend to pay any cash dividends for the foreseeable future but instead intends to retain earnings, if any, for the future operation and expansion of LAI's business. Any determination to pay dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent upon LAI's results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors deemed relevant by the Board of Directors. Moreover, the Company's credit facilities prohibit payment of dividends without the consent of the lender. 12 14 CAPITALIZATION The following table sets forth the capitalization of LAI as of February 28, 1998, and as adjusted to reflect the application of the estimated net proceeds from the issuance and sale by the Company of the 2,089,540 shares of Common Stock offered hereby as described in "Use of Proceeds." The table reflects the Company's recent acquisitions of WHI and CPI and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
AS OF FEBRUARY 28, 1998 --------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) Current maturities of long term debt........................ $ 3,070 $ 3,070 ======= ======= Long-term debt, less current maturities..................... $ 6,055 $ 6,055 ------- ------- Stockholders' equity(1): Preferred stock, $0.01 par value, 3,000,000 shares authorized; no shares issued and outstanding........... -- -- Common stock, $0.01 par value, 35,000,000 shares authorized; 5,576,446 shares issued and outstanding; 7,665,986 shares as adjusted........................... 56 77 Additional paid-in capital................................ 32,873 75,073 Retained earnings......................................... 2,542 2,542 ------- ------- Total stockholders' equity........................ 35,471 77,692 ------- ------- Total capitalization......................... $41,526 $83,747 ======= =======
- --------------- (1) Excludes 1,211,615 shares of Common Stock issuable on the exercise of outstanding stock options. 13 15 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA) The following table sets forth selected financial and other data of LAI for fiscal years ended February 1994 through 1998 and as of the last day of each of those fiscal years. The Statement of Operations Data for, and Balance Sheet Data as of the end of, fiscal 1995 through 1998, are derived from the audited Consolidated Financial Statements of the Company. The Statement of Operations and Other Data for, and Balance Sheet Data as of the end of, fiscal 1994 are derived from the unaudited Consolidated Financial Statements of the Company and, in the opinion of management, include all adjustments (consisting of normal and recurring adjustments) necessary to present fairly the results of operations and financial position of the Company for such periods and as of such dates. The financial data shown below should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
YEAR ENDED FEBRUARY 28 OR 29, -------------------------------------------------------------- PRO FORMA 1994 1995 1996 1997 1998 1998(1) -------- -------- -------- -------- -------- ------- STATEMENT OF OPERATIONS DATA: Fee revenue, net............................. $ 21,144 $ 28,262 $ 35,088 $ 46,437 $ 61,803 $91,730 Compensation and benefits.................... 17,725 23,991 30,693 39,928 46,513 69,053 General and administrative expenses.......... 2,080 2,333 4,467 6,685 8,680 13,736 -------- -------- -------- -------- -------- ------- Operating income (loss).................... 1,339 1,938 (72) (176) 6,610 8,941 Net interest income (expense)................ 14 (6) (40) (376) 197 (649) -------- -------- -------- -------- -------- ------- Income (loss) before provision for income taxes.................................... 1,353 1,932 (112) (552) 6,807 8,292 Provision for income taxes................... 97 671 90 15 2,927 3,807 -------- -------- -------- -------- -------- ------- Net income (loss)................... $ 1,256 $ 1,261 $ (202) $ (567) $ 3,880 $ 4,485 ======== ======== ======== ======== ======== ======= Diluted earnings per share................... $ 0.82 ======== Pro forma net income (loss)(2)............... $ 785 $ 1,121 $ (202) $ (567) $ 3,880 $ 4,485 ======== ======== ======== ======== ======== ======= Pro forma diluted earnings per share......... $ 0.90 ======= Diluted weighted average shares outstanding................................ 4,751 4,961 OTHER DATA: Number of consultants employed as of fiscal year end................................... 38 46 54 62 111 Average fee revenue per consultant employed during entire fiscal year.................. $602,000 $689,000 $706,000 $740,000 $989,000 Average cash compensation of positions filled (3)........................................ $172,000 $180,000 $196,000 $226,000 $226,000
AS OF FEBRUARY 28 OR 29, ---------------------------------------------- 1994 1995 1996 1997 1998 ------ ------- ------- ------- ------- BALANCE SHEET DATA: Working capital (deficit)................................... $1,723 $ 1,439 $ (485) $ 617 $ 9,815 Total assets................................................ 9,885 12,193 18,300 25,561 88,916 Total long-term debt........................................ 264 143 63 2,037 9,125 Total stockholders' equity.................................. 2,121 2,325 2,509 2,627 35,471
- --------------- (1) The unaudited pro forma financial information for the year ended February 28, 1998 (i) reflects the results of operations of LAI as if the acquisitions of WHI and CPI were completed on March 1, 1997, (ii) assumes that the WHI and CPI consultants were paid according to the LAI consultant compensation plan, the effect of which was to decrease compensation and benefits expense and increase operating income by approximately $3.6 million, (iii) reflects an increase in goodwill amortization and a decrease in net interest income as a result of the two acquisitions and (iv) was prepared using the historical audited financial statements of WHI and CPI for the year ended December 31, 1997. See Unaudited Pro Forma Combined Statement of Operations. (2) For periods prior to November 1, 1994, the Company had elected to be taxed as an S corporation for federal and certain state income tax purposes. The pro forma net income (loss) for each period shown reflects a provision for income taxes as if the Company were a C corporation for income tax purposes during such periods at an assumed effective tax rate of 42%. (3) Represents the average first year cash compensation of positions for which LAI conducted searches during the fiscal year. 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains certain forward-looking statements that are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, the Company's management. Such statements include those regarding future financial results, successfully implementing and continuing growth strategies and business strategies, attracting, motivating and retaining executive search consultants, maintaining favorable long-term client relationships, future capital requirements and the effects of completing acquisitions. Because such statements involve risks and uncertainties, actual actions and strategies and the timing and expected results thereof may differ materially from those expressed or implied by such forward-looking statements, and the Company's future results, performance or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include, but are not limited to, those discussed under "Risk Factors." The following presentation of management's discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's Consolidated Financial Statements, the Notes thereto and other financial information included herein. OVERVIEW LAI is one of the largest and fastest growing executive search firms in the world. The Company derives substantially all of its revenue from fees for professional services, which are billed exclusively on a retained basis. LAI's fees typically equal one-third of the anticipated first year cash compensation for the positions being filled. If the actual compensation package for a successfully placed candidate varies from the amount anticipated at the time of the engagement, an appropriate adjustment may be made to LAI's search fee. The Company recognizes fee revenue as clients are billed, generally over a 60 to 90 day period following the acceptance of a search assignment. In addition, clients usually are required to reimburse LAI for out-of-pocket expenses incurred in the search process. LAI's fee revenue has grown from $21.1 million in fiscal 1994 to $61.8 million in fiscal 1998, representing a compound annual growth rate of approximately 31%. LAI's fee revenue for fiscal 1998, on a pro forma combined basis assuming the acquisitions of WHI and CPI were completed on March 1, 1997, was $91.7 million. This growth has been achieved by (i) increasing the number of consultants at existing offices, (ii) improving fee revenue per consultant and (iii) opening and acquiring new offices. Since its Initial Public Offering on July 1, 1997, the Company has completed two acquisitions, which added a net total of six offices and 37 consultants. See "-- Acquisitions." The Company also opened new offices in Boston, Massachusetts and Stamford, Connecticut in fiscal 1997, and in Pittsburgh, Pennsylvania in fiscal 1998. Including acquisitions, the Company added a net total of 65 consultants during the three-year period ended February 28, 1998, representing a 141% increase to its consulting staff. Fee revenue per consultant employed for an entire fiscal year was approximately $706,000, $740,000 and $989,000 for fiscal 1996, 1997 and 1998, respectively. This improvement was due to greater consultant productivity, an increased mix of more senior level executive searches and to an overall rise in executive compensation. The average first year cash compensation of positions for which LAI conducted searches in fiscal 1996, 1997 and 1998 was approximately $196,000, $226,000, and $226,000, respectively. The largest component of the Company's operating expenses consists of compensation and benefits paid to its executive search consultants, executive officers and administrative and support personnel. LAI believes it has been able to attract and retain some of the most productive executive search consultants in the industry as a result of its premium reputation, its performance-based consultant compensation system and its status as a public company, which provides consultants with the opportunity to build wealth through direct equity ownership and participation in the Company's stock incentive plans. Compensation and benefits expense represented approximately 75.3% of fee revenue in fiscal 1998. The Company believes the compensation and 15 17 benefits it pays to its consultants, as a percentage of fee revenue generated, is among the highest in the industry. General and administrative expenses consist of occupancy expense associated with the Company's leased premises, costs associated with the Company's investments in information technology and marketing and other general office expenses. LAI benefits from the reduced costs associated with locating a majority of its administrative support operations in Tampa, Florida. In addition, the Company believes that all of its systems are year 2000 compliant. ACQUISITIONS As part of its growth strategy, the Company expects to continue to pursue strategic acquisitions as an efficient way to increase its number of consultants, expand its client base, strengthen and expand its practice group coverage and broaden its geographic reach in both domestic and international markets. Since the Initial Public Offering on July 1, 1997, the Company completed two acquisitions, which were recorded under the purchase method of accounting. The Company amortizes goodwill over 30 years. WHI Acquisition. LAI completed the acquisition of WHI on February 27, 1998. WHI was the ninth largest executive search firm in the United States with fee revenue of $26.5 million for the year ended December 31, 1997. WHI's fee revenue grew at a 21.5% compound annual growth rate from $10.0 million in 1992 to $26.5 million in 1997. LAI acquired WHI for approximately $19.5 million. The purchase consideration consisted of (i) approximately $8.8 million in cash, (ii) $7.6 million in subordinated promissory notes payable over three years, accruing interest on the unpaid balance at the rate of 5.0% per annum and (iii) approximately 190,000 shares of Common Stock. CPI Acquisition. LAI completed the acquisition of CPI on January 2, 1998. CPI was a prominent executive search firm based in California that specialized primarily in the financial services industry. CPI's fee revenue was $3.4 million for the year ended December 31, 1997. The Company acquired CPI for approximately $3.1 million. The purchase consideration consisted of (i) approximately $1.4 million in cash, (ii) a convertible subordinated promissory note of the Company in the principal amount of $1.25 million payable over three years, accruing interest on the unpaid balance at the rate of 6.75% per annum and convertible into shares of Common Stock at each anniversary date at the prices specified in the asset purchase agreement and (iii) approximately 26,000 shares of Common Stock. PRO FORMA FINANCIAL INFORMATION The unaudited pro forma combined statement of operations for the year ended February 28, 1998 reflects the results of operations of LAI assuming the acquisitions of WHI and CPI were completed on March 1, 1997. The historical audited financial statements of WHI and CPI for the year ended December 31, 1997 were used in preparing the unaudited pro forma combined statement of operations. See Unaudited Pro Forma Combined Statement of Operations. The unaudited pro forma combined financial information assumes that the WHI and CPI consultants were paid according to LAI's consultant compensation plan, which decreased compensation and benefits expense and increased operating income by approximately $3.6 million. The unaudited pro forma combined statement of operations also reflects an increase in goodwill amortization of approximately $810,000 and a decrease in net interest income of approximately $960,000 as a result of the two acquisitions. The unaudited pro forma combined statement of operations does not reflect (i) expected cost savings which may be achieved through facilities, technology and general and administrative integration or (ii) expected costs of planned upgrades to WHI's and CPI's management information systems. Such items are not reflected because they are not factually determinable or estimable. 16 18 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected Statement of Operations Data as a percentage of fee revenue:
PERCENTAGE OF FEE REVENUE --------------------- YEAR ENDED FEBRUARY 28 OR 29, --------------------- 1996 1997 1998 ----- ----- ----- Fee revenue, net............................................ 100.0% 100.0% 100.0% Compensation and benefits................................... 87.5 86.0 75.3 General and administrative expenses......................... 12.7 14.4 14.0 ----- ----- ----- Operating income (loss)..................................... (0.2) (0.4) 10.7 Net interest income (expense)............................... (0.1) (0.8) 0.3 ----- ----- ----- Income (loss) before provision for income taxes............. (0.3) (1.2) 11.0 Provision for income taxes.................................. 0.3 -- 4.7 ----- ----- ----- Net income (loss)........................................... (0.6)% (1.2)% 6.3% ===== ===== =====
FISCAL 1998 COMPARED WITH FISCAL 1997 Fee revenue. Fee revenue increased $15.4 million, or 33.1%, to $61.8 million for fiscal 1998 from $46.4 million for fiscal 1997. The increase in fee revenue was primarily a result of an increase in the number of consultants and an increase in the average fee revenue per consultant. At the end of fiscal 1998, the Company employed a total of 111 consultants, which represents a net increase of 49 consultants since the beginning of fiscal 1998 and reflects the 37 consultants added in connection with the acquisitions of WHI on February 27, 1998 and CPI on January 2, 1998. The average fee revenue per consultant employed for the entirety of the periods being compared increased 33.6% to $989,000 in fiscal 1998 from $740,000 in fiscal 1997. Compensation and benefits. Compensation and benefits increased $6.6 million, or 16.5%, to $46.5 million for fiscal 1998 from $39.9 million for fiscal 1997. The increase was primarily due to compensation and benefits associated with the growth in the number of consultants and the increase in fee revenue per consultant. As a percentage of fee revenue, compensation and benefits decreased to 75.3% for fiscal 1998 from 86.0% for fiscal 1997 primarily due to a decrease in cash compensation paid to consultants in connection with the Company's adoption of a revised compensation plan for consultants effective March 1, 1997. The decrease in compensation and benefits as a percentage of fee revenue also was due to spreading compensation and benefits for LAI's administrative and support staff, which are primarily fixed, over a greater fee revenue base. General and administrative expenses. General and administrative expenses increased $2.0 million, or 29.8%, to $8.7 million for fiscal 1998 from $6.7 million for fiscal 1997. These changes were the result of additional infrastructure costs related to business expansion, including increased occupancy and IT expenses. As a percentage of fee revenue, general and administrative expenses decreased to 14.0% for fiscal 1998 from 14.4% for fiscal 1997. Operating income (loss). Operating income was $6.6 million for fiscal 1998, as compared to a loss of $176,000 for fiscal 1997. This change was primarily the result of an increase in fee revenue and decreases in compensation and benefits and general and administrative expenses as a percentage of fee revenue. Net interest income (expense). The Company received net interest income of $197,000 for fiscal 1998, as compared to net interest expense incurred of $376,000 for fiscal 1997. This change was a result of the Company repaying all outstanding indebtedness under its credit facilities with proceeds from the issuance of 17 19 Common Stock during the Initial Public Offering, as well as investment earnings from the remaining net proceeds. Provision for income taxes. The effective tax rate for fiscal 1998 of 43.0% varied from the statutory rate of 34.0% due to state and local income taxes and because certain expenses, including a portion of meals, entertainment and dues expense and premiums on keyperson life insurance policies, are non-deductible for income tax purposes. FISCAL 1997 COMPARED WITH FISCAL 1996 Fee revenue. Fee revenue increased $11.3 million, or 32.3%, to $46.4 million for fiscal 1997 from $35.1 million for fiscal 1996. The increase in fee revenue was primarily a result of an increase in the number of consultants and an increase in the average fee revenue per consultant. At the end of fiscal 1997, the Company employed a total of 62 consultants, which represents a net increase of 8 consultants since the beginning of fiscal 1997. The average fee revenue per consultant employed for the entirety of the periods being compared increased 4.8% to $740,000 in fiscal 1997 from $706,000 in fiscal 1996. The average first year cash compensation of positions for which LAI conducted searches increased by 15.3% to $226,000 in fiscal 1997 from $196,000 in fiscal 1996. During fiscal 1997, LAI opened two new offices, which generated approximately $1.7 million of fee revenue. Compensation and benefits. Compensation and benefits increased $9.2 million, or 30.1%, to $39.9 million for fiscal 1997 from $30.7 million for fiscal 1996. The increase was primarily due to compensation and benefits associated with the growth in the number of consultants and the increase in fee revenue per consultant. As a percentage of fee revenue, compensation and benefits decreased to 86.0% for fiscal 1997 from 87.5% for fiscal 1996 primarily due to spreading compensation and benefits for LAI's administrative and support staff, which are primarily fixed, over a greater fee revenue base. General and administrative expenses. General and administrative expenses increased $2.2 million, or 49.7%, to $6.7 million for fiscal 1997 from $4.5 million for fiscal 1996. As a percentage of fee revenue, general and administrative expenses increased to 14.4% for fiscal 1997 from 12.7% for fiscal 1996. These increases were primarily due to increases in occupancy costs associated with lease renewals at three of LAI's offices and the opening of two new offices in Stamford, Connecticut and Boston, Massachusetts, as well as an increase in marketing expenses to implement a program to enhance LAI's name recognition. Operating income (loss). Operating loss increased $104,000 to $176,000 for fiscal 1997 from $72,000 for fiscal 1996, and as a percentage of fee revenue to 0.4% for fiscal 1997 from 0.2% for fiscal 1996. These increases were primarily due to the increase in general and administrative expenses, partially offset by lower compensation and benefits as a percentage of fee revenue. Net interest income (expense). Net interest expense increased $336,000 to $376,000 for fiscal 1997 from $40,000 for fiscal 1996. The increase constitutes interest expense on indebtedness incurred to fund leasehold improvements at two of LAI's offices, as well as interest on compensation deferred pursuant to the Company's deferred compensation plan. See "Management -- Incentive and Benefit Plans." Provision for income taxes. The effective tax rate for fiscal 1997 of (2.8)% varied from the statutory rate of 35.0% due to state and local income taxes and because certain expenses, including a portion of meals, entertainment and dues expense and premiums on keyperson life insurance policies, are non-deductible for income tax purposes. 18 20 UNAUDITED QUARTERLY RESULTS The following table sets forth certain unaudited quarterly operating information of the Company for fiscal 1997 and fiscal 1998. This information has been prepared on the same basis as the audited Consolidated Financial Statements contained elsewhere in this Prospectus and, in the opinion of management, includes all adjustments, consisting solely of normal and recurring adjustments, necessary for the fair presentation of the information for the periods presented. The financial data shown below should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Results for any previous fiscal quarter are not necessarily indicative of results for the full year or for any future quarter.
QUARTER ENDED --------------------------------------------------------------------------------------------------------- MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, 1996 1996 1996 1997 1997 1997 1997 1998 -------- ---------- ------------ ------------ -------- ---------- ------------ ------------ (IN THOUSANDS) Fee revenue, net..... $11,107 $11,506 $11,706 $12,118 $13,725 $16,773 $15,349 $15,956 Operating income (loss)............. 131 216 (200) (323) 1,377 1,745 1,701 1,787 Net income (loss).... (5) 8 (244) (326) 702 1,016 1,056 1,106
LIQUIDITY AND CAPITAL RESOURCES The Company relies primarily upon cash flows from operations and available borrowings under its credit facilities to finance its operations. During fiscal 1996, 1997 and 1998, cash flows from operations were $1.6 million, $(653,000) and $2.9 million, respectively. To provide additional liquidity, during fiscal 1998 the Company obtained a commitment letter for credit facilities providing for maximum borrowings of $15.0 million. In May 1998, this commitment was increased to $25.0 million. Borrowings under this facility will bear interest at variable rates. See Note 4 to Consolidated Financial Statements. Capital expenditures totaled approximately $2.5 million, $1.8 million and $2.2 million for fiscal 1996, 1997 and 1998, respectively. These expenditures consisted primarily of purchases of office equipment, upgrades to information systems and leasehold improvements. Investments in whole life insurance policies intended to fund the Company's deferred compensation plan were $779,000, $1.0 million and $2.1 million in fiscal 1996, 1997 and 1998, respectively. Cash provided by financing activities was approximately $23.6 million during fiscal 1998, including $24.7 million from the sale of Common Stock in the Company's Initial Public Offering. During fiscal 1998 the Company issued $8.8 million of subordinated debt in connection with the WHI and CPI acquisitions. Cash provided by financing activities was approximately $2.7 million during fiscal 1997, which included $1.7 million of net borrowings under a term loan and $926,000 in proceeds from sales of Common Stock (net of Common Stock repurchases) to newly hired and promoted consultants as part of LAI's strategy to increase the breadth of stock ownership among its consultants. During fiscal 1996, cash provided by financing activities was approximately $416,000, consisting primarily of proceeds from sales of Common Stock (net of Common Stock repurchases) to newly hired and promoted consultants. The Company believes that funds from operations, its expanded credit facilities and the net proceeds of the Offering will be sufficient to meet its anticipated working capital, capital expenditure, debt repayment and general corporate requirements on both a short-term basis (i.e., during the twelve months following the Offering) and a long-term basis (i.e., after such twelve month period). 19 21 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997. Management believes the effect of adopting SFAS 130 would not have a material impact on the accompanying consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. SFAS 131 is effective for fiscal years beginning after December 15, 1997. Management has not yet determined the effect of adopting SFAS 131. If February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about Pension and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other post retirement benefit plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997; earlier application is encouraged. Management has implemented SFAS 132 for the year ended February 28, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance for capitalizing and expensing the costs of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. Management believes the effect of adopting SOP 98-1 would not have a material impact on the accompanying consolidated financial statements. 20 22 BUSINESS GENERAL LAI is one of the largest and fastest growing executive search firms in the world. LAI provides consulting services aimed specifically at solving its clients' leadership needs by identifying, evaluating and recommending qualified candidates for senior level positions. The Company, which conducts business under the name "LAI Ward Howell," principally serves Fortune 500 and large private companies. LAI provides executive search services exclusively on a retained basis, and charges a fee typically equal to one-third of the first year cash compensation for the position being filled. LAI has developed a knowledge-based search practice organized around eight industry groups and one functional group. The industry groups execute searches for clients in the following business sectors: automotive; communications, entertainment and technology; consumer products and services; energy and natural resources; financial services; health care and pharmaceuticals; industrial; and insurance and risk management. The functional group executes searches for specific functional positions, including board of directors, human resources and legal. These practice groups enable LAI's consultants to better understand each client's business strategy and industry and position LAI as a consulting partner to its clients. LAI's clients are among the most prominent companies in their industries and include General Motors, Lucent Technologies, PepsiCo, Enron, Lehman Brothers, Bristol-Myers Squibb, AlliedSignal and Prudential. LAI's fee revenue has grown from $21.1 million in fiscal 1994 to $61.8 million in fiscal 1998, representing a compound annual growth rate of approximately 31%. This growth rate compares favorably with the approximately 22% average compound annual growth rate experienced by LAI's nine largest competitors during the same period. On a pro forma combined basis assuming the acquisitions of WHI and CPI were completed on March 1, 1997, LAI's fee revenue for fiscal 1998 was $91.7 million. EXECUTIVE SEARCH INDUSTRY OVERVIEW Executive search represents a $6.5 billion global market and is generally separated into two broad fee-based categories: retained search firms and contingency search firms. Retained search firms fulfill their clients' senior leadership needs by identifying, evaluating, assessing and recommending qualified candidates for senior level positions, typically with cash compensation of $100,000 and above. Contingency search firms, on the other hand, focus primarily on mid-level positions with cash compensation of less than $150,000. Both types of firms normally are paid a fee for their services equal to approximately one-third of the guaranteed first year cash compensation for the position being filled. Retained search firms currently serve the majority of the Fortune 500 as well as numerous other organizations, including government agencies, professional organizations and fast-growing entrepreneurial companies. Retained firms are compensated for an assignment whether or not they are successful in placing a recommended candidate. Contingency search firms also serve large corporations; however, their primary focus is on small and medium sized companies. Unlike retained search firms, contingency search firms are not compensated for an assignment unless they successfully complete a search and place a recommended candidate. According to Kennedy Information, a leading industry publication, revenue in the executive search industry historically has been divided almost evenly between retained and contingency search firms; however, retained search firms are estimated to employ only one-third of the consultants in the industry. Thus, the average fee revenue per consultant for retained firms is substantially higher than for contingency firms. Moreover, the predictable revenue stream associated with a retained search enables a retained firm, such as LAI, to devote more personnel and greater resources to an assignment than a contingency search firm whose 21 23 revenue is not assured. LAI believes this difference in payment structure enables retained search firms to provide clients with more value-added consulting services than contingency search firms. The executive search industry has experienced consistent growth over the past 20 years. Global executive search industry revenue has grown at a 17% compound annual growth rate from approximately $3.5 billion in 1993 to approximately $6.5 billion in 1997. Kennedy Information expects industry growth to continue at a 15% annual rate, with revenue projected to reach $10.0 billion by the year 2000. GLOBAL EXECUTIVE SEARCH INDUSTRY REVENUE (GRAPH) The global executive search industry is highly fragmented, consisting of more than 4,000 firms. In 1997, more than 80% of retained firms and approximately 90% of contingency firms generated fewer than $2 million in revenues. The top ten search firms, all of which operate on a retained basis, accounted for approximately 11% of global industry revenue in 1997. However, Kennedy Information predicts that these top ten firms will increase their market share at an accelerating rate as they continue to offer clients increased geographic reach, broader industry coverage, greater industry expertise and more sophisticated technology and research support. LAI believes that a number of trends have caused and will continue to cause the executive search industry to experience significant growth. These trends include: Greater Demand for Managers with Broad Leadership Skills. Many companies are facing a rapidly changing business environment due to an increase in domestic and international competition, an increase in deregulation and more widespread use of technology. The need to respond to this dynamic environment and remain competitive has caused many companies to set higher standards for their senior level executives. As these standards become more stringent, more companies are looking outside their organizations to fill positions traditionally reserved for internal candidates. The process of identifying and evaluating executives is becoming increasingly difficult and, as a result, a growing number of companies are relying on executive search firms to solve their senior management and leadership needs. According to a study published in 1997 by Coopers & 22 24 Lybrand HR Advisory Group, nearly two-thirds of the companies surveyed reported using executive search professionals to recruit and hire senior level executives. Rapid Growth in Outsourcing. Many companies are outsourcing non-core activities to reduce costs and increase efficiencies. These organizations often engage independent, third party specialists to provide many non-revenue generating functions that were previously performed in-house. Among the functions most commonly outsourced are human resource and personnel functions, including executive recruitment and hiring. Growth of Multinational Business. The expansion of companies abroad and the integration of global markets has created a growing demand for international search capabilities. Consultants located in the country in which a position is to be filled are often better able to identify candidates and execute searches due to their familiarity with the local business community and culture and available pool of executive candidates. Likewise, consultants located in the country from which the search is originated often will better understand the client's business strategy and recruitment needs. Executive search firms have responded by forming affiliations with executive search firms in foreign countries and by directly acquiring or opening foreign offices. LAI believes that the ability to complete executive searches on a worldwide basis is an important factor in attracting and retaining multinational clients. Increase in Executive Turnover. In the past, it was common for executives to spend an entire career with one or two organizations. However, in today's rapidly changing business environment, executives often advance their careers by working for a number of different organizations in various geographic locations. Executive turnover has been particularly high in such growth industries as health care and technology. This increase in executive turnover has intensified the competition for highly qualified executives and forced many companies to recruit executives on a more frequent basis. Increase in Executive Compensation Levels. Compensation levels for executives have increased considerably over the past several decades. According to a study published in 1997 by William M. Mercer, Incorporated, the average annual cash compensation for chief financial, chief executive and chief operating officers grew at compound annual growth rates of 5.7%, 4.2% and 3.1%, respectively, between 1992 and 1996. This increase in executive compensation, among other factors, has caused many companies to be more rigorous in their hiring practices, often retaining an executive search firm to assist in the identification and evaluation of qualified candidates. In addition, because fees for executive search firms are based on the compensation levels for positions they are engaged to fill, higher executive compensation has translated into higher executive search fees. BUSINESS STRATEGY LAI's objective is to be a global leader in providing comprehensive consulting services aimed specifically at solving its clients' senior leadership needs. The key elements of LAI's business strategy include: Attract, Motivate and Retain High Quality Search Consultants. LAI has been successful in attracting, motivating and retaining highly productive executive search consultants as a result of its premium reputation, performance-based consultant compensation and stock incentive plans. The Company's compensation system is primarily based on consultant performance, which is measured by the amount of fee revenue each consultant generates. Management believes that its performance-based compensation system is among the most competitive in the industry. LAI's ability to attract talented consultants is demonstrated by the large number of consultants who previously held senior level positions with leading companies in LAI's targeted industry sectors. In addition, LAI believes its status as a public company provides it with a strong competitive advantage in attracting and retaining highly qualified consultants through ownership of Common Stock and participation in the Company's stock incentive plans. The Company believes that equity ownership by its consultants fosters a team-oriented working environment and aligns the interests of its consultants with its 23 25 investors. The Company has experienced an average annual turnover rate among its consultants of less than 8% over the last five fiscal years. Build on Knowledge-Based Practice Groups. LAI believes a thorough understanding of both its clients and the industries in which they operate are among the most significant factors in obtaining and completing search assignments. Accordingly, LAI has developed a knowledge-based search practice organized around eight industry groups and one functional group. The industry groups execute searches for clients in the following business sectors: automotive; communications, entertainment and technology; consumer products and services; energy and natural resources; financial services; health care and pharmaceuticals; industrial; and insurance and risk management. The functional group executes searches for specific functional positions, including board of directors, human resources and legal. Each practice group is coordinated under the direction of a Practice Leader who establishes the marketing and search strategies for that practice group. LAI intends to continue to build its existing and expand into new practice groups by (i) hiring consultants with substantial experience and significant client relationships in the Company's targeted industry sectors and (ii) completing strategic acquisitions. The acquisitions of WHI and CPI strengthened LAI's existing practice groups, particularly in the areas of financial services, health care and technology, and added new practice groups in the areas of automotive, insurance, and media and entertainment. Build Long-Term, Consultative Relationships. LAI strives to develop long-term relationships by becoming a consulting partner with its clients. To position itself as a consulting partner, the Company works closely with clients to gain an in-depth understanding of their unique organizational structure, history, operations, culture, strategic objectives and leadership needs. In addition, the Company's focus on knowledge-based practice groups enables its consultants to provide more specialized and efficient service to LAI's clients. Each of LAI's 30 largest clients, based on fiscal 1998 fee revenue, had been a client for an average of approximately seven years as of February 28, 1998. More than 65% of the Company's fiscal 1998 fee revenue was attributable to companies for which LAI conducted one or more searches during the prior two fiscal years. Capitalize on Research and Technology. LAI believes that its industry specialization and technological capabilities enable it to consistently provide superior research and, ultimately, deliver higher quality search results to its clients. LAI's 116 associates, researchers and IT professionals provide timely industry, company and compensation information to consultants using numerous information sources. LAI also maintains a proprietary database containing professional information on more than 100,000 executive candidates. Consultants can query this database on a variety of attributes, including demographic information, work experience, compensation and personal interview results. LAI's wide area computer network provides remote document sharing and data search capabilities, groupware features and real-time updates on ongoing search engagements. Reduce Search Cycle Times. LAI believes that the ability to reduce the time required to perform a search ("cycle time") will be a key differentiating factor among executive search firms in the future. In an effort to reduce its average cycle time, LAI is investing in technology upgrades, refining its research process, strengthening its knowledge-based practice groups and closely evaluating each step of the placement process. Reduced cycle times would enable LAI's consultants to complete more assignments in a given period of time, resulting in increased client satisfaction, higher fee revenue per consultant and enhanced profitability. 24 26 GROWTH STRATEGY LAI has competed successfully in the executive search industry and has capitalized on the growing demand for executive search services. LAI's fee revenue has increased from $21.1 million in fiscal 1994 to $61.8 million in fiscal 1998, representing a compound annual growth rate of 31%. On a pro forma basis assuming the acquisitions of WHI and CPI were completed on March 1, 1997, LAI's fee revenue was $91.7 million in fiscal 1998. LAI's growth has been achieved by increasing the number of consultants at existing offices, improving fee revenue per consultant, opening new offices and successfully executing and integrating strategic acquisitions. LAI intends to continue to extend the reach, breadth and penetration of its services both domestically and internationally through internal and external growth. The key elements of LAI's growth strategy include: Leverage Existing and Develop New Client Relationships. LAI intends to increase fee revenue by obtaining additional search engagements from existing clients and by developing relationships with new clients. LAI focuses on accounts from which it obtains, or believes it can obtain, a significant number of search assignments ("focused accounts"). LAI invests significant resources in its focused accounts to better understand their business strategies and culture and eventually position the Company as a consulting partner to its clients. Accordingly, LAI emphasizes long-term relationships with its clients, rather than one-time projects or assignments. Consultants also spend substantial time marketing LAI's services to carefully selected prospective clients within their practice groups. Search assignments often are awarded after a small number of search firms are invited to make presentations to a prospective client's senior management or Board of Directors. In fiscal 1998, LAI obtained search engagements from a majority of the presentations in which it participated. The Company attributes its success to its knowledge-based practice groups and consultative approach as well as the premium reputation LAI has developed. Expand Existing and Selectively Open New Offices. LAI has added and intends to continue adding experienced, highly qualified executive search consultants to its practice. The Managing Partner of each office is responsible for recruiting new consultants to LAI, and a significant factor in determining the Managing Partner's compensation is the success of these efforts. During fiscal 1998, LAI added a net total of 12 consultants to new and existing offices, excluding consultants added in connection with the acquisitions of WHI and CPI. LAI also continually evaluates the desirability of opening new offices. Since early 1997, the Company has opened offices in Boston, Massachusetts; Stamford, Connecticut; Pittsburgh, Pennsylvania; Austin, Texas and London, England. Consolidate Fragmented Industry; Leverage Public Company Status. LAI believes that acquisitions provide an efficient, cost-effective method to increase the Company's number of consultants, expand its client base, strengthen and expand its practice group coverage and broaden its geographic reach. Given the highly fragmented nature of the executive search industry, the Company believes numerous acquisition opportunities exist. In addition, LAI believes its status as the only U.S. based publicly traded company focused exclusively on executive search makes it an attractive consolidation partner and provides it with an acquisition currency and the financial flexibility to effectively pursue this aspect of its growth strategy. LAI completed two acquisitions in fiscal 1998 and is actively pursuing additional acquisitions in strategic locations throughout the world. Penetrate International Markets. Revenue in the global executive search industry has grown at a 17% compound annual growth rate from approximately $3.5 billion in 1993 to approximately $6.5 billion in 1997 and includes more than 4,000 search firms. The industry is expected to continue to grow at a 15% annual rate with global revenue projected to reach $10.0 billion by the year 2000. LAI believes that global search fulfillment capabilities are critical to attracting and retaining multinational clients. Historically, LAI has offered its clients global search fulfillment capabilities through its membership in Amrop International, an international alliance of independent search firms. However, to better leverage its knowledge-based expertise 25 27 and technological capabilities, capitalize on its existing relationships with multinational clients and ensure the quality and consistency of its services, LAI recently initiated an international strategy of directly owning offices in major business and financial centers around the world. In May 1998, LAI opened an office in London, England and is currently targeting other major markets in which to establish offices. In international markets where LAI does not own an office, it will continue to provide clients with search fulfillment capabilities by using existing and developing new referral relationships with executive search firms located in those markets. Through these referral relationships, LAI executes domestic search assignments on behalf of non-U.S. executive search firms and refers to such firms international search assignments for LAI's domestic clients. Since continuing as a member of Amrop International was incompatible with the Company's international expansion strategy, LAI announced its withdrawal from Amrop International in May 1998. Searches derived from membership in Amrop International accounted for approximately 3% of LAI's fiscal 1998 fee revenue. However, LAI has built strong referral relationships with many Amrop members throughout the world and expects to maintain these relationships to continue providing clients with global search fulfillment capabilities in markets where LAI does not directly own an office. LAI believes that its global search capabilities will be enhanced by its strategy of direct ownership of international offices. SERVICES LAI provides executive search services exclusively on a retained search basis for Fortune 500 and large private companies. The Company typically is retained to identify candidates to fill its clients' senior leadership positions, which range from brand managers and controllers to chief operating and chief executive officers. The average first year cash compensation of positions for which LAI conducted searches in fiscal 1998 was approximately $226,000. LAI serves its clients in a consultative capacity by (i) assessing the client's existing management capabilities, corporate culture and business strategies, (ii) evaluating the client's industry position and major competition, (iii) determining the relevant business experience, skills and personal characteristics that a qualified candidate should possess, (iv) identifying, contacting and interviewing potential candidates, (v) developing detailed candidate reports and making recommendations to the client regarding the most qualified candidates, (vi) advising the client with respect to appropriate compensation and benefits and (vii) monitoring the quality of its search procedures with client surveys and other client feedback mechanisms. In providing high quality executive search services, the Company uses a team-oriented approach rather than relying on the reputation of a few key consultants. Each of LAI's consultants is expected to develop and maintain an expertise in one or two industries and build long-term relationships with a limited number of clients. To maintain a high level of quality on a consistent basis, consultants employ LAI's standard executive search process for each new search assignment, regardless of how similar the parameters of the new search may be to other search assignments previously conducted by LAI. At the start of each search assignment, LAI and its client jointly develop detailed candidate and job specifications and establish a search strategy that targets specific industries and companies that are expected to produce the most appropriate candidates. LAI's consultants and research staff then contact potential candidates, distribute job specifications and client promotional materials, conduct extensive telephone and personal interviews, and check references of those candidates who appear most qualified for the position. Because most candidates are successfully employed and not seeking to change jobs, initial contact must be conducted discreetly. After meeting with job candidates, LAI submits to the client confidential candidate reports regarding those candidates who LAI believes are the most qualified. Each report contains a detailed business history of the candidate, results of LAI's preliminary reference checks and LAI's assessment of the candidate's relevant 26 28 business experience, qualifications, personal characteristics and suitability. LAI then assists in the introduction of selected candidates to the client and administers the interview process. When the client is ready to extend an employment offer, LAI facilitates the negotiation of employment terms and the transition by the candidate to the employ of the client. LAI has also recently begun to provide a new service offering, known as "selection services," to complement its core executive search practice. Selection services typically involves searches for mid-to senior-level positions with cash compensation in the $75,000 to $125,000 range, frequently for a client seeking to fill multiple positions under a single search engagement. LAI's approach to selection services is similar to its other executive searches, in that search consultants evaluate the needs of each client and develop appropriate job specifications and profiles. However, selection services frequently differs from other executive searches in the way the successful job candidate is located. In traditional executive search, LAI identifies and seeks out specific candidates who ordinarily are not actively looking to change jobs. In a selection services engagement, by contrast, LAI invites inquiries from interested candidates in response to a job posting advertised either in print, such as in The Wall Street Journal, or on the Internet, and then evaluates, analyzes and ranks the candidates based on inquiries and responses received. The Company supplements this data with highly focused research, using LAI's proprietary database and other information sources. To expand and manage selection services more efficiently, the Company recently licensed an Internet-based software program. This software will enable LAI to use the Internet to advertise job opportunities, solicit responses and gather relevant employment histories from interested candidates; search, sort and evaluate the resulting database; and pre-select interested candidates based on pre-determined criteria. Job candidates will also be able to complete job applications on-line, submit writing samples and complete skill assessment worksheets. Similar to traditional executive searches, LAI's fee for selection services is usually based on a percentage of the first year cash compensation for each position filled, though selection services engagements may include other minimum or contingent fee provisions. Although the average first year cash compensation for the position being filled is typically less for a selection services engagement than for LAI's core executive search practice, the Company can achieve lower costs and higher profit margins on selection services because these engagements involve multiple assignments of the same type and are less labor intensive. The volume and efficiencies typically associated with selection services provide LAI with an opportunity to enhance both total fee revenue and average fee revenue per consultant. In addition, offering selection services provides LAI's consultants with the ability to cross-sell a new service offering to both new and existing clients. MARKETING AND CLIENTS The Company's marketing strategy includes three primary components: capitalize on its knowledge-based practice groups and long-term client relationships; penetrate the domestic market through its regional office structure and the international market through direct ownership of offices in major business and financial centers around the world; and implement a global branding program. LAI believes that its industry specialization and technological capabilities enable it to consistently provide superior research and, ultimately, deliver higher quality search results to its clients. Knowledge-Based Practice Groups. LAI has developed a knowledge-based search practice organized around eight industry groups and one functional group. The industry groups execute searches for clients in the following business sectors: automotive; communications, entertainment and technology; consumer products and services; energy and natural resources; financial services; health care and pharmaceuticals; industrial; and insurance and risk management. The functional group executes searches for specific functional positions, including board of directors, human resources and legal. Each practice group is coordinated by a Practice Leader who is responsible for developing new business and maintaining a high standard of service in that practice group. To achieve these objectives, each group's Practice Leader (i) establishes the marketing and search strategies for the particular practice group, (ii) identifies focused accounts and targets clients within 27 29 that practice group's business sector and (iii) facilitates and assists the marketing activities of other consultants in the practice group. Each Practice Leader has substantial industry expertise, frequently having held one or more executive positions in the group's business sector prior to becoming a search consultant. Additionally, LAI's Practice Leaders have an average of approximately 13 years of experience in the executive search industry. The following table sets forth certain information regarding LAI's practice groups. The companies listed in this table are selected clients with which the Company anticipates having a continuing significant relationship in the future. The listed clients of LAI's industry groups include (i) companies that are either the largest or among the largest clients in the indicated practice group based on the Company's pro forma fiscal 1998 fee revenue received from such clients, (ii) companies that have been clients for several years or more and (iii) companies for which LAI conducted multiple searches in fiscal 1998. The listed clients of LAI's functional group each engaged LAI to conduct at least one search in fiscal 1998.
- ----------------------------------------------------------------------------------------------- % OF PRO FORMA FISCAL 1998 PRACTICE GROUP FEE REVENUE(1) SELECTED CLIENTS - ----------------------------------------------------------------------------------------------- Financial Services 24.5% Banc One, Banco Santander, Lehman Brothers, Societe Generale - ----------------------------------------------------------------------------------------------- Communications, Entertainment and 20.4 America Online, GTE, IBM, Lucent Technology Technologies - ----------------------------------------------------------------------------------------------- Health Care and Pharmaceuticals 14.3 Bristol-Myers Squibb, Columbia/HCA, Schering-Plough, PhyMatrix - ----------------------------------------------------------------------------------------------- Consumer Products and Services 10.8 Grand Metropolitan, Home Depot, Kohler, PepsiCo - ----------------------------------------------------------------------------------------------- Industrial 9.0 AlliedSignal, Cooper Industries, General Electric, Georgia Pacific - ----------------------------------------------------------------------------------------------- Insurance and Risk Management 6.7 Equitable, Prudential, Zurich Kemper - ----------------------------------------------------------------------------------------------- Energy and Natural Resources 6.5 Amerada Hess, Enron, Pennzoil - ----------------------------------------------------------------------------------------------- Automotive 3.7 B.F. Goodrich, General Motors - ----------------------------------------------------------------------------------------------- Functional (Board of Directors, 4.1 Eastman Chemical, Gillette, Lockheed Human Resources, Legal) Martin, Waste Management - -----------------------------------------------------------------------------------------------
- --------------- (1) Includes LAI, WHI and CPI fee revenue for their fiscal years ended February 28, 1998, December 31, 1997 and December 31, 1997, respectively. LAI's practice groups enable its consultants to better understand each client's business strategy and industry and position LAI as a consulting partner to its clients. LAI emphasizes long-term relationships with clients, rather than one-time projects or assignments. Each of LAI's 30 largest clients, based on LAI's fiscal 1998 fee revenue, had been a client for an average of approximately seven years as of February 28, 1998. In addition, more than 65% of the Company's fiscal 1998 fee revenue was attributable to companies for which LAI conducted one or more searches during the prior two fiscal years. Domestic and International Offices. To complement its knowledge-based practice groups, the Company has established 17 domestic offices and one international office in cities that are key business centers for one or more of the Company's practice groups. Each major office is run by a Managing Partner who has complete fiscal responsibility for that office. The Managing Partner's principal responsibilities include overseeing day-to-day operational and administrative matters at the local office level, providing assistance to consultants in that office, assuring quality control in business development and search execution, hiring and supervising office 28 30 personnel and serving on an internal operations committee. While compensation for other consultants is based primarily on individual performance, compensation for Managing Partners is based largely on the profitability of their respective local office, as well as on their ability to successfully recruit highly qualified consultants to LAI. Since consultants have greater opportunities to develop relationships with clients and prospective clients in close geographic proximity, they normally focus on, but do not limit their efforts to, clients in the region served by their particular office. Over time, consultants seek to establish deep roots in the community and develop strong links with local business, government and cultural leaders. LAI's domestic offices are located in Atlanta, Austin (Texas), Barrington (Illinois), Boston, Chicago, Cleveland, Dallas, Encino (California), Houston, Lake Geneva (Wisconsin), Los Angeles, New York, Phoenix, Pittsburgh, San Francisco, Stamford and Tampa. In addition, LAI has an office located in London, England. Branding Initiatives. The Company historically has relied primarily on client referrals and the efforts of its consultants, particularly its Practice Leaders, to market the Company's services. More recently, LAI also has implemented a global branding program to supplement the marketing efforts of the Company's consultants. The global branding program is designed to significantly increase LAI's visibility. The program involves (i) strengthening LAI's reputation in cities where LAI offices are located through local event sponsorship, board participation and local public relations, (ii) enhancing LAI's reputation in the industries served by the Company's knowledge-based practice groups through trade journal advertising, targeted mailings, and participation in industry associations and conferences and (iii) building both a national and global reputation through news releases, participation in industry forums and issuance of specialized reports. Blocking Arrangements. Either by agreement with clients or for marketing or client relations purposes, executive search firms frequently refrain from recruiting employees of a client, and possibly other entities affiliated with that client, for a specified period of time (a "blocking" arrangement). LAI actively manages its blocking arrangements and seeks to mitigate any adverse effects of blocking by strengthening its long-term relationships with focused accounts, shortening the length of the off-limits period and by resisting requests for blocking arrangements with clients who do not engage LAI for multiple assignments. Additionally, in recent years market conditions and industry practices have resulted in blocking arrangements that are becoming narrower in scope and shorter in duration. See "Risk Factors -- Blocking Arrangements." RESEARCH AND TECHNOLOGY LAI believes that its industry specialization and technological capabilities enable it to consistently provide superior research and, ultimately, deliver higher quality search results to its clients. Search consultants must understand a client's industry, competitors and business strategies and be able to readily identify the universe of most qualified executive candidates. LAI's 116 associates, researchers and IT professionals support the Company's consultants by, among other things, gathering and analyzing information obtained from numerous electronic databases, trade journals and directories, the Internet and other sources. LAI also maintains a proprietary database containing professional information on more than 100,000 executive candidates. Consultants can query this database on a variety of attributes, including demographic information, work experience, compensation and personal interview results. LAI's wide area computer network provides remote document sharing and data search capabilities, groupware features and real-time updates on ongoing search engagements. LAI is committed to continually upgrading its proprietary database and other information sources to enable LAI's consultants to retrieve relevant information quickly and efficiently. The Company's support functions, including its research department, are coordinated from its Tampa, Florida office. In the search process, the principal function of LAI's research department is to support the Company's consultants by gathering and analyzing information on the industries and companies expected to produce the most qualified candidates. LAI's research professionals also support the Company's business development activities by providing target lists, data on past LAI searches and information on companies and executives in target industries. LAI's researchers typically have had professional research or library training 29 31 and experience prior to joining LAI, and many have undergraduate and graduate degrees in such fields as library science. LAI's research staff is organized by practice group, with most researchers specializing in one or two specific industries. Unlike many of its competitors, LAI researchers do not work exclusively for particular executive search consultants. LAI believes its focused approach facilitates the development of specialized expertise, promotes a consistent culture and cooperation across the firm and standardizes communication and training. PROFESSIONAL STAFF AND EMPLOYEES At April 30, 1998, LAI had 386 full time employees, of which 114 were executive search consultants, 116 were associates, researchers or IT professionals and 156 were administrative and support staff. LAI has never been a party to any collective bargaining agreement and considers relations with its employees to be good. LAI's search professionals are categorized either as consultants, consisting of partners and principals, or as associates. Associates are junior search professionals who generally do not directly execute search assignments, but assist partners and principals by performing research and other functions. After several years of experience and satisfactory performance, an associate will be considered for promotion to the position of principal. If a principal continues to develop and generate revenue, the principal will be offered the opportunity to advance to the position of partner. Promotions depend on a variety of factors, including productivity and business development. As a matter of corporate philosophy, LAI strives to hire as associates only those individuals it believes have the potential to become productive consultants. LAI's consultants (excluding those who joined LAI in connection with the recent acquisitions of WHI and CPI) have been employed by the Company for an average of approximately four years. LAI has experienced an average annual turnover rate among its consultants of less than 8% over the last five fiscal years. At April 30, 1998, there were 94 partners, 20 principals and 41 associates. Most of LAI's consultants held senior level positions with leading companies in LAI's targeted industry sectors and had experience in the executive search business prior to joining LAI. LAI's consultants have, on average, approximately 11 years of experience in the executive search industry. LAI has been able to attract and retain some of the most productive executive search consultants in the industry as a result of its premium reputation, performance-based consultant compensation system and stock incentive plans. The Company believes the salaries, commissions, bonuses and profit sharing it pays to its consultants are among the industry's highest as a percentage of fee revenue generated. Although consultants are paid base salaries, a significant portion of most consultants' compensation consists of incentive compensation that is dependent primarily upon the amount of fee revenue they generate. See "Risk Factors -- Dependence on Attracting and Retaining Qualified Executive Search Consultants" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." COMPETITION The executive search industry is highly competitive. It is estimated that there are more than 4,000 executive search firms worldwide. There are relatively few barriers to entry and new competitors frequently enter the market. While LAI faces competition to some degree from all firms in the industry, the Company believes its most direct competition comes from other retained search firms. In particular, LAI competes with the largest firms in the industry: Heidrick & Struggles, Inc., Korn/Ferry International, SpencerStuart & Associates, Russell Reynolds Associates, Inc. and Egon Zehnder International. To a lesser extent, LAI also faces competition from smaller boutique or specialty firms that may compete in certain regional or functional markets and from in-house human resource departments of clients and prospective clients. Some of LAI's competitors possess greater resources and name recognition than LAI. Each firm with which LAI competes is also a competitor in seeking to attract the most productive search consultants. In the Company's experience, 30 32 the executive search business is more quality-sensitive than price-sensitive. As a result, LAI competes on the level of service it offers, reflected by its knowledge-based practice groups and individual client focus, and, ultimately, the quality of its search results. FACILITIES The Company leases all of its office locations. As of February 28, 1998, the Company leased an aggregate of approximately 155,186 square feet of office space under leases calling for future minimum lease payments of approximately $23.2 million and with remaining terms of between one and nine years (exclusive of renewal options exercisable by LAI). LAI believes that its facilities are adequate for its current needs and that it will not have difficulty leasing additional office space to satisfy anticipated future needs. INSURANCE LAI maintains insurance in such amounts and with such coverages and deductibles as management believes are adequate. The principal risks that LAI insures against are professional liability, workers' compensation, personal injury, bodily injury, property damage and fidelity losses. There can be no assurance that the Company's insurance will adequately protect it from potential losses and liabilities. See "Risk Factors -- Executive Search Liability Risk." LEGAL PROCEEDINGS From time to time the Company has been involved in litigation incidental to its business. LAI currently is not a party to any litigation the adverse resolution of which, in management's opinion, would be likely to have a material adverse effect on the Company's business, financial condition or results of operations. 31 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information regarding LAI's executive officers and directors.
NAME AGE POSITIONS - ---- --- --------- Robert L. Pearson(3).................................. 59 President, Chief Executive Officer, Director Jack P. Wissman....................................... 46 Executive Vice President and Chief Financial Officer Joe D. Goodwin(1)..................................... 52 Executive Vice President, Director Roderick C. Gow(2).................................... 50 Executive Vice President, Director John S. Rothschild(2)................................. 45 Executive Vice President, Director David L. Witte(1)..................................... 56 Executive Vice President, Director Philip R. Albright.................................... 28 Vice President -- Finance John F. Johnson(3).................................... 56 Chairman of the Board of Directors Ray J. Groves(3)...................................... 62 Director Richard W. Pogue(2)................................... 70 Director John C. Pope(1)....................................... 49 Director
- --------------- (1) Term expires in 1998. (2) Term expires in 1999. (3) Term expires in 2000. LAI's directors are divided into three classes elected for three-year terms, which are staggered so that the term of one class of directors expires each year. Robert L. Pearson joined the Company in 1984 and has served as President and Chief Executive Officer and a Director since 1995. Mr. Pearson served as Executive Director with Russell Reynolds Associates, Inc. from 1982 until 1984. He owned and was President of Pearson, Inc., an equipment manufacturing company, from 1971 until 1982; was Vice President, Corporate Finance, of R. J. Financial Corporation, a financial services holding company, from 1968 until 1970; and was an engagement manager and management consultant with McKinsey & Company, Inc. from 1964 until 1968. Mr. Pearson holds an M.S. in Industrial Management from Massachusetts Institute of Technology and a B.S.E.E. from Michigan State University. Mr. Pearson's employment agreement requires the Company to use its good faith efforts, during the term of such agreement, to nominate Mr. Pearson to the Board of Directors. Jack P. Wissman joined the Company in 1981 and became Executive Vice President and Chief Financial Officer in 1997. He previously served as Vice President and Chief Administrative Officer of the Company. Mr. Wissman also served as a Director from 1987 until July 1997. Prior to joining LAI, Mr. Wissman was a certified public accountant with Arthur Andersen LLP from 1974 until 1981. He holds a B.S.B.A. in Accounting from Bowling Green State University. Joe D. Goodwin joined the Company in 1991, and has been Managing Partner of LAI's Atlanta and Tampa offices since 1992, a Director since July 1997 and an Executive Vice President since April 1998. Mr. Goodwin held various positions, including Partner and Managing Director, with SpencerStuart & Associates from 1982 until 1991. Mr. Goodwin also held various executive positions with McKinnis & Goodwin, an executive search firm, from 1979 until 1982; with Burger King Corporation from 1978 until 1979; 32 34 and with Xerox Corporation from 1969 until 1978. Mr. Goodwin holds a B.S. in Commerce and Business Administration from the University of Alabama. Roderick C. Gow joined the Company and has served as Managing Partner of LAI's New York office since 1995, a Director since July 1997 and an Executive Vice President since April 1998. Mr. Gow also has operational responsibility for LAI's Boston and Stamford offices. Mr. Gow held various positions, including Managing Director, with Russell Reynolds Associates, Inc., an executive search firm, from 1983 until 1991 and then again from 1994 until 1995. Mr. Gow was Chief Executive Officer of GKR Group, an executive search firm based in the United Kingdom, from 1991 until 1994; was Vice President with Barclays Bank Plc from 1978 until 1983; and prior to that time served with the British Army. Mr. Gow holds an M.A. and a B.A. from Trinity College, Cambridge University. John S. Rothschild joined the Company and has served as Managing Partner of LAI's Chicago office since 1996, a Director since July 1997 and an Executive Vice President since April 1998. Mr. Rothschild held various positions, including Partner and Director, with Heidrick & Struggles, Inc., an executive search firm, from 1989 until 1996. Mr. Rothschild held positions, including National Director, Human Resources and Director, Human Resources Consulting Practice, with Grant Thornton from 1981 until 1989. He served in various executive positions with American Hospital Supply Corporation from 1978 until 1981; and with GATX Corporation from 1975 until 1978. Mr. Rothschild holds an M.S. in Industrial Relations from Loyola University and a B.A. in Political Science from Lake Forest College. David L. Witte joined the Company in February 1998 in connection with the acquisition by the Company of WHI, and has been a Director since joining the Company and an Executive Vice President since March 1998. Mr. Witte served as President and Chief Executive Officer and Chairman of the Board of Directors of WHI from 1990 until LAI's acquisition of WHI in February 1998. WHI is now a wholly-owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger entered into in connection with the WHI acquisition, Mr. Witte was elected to the Board of Directors of the Company upon closing of the acquisition, and the Company is obligated to use its best efforts to cause Mr. Witte to be elected to the Board of Directors of the Company at the next annual meeting of stockholders for a three year term. Mr. Witte holds a B.S. from Michigan State University. Philip R. Albright joined the Company in 1997 serving as Controller and was appointed Vice President -- Finance in 1998. Mr. Albright, a certified public accountant, was employed by Arthur Andersen LLP from 1992 until 1997. He holds a B.S.Acc. and a M.Acc. from the University of Florida. John F. Johnson joined the Company in 1976 and has served as Chairman of the Board of Directors since 1995. Mr. Johnson previously served as Executive Vice President and President and Chief Executive Officer of LAI, as well as Chairman of Amrop International. Mr. Johnson held various positions, including Manager of Organization and Manpower, with General Electric Company from 1967 until 1976; and Industrial Relations Analyst with Ford Motor Company from 1964 until 1967. Mr. Johnson holds an M.B.A. from Columbia University and a B.A. in Economics from Tufts University. Ray J. Groves has been a Director since July 1997. Mr. Groves served as Chairman and Chief Executive Officer of Ernst & Young, an international accounting and financial consulting firm, for 17 years prior to his retirement in 1994. Mr. Groves also serves as Chairman of Legg Mason Merchant Banking, Inc., and as a Director of Allegheny Teledyne, Incorporated, Consolidated Natural Gas Company, Electronic Data Systems Corporation, Marsh & McLennan Companies, Inc. and RJR Nabisco, Inc. Mr. Groves holds a B.S. from The Ohio State University. Richard W. Pogue served as an advisor to LAI's Board of Directors from 1995 until he became a Director in July 1997. Mr. Pogue has served as Senior Advisor to Dix & Eaton, a public relations firm, since 1994. Mr. Pogue held various positions with the law firm of Jones, Day, Reavis & Pogue, from 1957 until retiring 33 35 from his position as Senior Partner in 1994. Mr. Pogue also serves as a Director of Derlan Industries Ltd., Continental Airlines, Inc., OHM Corporation, M.A. Hanna Company, Rotek Incorporated, KeyCorp and TRW Inc. Mr. Pogue holds a bachelor's degree from Cornell University and a law degree from the University of Michigan. John C. Pope served as an advisor to LAI's Board of Directors from 1995 until he became a Director in July 1997. Mr. Pope held various positions, including President and Chief Operating Officer, of UAL Corporation, owner of United Airlines, from 1988 until his retirement in 1994. Prior to that time Mr. Pope spent 11 years with AMR Corporation in various financial capacities, including Chief Financial Officer. Mr. Pope also serves as Chairman of the Board of Directors of MotivePower Industries, Incorporated and as a Director of Federal Mogul Corporation, Medaphis Corporation, Wallace Computer Services, Inc., Waste Management, Inc. and Dollar Thrifty Automotive Group, Inc. He holds a bachelor's degree from Yale University and an M.B.A. from Harvard Business School. COMMITTEES OF THE BOARD OF DIRECTORS LAI's Board of Directors has the following standing committees: Compensation and Management Development Committee. The Compensation and Management Development Committee (the "Compensation Committee") is responsible for establishing and recommending to the Board of Directors the Company's compensation philosophy, including general compensation, severance and change in control arrangements for consultants, Managing Partners, Practice Leaders and executive officers. The Compensation Committee also establishes and recommends to the Board of Directors the Company's stock option philosophy, including granting of awards under all equity-based incentive plans and recommendations for adoption of new plans. The Compensation Committee sets executive officer compensation, including annual reviews, and negotiates and approves all executive officer employment agreements. The Compensation Committee reviews all existing compensation plans and programs and all amendments thereto, and recommends the adoption of any new plans. In addition, the Compensation Committee reviews and coordinates with the full Board of Directors the Company's senior leadership structure and helps to identify personnel for the next generation of the Company's leadership. The Compensation Committee's three members are Messrs. Groves, Pogue and Pope (Chairman), all of whom are "Non-Employee Directors," as defined under the Securities Exchange Act of 1934. Audit Committee. The Audit Committee is responsible for reviewing with management the financial controls, accounting and audit and reporting activities of the Company. The Audit Committee annually recommends to the Board of Directors the Company's independent auditors, meets with the independent auditors before and after the annual audit to review the results of the audit and the performance of management in implementing the auditors' recommendations, reviews significant changes in accounting practices and the Company's implementation of new accounting rules and evaluates annual audit fees. In addition, the Audit Committee reviews each Annual Report on Form 10-K, including a review of the Company's financial statements and the related management's discussion and analysis of financial condition and results of operations. The Audit Committee's three members are Messrs. Groves (Chairman), Pogue and Pope, all of whom are Non-Employee Directors. Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for recommending to the Board of Directors management's nominees for election to the Board of Directors. This Committee establishes criteria for qualification and selection of directors, establishes Board Committees by function, size and responsibilities and recommends the same to the Board of Directors for adoption and membership determination, and coordinates responses to stockholder proposals in conjunction with management and counsel. The Nominating and Corporate Governance Committee's four members are Messrs. Johnson, Pearson, Pogue and Pope. 34 36 Executive Committee. The Executive Committee has been granted authority, subject to the limitations specified in the Florida Business Corporation Act, to act in the place and stead of the full Board of Directors, including when it is inconvenient or impossible to convene a meeting of the full Board or when specific tasks have been assigned to the Executive Committee. The Executive Committee took no actions and held no meetings during fiscal 1998. The Executive Committee's four members are Messrs. Johnson, Pearson, Pogue and Pope. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Initial Public Offering, the Board of Directors did not have a Compensation Committee and the functions of the Compensation Committee previously had been performed by the entire Board of Directors. Since completion of the Initial Public Offering in July 1997, the Compensation Committee's three members have been Messrs. Groves, Pogue and Pope (Chairman), all of whom are Non-Employee Directors. See "-- Committees of the Board of Directors -- Compensation and Management Development Committee." DIRECTOR COMPENSATION Non-Employee Directors receive $1,000 for each meeting of the Board of Directors attended and $1,000 for each meeting of a committee of the Board of Directors attended. Non-Employee Directors who serve as Chairman of a committee of the Board of Directors receive an additional $500 for each meeting chaired. In addition, Non-Employee Directors receive an annual retainer fee of $12,000, paid quarterly. Non-Employee Directors may make an annual election to defer receipt of all or a portion of the retainer and meeting fees and to have such deferral credited in the form of either cash or "units," the value of which is based on the value of the Company's Common Stock, in accordance with LAI's Directors' Deferral Plan (the "Directors' Deferral Plan"). Directors who opt for the stock unit alternative receive a 25% premium in initial value. Fees deferred under the cash deferral alternative earn interest as determined under the Directors' Deferral Plan. Directors also are reimbursed for reasonable travel expenses to and from meetings of the Board of Directors and committees. Directors who are employees of the Company do not receive compensation for serving as Directors. The Company grants to each Non-Employee Director, upon initial appointment to the Board of Directors, a stock option to purchase 5,000 shares of Common Stock pursuant to LAI's Non-Employee Directors' Stock Plan (the "Directors' Stock Plan"). In addition, as of the date of each annual meeting of the Company's stockholders, the Company grants to each Non-Employee Director who is then reelected or who is continuing as a member of the Board of Directors a stock option to purchase 5,000 shares of Common Stock. The exercise price of each such stock option is equal to the closing price of Common Stock on the date the stock option is granted. Stock options issued under the Directors' Stock Plan generally vest fully on the first anniversary of the date of grant and expire after five years. Stock options to purchase an aggregate of up to 15,000 shares of Common Stock are outstanding under the Directors' Stock Plan, and an aggregate of 80,000 shares of Common Stock (including the shares covered by such outstanding stock options) are reserved for issuance under the Directors' Stock Plan. 35 37 EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation for fiscal 1997 and fiscal 1998 of the Company's executive officers during such periods (the "Named Executive Officers," as defined under applicable Securities and Exchange Commission rules). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION -------------------------- AWARDS -------------------------- SHARES OF ANNUAL COMPENSATION COMMON ------------------------------------- RESTRICTED STOCK FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS($) OPTIONS (#) COMPENSATION(3) - --------------------------- ------ -------- -------- --------------- ---------- ------------ --------------- Robert L. Pearson................ 1998 $525,000 $420,240 $8,526 $364,189(4) 97,000 $12,800 President and Chief 1997 250,000 902,238 8,465 -- -- 22,500 Executive Officer Jack P. Wissman.................. 1998 250,000 115,585 7,073 -- 74,000(5) 12,800 Executive Vice President 1997 130,000 279,102 4,419 -- -- 22,500 and Chief Financial Officer
- --------------- (1) Consists of performance-based bonuses based upon individual achievement and LAI financial performance for the indicated fiscal years. (2) Consists of above-market interest on deferred compensation, fees for professional tax services, payments for unused sick time and life insurance premiums. (3) Consists of contributions made by LAI to its Profit Sharing Plan. See "-- Incentive and Benefit Plans." (4) On April 15, 1998, the Company granted Mr. Pearson 16,939 shares of restricted Common Stock in lieu of a portion of the compensation he earned in fiscal 1998. Such shares vest 25% over the four years after the grant date and may be subject to forfeiture upon termination of his employment under certain circumstances. (5) In April 1998, Mr. Wissman elected to return to the Company a stock option to purchase 69,000 shares of Common Stock granted to him in July 1997. OPTION GRANTS TABLE The following table shows information concerning outstanding stock options granted for fiscal 1998 for the Named Executive Officers.
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ------------------------- ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SECURITIES OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------- NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($) - ---- ---------- ------------ ----------- ---------- -------- ---------- Robert L. Pearson................. 15,000 1.25% $ 12.00 7/1/07 $113,201 $ 286,874 82,000 6.85 19.125 7/29/07 986,264 2,499,387 Jack P. Wissman................... 5,000 0.42 12.00 7/1/07 37,734 95,625 69,000(1) 5.77 19.125 7/29/07 829,905 2,103,142
- --------------- (1) In April 1998, Mr. Wissman elected to return to LAI this stock option, which was granted to him in July 1997. 36 38 OPTION EXERCISES AND YEAR-END VALUE TABLE No stock options were exercised by any of the Company's directors or executive officers during fiscal 1998. The following table shows information concerning values as of the end of fiscal 1998 of stock options to purchase shares of Common Stock held by each Named Executive Officer.
NUMBER OF OPTIONS VALUE OF OPTIONS NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($) ---- ----------------------------- ----------------------------- Robert L. Pearson...................... -0-/97,000 -0-/$149,361 Jack P. Wissman........................ -0-/74,000(1) -0-/$68,037(1)
- --------------- (1) In April 1998, Mr. Wissman elected to return to the Company a stock option to purchase 69,000 shares of Common Stock granted to him in July 1997. INCENTIVE AND BENEFIT PLANS 1997 and 1998 Omnibus Stock and Incentive Plans. LAI has two stock option and incentive plans, the 1997 Omnibus Stock and Incentive Plan (the "1997 Employee Stock Plan") and the 1998 Omnibus Stock and Incentive Plan (the "1998 Employee Stock Plan" and, collectively, the "Employee Stock Plans"). Under the Employee Stock Plans, incentive stock options, nonqualified stock options, stock appreciation rights, performance units, performance shares, restricted stock, restricted stock units and stock not subject to restrictions may be granted from time to time upon hiring of new personnel, as incentive compensation or to reward employees for outstanding performance; however, such incentives are not routinely granted as part of annual consultant compensation, which continues to be predominantly cash-based. The Compensation Committee administers the Employee Stock Plans and determines all awards granted thereunder. The exercise price of a stock option granted may be less than the market price of Common Stock on the date of grant. Generally, incentive stock options, nonqualified stock options, restricted stock and restricted stock units vest each year beginning on the first anniversary of the date of grant at 20-25% per year and expire after 10 years. The Compensation Committee may condition awards upon satisfaction of performance targets. Up to 950,000 shares of Common Stock may be issued under the 1997 Employee Stock Plan, including, as of May 29, 1998, up to 775,500 shares upon exercise of stock options already granted and outstanding under the 1997 Employee Stock Plan. Up to 1,000,000 shares of Common Stock may be issued under the 1998 Employee Stock Plan, including, as of May 29, 1998, 95,970 shares of Common Stock already issued and outstanding as restricted stock awards and up to 401,615 additional shares upon exercise of stock options already granted and outstanding under the 1998 Employee Stock Plan. Profit Sharing Plan. LAI maintains a profit sharing plan (the "Profit Sharing Plan"), a defined contribution plan established pursuant to and under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Each year, the Board of Directors determines the amount that LAI will contribute to the Profit Sharing Plan for that plan year. Such contributions are allocated to participants' accounts in proportion to their total compensation, subject to limitations imposed by the Code. During the second quarter of fiscal 1999, the Profit Sharing Plan will be amended to include a cash or deferred arrangement feature that qualifies for deferred tax treatment under Section 401(k) of the Code, pursuant to which participants may make elective contributions of up to 15% of their compensation, as defined in the Profit Sharing Plan. Each year, the Board of Directors will determine the amount that LAI will contribute to the Profit Sharing Plan as a matching contribution on participants' elective contributions. Participants' elective contributions will be 100% vested at all times, while LAI's contributions will vest 25% per year after completion of one year of service. Participants may elect among several investment vehicles selected by the plan administrator as to how their accounts under the Profit Sharing Plan will be invested, including the Company's Common Stock. 37 39 Deferred Compensation Plan. LAI maintains a deferred compensation plan (the "Deferred Compensation Plan") for its executive employees. The Board of Directors or a Committee appointed by the Board determines the persons eligible to participate in the Deferred Compensation Plan, although historically all consultants have been eligible to participate. Each year, eligible participants may elect to defer under the Deferred Compensation Plan a specified amount or percentage of their compensation for payment at a specified future date or upon termination of employment with or retirement from LAI, as directed by each participant. The Company pays interest on amounts deferred under the Deferred Compensation Plan at a rate, currently 8.5% per annum, established each year by the Board of Directors in its discretion. Participants are fully vested in their accounts. LAI does not match employee contributions to the Deferred Compensation Plan. See Note 6 to the Consolidated Financial Statements. 1997 Employee Stock Purchase Plan. The Company maintains the 1997 Employee Stock Purchase Plan (the "ESPP"). Under the ESPP, which is intended to qualify under the provisions of Section 423 of the Code, eligible employees are given the right to purchase shares of Common Stock generally two times a year. The per share purchase price under the ESPP is 85% of the market price of the Common Stock immediately prior to the first day of each exercise period or, during the first exercise period, 85% of the lesser of the market price immediately prior to the first day of such exercise period or the market price at the close of such period. During each exercise period, an eligible employee will be entitled to purchase up to that number of shares of Common Stock the aggregate purchase price of which under the ESPP does not exceed 3% of the employee's annual compensation. As of May 29, 1998, an aggregate of 200,000 shares of Common Stock have been reserved for issuance under the ESPP, of which 24,585 shares have been issued. Shares issued under the ESPP may be newly issued shares or shares purchased by the Company in the open market. EXECUTIVE EMPLOYMENT ARRANGEMENTS The Company has entered into an employment agreement with Mr. Pearson with an initial term expiring February 29, 2000; however, the agreement provides that on February 28, 1998 and on the last day of February each year thereafter, the term of Mr. Pearson's employment shall be extended for an additional one year period, such that the remaining term of the agreement is restored annually to three years, unless either the Company or Mr. Pearson gives notice not less than 90 days prior to any extension date of an intention not to extend. Under his employment agreement, Mr. Pearson is entitled to receive an annual base salary of not less than $525,000, and is eligible to earn annual incentive bonuses based upon such plans and criteria as may be established from time to time by the Compensation Committee. Under the plan currently in effect, Mr. Pearson is eligible to earn a target bonus equal to 80% of his base salary and a maximum bonus equal to 160% of his base salary. For fiscal 1998, the employment agreement provided for a minimum incentive bonus of $420,000 payable pro rata in monthly installments during the fiscal year. If any cash compensation otherwise payable to Mr. Pearson thereunder would exceed the deductibility limitations of Section 162(m) of the Internal Revenue Code, the agreement provides that such excess compensation shall be paid in phantom stock units, in lieu of cash. Mr. Pearson may terminate his employment agreement upon 90 days prior written notice. Mr. Pearson is entitled to receive certain severance benefits if his employment is terminated by the Company "without good cause" or by Mr. Pearson following a "change of control" (each as defined in the employment agreement). In the event of termination "without good cause," Mr. Pearson will receive his base salary for the remainder of the unexpired term of the employment agreement (not to exceed 36 months) or 24 months, whichever is greater, and an amount equal to not less than the target bonus for the year of termination multiplied by the number of years and fractions thereof in the unexpired term of the agreement or, if greater, two. Mr. Pearson may terminate the agreement during the 60 day period commencing six months after a "change of control," whereupon he would be entitled to receive a lump sum payment equal to three times his annual base salary plus an amount not less than three times the target bonus for the year of termination. The agreement requires 38 40 the Company to use its good faith efforts, during the term, to nominate Mr. Pearson to the Company's Board of Directors. Mr. Pearson has agreed to not compete with the Company during the term of his employment and, if his employment is terminated by the Company without good cause or following a change of control, for so long as he continues to receive payments under the agreement. In addition, upon any termination of Mr. Pearson's employment "without good cause" or following a "change of control," all vesting or performance requirements with respect to any stock options or other similar equity-based compensation awards shall be deemed to have been satisfied. With respect to any payments under his employment agreement upon death, disability, or termination "without good cause" or following a "change of control", Mr. Pearson would receive additional cash payments in an amount necessary to pay any federal excise taxes. Mr. Pearson's employment agreement is also subject to voluntary termination by Mr. Pearson or termination by the Company "for cause." In connection with the negotiation of his employment agreement, the Compensation Committee awarded Mr. Pearson stock options to purchase 82,000 shares of Common Stock at an exercise price of $19.125 per share. Such stock options will fully vest and become exercisable upon the first to occur of the sixth anniversary of the date of grant or, if the sale price of the Common Stock closes at $25.00 or higher for a period of 60 or more consecutive trading days, on the 60th such day. In July 1997, Mr. Pearson also received stock options to purchase 15,000 shares of Common Stock at an exercise price of $12.00 per share, which options vest over four years at the rate of 25% per year. 39 41 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of May 11, 1998, and as adjusted to reflect the sale of shares offered hereby, by: (i) each of the Company's directors and Named Executive Officers, (ii) all executive officers and directors of the Company as a group, (iii) each person known by the Company to own beneficially more than 5% of the outstanding Common Stock and (iv) each of the Selling Stockholders. Except as otherwise indicated, each of the individuals listed below is a director or consultant of the Company, has sole voting and investment power over the shares listed as beneficially owned and has an address in care of LAI's headquarters in New York, NY.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO THE AFTER THE OFFERING(1) SHARES OFFERING(1) ------------------- OFFERED ------------------- NAME NUMBER PERCENT FOR SALE NUMBER PERCENT - ---- --------- ------- -------- -------- -------- Robert L. Pearson(2).................................. 245,377 4.32% 66,666 178,711 2.30% Jack P. Wissman(3).................................... 122,224 2.15 38,333 83,891 1.08 David L. Witte........................................ 13,428 * -- 13,428 * Philip R. Albright(4)................................. 2,692 * -- 2,692 * John F. Johnson(5).................................... 230,728 4.06 66,666 164,062 2.11 Joe D. Goodwin(6)..................................... 125,726 2.22 40,000 85,726 1.10 Roderick C. Gow(7).................................... 125,152 2.21 25,000 100,152 1.29 Ray J. Groves(8)...................................... 5,000 * -- 5,000 * Richard W. Pogue(9)................................... 13,000 * -- 13,000 * John C. Pope(10)...................................... 13,000 * -- 13,000 * John S. Rothschild(11)................................ 112,423 1.98 30,000 82,423 1.06 ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (11 PERSONS)............................................ 1,008,750 17.69 266,665 742,085 9.52 David W. Palmlund III(12)............................. 206,091 3.63 60,000 146,091 1.88 Anthony B. Cashen..................................... 120,000 2.12 40,000 80,000 1.03 Lawrence F. Nein(13).................................. 105,944 1.87 33,333 72,611 * Thomas M. Watkins III(14)............................. 103,988 1.83 30,000 73,988 * Charles E. Taylor(15)................................. 100,849 1.78 33,333 67,516 * Theodore H. Borman(16)................................ 98,074 1.73 30,000 68,074 * Arthur I. Newman(17).................................. 96,000 1.69 95,000 1,000 * Michael Brenner(18)................................... 81,250 1.43 26,666 54,584 * Mark P. Elliott(19)................................... 79,970 1.41 23,333 56,637 * David W. Gallagher(20)................................ 76,600 1.35 25,000 51,600 * Arthur J. Davidson(21)................................ 68,043 1.20 20,000 48,043 * Rafael A. Sierra(22).................................. 65,906 1.16 21,666 44,240 * Martin D. Nass(23).................................... 58,607 1.03 15,000 43,607 * Arnold Kuypers(24).................................... 52,771 * 10,000 42,771 * Robert H. Crumbaker(25)............................... 51,389 * 16,667 34,722 * James G. Aslaksen(26)................................. 51,156 * 15,000 36,156 * Paul McG. Miller(27).................................. 50,300 * 16,667 33,633 * Austin Broadhurst, Jr. ............................... 50,000 * 16,667 33,333 * Tara L. Pettersson(28)................................ 38,750 * 11,667 27,083 * Donald R. Utroska(29)................................. 38,051 * 11,666 26,385 * Diane M. Barowsky(30)................................. 36,250 * 11,666 24,584 * Noah W. Waldman(31)................................... 36,250 * 11,666 24,584 * Eileen M. Merrigan(32)................................ 31,260 * 8,333 22,927 * Walter U. Baker(33)................................... 29,368 * 8,332 21,036 * Barry R. Cesafsky(34)................................. 28,793 * 7,500 21,293 * Susan J. Landon(35)................................... 27,500 * 8,333 19,167 * Thomas H. Wilson(36).................................. 26,250 * 7,000 19,250 * Walter E. Williams(37)................................ 25,214 * 7,000 18,214 * Kenneth I. Felderman.................................. 25,000 * 14,000 11,000 * Robert R. Stone....................................... 25,000 * 8,300 16,700 * Dresdner RCM Global Investors LLC(38)................. 372,800 6.57 -- 372,800 4.80
40 42 - --------------- (*) Less than 1%. (1) Beneficial ownership of shares, as determined in accordance with applicable Securities and Exchange Commission rules, includes shares as to which a person has or shares sole voting power and/or investment power. (2) Includes 6,777 shares of Common Stock held in the Profit Sharing Plan; 6,408 shares held as trustee for the benefit of certain family members, which Mr. Pearson is deemed to beneficially own; 3,750 shares underlying currently exercisable stock options deemed beneficially owned; and 16,939 restricted shares subject to a risk of forfeiture. (3) Includes 5,383 shares of Common Stock held in the Profit Sharing Plan and 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (4) Includes 192 shares of Common Stock held in the Profit Sharing Plan and 2,500 shares underlying currently exercisable stock options deemed beneficially owned. (5) Includes (i) 16,509 shares of Common Stock held in the Profit Sharing Plan, (ii) 3,750 shares underlying currently exercisable stock options deemed beneficially owned, (iii) 3,766 restricted shares subject to a risk of forfeiture, (iv) 5,000 shares held by Mr. Johnson's wife, which Mr. Johnson may be deemed to beneficially own, and (v) 200 shares held by Mr. Johnson's children, which Mr. Johnson may be deemed to beneficially own. Does not include 100 shares held by Mr. Johnson's brother, as to which Mr. Johnson disclaims beneficial ownership. (6) Includes 1,133 shares of Common Stock held in the Profit Sharing Plan, 2,500 shares underlying currently exercisable stock options deemed beneficially owned and 2,093 restricted shares subject to a risk of forfeiture. (7) Includes 307 shares of Common Stock held in the Profit Sharing Plan, 2,500 shares underlying currently exercisable stock options deemed beneficially owned and 20,930 restricted shares subject to a risk of forfeiture. (8) Includes 5,000 shares underlying currently exercisable stock options deemed beneficially owned. (9) Includes 8,000 shares of Common Stock held by a revocable trust which Mr. Pogue, as trustee, is deemed to beneficially own and 5,000 shares underlying currently exercisable stock options deemed beneficially owned. (10) Includes 5,000 shares underlying currently exercisable stock options deemed beneficially owned. (11) Includes (i) 2,000 shares of Common Stock held by two of Mr. Rothschild's children, which Mr. Rothschild is deemed to beneficially own, (ii) 3,000 shares held by Mr. Rothschild's spouse, which Mr. Rothschild may be deemed to beneficially own, and (iii) 5,581 restricted shares subject to a risk of forfeiture. (12) Includes 7,614 shares of Common Stock held in the Profit Sharing Plan, 1,250 shares underlying currently exercisable stock options deemed beneficially owned and 8,317 restricted shares subject to a risk of forfeiture. (13) Includes 4,511 shares of Common Stock held in the Profit Sharing Plan. (14) Includes 3,488 restricted shares subject to a risk of forfeiture and 500 shares held by Mr. Watkins' children, which Mr. Watkins may be deemed to beneficially own. (15) Includes 849 shares of Common Stock held in the Profit Sharing Plan. (16) Includes 2,802 shares of Common Stock held in the Profit Sharing Plan, 1,250 shares underlying currently exercisable stock options deemed beneficially owned and 4,022 restricted shares subject to a risk of forfeiture. (17) Prior to his retirement from LAI, Mr. Newman was employed as a consultant. (18) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (19) Includes 1,337 shares of Common Stock held in the Profit Sharing Plan, 3,750 shares underlying currently exercisable stock options deemed beneficially owned and 4,883 restricted shares subject to a risk of forfeiture. (20) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (21) Includes 747 shares of Common Stock held in the Profit Sharing Plan, 1,250 shares underlying currently exercisable stock options deemed beneficially owned and 1,046 restricted shares subject to a risk of forfeiture. (22) Includes 906 restricted shares subject to a risk of forfeiture. (23) Includes 962 shares of Common Stock held in the Profit Sharing Plan, 2,500 shares underlying currently exercisable stock options deemed beneficially owned and 3,912 restricted shares subject to a risk of forfeiture. (24) Includes 1,421 shares of Common Stock held in the Profit Sharing Plan and 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (25) Includes 25,000 shares held by Mr. Crumbaker's spouse, which Mr. Crumbaker may be deemed to beneficially own. (26) Includes 3,750 shares underlying currently exercisable stock options deemed beneficially owned and 2,406 restricted shares subject to a risk of forfeiture. (27) Includes 100 shares held by Mr. Miller's spouse, which Mr. Miller may be deemed to beneficially own, and 200 shares held by Mr. Miller's children, which Mr. Miller may be deemed to beneficially own. (28) Includes 3,750 shares underlying currently exercisable stock options deemed beneficially owned. (29) Includes 2,500 shares underlying currently exercisable stock options deemed beneficially owned. (30) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (31) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (32) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned and 5,010 restricted shares subject to a risk of forfeiture. (33) Includes 618 shares of Common Stock held in the Profit Sharing Plan and 3,750 shares underlying currently exercisable stock options deemed beneficially owned. (34) Includes 441 shares of Common Stock held in the Profit Sharing Plan and 3,102 restricted shares subject to a risk of forfeiture. (35) Includes 2,500 shares underlying currently exercisable stock options deemed beneficially owned. (36) Includes 1,250 shares underlying currently exercisable stock options deemed beneficially owned. (37) Includes 214 shares of Common Stock held in the Profit Sharing Plan. (38) This information is derived from a Schedule 13G dated January 30, 1998 filed with the Securities and Exchange Commission (the "Commission") by Dresdner RCM Global Investors LLC, RCM Limited L.P. and RCM General Corporation (collectively, "RCM"). Each of such parties possesses sole dispositive power with respect to all 372,800 shares and sole voting power with respect to 267,700 shares. Dresdner Bank AG also filed a Schedule 13G dated January 30, 1998 with the Commission with respect to such shares and may be deemed, together with RCM, to beneficially own such shares; however, Dresdner Bank AG does not possess any voting or dispositive power over such shares. RCM's address is Four Embarcadero Center, San Francisco, California 94111. 41 43 CERTAIN TRANSACTIONS Prior to its Initial Public Offering, it was the Company's practice to sell shares of Common Stock to newly hired or promoted partners. In connection with such sales, the Company had arranged for a bank credit facility that provided installment loans to partners, with the proceeds of such loans being used to pay the consideration for shares purchased directly from the Company. Each loan under such facility was secured by a pledge of the shares purchased and was guaranteed by the Company. Roderick C. Gow and Joe D. Goodwin had outstanding loans guaranteed by the Company under such facility in fiscal 1998. The original principal amounts of such loans, and the maximum amounts outstanding and guaranteed by the Company under such loans during fiscal 1998, were $146,000 and $125,000, respectively, for Mr. Gow, and $148,000 and $70,000, respectively, for Mr. Goodwin. The Company obtained a release of its guarantee under such facility after completion of its Initial Public Offering. Pursuant to the Agreement and Plan of Merger entered into in connection with the WHI acquisition, David L. Witte received as of February 27, 1998, in exchange for his interest in WHI, 13,428 shares of Common Stock, $588,288.46 in cash and a promissory note in the amount of $534,575.75. Such promissory note bears interest at 5% per annum and provides for three installment payments of $178,191.92 each, due February 27, 1999, 2000 and 2001. In August 1997, the Company made a non-interest bearing loan of $105,000 to John S. Rothschild, the proceeds of which were used to pay certain initiation fees for a country club joined by Mr. Rothschild in connection with his employment responsibilities. So long as Mr. Rothschild does not voluntarily terminate his employment with the Company, 20% of the principal amount of the loan will be forgiven on July 1 of each year, commencing July 1, 1998. The Company also has agreed to pay Mr. Rothschild the amount of any tax on income that may be imputed to him as a result of such forgiveness. Since the beginning of fiscal 1998, Dresdner Bank AG has engaged the Company to perform several executive searches and, as consideration therefor, has paid the Company aggregate fee revenue of approximately $323,000. Dresdner Bank AG is the parent of Dresdner RCM Global Investors LLC, which beneficially owns 6.57% of the Common Stock. Accordingly, Dresdner Bank AG may be deemed to beneficially own such Common Stock. See "Principal and Selling Stockholders." The Company has performed its services for Dresdner Bank AG pursuant to its standard arrangements, under terms no less favorable to the Company than those obtainable from unaffiliated parties. See "Description of Capital Stock -- Indemnification and Limitation of Liability for Directors and Officers" for information regarding indemnification agreements which LAI has entered into with certain of its directors and officers. 42 44 DESCRIPTION OF CAPITAL STOCK GENERAL LAI has authority under its Articles of Incorporation to issue up to 35,000,000 shares of Common Stock and up to 3,000,000 shares of Preferred Stock (the "Preferred Stock"). COMMON STOCK Subject to any preferential rights of any Preferred Stock created by the Board of Directors, each outstanding share of Common Stock is entitled to such dividends, if any, as may be declared from time to time by the Board. See "Dividend Policy." Each outstanding share is entitled to one vote on all matters submitted to a vote of stockholders. Holders of Common Stock do not have any preemptive right to subscribe to any securities of LAI of any kind or class. In the event of liquidation, dissolution or winding up of LAI, holders of Common Stock are entitled to receive on a pro rata basis any assets remaining after provision for payment of creditors and after payment of any liquidation preferences to holders of Preferred Stock. PREFERRED STOCK Preferred Stock is available for issuance from time to time in one or more series at the discretion of the Board of Directors without stockholder approval. The Board of Directors has the authority to prescribe, for each series of Preferred Stock it establishes, the number of shares, the voting rights (if any) to which such shares are entitled, and the designations, powers, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions of such shares. Depending upon the rights of such Preferred Stock, the issuance of Preferred Stock could have an adverse effect on holders of Common Stock by delaying or preventing a change in control of LAI, making removal of the present management of LAI more difficult or resulting in restrictions upon the payment of dividends and other distributions to the holders of Common Stock. FLORIDA BUSINESS CORPORATION ACT The Company is subject to several anti-takeover provisions that apply to a public corporation organized under Florida law unless the corporation has elected to opt out of such provisions in its Articles of Incorporation or (depending on the provision in question) its Bylaws. LAI has not elected to opt out of these provisions. The Florida Business Corporation Act (the "Florida Act") contains a provision that prohibits the voting of shares in a publicly held Florida corporation which are acquired in a "control share acquisition" unless the holders of a majority of the corporation's voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A "control share acquisition" means an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within any of the following ranges of voting power: (i) one-fifth or more but less than one third of such voting power, (ii) one third or more but less than a majority of such voting power and (iii) more than a majority of such voting power. The Florida Act also contains an "affiliated transaction" provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested stockholder" unless (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested stockholder, (ii) the interested stockholder has owned at least 80% of the corporation's outstanding voting shares for at least five years, or (iii) the interested stockholder is the beneficial owner of at least 90% of the corporation's outstanding voting shares, exclusive of those shares acquired by the interested stockholder directly from the corporation in a transaction approved by 43 45 a majority of the disinterested directors. An interested stockholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS AFFECTING CHANGES IN CONTROL Certain provisions of the Company's Articles of Incorporation and Bylaws may delay or make more difficult unsolicited acquisitions or changes of control of LAI. Such provisions may enable LAI to develop its business in a manner that will foster its long-term growth without disruption caused by the threat of a takeover not deemed by its Board of Directors to be in the best interests of LAI and its stockholders. Such provisions could have the effect of discouraging third parties from making proposals involving an unsolicited acquisition or change of control of LAI, although such proposals, if made, might be considered desirable by a majority of LAI's stockholders. Such provisions may also have the effect of making it more difficult for third parties to cause the replacement of the current Board of Directors of LAI. These provisions include (i) the availability of capital stock for issuance from time to time at the discretion of the Board of Directors, (ii) a classified Board of Directors, (iii) prohibition against stockholders acting by written consent in lieu of a meeting, (iv) limitations on calling meetings of stockholders, (v) requirements for advance notice for raising business or making nominations at stockholders' meetings and (vi) the ability of the Board of Directors to increase the size of the Board of Directors and to appoint directors to newly created directorships. These provisions are present in the Articles of Incorporation or Bylaws of LAI. INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS The LAI Bylaws provide that LAI shall have the power, but generally not the obligation, to indemnify directors and officers to the fullest extent permitted by the laws of the State of Florida. LAI has entered into indemnification agreements with all of its executive officers and directors creating certain indemnification obligations on LAI's part in favor of the directors and executive officers. These indemnification agreements clarify and expand the circumstances under which a director or executive officer will be indemnified. The indemnification rights conferred by the Bylaws and indemnification agreements are not exclusive of any other right, under the Florida Act or otherwise, to which a person seeking indemnification may otherwise be entitled. LAI also provides liability insurance for the directors and officers for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers. The effect of such indemnification arrangements may be to exempt or limit the liability of such executive officers and directors to LAI or its stockholders for monetary damages for breach of fiduciary duty to LAI, except to the extent such exemption or limitation is not permitted under the Florida Act as the same exists or may hereafter be amended. TRANSFER AGENT The transfer agent and registrar of the Company's Common Stock is ChaseMellon Shareholder Services, L.L.C. 44 46 SHARES ELIGIBLE FOR FUTURE SALE A substantial number of shares of Common Stock already outstanding, or issuable on exercise of stock options under the Employee Stock Plans and the Directors' Stock Plan, are or will be eligible for future sale in the public market at prescribed times pursuant to Rule 144 or Rule 701 under the Securities Act. Upon completion of the Offering, LAI will have 7,761,956 shares of Common Stock outstanding (8,211,956 if the Underwriters' over-allotment option is exercised in full) and will have granted stock options to purchase another 1,192,115 shares of Common Stock. Of these shares, the 2,300,000 shares of Common Stock sold in the Initial Public Offering and the 3,000,000 shares sold in the Offering (3,450,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable by persons other than "affiliates" of LAI, without restriction under the Securities Act. The remaining 2,461,956 shares of Common Stock are "restricted" securities within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Certain existing stockholders of LAI, however, have agreed not to sell, contract to sell or otherwise dispose of an aggregate of 426,000 shares of Common Stock until at least July 2, 1999; an additional 25,707 shares until at least January 2, 2000; an additional 189,677 shares until at least February 27, 2000; and an additional 1,688,540 shares until at least June 10, 2000 (two years after the date of this Prospectus), without the prior written consent of Robert W. Baird & Co. Incorporated. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned his or her shares of Common Stock for at least one year (including the prior holding period of any prior owner other than an affiliate of LAI) is entitled to sell within any three-month period that number of shares which does not exceed the greater of 1% of the outstanding shares of Common Stock or the average weekly trading volume during the four calendar weeks preceding each such sale. Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about LAI. A person (or persons whose shares are aggregated) who is not or has not been deemed an affiliate of LAI for at least three months and who has beneficially owned shares for at least two years (including the holding period of any prior owner other than an affiliate) would be entitled to sell such shares under Rule 144 without regard to the limitations discussed above. Rule 144 defines "affiliate" of a company as a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such company. Affiliates of a company generally include its directors, executive officers and principal stockholders. Sales of such shares in the public market, or the perception that such sales may occur, could adversely affect the market price of the Common Stock or impair LAI's ability to raise additional capital in the future through the sale of equity securities. 45 47 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the underwriters named below (the "Underwriters"), and each of the Underwriters has severally agreed to purchase from the Company the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF UNDERWRITERS COMMON SHARES - ------------ ------------- Robert W. Baird & Co. Incorporated.......................... The Robinson-Humphrey Company, LLC.......................... J.C. Bradford & Co.......................................... --------- Total............................................. 3,000,000 =========
In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all 3,000,000 shares of Common Stock offered hereby if any such shares of Common Stock are purchased. In the event of a default by any Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company and the Selling Stockholders have been advised by the Underwriters that the several Underwriters propose to offer such Common Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may re-allow a concession not in excess of $ per share to other dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may be changed by the Underwriters. The Company has granted the Underwriters an option, expiring 30 days from the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the public offering price less underwriting discounts set forth on the cover page of this Prospectus. The Underwriters may exercise such option solely to cover over-allotments, if any, made in connection with the sale of the Common Stock that the Underwriters have agreed to purchase. To the extent the Underwriters exercise such option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase a number of shares proportionate to such Underwriter's initial commitment. The Selling Stockholders and LAI's executive officers and directors have agreed not to sell, contract to sell or otherwise dispose of any shares of Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of Robert W. Baird & Co. Incorporated. In addition, certain existing stockholders of LAI have agreed not to sell, contract to sell or otherwise dispose of an aggregate of 426,000 shares of Common Stock until at least July 2, 1999; an additional 25,707 shares until at least 46 48 January 2, 2000; an additional 189,677 shares until at least February 27, 2000; and an additional 1,688,540 shares until at least June 10, 2000 (two years after the date of this Prospectus), without the prior written consent of Robert W. Baird & Co. Incorporated. See "Shares Eligible for Future Sale." The Company has agreed, for a period of 90 days after the date of this Prospectus, not to sell, contract to sell or otherwise dispose of any shares of Common Stock without the prior written consent of Robert W. Baird & Co. Incorporated, other than shares of Common Stock issued in the Offering, under the ESPP or upon exercise of stock options granted pursuant to the Employee Stock Plans or the Directors' Stock Plan. See "Management -- Incentive and Benefit Plans." The Underwriting Agreement provides that LAI and the Selling Stockholders will indemnify the Underwriters and the Underwriters will indemnify LAI and the Selling Stockholders against certain liabilities under the Securities Act or contribute to payments that may be required to be made in respect thereof. In connection with the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot the Offering, creating a syndicate short position. In addition, the Underwriters may bid for, and purchase, shares of Common Stock in the open market to cover syndicate short positions or to stabilize the price of the Common Stock. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Underwriters and dealers may also engage in passive market making transactions in the Common Stock in accordance with Rule 103 of Regulation M promulgated by the Commission. In general, a passive market maker may not bid for, or purchase, the Common Stock at a price that exceeds the higher independent bid. In addition, the net daily purchases made by any passive market maker generally may not exceed 30% of its average daily trading volume in the Common Stock during a specified two-month prior period, or 200 shares, whichever is greater. A passive market maker must identify passive market making bids as such on the Nasdaq electronic inter-dealer reporting system. Passive market making may stabilize or maintain the market price of the Common Stock above independent market levels. Underwriters and dealers are not required to engage in passive market making and may end passive market making activities at anytime. From time to time in the ordinary course of its business, Robert W. Baird & Co. Incorporated has provided and may continue to provide financial advisory services to the Company in connection with certain acquisitions and proposed acquisitions and other matters. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for LAI by Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, Tampa, Florida. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Neal, Gerber & Eisenberg, Chicago, Illinois. EXPERTS The Consolidated Financial Statements and Notes thereto included in this Prospectus and the Registration Statement have been audited by Arthur Andersen LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 47 49 ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files periodic reports and other information with the Commission. Reports, proxy and information statements and other information filed by the Company may be inspected and copies may be obtained (at prescribed rates) at the Commission's Public Reference Section, 450 5th Street, N.W., Washington, D.C. 20549, as well as the following Regional Offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained by mail from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of prescribed rates. In addition, electronically filed documents, including reports, proxy and information statements and other information regarding the Company, can be obtained from the Commission's Web site at: http://www.sec.gov. The Company's Common Stock is quoted on the Nasdaq National Market, and reports, proxy statements and other information concerning the Company can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006. The Company has filed a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, referred to herein as the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and such Common Stock offered hereby, reference is made to the Registration Statement. Statements contained in this Prospectus with respect to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each such instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference to such exhibit. Copies of all or any part of the Registration Statement, including the documents incorporated by reference therein or exhibits thereto, may be obtained upon payment of the prescribed rates at the offices of the Commission set forth above. 48 50 INDEX TO FINANCIAL STATEMENTS LAMALIE ASSOCIATES, INC. FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......... F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Operations..................... F-4 Consolidated Statements of Stockholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 WARD HOWELL INTERNATIONAL, INC. FINANCIAL STATEMENTS Independent Auditors' Report................................ F-18 Balance Sheets............................................ F-19 Statements of Operations.................................. F-20 Statements of Shareholders' Equity........................ F-21 Statements of Cash Flows.................................. F-22 Notes to Financial Statements............................. F-23 CHARTWELL PARTNERS INTERNATIONAL, INC. FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......... F-27 Statement of Operations................................... F-28 Statement of Cash Flows................................... F-29 Notes to Financial Statements............................. F-30 UNAUDITED PRO FORMA FINANCIAL INFORMATION Introduction to Unaudited Pro Forma Combined Statement of Operations............................................. F-32 Unaudited Pro Forma Combined Statement of Operations...... F-33 Notes to Unaudited Pro Forma Combined Statement of Operations............................................. F-34
F-1 51 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Lamalie Associates, Inc.: We have audited the accompanying consolidated balance sheets of Lamalie Associates, Inc. (a Florida corporation) and subsidiaries as of February 28, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lamalie Associates, Inc. and subsidiaries as of February 28, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, April 8, 1998 F-2 52 LAMALIE ASSOCIATES, INC. CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, FEBRUARY 28, 1997 1998 ------------ ------------ (DOLLARS IN THOUSANDS) ASSETS: Current assets: Cash and cash equivalents................................. $ 1,662 $23,780 Accounts receivable, less allowance of $850 and $2,120, respectively........................................... 14,238 22,219 Prepaid expenses.......................................... 1,033 1,420 Refundable income taxes................................... 58 1,822 ------- ------- Total current assets.............................. 16,991 49,241 ------- ------- Property and equipment, net................................. 4,184 5,612 Deferred tax assets......................................... 1,958 4,185 Goodwill, net............................................... -- 24,790 Cash value of life insurance................................ 2,255 4,363 Other assets................................................ 173 725 ------- ------- Total assets...................................... $25,561 $88,916 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued liabilities.................. $ 2,089 $ 7,191 Payable to former WHI stockholders........................ -- 8,592 Accrued compensation...................................... 13,255 20,573 Current maturities of long-term debt...................... 387 3,070 Current deferred tax liabilities.......................... 643 -- ------- ------- Total current liabilities......................... 16,374 39,426 ------- ------- Accrued rent................................................ 1,038 1,013 Deferred compensation....................................... 3,872 6,951 Long-term debt, less current maturities..................... 1,650 6,055 ------- ------- Commitments and contingencies Stockholders' equity: Preferred stock; $0.01 par value; 3,000,000 shares authorized; no shares issued and outstanding........... -- -- Common stock; $0.01 par value; 35,000,000 shares authorized; 3,075,000 and 5,576,446 shares issued and outstanding, respectively.............................. 31 56 Additional paid-in capital................................ 4,087 32,873 Subscriptions receivable.................................. (153) -- Retained earnings (accumulated deficit)................... (1,338) 2,542 ------- ------- Total stockholders' equity........................ 2,627 35,471 ------- ------- Total liabilities and stockholders' equity........ $25,561 $88,916 ======= =======
The accompanying notes are an integral part of these consolidated statements. F-3 53 LAMALIE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED ------------------------------------------ FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1996 1997 1998 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Fee revenue, net..................................... $35,088 $46,437 $61,803 Operating expenses: Compensation and benefits.......................... 30,693 39,928 46,513 General and administrative......................... 4,467 6,685 8,680 ------- ------- ------- Total operating expenses................... 35,160 46,613 55,193 ------- ------- ------- Operating income (loss).............................. (72) (176) 6,610 ------- ------- ------- Interest income...................................... 117 125 887 Interest expense..................................... (157) (501) (690) ------- ------- ------- Net interest income (expense).............. (40) (376) 197 ------- ------- ------- Income (loss) before provision for income taxes...... (112) (552) 6,807 Provision for income taxes........................... 90 15 2,927 ------- ------- ------- Net income (loss).................................... $ (202) $ (567) $ 3,880 ======= ======= ======= Basic net income (loss) per common share............. $ (0.07) $ (0.18) $ 0.85 ======= ======= ======= Weighted average common shares....................... 2,921 3,199 4,573 ======= ======= ======= Diluted net income (loss) per common and common equivalent share................................... $ (0.07) $ (0.18) $ 0.82 ======= ======= ======= Weighted average common and common equivalent shares............................................. 2,921 3,199 4,751 ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. F-4 54 LAMALIE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED COMMON STOCK ADDITIONAL EARNINGS/ TOTAL --------------- PAID-IN SUBSCRIPTIONS (ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT) EQUITY ------ ------ ---------- ------------- ------------ ------------- (IN THOUSANDS) BALANCE AS OF FEBRUARY 28, 1995........................... 2,278 $23 $ 2,943 $ (72) $ (569) $ 2,325 Redemption of common stock....... (100) (1) (136) -- -- (137) Issuance of common stock......... 612 6 845 (851) -- -- Reduction of subscriptions receivable from stockholders... -- -- -- 524 -- 524 Net loss......................... -- -- -- -- (202) (202) ----- --- ------- ------ ------- ------- BALANCE AS OF FEBRUARY 29, 1996........................... 2,790 28 3,652 (399) (771) 2,510 Redemption of common stock....... (345) (3) (509) -- -- (512) Issuance of common stock......... 630 6 944 (950) -- -- Reduction of subscriptions receivable from stockholders... -- -- -- 1,196 -- 1,196 Net loss......................... -- -- -- -- (567) (567) ----- --- ------- ------ ------- ------- BALANCE AS OF FEBRUARY 28, 1997........................... 3,075 31 4,087 (153) (1,338) 2,627 Redemption of common stock....... (50) (1) (76) -- -- (77) Initial public offering of common stock.......................... 2,300 23 24,628 -- -- 24,651 Other issuance of common stock... 251 3 4,183 -- -- 4,186 Reduction of subscriptions receivable from stockholders... -- -- -- 153 -- 153 Amortization of discounted options........................ -- -- 51 -- -- 51 Net income....................... -- -- -- -- 3,880 3,880 ----- --- ------- ------ ------- ------- BALANCE AS OF FEBRUARY 28, 1998........................... 5,576 $56 $32,873 $ -- $ 2,542 $35,471 ===== === ======= ====== ======= =======
The accompanying notes are an integral part of these consolidated statements. F-5 55 LAMALIE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ------------------------------------------ FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1996 1997 1998 ------------ ------------ ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................... $ (202) $ (567) $ 3,880 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............................. 449 768 885 Amortization of goodwill.................................. -- -- 17 Amortization of discounted options........................ -- -- 51 Deferred income taxes..................................... (738) (276) (897) Changes in assets and liabilities Accounts receivable, net................................ (3,796) (4,679) (1,367) Prepaid expenses........................................ (218) (331) (319) Refundable income taxes................................. 465 (1,146) (1,707) Other assets............................................ (35) (36) (532) Accounts payable and accrued liabilities................ 1,843 (155) 361 Accrued compensation.................................... 2,362 3,376 (493) Accrued rent............................................ 122 531 (25) Deferred compensation................................... 1,314 1,862 3,079 ------- ------- ------- Net cash provided by (used in) operating activities....................................... 1,566 (653) 2,933 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in life insurance................................ (779) (1,048) (2,109) Purchases of property and equipment......................... (2,483) (1,825) (2,187) Acquisition of WHI.......................................... -- -- 1,318 Acquisition of CPI.......................................... -- -- (1,387) ------- ------- ------- Net cash used in investing activities.............. (3,262) (2,873) (4,365) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings.................................................. -- 3,995 -- Repayments of debt.......................................... -- (2,262) (1,783) Redemption of certificate of deposit........................ 109 -- -- Proceeds from issuance of common stock...................... 524 1,197 25,410 Payments to redeem common stock............................. (217) (271) (77) ------- ------- ------- Net cash provided by financing activities............... 416 2,659 23,550 ------- ------- ------- Net (decrease) increase in cash and cash equivalents............................................. (1,280) (867) 22,118 Cash and Cash Equivalents, at beginning of period........... 3,809 2,529 1,662 ------- ------- ------- Cash and Cash Equivalents, at end of period................. $ 2,529 $ 1,662 $23,780 ======= ======= ======= Supplemental disclosures of cash flow information -- Cash paid for interest...................................... $ 8 $ 204 $ 145 Cash paid for income taxes.................................. 362 1,437 4,691 Supplemental disclosures of non-cash activities -- Debt issued in connection with acquisitions................. -- -- 8,802 Equity issued in connection with acquisitions............... -- -- 3,580 Payable in connection with acquisitions..................... -- -- 8,592
The accompanying notes are an integral part of these consolidated statements. F-6 56 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 1998 (1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Lamalie Associates, Inc. and its wholly-owned subsidiaries ("LAI" or the "Company") provide consulting services aimed specifically at solving its clients' leadership needs by identifying, evaluating and recommending qualified candidates for senior level positions. LAI provides executive search services exclusively on a retained basis from 16 regional offices located throughout the United States. INITIAL PUBLIC OFFERING & REINCORPORATION The Company completed its initial public offering (the "IPO") of 2,300,000 shares of common stock on July 1, 1997. The proceeds of $24.7 million, net of underwriters' discounts and other offering costs, were used to repay outstanding indebtedness under the Company's credit facilities, to finance business acquisitions and to provide additional working capital. On June 3, 1997, in connection with the IPO, the Company reincorporated from Delaware to Florida. STOCK SPLIT On June 3, 1997, in connection with the IPO, the Company effected a 1,000 for one stock split of each outstanding share of common stock. All share related data in these consolidated financial statements have been adjusted retroactively to give effect to this event as if it had occurred at the beginning of the earliest period presented. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly-liquid investment instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT Office furniture and equipment are stated at cost less accumulated depreciation. Effective March 1, 1996, the Company adopted the straight-line method of depreciation for all newly acquired assets. All assets acquired prior to March 1, 1996, are depreciated using an accelerated method. The effect of the change in depreciation methods on newly acquired assets is not material to the Company's financial statements. Depreciation is provided over the assets' estimated useful lives of 7 years for office furniture and equipment and 5 years for software. Leasehold improvements are stated at cost less accumulated amortization using the straight-line method over the related remaining lease terms which range from 2 to 9 years. Repair and maintenance costs which do not extend the useful lives of the assets are expensed as incurred. F-7 57 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GOODWILL Goodwill relates to acquisitions made during the year ended February 28, 1998 (see Note 2), and is being amortized on a straight-line basis over thirty years. Accumulated amortization as of February 28, 1998, was approximately $17,000. REVENUE RECOGNITION The Company derives substantially all of its revenues from fees for professional services, which are recognized as fee revenue as clients are billed, generally over a 60- to 90-day period commencing with the initial acceptance of a search. Fee revenue is presented net of adjustments to original billings. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which the related deferred tax assets or liabilities are expected to be settled or realized. Provision for income taxes consists of the taxes payable for the current period and the change during the period in deferred tax assets and liabilities. NET INCOME (LOSS) PER COMMON SHARE Basic net income (loss) per common share was determined by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common and common equivalent share was determined by dividing the net income (loss) by the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options using the treasury stock method and from the convertible debt assuming conversion upon issuance. (See Note 4) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares of common stock issued by the Company during the 12 months preceding the IPO have been included in the calculation of weighted average shares of common stock outstanding as if the shares were outstanding for all periods presented. CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentration of credit risk consist primarily of accounts receivable. Credit risk arising from receivables is minimal due to the large number of clients comprising the Company's customer base. The customers are concentrated primarily in the Company's U.S. market areas. Credit losses in the past have not been material. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments as of February 28, 1997 and 1998, approximate fair value. F-8 58 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NEWLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997. Management believes the effect of adopting SFAS 130 would not have a material impact on the accompanying consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. SFAS 131 is effective for fiscal years beginning after December 15, 1997. Management has not yet determined the effect of adopting SFAS 131. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about Pension and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other post retirement benefit plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997; earlier application is encouraged. Management has implemented SFAS 132 for the year ended February 28, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance for capitalizing and expensing the costs of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. Management believes the effect of adopting SOP 98-1 would not have a material impact on the accompanying consolidated financial statements. RECLASSIFICATIONS Certain prior year balances have been reclassified in order to conform to the current year financial statement presentation. (2) ACQUISITIONS On February 27, 1998, the Company completed the acquisition by merger of Ward Howell International, Inc. ("WHI"). WHI and its subsidiary were merged into a wholly-owned subsidiary of the Company and WHI was the surviving corporation in the merger. The purchase price was approximately $19.5 million including $7.6 million in notes payable and approximately 190,000 shares or $3.1 million of common stock. The remaining $8.8 million of the purchase consideration was payable to the former WHI stockholders as of February 28, 1998, and is accrued for in the accompanying consolidated balance sheets. Also, additional acquisition costs of approximately $3.1 million have been accrued for in the accompanying consolidated balance sheets. The acquisition was accounted for as a purchase with goodwill being recognized for the excess of the purchase amount over the fair market value of the assets acquired. On January 2, 1998, the Company acquired Chartwell Partners International, Inc. ("CPI"). The acquisition cost was approximately $3.1 million and consisted of approximately $1.4 million cash, a $1.25 million convertible subordinated note payable, and approximately 26,000 shares or $424,000 of common stock. F-9 59 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition was accounted for as a purchase with goodwill being recognized for the excess of the purchase amount over the fair market value of the assets acquired. Had the acquisitions of WHI and CPI been completed on March 1, 1996 and 1997, respectively, the combined pro forma unaudited results of operations would have been as follows for the year ended February 28:
1997 1998 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Fee revenue, net............................................ $74,193 $91,730 Net income.................................................. 2,943 4,485 Basic net income per common share........................... 0.86 0.94 Diluted net income per common and common equivalent share... 0.86 0.90
The unaudited pro forma combined results of operations for the years ended February 28, 1997 and 1998 were prepared using the financial statements of WHI and CPI for the years ended December 31, 1996 and 1997, respectively. (3) PROPERTY AND EQUIPMENT Property and equipment consists of the following as of February 28:
1997 1998 ------ ------ (IN THOUSANDS) Office furniture and equipment.............................. $2,884 $3,934 Leasehold improvements...................................... 2,305 2,614 Software.................................................... 721 1,672 ------ ------ 5,910 8,220 Less: accumulated depreciation and amortization............. (1,726) (2,608) ------ ------ $4,184 $5,612 ====== ======
F-10 60 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) LONG-TERM DEBT Long-term debt consists of the following as of February 28:
1997 1998 ------ ------ (IN THOUSANDS) Notes payable to former WHI stockholders dated February 27, 1998, payable in three equal annual installments plus accrued interest bearing interest at 5.0%................. $ -- $7,552 Convertible subordinated promissory note to a former CPI stockholder, dated January 2, 1998, payable in three equal annual installments plus accrued interest, bearing interest at 6.75%, and convertible into shares of common stock at each anniversary date at prices specified in the asset purchase agreement.................................. -- 1,250 Term loan dated March 1996, payable in monthly principal installments of $23,810 plus accrued interest secured by accounts receivable, repaid in full during fiscal 1998.... 1,733 -- Notes payable due to former LAI stockholders, non-interest bearing (interest imputed at 6.5%), payable in three equal annual installments maturing through April 2000........... 304 254 Notes payable to former WHI stockholders bearing interest from 5.8% to 9.5% maturing through February 2003.......... -- 69 ------ ------ 2,037 9,125 Less: current maturities of long-term debt.................. (387) (3,070) ------ ------ $1,650 $6,055 ====== ======
Maturities of long-term debt are as follows (in thousands):
YEAR ENDING AMOUNT - ----------- ------ February 28, 1999........................................... $3,070 February 29, 2000........................................... 3,070 February 28, 2001........................................... 2,971 February 28, 2002........................................... 7 February 28, 2003........................................... 7 ------ $9,125 ======
The Company maintains a line of credit which provides for maximum borrowings of $6.5 million bearing interest at the bank's prime rate (8.5% at February 28, 1998). Interest is payable monthly and the principal balance is due upon demand. The line of credit is collateralized by accounts receivable with borrowings limited to 75% of qualifying receivables. Additionally, the Company is required to comply with certain working capital and liquidity covenants. The Company was in compliance with the terms and covenants of its debt agreements as of February 28, 1997 and 1998. No amounts were outstanding under the line of credit as of February 28, 1997 or 1998. During fiscal 1998, the Company obtained a commitment letter for credit facilities providing for maximum borrowings of $15.0 million. Subsequent to year end, this commitment was increased to $25.0 million. F-11 61 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) INCOME TAXES Significant components of the provision for income taxes are summarized as follows:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1996 1997 1998 ------------ ------------ ------------ (IN THOUSANDS) Current: Federal.................................... $ 662 $ 235 $2,931 State...................................... 166 56 893 ----- ----- ------ 828 291 3,824 ----- ----- ------ Deferred: Federal.................................... (591) (220) (683) State...................................... (147) (56) (214) ----- ----- ------ (738) (276) (897) ----- ----- ------ $ 90 $ 15 $2,927 ===== ===== ======
The provision for income taxes differs from the amount computed by applying the U.S. federal corporate tax rate to income before provision for income taxes as follows:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1996 1997 1998 ------------ ------------ ------------ Statutory U.S. federal income tax rate....... 35.0% 35.0% 34.0% Meals, entertainment and dues.............. (101.0) (31.2) 2.1 Keyperson life insurance premiums.......... (6.6) (3.8) .5 State taxes, net of federal benefit........ (7.3) (2.8) 6.4 ------ ----- ----- Effective income tax rate............... (79.9)% (2.8)% 43.0% ====== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes. As of February 28, 1998, the Company has changed its method of reporting for income F-12 62 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) taxes from the cash basis to the accrual basis. Significant components of the Company's deferred tax assets and liabilities as of February 28, 1997 and 1998, are as follows:
1997 1998 ------- ------- (IN THOUSANDS) Deferred tax assets: Accounts payable and accrued liabilities.................. $ 766 $ 124 Accrued compensation...................................... 4,539 -- Accrued rent.............................................. 415 408 Allowance for uncollectible accounts...................... -- 595 Deferred compensation..................................... 1,549 2,798 Net operating loss carryforward........................... -- 2,207 Other..................................................... 70 35 ------- ------- Total deferred tax assets......................... 7,339 6,167 ------- ------- Deferred tax liabilities: Accrued compensation...................................... -- (117) Accounts receivable, net.................................. (5,757) -- Liability for change in tax method........................ -- (1,241) Prepaid expenses.......................................... (261) -- Property and equipment, net............................... (6) (623) Other..................................................... -- (1) ------- ------- Total deferred tax liabilities.................... (6,024) (1,982) ------- ------- Net deferred tax asset............................ $ 1,315 $ 4,185 ======= =======
The Company has net operating loss carryforwards of approximately $5.5 million, expiring in 2018. Approximately $4.2 million of this amount relates to the acquisition of WHI (see Note 2). The remaining $1.3 million relates to the change from calendar to fiscal year end for tax reporting purposes. (6) EMPLOYEE BENEFIT PLANS PROFIT SHARING PLAN The Company maintains a defined contribution retirement plan covering substantially all employees. As of February 28, 1997 and 1998, the Company has accrued for contributions totaling approximately $2,183,000 and $1,585,000, respectively, which are included in accrued compensation in the accompanying consolidated balance sheets. DEFERRED COMPENSATION PLAN The Company has deferred compensation agreements with 59 of its employees. Under the terms of the agreements, employees elect to defer a portion of their compensation to be received, together with accrued interest, upon termination of the agreements, as defined. The present value of the obligation is recorded as deferred compensation in the accompanying consolidated balance sheets. Interest is earned on deferred amounts at a rate determined annually by the Company (8.5% at February 28, 1998). The Company is the beneficiary of whole life insurance policies with an aggregate cash surrender value of approximately $2,255,000 and $4,363,000, and an aggregate face amount of $14,725,000 and $13,450,000, as of February 28, 1997 and 1998, respectively. Proceeds from the policies are intended to fund the deferred compensation agreements. F-13 63 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EMPLOYEE STOCK PURCHASE PLAN The Company maintains an employee stock purchase plan (the "ESPP") covering all eligible employees meeting length of service requirements as specified in the ESPP. An aggregate of 200,000 shares of common stock is reserved for issuance under the ESPP. Eligible employees are given the right to purchase shares of common stock two times a year at a price equal to 85% of the then current market price of the common stock. STOCK OPTION PLANS The Company has two employee stock option plans, the 1997 Omnibus Stock and Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive Plan (the "1998 Plan"). Under the 1997 Plan and the 1998 Plan, incentive stock options, nonqualified stock options, stock appreciation rights, performance units, performance shares, restricted stock, restricted stock units and stock not subject to restrictions may be granted to employees of the Company at prices determined at the time of grant. Generally, incentive stock options, nonqualified stock options, restricted stock and restricted stock units will vest each year beginning on the first anniversary of the date of grant at 20-25% per year and will expire after 10 years. An aggregate of 950,000 and 1,000,000 shares of common stock are reserved for issuance under the 1997 Plan and the 1998 Plan, respectively. Certain options under the 1997 Plan which have been granted to executive officers of the Company vest immediately upon the Company's stock price exceeding specified closing prices for a specified length of time as determined by the Board of Directors. If the specified criteria are not met, the options become 100% exercisable six years from the date of grant. The Company also maintains a non-employee directors' stock plan (the "Directors' Stock Plan"). An aggregate of 80,000 shares of common stock are reserved for issuance under the Directors' Stock Plan. Among other provisions, outside directors will annually receive options to purchase 5,000 shares of common stock at an exercise price equal to the market price of the common stock on the date of grant. The options will vest fully on the first anniversary of the date of grant and expire after five years. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25 ("APB 25"), under which approximately $51,000 of compensation expense has been recognized for options with an exercise price less than the market price on the date of grant. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective for fiscal years beginning after December 15, 1995. SFAS 123 allows companies to continue following the accounting guidance of APB 25, but requires pro forma disclosure of net income and earnings per share for the effects on compensation expense had the accounting guidance of SFAS 123 been adopted. The Company adopted SFAS 123 for disclosure purposes during the year ended February 28, 1998. For SFAS 123 purposes, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions; risk-free interest rates ranging from 5.56 to 6.43 percent, depending on the date of grant, expected life of 7 years, dividend rate of zero percent, and expected volatility of 45 percent. Using these assumptions, the fair value of the stock options granted in the year ended February 28, 1998, is approximately $10,934,000, which would be amortized as compensation expense over the vesting period of the options. Had compensation cost been determined consistent with SFAS 123, utilizing the assumptions detailed above, the Company's net income and net F-14 64 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income per share, as reported would have been the following pro forma amounts (in thousands except per share data):
1998 ------ Net income As reported............................................... $3,880 Pro forma................................................. 3,399 Basic net income per common share As reported............................................... $ 0.85 Pro forma................................................. 0.74 Diluted net income per common and common equivalent share As reported............................................... $ 0.82 Pro forma................................................. 0.72
A summary of the status of the Company's stock option plans as of February 28, 1998, and for the year then ended is presented in the table and narrative below:
1998 -------------------------- WEIGHTED- AVERAGE SHARES EXERCISE PRICE --------- -------------- Outstanding -- beginning of year........................... -- $ -- Granted.................................................... 1,211,615 15.97 --------- ------ Outstanding -- end of year................................. 1,211,615 $15.97 ========= ======
OPTIONS OUTSTANDING ----------------------------------------------------- NUMBER WEIGHTED- WEIGHTED- OUTSTANDING AVERAGE AVERAGE AS OF REMAINING EXERCISE RANGE OF EXERCISE PRICES FEBRUARY 28, 1998 CONTRACTUAL LIFE PRICE - ------------------------ ----------------- ---------------- -------------- $7.50............................... 67,500 9.3 years $ 7.50 12.00 -- 17.88...................... 538,500 9.4 years 13.12 19.13 -- 19.56...................... 605,615 10.0 years 19.45
As of February 28, 1998, options to purchase an aggregate of 1,211,615 shares were outstanding with a weighted average fair value of $9.02. No options were exercisable as of February 28, 1998. No options were granted during the years ended February 29, 1996 or February 28, 1997. F-15 65 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) NET INCOME (LOSS) PER SHARE The Company adopted SFAS 128, "Earnings per Share" during the year ended February 28, 1998. Accordingly, basic and diluted earnings per share ("EPS") are shown on the face of the accompanying consolidated statements of operations. The following is a reconciliation of the numerator and denominator of basic EPS to diluted EPS.
FOR THE YEARS ENDED --------------------------------------------------------------------------- FEBRUARY 29, 1996 FEBRUARY 28, 1997 ------------------------------------ ------------------------------------ INCOME PER- INCOME PER- (LOSS) SHARES SHARE (LOSS) SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ ----------- ------------- ------ (IN THOUSANDS) BASIC EPS Income available to common stockholders............... $(202) 2,921 $(0.07) $(567) 3,199 $(0.18) Effect of dilutive securities Options......... -- -- -- -- Convertible promissory note....................... -- -- -- -- ----- ----- ----- ----- DILUTED EPS Income available to common stockholders + assumed conversions................ $(202) 2,921 $(0.07) $(567) 3,199 $(0.18) ===== ===== ====== ===== ===== ====== FOR THE YEARS ENDED ------------------------------------ FEBRUARY 28, 1998 ------------------------------------ INCOME PER- (LOSS) SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ (IN THOUSANDS) BASIC EPS Income available to common stockholders............... $3,880 4,573 $0.85 Effect of dilutive securities Options......... -- 121 Convertible promissory note....................... 14 57 ------ ----- DILUTED EPS Income available to common stockholders + assumed conversions................ $3,894 4,751 $0.82 ====== ===== =====
Options to purchase 605,615 shares of common stock at prices ranging from $19.13 to $19.56 per share were outstanding as of February 28, 1998, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of common shares. (8) COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases certain office equipment and real property under noncancellable operating leases. Future minimum lease payments under these leases are as follows:
YEAR ENDING AMOUNT ----------- -------------- (IN THOUSANDS) February 28, 1999......................................... $ 4,606 February 29, 2000......................................... 4,078 February 28, 2001......................................... 3,394 February 28, 2002......................................... 2,802 February 28, 2003......................................... 2,511 Thereafter................................................ 5,788 ------- $23,179 =======
Rent expense totaled approximately $1,769,000, $2,947,000 and $3,396,000 during the years ended February 29, 1996, February 28, 1997, and February 28, 1998, respectively. Certain real property leases provide for periods of free rent or escalating lease payments throughout the lease term. In accordance with generally accepted accounting principles, rent expense is recognized ratably over the term of the agreement. F-16 66 LAMALIE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LETTERS OF CREDIT As of February 28, 1998, the Company has standby letters of credit totaling approximately $417,000. The letters of credit, which are required by certain lessors as security deposits, expire between October and December 1998. LITIGATION The Company is involved in various legal actions arising in the normal course of business. While it is not possible to determine with certainty the outcome of these matters, in the opinion of management, the eventual resolution of these claims and actions outstanding will not have a material adverse effect on the Company's financial position or results of operations. F-17 67 INDEPENDENT AUDITORS' REPORT The Board of Directors Ward Howell International, Inc.: We have audited the accompanying balance sheets of Ward Howell International, Inc. (the "Company") as of December 31, 1997 and 1996, and the related statements of operations, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ward Howell International, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP February 20, 1998 F-18 68 WARD HOWELL INTERNATIONAL, INC. BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents................................. $ 1,997,652 $ 1,437,234 Accounts receivable including client disbursements, net of allowance for doubtful accounts of approximately $1,287,000 in 1997 and $726,000 in 1996................ 7,183,214 7,226,873 Employee advances......................................... 712,236 346,149 Due from joint venture (note 2)........................... 1,122 -- Deferred income taxes (note 6)............................ 544,744 285,647 Prepaid expenses and other current assets................. 45,021 107,174 ----------- ----------- Total current assets.............................. 10,483,989 9,403,077 ----------- ----------- Fixed assets, at cost: Furniture, fixtures and equipment......................... 1,713,057 1,598,374 Computers and related costs............................... 2,055,770 1,821,307 Leasehold improvements.................................... 476,456 262,769 Assets acquired under capital leases...................... 103,746 103,746 ----------- ----------- 4,349,029 3,786,196 Less accumulated depreciation and amortization............ (3,460,549) (3,179,067) ----------- ----------- Net fixed assets.................................. 888,480 607,129 Investment in joint ventures (note 1)....................... 96,301 67,028 Other....................................................... 292,536 344,698 ----------- ----------- Total assets...................................... $11,761,306 $10,421,932 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of notes payable to related parties (note 2)..................................................... $ 29,448 $ 33,021 Current portion of installment notes payable (note 2)..... 39,000 50,069 Due to joint venture (note 2)............................. -- 25,022 Accounts payable and accrued liabilities.................. 699,125 549,373 Accrued profit-sharing contribution and bonuses (note 4)..................................................... 4,102,834 3,578,531 Accrued commissions....................................... 4,962,329 4,176,107 Income taxes payable...................................... 150,560 40,846 ----------- ----------- Total current liabilities......................... 9,983,296 8,452,969 Notes payable to related parties, net of current portion (note 2).................................................. 53,923 42,967 Installment notes payable, net of current portion (note 2)........................................................ 32,931 78,565 Deferred rent (note 3)...................................... 263,224 305,418 Noncurrent deferred income taxes (note 6)................... 64,252 52,104 ----------- ----------- Total liabilities................................. 10,397,626 8,932,023 Shareholders' equity: Common stock, $1 par value; 5,000 shares authorized; 2,146 shares and 2,136 shares issued and outstanding in 1997 and 1996, respectively (note 7)........................ 2,146 2,136 Additional paid-in capital................................ 1,180,598 1,170,248 Retained earnings......................................... 252,867 487,599 ----------- ----------- 1,435,611 1,659,983 Less: Shareholders' notes receivable (note 5)................ (71,931) (170,074) ----------- ----------- Total shareholders' equity........................ 1,363,680 1,489,909 Commitments and contingencies (notes 3 and 8)............... ----------- ----------- Total liabilities and shareholders' equity........ $11,761,306 $10,421,932 =========== ===========
See accompanying notes to financial statements. F-19 69 WARD HOWELL INTERNATIONAL, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995 ------------ ------------ ------------ Fee revenues....................................... $26,498,292 $25,137,840 $17,063,083 ----------- ----------- ----------- Operating expenses: Compensation and benefits........................ 23,216,196 22,370,604 15,318,795 General and administrative expenses (notes 3 and 4)............................................ 3,701,819 2,078,613 2,271,293 ----------- ----------- ----------- Total operating expenses................. 26,918,015 24,449,217 17,590,088 ----------- ----------- ----------- Earnings (loss) from operations.......... (419,723) 688,623 (527,005) Equity in net income of joint ventures............. 43,673 14,335 8,193 Other income (expense): Interest income (note 5)......................... 52,695 33,936 31,021 Interest expense (note 2)........................ (11,780) (16,512) (5,868) ----------- ----------- ----------- 40,915 17,424 25,153 ----------- ----------- ----------- Earnings (loss) before income taxes...... (335,135) 720,382 (493,659) Income tax (expense) benefit (note 6).............. 100,403 (382,445) (111,980) ----------- ----------- ----------- Net earnings (loss)...................... $ (234,732) $ 337,937 $ (381,679) =========== =========== ===========
See accompanying notes to financial statements. F-20 70 WARD HOWELL INTERNATIONAL, INC. STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONAL SHAREHOLDERS' TOTAL COMMON PAID-IN RETAINED TREASURY NOTES SHAREHOLDERS' STOCK CAPITAL EARNINGS STOCK RECEIVABLE EQUITY ------ ---------- --------- -------- ------------- ------------- Balance at December 31, 1994...... $1,664 $ 681,728 $ 531,341 -- $(250,795) $ 963,938 Repurchase of 320 shares of treasury stock.................. -- -- -- (331,520) 219,483 (112,037) Issuance of 320 shares of treasury stock........................... -- -- -- 331,520 (200,000) 131,520 Payment from shareholders......... -- -- -- -- 42,408 42,408 Net loss.......................... -- -- (381,679) -- -- (381,679) ------ ---------- --------- -------- --------- ---------- Balance at December 31, 1995...... 1,664 681,728 149,662 -- (188,904) 644,150 Payment from shareholders......... -- -- -- -- 60,270 60,270 Issuance of 472 shares of common stock........................... 472 488,520 -- -- (41,440) 447,552 Net earnings...................... -- -- 337,937 -- -- 337,937 ------ ---------- --------- -------- --------- ---------- Balance at December 31, 1996...... 2,136 1,170,248 487,599 -- (170,074) 1,489,909 Issuance of 10 shares of common stock........................... 10 10,350 -- -- -- 10,360 Repurchase of common stock........ -- -- -- (142,968) -- (142,968) Issuance of treasury stock........ -- -- -- 142,968 -- 142,968 Payment from shareholders......... -- -- -- -- 98,143 98,143 Net loss.......................... -- -- (234,732) -- -- (234,732) ------ ---------- --------- -------- --------- ---------- Balance at December 31, 1997...... $2,146 $1,180,598 $ 252,867 -- $ (71,931) $1,363,680 ====== ========== ========= ======== ========= ==========
See accompanying notes to financial statements. F-21 71 WARD HOWELL INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ---------- ---------- ----------- Cash flows from operating activities: Net earnings (loss)..................................... $ (234,732) $ 337,937 $ (381,679) ---------- ---------- ----------- Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Equity in net income of joint venture................ (43,673) (14,335) (8,193) Depreciation and amortization........................ 281,482 213,787 233,514 Provision for doubtful accounts...................... 1,173,878 965,625 361,564 Deferred rent........................................ (42,194) (78,971) 30,210 Deferred income taxes................................ (246,949) 292,791 (203,430) Changes in operating assets and liabilities: Accounts receivable................................ (1,130,219) (3,555,707) (1,145,366) Employee advances.................................. (251,092) 163,143 (49,121) Due from joint venture............................. (1,122) 29,600 (29,600) Prepaid expenses and other current assets.......... 62,153 (61,339) 80,189 Prepaid income taxes............................... -- 37,820 (67,252) Other.............................................. 52,162 (42,967) (25,445) Accounts payable and accrued liabilities........... 149,752 1,295,333 57,643 Accrued commissions................................ 786,222 579,323 769,694 Accrued profit sharing contribution and bonuses.... 524,303 1,170,350 159,535 Income taxes payable............................... 109,714 40,846 -- Due to joint ventures.............................. (25,022) (84,777) (161,881) Other long-term liabilities........................ -- (3,227) (67,162) ---------- ---------- ----------- Total adjustments............................... 1,399,395 947,295 (65,101) ---------- ---------- ----------- Net cash provided by (used in) operating activities.................................... 1,164,663 1,285,232 (446,780) ---------- ---------- ----------- Cash flows from investing activities: Distributions from ventures............................. 14,400 -- -- Purchases of fixed assets............................... (562,833) (179,102) (175,082) ---------- ---------- ----------- Net cash used in investing activities........... (548,433) (179,102) (175,082) ---------- ---------- ----------- Cash flows from financing activities: Sales of treasury stock................................. $ 27,973 $ -- $ 131,520 Purchases of stock for treasury......................... (102,564) -- (112,037) Payments on notes payable, net.......................... (89,724) (145,606) (51,215) Shareholders' payment on notes receivable............... 98,143 60,270 42,408 Payments on capital lease obligations................... -- (10,107) (10,737) Sale of common stock.................................... 10,360 277,060 -- ---------- ---------- ----------- Net cash provided by (used in) financing activities.................................... (55,812) 181,617 (61) ---------- ---------- ----------- Net increase (decrease) in cash and cash equivalents................................... 560,418 1,287,747 (621,923) Cash and cash equivalents, beginning of year.............. 1,437,234 149,487 771,410 ---------- ---------- ----------- Cash and cash equivalents, end of year.................... $1,997,652 $1,437,234 $ 149,487 ========== ========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest............................................. $ 5,850 $ 18,170 $ 9,424 ========== ========== =========== Taxes................................................ $ 84,532 $ 71,062 $ 177,600 ========== ========== =========== Noncash financing activities: Shareholder notes receivable, net....................... -- 41,440 19,483 Note payable for repurchase of common stock............. 40,404 -- -- Receivable from sale of common stock.................... $ 114,995 $ 170,492 $ -- ========== ========== ===========
See accompanying notes to financial statements. F-22 72 WARD HOWELL INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 (1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation Ward Howell International, Inc. (the "Company") was incorporated in 1951 in the State of Connecticut. The Company is part of the Ward Howell International Group, which unites 20 autonomous firms worldwide into one organization for the purpose of sharing resources, information and conducting international executive searches. These searches relate to all management disciplines in business, industry, government, education, health care and foundations. The Company has offices in New York, Barrington, Chicago, Dallas, Encino, Houston, Stamford, Atlanta, Phoenix and Wisconsin. The Company accounts for its investments in joint ventures using the equity method of accounting. At December 31, 1996 and 1995, the Company had a 30% interest in Ward Howell Russia, Inc., which in turn held a 29% interest in Ward Howell International, Holdings, Inc. In 1997 Ward Howell Russia, Inc. was dissolved and the Company's interest in Ward Howell Russia, Inc. became a direct 8.7% interest in Ward Howell International Holdings, Inc. as of December 31, 1997. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company generates substantially all of its revenues from fees for professional services, which are recognized as fee revenue as clients are billed, generally over a 60- to 90- day period commencing with the initial acceptance of a search. Fee revenue is presented net of adjustments to original billings. Depreciation and Amortization Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which generally approximate five years. Leasehold improvements are amortized over the terms of the related leases or the estimated useful lives of the improvements, whichever is less. Income Taxes Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Cash Equivalents The Company considers all highly liquid financial instruments with a maturity of three months or less when purchased to be cash equivalents. F-23 73 WARD HOWELL INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS CONTINUED Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make a number of estimates and assumptions that affect the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform with the 1997 financial statement presentation. (2) RELATED PARTY TRANSACTIONS Notes payable to related parties represent amounts due to former shareholders for repurchases of common stock. The notes are payable in annual installments with maturities through 2003, and bear interest at rates ranging from 5.8% to 9.50% at December 31, 1997. Interest expense on notes payable aggregated approximately $7,000 in 1997, $8,000 in 1996, and $6,000 in 1995 including approximately $5,000 that was accrued at both December 31, 1997 and 1996. In addition, the Company has outstanding installment notes payable that have been guaranteed by certain shareholders. These notes are payable in monthly installments through 1999 and bear interest at the prime rate plus one and one-half percent. At December 31, 1997, the prime rate was 8.50%. Aggregate future maturities of notes payable as of December 31, 1997 are approximately as follows:
YEAR ENDING DECEMBER 31 AMOUNT - ----------------------- -------- 1998................................................. $ 68,000 1999................................................. 55,000 2000................................................. 12,000 2001................................................. 7,000 2002................................................. 7,000 2003................................................. 6,000 -------- $155,000 ========
Included in due to joint ventures are commissions owed to the joint ventures and fees collected on behalf of the joint ventures. (3) RENT EXPENSE AND COMMITMENTS The Company leases its office facilities under agreements that provide for scheduled rent increases and rent abatements. Rent expense is recognized on a straight-line basis, rather than in accordance with lease payment schedules, for purposes of recognizing a consistent annual rent expense. Scheduled base rent increases and the effects of rent abatements are spread evenly over the terms of the respective leases in order to effect a straight-line rent expense amount over the term of the related leases. F-24 74 WARD HOWELL INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS CONTINUED Noncancelable leases for office space expire on various dates through 2003. The following is a schedule as of December 31, 1997 of approximate future minimum lease payments:
YEAR AMOUNT - ---- ---------- 1998........................................................ $ 930,000 1999........................................................ 890,000 2000........................................................ 762,000 2001........................................................ 602,000 2002........................................................ 602,000 2003........................................................ 139,000 ---------- $3,925,000 ==========
The leases provide for additional payments for real estate taxes and other costs. In 1997, 1996 and 1995, rent expense aggregated approximately $1,059,000, $1,028,000 and $1,057,000, respectively. (4) PROFIT SHARING 401(K) PLAN The Company has a profit-sharing 401(k) plan that covers substantially all employees. Contributions to the plan by the Company are limited to 15% of participants' aggregate annual compensation with limitations on contributions for each participant of 25% of compensation not to exceed $30,000. Excess amounts (amounts in excess of $30,000) may be paid in the form of bonuses. Profit-sharing expense pertaining to the 401(k) plan for 1997, 1996 and 1995, net of forfeitures, was approximately $953,500, $1,156,600 and $1,057,000, respectively. (5) SHAREHOLDERS' NOTES RECEIVABLE Shareholders' notes receivable represent amounts due for the purchase by shareholders of common stock. The notes are due in annual installments with maturities through 1999, and bear interest at 10% per annum. (6) INCOME TAXES Income tax expense (benefit) for the years ended December 31, 1997, 1996 and 1995 is composed of the following components:
1997 1996 1995 --------- -------- --------- Current: Federal............................................ $ 86,196 $133,154 $ -- State.............................................. 60,349 61,460 66,900 Deferred............................................. (246,948) 187,831 (178,880) --------- -------- --------- $(100,403) $382,445 $(111,980) ========= ======== =========
F-25 75 WARD HOWELL INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS CONTINUED Deferred income taxes included in the respective balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. A schedule of the temporary differences and the related tax effect follows:
1997 1996 -------- -------- Allowance for doubtful accounts............................. $544,744 $297,660 Depreciation and amortization............................... (64,252) (52,104) Accrued lease termination costs............................. -- 1,323 Tax credit/other carryforward............................... -- (13,336) -------- -------- $480,492 $233,543 ======== ========
The Company's deferred tax assets and liabilities as of December 31, 1997 and 1996 consist of the following:
1997 1996 --------------------- --------------------- CURRENT NONCURRENT CURRENT NONCURRENT -------- ---------- -------- ---------- Assets..................................... $544,744 $ -- $298,983 $ -- Liabilities................................ -- (64,252) (13,336) (52,104) -------- -------- -------- -------- Net deferred tax assets (liabilities)...... $544,744 $(64,252) $285,647 $(52,104) ======== ======== ======== ========
In 1997, 1996 and 1995, the difference between the effective tax rate and the Federal statutory rate is due primarily to Federal graduated rates, state and local taxes and certain meals and entertainment expenses that are not deductible for tax purposes. (7) COMMON STOCK Common stock is issued at a price of $1,036 per share or book value per share, as defined, whichever is greater. The book value per share at December 31, 1997 and 1996 was $669 and $777, respectively. For purposes of calculating book value per share, shareholders' notes receivable are not deducted from shareholders' equity. Upon a shareholder's termination of employment or the occurrence of certain other events, the Company has the first right and option to purchase the common stock held by the shareholder at a price of $1,036 per share or book value per share, as defined, whichever is greater. (8) SHORT-TERM BORROWINGS The Company has available a line of credit with a bank in the amount of $800,000. Borrowings under this line of credit were secured by the Company's accounts receivable and carried interest at the rate of prime plus 1%. There were no such borrowings at December 31, 1997 and 1996. F-26 76 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholder of Chartwell Partners International, Inc.: We have audited the accompanying statement of operations of Chartwell Partners International, Inc. (a California corporation) for the year ended December 31, 1997, and the related statement of cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Chartwell Partners International, Inc. for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Tampa, Florida, April 8, 1998 F-27 77 CHARTWELL PARTNERS INTERNATIONAL, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
Fee Revenue, net............................................ $3,428,995 Operating Expenses: Compensation and benefits................................. 2,926,011 General and administrative................................ 544,554 ---------- Total operating expenses.......................... 3,470,565 ---------- Operating Loss.............................................. (41,570) Interest Income, net........................................ 25,700 ---------- Loss Before Provision for Income Taxes...................... (15,870) Provision for Income Taxes.................................. 4,000 ---------- Net Loss.................................................... $ (19,870) ========== Basic and Diluted Loss Per Share............................ $ (1.99) ========== Weighted Average Shares Outstanding......................... 10,000 ==========
The accompanying notes are an integral part of this statement. F-28 78 CHARTWELL PARTNERS INTERNATIONAL, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(19,870) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 59,142 Changes in assets and liabilities: Accounts receivable.................................. 1,022 Accounts payable and accrued liabilities............. 77,043 Accrued compensation................................. 191,639 -------- Net cash provided by operating activities......... 308,976 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (56,817) -------- Net cash used in investing activities............. (56,817) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt.............................. (51,667) Dividends paid............................................ (10,000) -------- Net cash used in financing activities............. (61,667) -------- Net Increase in Cash and Cash Equivalents................... 190,492 Cash and Cash Equivalents, beginning of year................ 14,664 -------- Cash and Cash Equivalents, end of year...................... $205,156 ======== Supplemental Disclosures of Cash Flow Information: Cash paid for: Interest............................................... $ 4,457 Income taxes........................................... $ 4,000
The accompanying notes are an integral part of this statement. F-29 79 CHARTWELL PARTNERS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Chartwell Partners International, Inc. (the Company) is an executive search firm specializing in the recruitment of executives on behalf of its clients. The Company contracts with its clients, primarily on a retainer basis, to provide consulting advice on the identification, evaluation, attraction, and recommendation of qualified candidates for specific positions. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investment instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT Office furniture and equipment is depreciated using the straight-line method of depreciation over its estimated useful lives of five years. Computer equipment is depreciated using the straight-line method of depreciation over its estimated useful lives of two and one-half years. Repair and maintenance costs which do not extend the useful lives of the related assets are expensed as incurred. REVENUE RECOGNITION The Company derives substantially all of its revenues from professional services, which are recognized as fee revenue as clients are billed, generally over a 60- to 90-day period commencing with the initial acceptance of a search. Fee revenue is presented net of adjustments to original billings. INCOME TAXES The Company reports its earnings under the provisions of Subchapter S of the Internal Revenue Code. Accordingly, net income is reported through the stockholder's individual income tax return, and the resulting federal tax liability is the responsibility of the individual stockholder. The provision for income taxes relates to state income taxes owed by the Company for the year ended December 31, 1997. NET LOSS PER SHARE Net loss per share is determined by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. There were no common equivalent shares outstanding during the year ended December 31, 1997. F-30 80 CHARTWELL PARTNERS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) CONCENTRATION OF CREDIT RISK For the year ended December 31, 1997, the Company derived approximately 10 percent of its revenues from a single customer. NEWLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes new standards for computing and presenting earnings per share (EPS). Specifically, SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997; earlier application is not permitted. Management has implemented SFAS 128 for the year ended December 31, 1997. Because the Company does not have a complex capital structure, the implementation of SFAS No. 128 had no impact on the financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits" (SFAS 132). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997; earlier application is encouraged. Management has implemented SFAS 132 for the year ended December 31, 1997. 2. EMPLOYEE BENEFIT PLANS: DEFINED CONTRIBUTION 401(K) PROFIT SHARING PLAN The Company maintains a defined contribution 401(k) profit sharing plan. For the year ended December 31, 1997, the Company did not make a contribution to this plan. MONEY PURCHASE PENSION PLAN The Company maintains a money purchase pension plan. For the year ended December 31, 1997, the Company made a contribution totaling approximately $68,000, which is reflected in compensation and benefits expense in the accompanying statement of operations. 3. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company leases certain office space under a non-cancelable operating lease. Aggregate future minimum lease payments under this lease are approximately $99,000 and relate to the year ending December 31, 1998. Rent expense totaled approximately $92,000 for the year ended December 31, 1997. 4. SUBSEQUENT EVENT: On January 2, 1998, the Company entered into an asset sale agreement with Lamalie Associates, Inc. (LAI) to sell certain assets of the Company. The sales price was approximately $3,100,000 and was paid with approximately $1,400,000 of cash, a $1,250,000 convertible subordinated note and LAI's common stock. F-31 81 LAMALIE ASSOCIATES, INC. INTRODUCTION TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS The following unaudited pro forma combined statement of operations for the year ended February 28, 1998, has been prepared to reflect the results of operations of Lamalie Associates, Inc. ("LAI" or "the Company") as if the acquisitions of Ward Howell International, Inc. ("WHI") in February 1998 and Chartwell Partners International, Inc. ("CPI") in January 1998 were completed on March 1, 1997. WHI ACQUISITION The acquisition of WHI was treated under the purchase method of accounting for financial reporting purposes. The Company acquired WHI for approximately $19.5 million. The purchase consideration consisted of (i) approximately $8.8 million cash, (ii) $7.6 million in notes payable over three years, accruing interest on the unpaid balance at the rate of 5.0 percent per annum, and (iii) approximately 190,000 shares or $3.1 million of common stock. Approximately $8.8 million of the purchase consideration was derived from the proceeds of the Company's IPO which had been invested in short-term investment securities since July 1997. Also, additional acquisition costs of approximately $3.1 million have been accrued for in the consolidated balance sheets. CPI ACQUISITION The acquisition of CPI was treated under the purchase method of accounting for financial reporting purposes. The Company acquired CPI for approximately $3.1 million. The purchase consideration consisted of (1) approximately $1.4 million cash, (2) a convertible subordinated promissory note of the Company in the principal amount of $1.25 million, payable over three years, accruing interest on the unpaid balance at the rate of 6.75% per annum and convertible into shares of the Company's common stock at each anniversary date at the prices specified in the asset purchase agreement, and (3) approximately 26,000 shares of the Company's common stock. Approximately $1.4 million of the purchase consideration was derived from the proceeds of the Company's IPO which had been invested in short-term investment securities since July 1997. The Company believes that the assumptions used in preparing the unaudited pro forma combined statement of operations contained herein provide a reasonable basis on which to present the unaudited pro forma combined financial data. The unaudited pro forma combined statement of operations is provided for informational purposes only and should not be construed to be indicative of the results of operations or financial position of the Company had the transactions occurred on the date indicated and are not intended to project the Company's results of operations for any future period or as of any future date. The unaudited pro forma combined statement of operations should be read in conjunction with the separate historical financial statements of the Company, WHI and CPI and in conjunction with the related assumptions and notes to this unaudited pro forma combined statement of operations. The historical financial statements of WHI and CPI for the year ended December 31, 1997, were used in preparing the unaudited pro forma combined statement of operations for the year ended February 28, 1998. The unaudited pro forma combined statement of operations does not reflect the effect of expected decreases in expenses as a result of cost savings which may be achieved through facilities, technology and administrative integration. Likewise, this statement does not reflect expected increases in levels of expenses as a result of planned upgrades to WHI's and CPI's management information systems. Such items are not reflected because they are not factually determinable or estimable. F-32 82 LAMALIE ASSOCIATES, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1998
BUSINESSES ACQUIRED ---------------- ACQUISITION PRO FORMA LAI CPI WHI ADJUSTMENTS COMBINED ------- ------ ------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Fee revenue, net........................ $61,803 $3,429 $26,498 $ -- $91,730 Operating expenses: Compensation and benefits............. 46,513 2,926 23,216 (3,602)(a) 69,053 General and administrative expenses... 8,663 545 3,702 -- 12,910 Goodwill amortization................. 17 -- -- 809 (b) 826 ------- ------ ------- ------- ------- Total operating expenses...... 55,193 3,471 26,918 (2,793) 82,789 ------- ------ ------- ------- ------- Operating income (loss)................. 6,610 (42) (420) 2,793 8,941 Interest income (expense), net.......... 197 26 85 (957)(c) (649) ------- ------ ------- ------- ------- Income (loss) before provision for income taxes.......................... 6,807 (16) (335) 1,836 8,292 Provision for income taxes.............. 2,927 4 (100) 976 (d) 3,807 ------- ------ ------- ------- ------- Net income (loss)............. $ 3,880 $ (20) $ (235) $ 860 $ 4,485 ======= ====== ======= ======= ======= Basic earnings per share................ $ 0.85 $ 0.94 ======= ======= Weighted average common shares outstanding........................... 4,573 4,783 ======= ======= Diluted earnings per share.............. $ 0.82 $ 0.90 ======= ======= Weighted average common and common equivalent shares outstanding......... 4,751 4,961 ======= =======
See Notes to Unaudited Pro Forma Combined Statement of Operations. F-33 83 LAMALIE ASSOCIATES, INC. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (a) To reflect the elimination of that portion of consultant compensation that exceeds the amount which would have been paid had the WHI and CPI consultants been paid under the Company's compensation plan for consultants. (b) To reflect the increase in amortization expense related to the goodwill recorded under the purchase method of accounting. The Company amortizes goodwill over 30 years. (c) To reflect the elimination of interest income foregone in connection with the cash used in the acquisitions and the increase in interest expense for the notes payable issued in connection with the acquisitions bearing interest at rates ranging from 5.00% to 6.75%. (d) To reflect the increase in income tax expense based on the pro forma adjustments to income before provision for income taxes based on the Company's effective tax rate after consideration of certain portions of goodwill which are not deductible for income tax purposes. F-34 84 Center of page lists "LAI Ward Howell is a Knowledge-Based Firm" followed by the company's mission statement "committed to providing comprehensive consulting services aimed specifically at fulfilling our clients' leadership needs. Our firm has been built on the collective experiences of our consultants and their ability to understand the dynamic changes taking place in industry today. We save major corporations and emerging companies on a global basis". The background is the hemisphere of a globe on a light blue background, which carries over from the inside front cover. 85 ====================================================== No person is authorized in connection with any offering made hereby to give any information or to make any representation not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company, the Selling Stockholders or any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any security other than the shares of Common Stock offered hereby, nor does it constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that the information contained herein is correct as of any time subsequent to the date hereof. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 12 Price Range of Common Stock........... 12 Dividend Policy....................... 12 Capitalization........................ 13 Selected Financial Data............... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 21 Management............................ 32 Principal and Selling Stockholders.... 40 Certain Transactions.................. 42 Description of Capital Stock.......... 43 Shares Eligible for Future Sale....... 45 Underwriting.......................... 46 Legal Matters......................... 47 Experts............................... 47 Additional Information................ 48 Index to Financial Statements......... F-1
====================================================== ====================================================== 3,000,000 SHARES (LAI WARD HOWELL LOGO) COMMON STOCK ------------------------- PROSPECTUS ------------------------- ROBERT W. BAIRD & CO. INCORPORATED THE ROBINSON-HUMPHREY COMPANY J.C. BRADFORD & CO. , 1998 ====================================================== 86 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Securities and Exchange Commission registration fee......... $ 21,309 NASD filing fee............................................. 7,723 Nasdaq listing fees......................................... 17,500 Printing and engraving expenses............................. 150,000* Accounting fees and expenses................................ 50,000* Legal fees and expenses..................................... 100,000* Transfer Agent's fees and expenses.......................... 5,000* Miscellaneous............................................... 50,000* -------- Total............................................. $401,532* ========
- --------------- * Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Florida Business Corporation Act, as amended (the "Florida Act"), provides that, in general, a business corporation may indemnify any person who is or was a party to any proceeding (other than an action by, or in the right of, the corporation) by reason of the fact that he or she is or was a director or officer of the corporation, against liability incurred in connection with such proceeding, including any appeal thereof, provided certain standards are met, including that such officer or director acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and provided further that, with respect to any criminal action or proceeding, the officer or director had no reasonable cause to believe his or her conduct was unlawful. In the case of proceedings by or in the right of the corporation, the Florida Act provides that, in general, a corporation may indemnify any person who was or is a party to any such proceeding by reason of the fact that he or she is or was a director or officer of the corporation against expenses and amounts paid in settlement actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, provided that such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim as to which such person is adjudged liable unless a court of competent jurisdiction determines upon application that such person is fairly and reasonably entitled to indemnity. To the extent that any officers or directors are successful on the merits or otherwise in the defense of any of the proceedings described above, the Florida Act provides that the corporation is required to indemnify such officers or directors against expenses actually and reasonably incurred in connection therewith. However, the Florida Act further provides that, in general, indemnification or advancement of expenses shall not be made to or on behalf of any officer or director if a judgment or other final adjudication establishes that his or her actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (i) a violation of the criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe it was unlawful; (ii) a transaction from which the director or officer derived an improper personal benefit; (iii) in the case of a director, a circumstance under which the director has voted for or assented to a distribution made in violation of the Florida Act or the corporation's articles of incorporation; or (iv) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a stockholder. II-1 87 Under the terms of the Company's Articles of Incorporation and Bylaws, the Company may indemnify any director, officer or employee or any former director, officer or employee to the fullest extent permitted by law. The Company has entered into agreements with certain of the directors and officers of the Company pursuant to which the Company agrees to indemnify each such person against claims, liabilities, damages, expenses, losses, costs, penalties or amounts paid in settlement incurred by such person and arising out of his capacity or service as a director, officer, employee, stockholder, partner, consultant, independent contractor and/or agent of the Company. In addition, each such person generally shall be entitled to an advance of expenses to meet the obligations indemnified against. For the benefit and on behalf of each of its directors, the Company maintains insurance that provides coverage with respect to liabilities that may arise under the statutory provisions referred to above and other liabilities as well, including certain liabilities that could arise under the Securities Act of 1933 and against which such persons might not be indemnified by the Company. The underwriters also will agree to indemnify the directors and officers of the Company against certain liabilities as set forth in the Underwriting Agreement (see Exhibit 1). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. During the past three years, the Company has issued 1,012,000 shares of Common Stock to 32 of its current and former professional employees in 44 transactions for aggregate consideration of $1,475,009. The Company also issued 215,384 shares to consultants who joined the Company in fiscal 1998 in connection with the acquisitions of WHI and CPI. The Company believes that all such transactions were exempt from registration pursuant to Section 4(2) and/or Rule 701 under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1** -- Form of Underwriting Agreement 2.1 (4) -- Agreement and Plan of Merger dated February 27, 1998, by and among Lamalie Associates, Inc., LAI Mergersub, Inc. and Ward Howell International, Inc. 2.2 (4) -- Asset Purchase Agreement dated December 29, 1997, by and among Lamalie Associates, Inc., Chartwell Partners International, Inc. and David M. DeWilde 3.1 (1) -- Articles of Incorporation of the Registrant as now in effect 3.2 (1) -- Bylaws of the Registrant as now in effect 4 (1) -- Form of Common Stock Certificate 5** -- Opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis as to the legality of the Common Stock being registered 10.1 (3) -- 1997 Omnibus Stock and Incentive Plan 10.2 (1) -- Non-Employee Directors' Stock Option Plan 10.3 (1) -- Profit Sharing Plan 10.4 (1) -- 1997 Employee Stock Purchase Plan 10.5 (1) -- Form of Agreement for Deferred Compensation Plan 10.6 (1) -- Managing Partners' Compensation Plan+ 10.7 (1) -- Partners' Compensation Plan+ 10.8 (1) -- Employment Agreement for Mr. Gow+
II-2 88
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.9 (5) -- 1998 Omnibus Stock and Incentive Plan 10.10(1) -- Employment Agreement for Mr. Rothschild+ 10.11(2) -- Form of Indemnification Agreement entered into with certain Directors and Officers 10.12(1) -- Directors' Deferral Plan 10.13(3) -- Employment Agreement with Robert L. Pearson dated October 8, 1997 10.14(4) -- Form of Employment Agreement for former Ward Howell International, Inc. Shareholders 21.1* -- Subsidiaries of the Registrant 23.1** -- Consent of Counsel to the Company (included in Exhibit 5) 23.2** -- Consent of Arthur Andersen LLP 23.3** -- Consent of KPMG Peat Marwick LLP 27* -- Financial Data Schedule
- --------------- (1) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Registration Statement on Form S-1 (File No. 333-26027), originally filed April 29, 1997, as amended and as effective July 1, 1997. (2) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997, filed August 8, 1997. (3) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 30, 1997, filed January 13, 1998. (4) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Current Report on Form 8-K filed March 13, 1998. (5) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1998, filed May 29, 1998. + Confidential treatment has been granted with respect to portions of this Exhibit. * Previously filed ** Filed herewith (b) Financial Statement Schedules Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14), or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt deliver to each purchaser. II-3 89 The undersigned registrant hereby undertakes that: i. For purposes of determining any liability under the Securities act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. ii. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 90 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on the 9th day of June, 1998. LAMALIE ASSOCIATES, INC. By: /s/ PHILIP R. ALBRIGHT ------------------------------------ Philip R. Albright Vice President -- Finance Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT L. PEARSON* President, Chief Executive June 9, 1998 - ----------------------------------------------------- Officer and Director Robert L. Pearson (Principal Executive Officer) /s/ JACK P. WISSMAN* Executive Vice President, June 9, 1998 - ----------------------------------------------------- Chief Financial Officer Jack P. Wissman (Principal Financial Officer) /s/ PHILIP R. ALBRIGHT Vice President, June 9, 1998 - ----------------------------------------------------- Finance and Controller Philip R. Albright (Principal Accounting Officer) /s/ JOE D. GOODWIN* Director June 9, 1998 - ----------------------------------------------------- Joe D. Goodwin /s/ RODERICK C. GOW* Director June 9, 1998 - ----------------------------------------------------- Roderick C. Gow /s/ RAY J. GROVES* Director June 9, 1998 - ----------------------------------------------------- Ray J. Groves /s/ JOHN F. JOHNSON* Director June 9, 1998 - ----------------------------------------------------- John F. Johnson /s/ RICHARD W. POGUE* Director June 9, 1998 - ----------------------------------------------------- Richard W. Pogue /s/ JOHN C. POPE* Director June 9, 1998 - ----------------------------------------------------- John C. Pope /s/ JOHN S. ROTHSCHILD* Director June 9, 1998 - ----------------------------------------------------- John S. Rothschild
II-5 91
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID L. WITTE* Director June 9, 1998 - ----------------------------------------------------- David L. Witte *By: /s/ PHILIP R. ALBRIGHT ------------------------------------------------ Philip R. Albright, Attorney-in-fact
II-6 92 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Lamalie Associates, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of Lamalie Associates, Inc. included in this registration statement and have issued our report thereon dated April 8, 1998. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index in item 16(b) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Tampa, Florida, April 8, 1998 II-7 93 SCHEDULE II LAMALIE ASSOCIATES, INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO AMOUNT ADDED BALANCE AT BEGINNING OF COST AND THROUGH END OF DESCRIPTION PERIOD EXPENSES ACQUISITIONS PERIOD - ----------- ------------ ---------- ------------ ---------- Year ended February 29, 1996 Deducted from asset account: Allowance for doubtful accounts.... $275 $350 $ -- $ 625 Year ended February 28, 1997 Deducted from asset account: Allowance for doubtful accounts.... 625 225 -- 850 Year ended February 28, 1998 Deducted from asset account: Allowance for doubtful accounts.... 850 450 820 2,120
II-8 94 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1** -- Form of Underwriting Agreement 2.1 (4) -- Agreement and Plan of Merger dated February 27, 1998, by and among Lamalie Associates, Inc., LAI Mergersub, Inc. and Ward Howell International, Inc. 2.2 (4) -- Asset Purchase Agreement dated December 29, 1997, by and among Lamalie Associates, Inc., Chartwell Partners International, Inc. and David M. DeWilde 3.1 (1) -- Articles of Incorporation of the Registrant as now in effect 3.2 (1) -- Bylaws of the Registrant as now in effect 4 (1) -- Form of Common Stock Certificate 5** -- Opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis as to the legality of the Common Stock being registered 10.1 (3) -- 1997 Omnibus Stock and Incentive Plan 10.2 (1) -- Non-Employee Directors' Stock Option Plan 10.3 (1) -- Profit Sharing Plan 10.4 (1) -- 1997 Employee Stock Purchase Plan 10.5 (1) -- Form of Agreement for Deferred Compensation Plan 10.6 (1) -- Managing Partners' Compensation Plan+ 10.7 (1) -- Partners' Compensation Plan+ 10.8 (1) -- Employment Agreement for Mr. Gow+ 10.9 (5) -- 1998 Omnibus Stock and Incentive Plan 10.10(1) -- Employment Agreement for Mr. Rothschild+ 10.11(2) -- Form of Indemnification Agreement entered into with certain Directors and Officers 10.12(1) -- Directors' Deferral Plan 10.13(3) -- Employment Agreement with Robert L. Pearson dated October 8, 1997 10.14(4) -- Form of Employment Agreement for former Ward Howell International, Inc. Shareholders 21.1* -- Subsidiaries of the Registrant 23.1** -- Consent of Counsel to the Company (included in Exhibit 5) 23.2** -- Consent of Arthur Andersen LLP 23.3** -- Consent of KPMG Peat Marwick LLP 27* -- Financial Data Schedule (for SEC use only)
- --------------- (1) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Registration Statement on Form S-1 (File No. 333-26027), originally filed April 29, 1997, as amended and as effective July 1, 1997. (2) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997, filed August 8, 1997. (3) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended November 30, 1997, filed January 13, 1998. (4) Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Current Report on Form 8-K filed March 13, 1998. (5) Incorporated by reference to the correspondingly numbered exhibit to be Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1998, filed May 29, 1998. + Confidential treatment has been granted with respect to portions of this Exhibit. * Previously filed. ** Filed herewith. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 LAMALIE ASSOCIATES, INC. 3,000,000 Shares of Common Stock* FORM OF UNDERWRITING AGREEMENT June ___, 1998 ROBERT W. BAIRD & CO. INCORPORATED THE ROBINSON-HUMPHREY COMPANY, LLC J.C. BRADFORD & CO. As Representatives of the Several Underwriters Identified in Schedule II Annexed Hereto c/o Robert W. Baird & Co. Incorporated 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Ladies and Gentlemen: SECTION 1. INTRODUCTORY. Lamalie Associates, Inc., a Florida corporation (the "COMPANY"), proposes to issue and sell an aggregate of 2,089,540 shares of common stock, $0.01 par value per share (the "COMMON STOCK") and the several stockholders of the Company identified in Schedule I annexed hereto (the "SELLING STOCKHOLDERS") propose to sell an aggregate of 910,460 shares of Common Stock (such 3,000,000 shares, collectively, the "FIRM SHARES") to the several underwriters identified in Schedule II annexed hereto (the "UNDERWRITERS"), who are acting severally and not jointly. In addition, the Company has agreed to grant to the Underwriters an option to purchase up to 450,000 additional shares of Common Stock (the "OPTIONAL SHARES") as provided in Section 6 hereof. The Firm Shares and, to the extent such option is exercised, the Optional Shares are hereinafter collectively referred to as the "SHARES." All references herein to "the Company" are to Lamalie Associates, Inc., a Florida corporation, and, for all periods prior to June 3, 1997 and when - --------------------- * Plus an option to acquire up to 450,000 additional shares of Common Stock from the Company to cover over-allotments. 2 the context otherwise requires, its predecessor Lamalie Associates, Inc., a Delaware corporation. You, as representatives of the Underwriters (the "REPRESENTATIVES"), have advised the Company and the Selling Stockholders that the Underwriters propose to make a public offering of their respective portions of the Shares as soon hereafter as in your judgment is advisable and that the public offering price of the Shares initially will be [$______] per share. The Company and the Selling Stockholders hereby confirm their respective agreements with the Underwriters and each other as follows: SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the several Underwriters, and shall be deemed to represent and warrant to the several Underwriters on each Closing Date (as hereinafter defined), that: (a) Each of the Company and the subsidiaries of the Company that are listed on Exhibit 21.1 of the Registration Statement (as hereinafter defined) (individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES") has been duly incorporated and is validly existing as a corporation and either its status is active or it is in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and described in the Prospectus and the Registration Statement (as such terms are defined in Section 2(e)). Each of the Company and the Subsidiaries is duly registered and qualified to do business as a foreign corporation under the laws of, and either it is in good standing or its status is active as such in, each jurisdiction in which such registration or qualification is required, except where the failure to so register or qualify would not have a material adverse effect on the condition (financial or other), business, property, net worth, results of operations or prospects of the Company and the Subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"). No proceeding to which the Company or any Subsidiary has been made a party or as to which the Company or any Subsidiary has actual notice has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. Complete and correct copies of the articles of incorporation and bylaws, as amended or restated ("ARTICLES OF INCORPORATION" and "BYLAWS," respectively), of the Company and each of the Subsidiaries as in effect on the date hereof have been delivered to the Representatives, and no changes thereto will be made on or subsequent to the date hereof and prior to each Closing Date (as hereinafter defined). (b) All of the shares of Common Stock issued and outstanding immediately prior to the issuance and sale of the Shares to be sold by the Company hereunder as set forth in the Prospectus (including the shares to be sold by the Selling Stockholders) have been duly authorized and validly issued, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus and the Registration Statement. There are no preemptive, preferential or, except as described in the Prospectus, other rights to subscribe for or purchase any shares of Common Stock -2- 3 (including the Shares), and no shares of Common Stock have been issued in violation of such rights. The Shares to be issued and sold by the Company to the Underwriters have been duly authorized and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus and the Registration Statement. The delivery of certificates for the Shares to be issued and sold by the Company and to be sold by the Selling Stockholders hereunder and payment therefor pursuant to the terms of this Agreement will pass valid title to such Shares to the Underwriters, free and clear of any lien, claim, encumbrance or defect in title. Except as described in the Prospectus, there are no outstanding options, warrants or other rights of any description, contractual or otherwise, entitling any person to be issued any class of security by the Company or any Subsidiary, and there are no holders of Common Stock or other securities of the Company or any Subsidiary, or of securities that are convertible or exchangeable into Common Stock or other securities of the Company or any Subsidiary, that have rights to the registration of such Common Stock or securities under the Securities Act of 1933, as amended, and the regulations thereunder (together, the "ACT") or the securities laws or regulations of any of the states (the "BLUE SKY LAWS"). (c) Except for the Subsidiaries and except as to its relationship with Amrop International ("AMROP") as has been disclosed to the Representatives in writing, the Company has no subsidiaries and does not own any equity interest in or control, directly or indirectly, any other corporation, limited liability company, partnership, joint venture, association, trust or other business organization. The Company owns directly all of the issued and outstanding shares of capital stock of each Subsidiary, free and clear of any and all liens, claims, encumbrances or security interests, and all such shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no outstanding options, warrants or other rights of any description, contractual or otherwise, entitling any person to subscribe for or purchase any shares of capital stock of any Subsidiary. (d) The Company has full corporate power and authority to enter into and perform this Agreement. The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder and the consummation of the transactions described herein, have been duly authorized with respect to the Company by all necessary corporate action and will not: (i) violate any provisions of the Articles of Incorporation or Bylaws of the Company; (ii) violate any provisions of, or result in the breach, modification or termination of, or constitute a default under, any provision of any agreement, lease, franchise, license, indenture, permit, mortgage, deed of trust, evidence of indebtedness or other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary, or any property owned or leased by the Company or any Subsidiary, may be bound or affected, which violation would have a Material Adverse Effect; (iii) violate any statute, ordinance, rule or regulation applicable to the Company or any Subsidiary, or order or decree of any court, regulatory or governmental body, arbitrator, administrative agency or instrumentality of the United States or other country or jurisdiction having jurisdiction over the Company or any Subsidiary, which violation would have a Material Adverse Effect; or (iv) result in -3- 4 the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary, which lien, charge or encumbrance would have a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory or governmental body, arbitrator, administrative agency or instrumentality of the United States or other country or jurisdiction is required for the execution and delivery of this Agreement by the Company, the performance of its obligations hereunder or the consummation of the transactions contemplated hereby, except for compliance with the Act, the Securities Exchange Act of 1934, as amended, and the regulations thereunder (together, the "EXCHANGE ACT"), the Blue Sky Laws applicable to the public offering of the Shares by the several Underwriters and the clearance of such offering and the underwriting arrangements evidenced hereby with the National Association of Securities Dealers, Inc. (the "NASD"). This Agreement has been duly executed and delivered by and on behalf of the Company and is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms. (e) A registration statement on Form S-1 (Reg. No. 333-52075) with respect to the Shares, including a preliminary form of prospectus and a preliminary form of prospectus supplement relating to the offer and sale of Shares, has been carefully prepared by the Company in conformity with the requirements of the Act and has been filed with the Securities and Exchange Commission (the "COMMISSION"). Such registration statement, as finally amended and revised at the time such registration statement was or is declared effective by the Commission (including all financial schedules and exhibits and including the information contained in the form of final prospectus and related prospectus supplement, if any, filed with the Commission pursuant to Rule 424(b) and Rule 430A under the Act and deemed to be part of the registration statement if the registration statement has been declared effective pursuant to Rule 430A(b)) and as thereafter amended by post-effective amendment or as supplemented by any supplements thereto, if any, is herein referred to as the "REGISTRATION STATEMENT." If an abbreviated registration statement is prepared and filed with the Commission in accordance with Rule 462(b) under the Act (an "ABBREVIATED REGISTRATION STATEMENT"), then the term "Registration Statement" as used in this Agreement includes the Abbreviated Registration Statement. The final prospectus and the related prospectus supplement, each in the form first filed with the Commission pursuant to Rule 424(b) or, if no such filing is required, as included in the Registration Statement, or any supplement thereto, is herein referred to collectively as the "PROSPECTUS." The prospectus and the related prospectus supplement, each as subject to completion and in the forms included in the Registration Statement at the time of the initial filing of the Registration Statement with the Commission, and each such prospectus and related prospectus supplement as amended from time to time until the date of the Prospectus, is referred to herein collectively as the "PRELIMINARY PROSPECTUS." The Company has prepared and filed such amendments to the Registration Statement since its initial filing with the Commission, if any, as may have been required to the date hereof, and will file such additional amendments thereto as may hereafter be required. There have been delivered to the Representatives two signed copies of the Registration Statement and each amendment thereto, if any, together with two copies of each exhibit filed therewith, and such number of conformed copies for each of the -4- 5 Underwriters of the Registration Statement and each amendment thereto, if any (but without exhibits), and of each Preliminary Prospectus and of the Prospectus as the Representatives have requested. (f) Neither the Commission nor any state securities commission has issued any order preventing or suspending the use of any Preliminary Prospectus, nor, to the knowledge of the Company, have any proceedings for that purpose been initiated or threatened, and each Preliminary Prospectus filed with the Commission as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto complied when so filed with the requirements of the Act and, as of its date, did not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the effective date of the Registration Statement, and at all times subsequent thereto up to each Closing Date, the Registration Statement and the Prospectus contained or will contain all statements that are required to be stated therein in accordance with the Act and conformed or will conform in all respects to the requirements of the Act, and neither the Registration Statement nor the Prospectus included or will include any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to the information that is contained (i) in the Registration Statement, the Prospectus and/or the Preliminary Prospectus, or any amendment or supplement thereto in reliance upon written information furnished to the Company by or on behalf of the Underwriters, as described in Section 5, or (ii) on the inside and outside front cover and on the inside back cover of the four page overlay that was affixed to the outside cover of the copies of the Preliminary Prospectus that were used to offer the Firm Shares in the Canadian provinces of Ontario and Quebec, which information relates to various aspects of Canadian and provincial law. Neither the Company, nor any person that controls, is controlled by or is under common control with the Company (including the Subsidiaries), has distributed or will distribute prior to each Closing Date any offering material in connection with the offering and sale of the Shares other than a Preliminary Prospectus, the Prospectus, the Registration Statement or other materials permitted by the Act and provided to the Representatives. (g) Arthur Andersen LLP, which has expressed its opinion with respect to the consolidated financial statements and schedules filed with the Commission and included as a part of each Preliminary Prospectus, the Prospectus or the Registration Statement, are independent accountants as required by the Act. (h) The consolidated financial statements (other than the pro forma financial statements) and the related notes thereto included in each Preliminary Prospectus, the Prospectus and the Registration Statement present fairly the financial position, results of operations and cash flows of the Company as of their respective dates or for the respective periods covered thereby, all in conformity with generally accepted accounting principles consistently applied throughout the periods involved. The financial statement schedules, if any, included in the Registration Statement present -5- 6 fairly the information required to be stated therein on a basis consistent with the consolidated financial statements of the Company contained therein. The pro forma financial statements, together with the related schedules and notes, if any, in each Preliminary Prospectus, the Prospectus and the Registration Statement (i) have been prepared on a basis consistent with such historical financial statements, except for the pro forma adjustments specified therein, (ii) give effect to the pro forma adjustments specified therein, which adjustments are based on reasonable assumptions, and (iii) present fairly the historical and proposed transactions specified therein. The other financial and statistical information and data included in each Preliminary Prospectus, the Prospectus and the Registration Statement, whether historical or pro forma, are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. The consolidated financial statements and schedules and the related notes thereto included in each Preliminary Prospectus, the Prospectus or the Registration Statement are the only such financial statements and schedules required under the Act to be set forth therein. The Company had an outstanding capitalization as set forth in the Registration Statement and under "Capitalization" in the Prospectus as of the date indicated therein, and there has been no material change thereto since such date except as disclosed in the Prospectus. (i) Neither the Company nor any Subsidiary is, or with the giving of notice or passage of time or both, would be, in violation or in breach of: (i) its respective Articles of Incorporation or Bylaws; (ii) any statute, ordinance, order, rule or regulation applicable to the Company or such Subsidiary; (iii) any order or decree of any court, regulatory body, arbitrator, administrative agency or other instrumentality of the United States or other country or jurisdiction having jurisdiction over the Company or such Subsidiary; or (iv) any provision of any agreement, lease, franchise, license, indenture, permit, mortgage, deed of trust, evidence of indebtedness or other instrument to which the Company or such Subsidiary is a party or by which any property owned or leased by the Company or such Subsidiary is bound or affected, which violation or breach would have a Material Adverse Effect. Neither the Company nor any Subsidiary has received notice of any violation of any applicable statute, ordinance, order, rule or regulation applicable to the Company or any Subsidiary. The Company and each Subsidiary have obtained and hold, and are in compliance with, all permits, certificates, licenses, approvals, registrations, franchises, consents and authorizations of governmental or regulatory authorities required under all laws, rules and regulations in connection with their businesses (hereinafter "PERMIT" or "PERMITS"), except for any non-compliance that would not have a Material Adverse Effect, and all of such permits are in full force and effect; and the Company and each Subsidiary have fulfilled and performed all of their respective obligations with respect to each such permit and no event has occurred which would result in, or after notice or lapse of time would result in, revocation or termination of any such permit or result in any other impairment of the rights of the holder of such permit. Neither the Company nor any Subsidiary is or has been (by virtue of any action, omission to act, contract to which it is a party or other occurrence) in violation of any applicable foreign, federal, state, municipal or local statutes, laws, ordinances, rules, regulations or orders (including those relating to environmental protection, occupational safety and health and equal employment practices) heretofore or currently in effect. -6- 7 (j) There are no legal or governmental proceedings or investigations pending or, to the knowledge of the Company, threatened to which the Company or any Subsidiary is or may be a party or to which any property owned or leased by the Company or any Subsidiary is or may be subject, including, without limitation, any such proceedings that are related to environmental or employment discrimination matters, which are required to be described in the Registration Statement or the Prospectus which are not so described, or which question the validity of this Agreement or any action taken or to be taken pursuant hereto. Except as described in the Registration Statement or the Prospectus, neither the Company nor any Subsidiary: (i) is in violation of any statute, ordinance, rule or regulation, or any decision, order or decree of any court, regulatory body, arbitrator, administrative agency or other instrumentality of the United States or other country or jurisdiction having jurisdiction over the Company or such Subsidiary relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environmental or human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL LAWS"); (ii) owns or operates any real property contaminated with any substance that is subject to any environmental laws; (iii) is liable for any off-site disposal or contamination pursuant to any environmental laws; or (iv) is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would have a Material Adverse Effect. (k) There is no transaction, relationship, obligation, agreement or other document required by the Act to be described in the Registration Statement or the Prospectus or to be filed or deemed to be filed as an exhibit to the Registration Statement, which has not been described or filed as required. All such contracts or agreements to which the Company or any Subsidiary is a party have been duly authorized, executed and delivered by the Company or such Subsidiary, constitute valid and binding agreements of the Company or such Subsidiary, and are enforceable by and against the Company or such Subsidiary, in accordance with the respective terms thereof. (l) Neither the Company nor any Subsidiary owns any real property. The Company or a Subsidiary has good and valid title to all property and assets reflected as owned by the Company or such Subsidiary in the Company's consolidated financial statements included in the Registration Statement (or elsewhere in the Registration Statement or the Prospectus), free and clear of all liens, claims, mortgages, security interests or other encumbrance of any kind or nature whatsoever except those, if any, reflected in such financial statements (or elsewhere in the Registration Statement or the Prospectus). All property (real and personal) held or used by the Company or any Subsidiary under leases, licenses, franchises or other agreements is held by the Company or such Subsidiary under valid, subsisting, binding and enforceable leases, franchises, licenses or other agreements. (m) Neither the Company nor any person that controls, is controlled by or is under common control with the Company (including the Subsidiaries) has taken or will take, directly or indirectly, any action designed to cause or result in, or which constituted, or which could cause or result in, stabilization or manipulation, under the Exchange Act or otherwise, of the price of any security of the Company to facilitate the sale or resale of the Common Stock. -7- 8 (n) Except as described in the Registration Statement or the Prospectus, since the respective dates as of which information is given in the Registration Statement or the Prospectus and prior to each Closing Date: (i) neither the Company nor any Subsidiary has or will have incurred any liability or obligation, direct or contingent, or entered into any transaction, that is material to the Company, except as in the ordinary course of business; (ii) the Company has not and will not have paid or declared any dividend or other distribution with respect to its capital stock and neither the Company nor any Subsidiary is or will be delinquent in the payment of principal or interest on any outstanding debt obligation; and (iii) there has not been and will not have been any change in the capital stock, any material change in the indebtedness of the Company or any Subsidiary, or any change or development involving or which would involve, a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business. (o) Neither the Company nor any person that controls, is controlled by or is under common control with the Company (including the Subsidiaries) has, directly or indirectly: (i) made any unlawful contribution to any candidate for political office, or failed to disclose fully any contribution in violation of law; or (ii) made any payment to any federal, state or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof or applicable foreign jurisdictions; provided, however, that no representation or warranty is made as to (A) any act or omission of Amrop with respect to which no employee of the Company, acting in his or her capacity as the Company's representative to Amrop, voted or otherwise exercised decision making authority on behalf of Amrop, or (B) any act or omission of any member firm of Amrop other than the Company. Notwithstanding the foregoing, nothing has come to the Company's attention that would cause it to believe, and the Company is not aware, that Amrop has (1) made any unlawful contribution to any candidate for political office, or failed to disclose fully any contribution in violation of law; or (2) made any payment to any federal, state or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof or applicable foreign jurisdictions. (p) The Company and the Subsidiaries own or possess adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses presently used in or necessary for the conduct of their businesses or ownership of their properties, and neither the Company nor any Subsidiary has violated or infringed upon the rights of others, or received any notice of conflict with the asserted rights of others, in respect thereof. (q) The Company and the Subsidiaries have in place and effective such policies of insurance, with limits of liability in such amounts, as are normal and prudent in the ordinary course of the business of the Company and its Subsidiaries. -8- 9 (r) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent, and neither the Company nor any Subsidiary is a party to any collective bargaining agreement and, to the knowledge of the Company, no union organizational attempts have occurred or are pending. There has been no change in the relationship of the Company or any Subsidiary with any of its principal suppliers, manufacturers, contractors or customers resulting in or that would result in a Material Adverse Effect. (s) Neither the Company nor any Subsidiary is an "investment company", an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. (t) All federal, state and local tax returns required to be filed by or on behalf of the Company and the Subsidiaries have been filed (or are the subject of valid extensions) with the appropriate federal, state and local authorities, and all such tax returns, as filed, are accurate in all material respects; all federal, state and local taxes (including estimated tax payments) required to be shown on all such tax returns or claimed to be due from or with respect to the business of the Company or such Subsidiary have been paid or reflected as a liability on the financial statements of the Company for appropriate periods, except for any taxes (or taxes claimed to be due) that are being contested by the Company in good faith and by appropriate proceedings; all deficiencies asserted as a result of any completed federal, state or local tax audits have been paid or finally settled, and no issue has been raised in any such audit which, by application of the same or similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so audited; no state of facts exist or has existed which would constitute grounds for the assessment of any tax liability with respect to the periods which have not been audited by appropriate federal, state or local authorities; there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any federal, state or local tax return of any period; and neither the Company nor any Subsidiary has ever been a member of an affiliated group of corporations filing consolidated federal income tax returns, other than a group of which the Company is and has been the common parent. The Company originally was formed as Lamalie Associates, Inc., a Delaware corporation ("LAMALIE-DELAWARE"). Lamalie-Delaware validly elected to be an S corporation under federal income tax law, effective as of the date of its formation, and such S corporation election continued in full force and effect without interruption until November 1, 1994. As of June 3, 1997, Lamalie-Delaware merged with and into the Company, and the Company is treated for federal income tax purposes to be the same entity as Lamalie-Delaware. For purposes of this Section 2(t), "S corporation" means a corporation with respect to which a valid election has been made under Section 1362 of the Internal Revenue Code of 1986, as amended (the "CODE"), and any corresponding provision of state, local or foreign law. -9- 10 (u) Except for the Company's Principal Group Life, Health, Dental and Vision Insurance Plan, its Unum Group Long Term Disability Plan, its Profit Sharing Plan and Trust and its deferred compensation plan for employees [CONFIRM NO NEW ERISA PLANS] (collectively, the "ERISA PLANS"), neither the Company nor any Subsidiary is a participating employer or plan sponsor with respect to any employee pension benefit plan as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any employee welfare benefit plan as defined in Section 3(1) of ERISA, including, without limitation, any multiemployer welfare or pension plan. With respect to the ERISA Plans, the Company is in substantial compliance with all applicable regulations, including ERISA and the Code. No such ERISA Plan is a defined benefit retirement plan. The Company or the administrator of each of the ERISA Plans, as the case may be, has timely filed the reports required to be filed by ERISA and the Code in connection with the maintenance of the ERISA Plans, and no facts, including, without limitation, any "reportable event" as defined by ERISA and the regulations thereunder, exist in connection with the ERISA Plans which, under applicable law, would constitute grounds for the termination of any of the ERISA Plans by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any of the ERISA Plans. (v) The Company and each Subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of consolidated financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) None of the Company, any Subsidiary, any officer or director of the Company or any Subsidiary, or any person who owns, of record or beneficially, 5% or more of any class of securities issued by the Company is: (i) an officer, director or partner of any brokerage firm, broker or dealer that is a member of the NASD ("NAS0 MEMBER"); or (ii) directly or indirectly, a "person associated with" an NASD Member or an "affiliate" of an NASD Member, as such terms are used in the Conduct Rules of the NASD, except as otherwise verbally represented to counsel for the Underwriters. In addition, neither the Company nor any Subsidiary has issued or transferred any Common Stock, warrants, options or other securities, or any other items of value, to any of the Underwriters or any "related person" of any Underwriter, as such term is used in the Conduct Rules of the NASD, except as provided in this Agreement or the Underwriting Agreement dated July 1, 1997 relating to the Company's initial public offering. (x) Neither the Company, any Subsidiary nor any affiliate of the Company or any Subsidiary does business with the government of Cuba, or with any person or affiliate located in Cuba within the meaning of Section 517.075 of the Florida Statutes, and the Company agrees to comply with such Section if, prior to the completion of the distribution of the Shares, the Company, any -10- 11 Subsidiary or any affiliate of the Company or any Subsidiary commences doing such business; provided, however, that no representation or warranty is made as to (i) any act or omission of Amrop with respect to which no employee of the Company, acting in his or her capacity as the Company's representative to Amrop, voted or otherwise exercised decision making authority on behalf of Amrop, or (ii) any act or omission of any member firm of Amrop other than the Company. Notwithstanding the foregoing, nothing has come to the Company's attention that would cause it to believe, and the Company is not aware, that Amrop does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075 of the Florida Statutes. (y) All offers and sales of the securities of the Company and each Subsidiary prior to the date hereof were made in compliance with the Act and all other applicable state and federal laws or regulations. (z) The Company has received from each of the Selling Stockholders a letter agreement in the form attached as Exhibit A to this Agreement executed by each such stockholder, and each such letter agreement is enforceable by Robert W. Baird & Co. Incorporated ("BAIRD") against the Selling Stockholder executing such letter agreement. The Company also has received from each director and executive officer of the Company (other than directors or executive officers who are Selling Stockholders) a letter agreement in the form attached as Exhibit B to this Agreement, executed by each such director and executive officer, and each such letter agreement is enforceable by Baird against each person who executed such letter agreement. (aa) The Company has furnished to counsel for the Underwriters, prior to the date hereof, (i) a copy of each Irrevocable Power of Attorney (as hereinafter defined) and a copy of each Custody Agreement (as hereinafter defined) executed by each Selling Stockholder, (ii) a copy of each Questionnaire executed by each director, officer and holder of 5% or more of any class of securities of the Company with respect to the matters referred to in Section 2(w), and (iii) such other information as such counsel may reasonably request in connection with their review thereof. A certificate signed by any officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. A certificate delivered by the Company to its counsel for purposes of enabling such counsel to render the opinion referred to in Section 10(d) will also be furnished to the Representatives and counsel for the Underwriters and shall be deemed to be additional representations and warranties to the Underwriters by the Company as to the matters covered thereby. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling Stockholder, severally and not jointly, represents and warrants to and agrees with the several Underwriters and the Company, and shall be deemed to represent and warrant to the several Underwriters and the Company on each Closing Date, that: -11- 12 (a) Such Selling Stockholder has duly executed (i) an Irrevocable Power of Attorney of Selling Stockholder (the "IRREVOCABLE POWER OF ATTORNEY") naming Jack P. Wissman and Philip R. Albright, or either of them, as such Selling Stockholder's attorneys-in-fact ("ATTORNEYS-IN-FACT") for the purpose of entering into and carrying out this Agreement and (ii) a Custody Agreement (the "CUSTODY AGREEMENT") naming ChaseMellon Shareholder Services, L.L.C. as custodian ("CUSTODIAN") of the Shares owned by such Selling Stockholder for the purpose of selling such Shares to the Underwriters on the First Closing Date and receiving payment therefor. (b) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of each of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, as set forth on Schedule I annexed hereto, have been obtained. Such Selling Stockholder has, and at the time of delivery thereof hereunder such Selling Stockholder will have, good and valid title to the Shares proposed to be sold hereunder by such Selling Stockholder, free and clear of all voting trust arrangements, liens, encumbrances, security interests, equities, claims and community or marital property rights, other than any created by the Irrevocable Power of Attorney, the Custody Agreement or this Agreement for the benefit of the Underwriters. Such Selling Stockholder has full right, power and authority to enter into this Agreement, the Irrevocable Power of Attorney and the Custody Agreement and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, liens, encumbrances, security interests, equities, claims and community or marital property rights, other than any created by the Irrevocable Power of Attorney, the Custody Agreement or this Agreement for the benefit of the Underwriters. Upon delivery of and payment for such Shares hereunder, the Underwriters will acquire good and marketable title thereto, free and clear of all voting trust arrangements, liens, encumbrances, security interests, equities, claims and community or marital property rights. (c) Such Selling Stockholder has not distributed and will not distribute any Preliminary Prospectus, the Prospectus or any other material in connection with the offering and sale of the Shares. Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which could cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock. (d) The execution, delivery and performance by such Selling Stockholder of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement will not, if applicable, result in the violation of any provisions of the Articles of Incorporation, By-laws or other governing documents of such Selling Stockholder, or constitute a breach, or be in contravention, of any provision of any agreement, franchise, license, indenture, mortgage, deed of trust or other instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or such Selling Stockholder's property may be bound or affected, or any statute, rule or regulation applicable to such Selling Stockholder, or violate any order or decree of any court, regulatory body, administrative -12- 13 agency or other governmental body having jurisdiction over such Selling Stockholder or any of such Selling Stockholder's property. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of, and performance under, this Agreement by such Selling Stockholder or the consummation by such Selling Stockholder of the transactions contemplated by this Agreement, except for compliance with the Act, the Exchange Act, the Blue Sky Laws applicable to the public offering of the Shares by the Underwriters and the clearance of such offering with the NASD. Such Selling Stockholder hereby represents and warrants that each Attorney-in-Fact has been duly appointed as attorney-in-fact by such Selling Stockholder for the purpose of entering into and carrying out this Agreement, and each of the Irrevocable Power of Attorney and the Custody Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder to the Representatives. (e) Each of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement is a valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with its terms. (f) Such Selling Stockholder has deposited with the Custodian under the Custody Agreement, certificates in negotiable form for the Shares to be sold hereunder by such Selling Stockholder, as set forth opposite such Selling Stockholder's name on Schedule I annexed hereto for the purpose of further delivery pursuant to this Agreement. Such Selling Stockholder agrees that the Shares of such Selling Stockholder on deposit with the Custodian are subject to the interests of the Company, the Underwriters and the other Selling Stockholders, that the arrangements made for such custody, and the appointment of the Attorneys-in-Fact pursuant to the Irrevocable Power of Attorney are to that extent irrevocable, and that the obligations of such Selling Stockholder hereunder and under each of the Irrevocable Power of Attorney and the Custody Agreement shall not be terminated (except as otherwise provided in this Agreement, the Irrevocable Power of Attorney or the Custody Agreement), by any act of such Selling Stockholder, by operation of law, whether in the case of an individual Selling Stockholder, by the death or incapacity of such Selling Stockholder or, in the case of a trust or estate, by the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or, in the case of a partnership or corporation, by the dissolution, winding up or other event affecting the legal life of such entity, or by the occurrence of any other event. If any individual Selling Stockholder, trustee or executor should die or become incapacitated, or any such trust, estate, partnership or corporation should be terminated, or if any other event should occur before the delivery of the Shares hereunder, the certificates for Shares then on deposit with the Custodian shall, to the extent such Shares are purchased by the Underwriters, be delivered by the Custodian in accordance with the terms and conditions of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement as if such death, incapacity, termination or other event had not occurred, regardless of whether or not the Custodian shall have received notice thereof. Such Selling Stockholder represents that each Attorney-in-Fact has been authorized by such Selling Stockholder to execute and deliver this Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares sold by such Selling Stockholder against delivery thereof and otherwise to act on behalf of such Selling Stockholder. -13- 14 (g) Insofar as it relates to such Selling Stockholder, each Preliminary Prospectus, as of its date, has conformed in all material respects with the requirements of the Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and on the effective date of the Registration Statement and at all times subsequent thereto up to each Closing Date, (i) the Registration Statement and the Prospectus, as they relate to such Selling Stockholder, did or will conform to the requirements of the Act, and (ii) neither the Registration Statement nor the Prospectus as it relates to such Selling Stockholder did or will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (h) To the knowledge of each Selling Stockholder, the representations and warranties of the Company set forth in Section 2 hereof are true and correct. (i) If such Selling Stockholder was required to complete a Questionnaire with respect to the matters set forth in 2(w), the information contained in such Questionnaire and delivered to the Representatives was, as of the date of such questionnaire, and is, as of the date of this Agreement, true and correct. A certificate signed by or on behalf of any Selling Stockholder as such and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by such Selling Stockholder to the Underwriters as to the matters covered thereby. A certificate delivered by or on behalf of any Selling Stockholder to counsel for the Selling Stockholders for purposes of enabling such counsel to render the opinion referred in Section 10(e) will also be furnished to the Representatives and counsel for the Underwriters and shall be deemed to be additional representations and warranties to the Underwriters by such Selling Stockholder as to the matters covered thereby. SECTION 4. REPRESENTATION OF UNDERWRITERS. The Representatives will act as the representatives for the several Underwriters in connection with the public offering of the Shares, and any action under or in respect of this Agreement taken by the Representatives will be binding upon all of the Underwriters. SECTION 5. INFORMATION FURNISHED BY THE UNDERWRITERS. The information set forth in the Preliminary Prospectus and the Prospectus in (a) the last paragraph on the outside front cover page concerning the terms of the offering by the Underwriters, (b) the paragraphs on the bottom of the inside front cover page relating to stabilization practices and passive market making, (c) the list on page [____] stating the names of the Underwriters and the number of shares of Common Stock to be purchased by each Underwriter, (d) the [___________] full paragraph after the -14- 15 list on page [____] relating to concession and reallowance amounts, and (e) the [____________] and [____________] full paragraphs on page [____] relating to stabilization transactions, passive market making transactions and the like, constitute all of the information furnished to the Company by and on behalf of the Underwriters for use in connection with the preparation of the Registration Statement, the Preliminary Prospectus and the Prospectus, as such information is referred to in this Agreement. SECTION 6. PURCHASE, SALE AND DELIVERY OF SHARES. (a) On the basis of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters identified in Schedule II annexed hereto 2,089,540 Firm Shares, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company that number of Firm Shares set forth opposite the name of such Underwriter on Schedule II hereto, at the price per share of [$_______]. (b) On the basis of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein set forth, each Selling Stockholder agrees, severally and not jointly, to sell to the Underwriters that number of full Firm Shares set forth opposite the name of such Selling Stockholder in Schedule I annexed hereto (a total of 910,460 shares from all of the Selling Stockholders), and each of the Underwriters agrees, severally and not jointly, to purchase from each Selling Stockholder the number of Firm Shares as hereinafter set forth at the same purchase price per share as stated in the preceding paragraph. The obligation of each Underwriter to each Selling Stockholder shall be to purchase from that Selling Stockholder that number of full Firm Shares which (as nearly as practicable in full shares as determined by the Representatives) bears the same proportion to the number of Firm Shares to be sold by such Selling Stockholder as the number of shares set forth opposite the name of such Underwriter in Schedule II annexed hereto bears to the total number of Firm Shares to be purchased by all of the Underwriters under this Agreement. (c) On the First Closing Date (as hereinafter defined), the Company and the Custodian, on behalf of the Selling Stockholders, will deliver to the Representatives, at the offices of Robert W. Baird & Co. Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or through the facilities of The Depository Trust Company, for the accounts of the several Underwriters, certificates representing the Firm Shares to be sold by them against payment in Milwaukee, Wisconsin of the purchase price therefor by wire transfer of immediately available funds for credit to the account of and in accordance with written instructions of the Company with respect to the Firm Shares being sold by the Company and to the order of the Custodian with respect to the Firm Shares being sold by the Selling Stockholders. As referred to in this Agreement, the "FIRST CLOSING DATE" shall be on the third full business day after the date of the Prospectus, at 9:00 a.m., Milwaukee, Wisconsin time, or at such other date or time not later than ten full business days after -15- 16 the date of the Prospectus as the Representatives, the Company and the Attorneys-in-Fact (or either of them) may agree. The certificates for the Firm Shares to be so delivered will be in denominations and registered in such names as the Representatives request by notice to the Company and the Attorneys-in-Fact, or either of them, prior to the First Closing Date, and such certificates will be made available for checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time on the first full business day preceding the First Closing Date at a location to be designated by the Representatives. (d) In addition, on the basis of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein set forth, the Company hereby agrees to sell to the Underwriters, and the Underwriters, severally and not jointly, shall have the right at any time within thirty days after the date of the Prospectus to purchase from the Company, up to 450,000 Optional Shares at the purchase price per share to be paid for the Firm Shares, for use solely in covering any over-allotments made by the Underwriters in the sale and distribution of the Firm Shares. The option granted hereunder may be exercised upon notice by Robert W. Baird & Co. Incorporated, on behalf of the Representatives, to the Company, within thirty days after the date of the Prospectus, setting forth the aggregate number of Optional Shares to be purchased by the Underwriters and sold by the Company, the names and denominations in which the certificates for such shares are to be registered and the date and place at which such certificates will be delivered. Such date of delivery (the "SECOND CLOSING DATE") shall be determined by the Representatives; provided that the Second Closing Date, which may be the same as the First Closing Date, shall not be earlier than the First Closing Date and, if after the First Closing Date, shall not be earlier than three nor later than ten full business days after delivery of such notice to exercise. Upon exercise of such option, each Underwriter, severally and not jointly, agrees to purchase that number of full Optional Shares (as nearly as practicable in full shares as determined by the Representatives) which bears the same proportion to the total number of Optional Shares to be sold as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 13 hereof) bears to the total number of Firm Shares. Certificates for the Optional Shares will be made available for checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time, on the first full business day preceding the Second Closing Date at a location to be designated by the Representatives. The manner of payment for and delivery of (including the denominations of and the names in which certificates are to be registered) the Optional Shares shall be the same as for the Firm Shares. (e) The Representatives have advised the Company and the Attorneys-in-Fact that each Underwriter has authorized the Representatives to accept delivery of the Shares and to make payment therefor. It is understood that the Representatives, individually and not as representatives of the Underwriters, may (but shall not be obligated to) make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by the Representatives by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any obligation under this Agreement. As referred to in this Agreement, "CLOSING DATE" shall mean either the First Closing Date or the Second Closing Date. -16- 17 SECTION 7. COVENANTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) If the effective time of the Registration Statement is not prior to the execution and delivery of this Agreement, the Company will use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, upon notification from the Commission that the Registration Statement has become effective, will so advise the Representatives and counsel to the Underwriters promptly. If the effective time of the Registration Statement is prior to the execution and delivery of this Agreement and any information shall have been omitted therefrom in reliance upon Rule 430A, the Company, at the earliest possible time, will furnish the Representatives with a copy of the Prospectus to be filed by the Company with the Commission to comply with Rule 424(b) and Rule 430A under the Act and, if the Representatives do not object to the contents thereof, will comply with such Rules. Upon compliance with such Rules, the Company will so advise the Representatives promptly. The Company will advise the Representatives, counsel to the Underwriters and the Attorneys-in-Fact promptly of the issuance by the Commission or any state securities commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, or of any notification of the suspension of qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceedings for that purpose, and will also advise the Representatives, counsel to the Underwriters and the Attorneys-in-Fact promptly of any request of the Commission for amendment or supplement of the Registration Statement, of any Preliminary Prospectus or of the Prospectus, or for additional information, and the Company will not file any amendment or supplement to the Registration Statement (either before or after it becomes effective), to any Preliminary Prospectus or to the Prospectus (including a prospectus filed pursuant to Rule 424(b)) if the Representatives have not been furnished with a copy prior to such filing (with a reasonable opportunity to review such amendment or supplement) or if the Representatives object to such filing. (b) If, at any time when a prospectus relating to the Shares is required by law to be delivered in connection with sales by an Underwriter or dealer, any event occurs as a result of which the Prospectus would include an untrue statement of a material fact, or would omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to supplement the Prospectus to comply with the Act, the Company promptly will advise the Representatives and counsel to the Underwriters and the Attorneys-in-Fact thereof and will promptly prepare and file with the Commission, at its expense, an amendment to the Registration Statement which will correct such statement or omission or an amendment which will effect such compliance; and, if any Underwriter is required to deliver a prospectus after the effective date of the Registration Statement, the Company, upon request of the Representatives, will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) -17- 18 of the Act. The Company consents to the use, in accordance with the provisions of the Act and with the Blue Sky Laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, of each Preliminary Prospectus. (c) Neither the Company nor any Subsidiary will, prior to the Second Closing Date, if any, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, or enter into any transaction with an "affiliate," as defined in Rule 405 under the Act, which is required to be described in the Prospectus pursuant to Item 404 of Regulation S-K under the Act, except as described in the Prospectus. (d) Neither the Company nor any Subsidiary will, prior to the Second Closing Date, if any, acquire any of the Common Stock and the Company will not declare or pay any dividend or make any other distribution upon its Common Stock payable to stockholders of record on a date prior to the Second Closing Date, except as described in the Prospectus. (e) The Company will make generally available to its security holders and the Representatives an earnings statement as soon as practicable, but in no event later than sixty days after the end of its fiscal quarter in which the first anniversary of the effective date of the Registration Statement occurs, covering a period of twelve consecutive calendar months beginning after the effective date of the Registration Statement, which will satisfy the provisions of the last paragraph of Section 11(a) of the Act and Rule 158 promulgated thereunder. (f) During such period as a prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, the Company will furnish to the Representatives, at the expense of the Company, copies of the Registration Statement, the Prospectus, any Preliminary Prospectus and all amendments and supplements to any such documents in each case as soon as available and in such quantities as the Representatives may reasonably request. (g) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder for the purposes set forth in the Prospectus. (h) The Company will cooperate with the Representatives and counsel to the Underwriters in qualifying or registering the Shares for sale under the Blue Sky Laws of such jurisdictions as the Representatives designate, and will continue such qualifications or registrations in effect so long as reasonably requested by the Representatives to effect the distribution of the Shares. The Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not presently qualified. In each jurisdiction where any of the Shares shall have been qualified as provided above, the Company will -18- 19 file such reports and statements as may be required to continue such qualification for a period of not less than one year from the date of the Prospectus. The Company shall promptly prepare and file with the Commission, from time to time, such reports as may be required to be filed by the Act and the Exchange Act, and the Company shall comply in all respects with the undertakings given by the Company in connection with the qualification or registration of the Shares for offering and sale under the Blue Sky Laws. (i) During the period of three years from the date of the Prospectus, the Company will furnish to each of the Representatives and to each of the other Underwriters who may so request, as soon as available, each report, statement or other document of the Company or its Board of Directors mailed to its stockholders or filed with the Commission, and such other information concerning the Company as the Representatives may reasonably request. (j) The Company shall take all necessary or appropriate action within its power to list the Shares on the Nasdaq National Market and maintain the authorization for trading of the Common Stock as a Nasdaq National Market security for a period of at least thirty-six months after the date of the Prospectus. (k) Except for (i) the grant of stock options by the Company pursuant to its 1998 Omnibus Stock and Incentive Plan, 1997 Omnibus Stock and Incentive Plan (collectively, the "Omnibus Plans") or its Non-Employee Directors' Stock Plan (the "Directors' Stock Plan"), (ii) the issuance and/or sale of shares of Common Stock pursuant to its 1997 Employee Stock Purchase Plan (the "ESPP"), the Omnibus Plans or the Directors' Stock Plan (collectively, the "Stock Plans"), copies of which are filed as exhibits to the Registration Statement, (iii) the issuance of shares of Common Stock upon the exercise of stock options granted pursuant to the Stock Plans and (iv) the sale of the Shares to be sold pursuant to this Agreement, the Company shall not, for a period of 90 days after the date of the Prospectus, without the prior written consent of Baird, directly or indirectly, offer, sell or otherwise dispose of, contract to sell or otherwise dispose of, or cause or in any way permit to be sold or otherwise disposed of, any (A) shares of Common Stock; (B) rights to purchase shares of Common Stock; or (C) securities that are convertible or exchangeable into shares of Common Stock. (l) The Company has furnished or will furnish to Baird the agreements described in Section 2(z) hereof, signed by each of the Selling Stockholders and each of the Company's directors and executive officers, as applicable. (m) The Company will maintain a transfer agent and, if required by law or the rules of Nasdaq or any national securities exchange on which the Common Stock is listed, a registrar (which, if permitted by applicable laws and rules, may be the same entity as the transfer agent) for its Common Stock. The Company shall, as soon as practicable after the date hereof, use its best efforts to obtain listing in Standard and Poor's Stock Guide, or such other recognized securities manuals for -19- 20 which it may qualify for listing, if it has not done so already, and the Company shall use its best efforts to maintain such listings for at least five years after the First Closing Date. (n) If at any time when a prospectus relating to the Shares is required to be delivered under the Act, any rumor, publication or event relating to of affecting the Company shall occur as a result of which, in the opinion of Baird, the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to the Prospectus), the Company will, after written notice from Baird advising the Company of any of the matters set forth above, promptly consult with Baird concerning the advisability and substance of, and, if the Company and Baird determine that it is appropriate, disseminate, a press release or other public statement responding to or commenting on, such rumor, publication or event. (o) If the sale to the Underwriters of the Shares is not consummated for any reason other than termination of this Agreement pursuant to Section 13 hereof, without limiting any other rights the Underwriters may have, the Company agrees to reimburse the Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and expenses of counsel for the Underwriters), that shall have been incurred by the Underwriters in connection with the proposed purchase and sale of the Shares, and the provisions of Sections 9 and 12 hereof shall at all times be effective and apply. (p) The Company will comply or cause compliance with the conditions to the obligations of the Underwriters contained in Section 10 hereof. SECTION 8. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder, severally and not jointly, covenants and agrees with the several Underwriters and the Company as follows: (a) If the effective time of the Registration Statement is not prior to the execution and delivery of this Agreement, such Selling Stockholder will cooperate to the extent necessary to cause the Registration Statement to become effective at the earliest possible time; and such Selling Stockholder will do and perform all things to be done and performed by such Selling Stockholder prior to each Closing Date, pursuant to this Agreement, the Irrevocable Power of Attorney and the Custody Agreement. (b) Such Selling Stockholder agrees to deliver to the Custodian on or prior to the First Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable substitute form or statement specified by Treasury Department regulations in lieu thereof). (c) Such Selling Stockholder will pay all federal and other taxes, if any, on the transfer or sale of the Shares being sold by such Selling Stockholder to the Underwriters. -20- 21 (d) Such Selling Stockholder will comply in all respects with the terms of the letter agreement in the form attached as Exhibit A to this Agreement executed by such Selling Stockholder. (e) Such Selling Stockholder will furnish any documents, instruments or other information which the Representatives may reasonably request in connection with the sale and transfer of the Shares to the Underwriters. SECTION 9. PAYMENT OF EXPENSES. Whether or not the transactions contemplated hereunder are consummated or this Agreement becomes effective, or if this Agreement is terminated for any reason, the Company will pay all costs, fees and expenses incurred in connection with the public offering of the Shares to be sold by the Company and by the Selling Stockholders. Such costs, fees and expenses to be paid by the Company include, without limitation: (a) All costs, fees and expenses (excluding the expenses incurred by the Underwriters and the legal fees and disbursements of counsel for the Underwriters, but including such fees and disbursements described in subsection (b) of this Section 9) incurred in connection with the performance of the Company's obligations hereunder, including without limiting the generality of the foregoing: the registration fees related to the filing of the Registration Statement with the Commission; the fees and expenses related to the quotation or listing of the Shares on Nasdaq or other national securities exchange; the fees and expenses of the Company's counsel, accountants, transfer agent and registrar; the costs and expenses incurred in connection with the preparation, printing, shipping and delivery of the Registration Statement, each Preliminary Prospectus and the Prospectus (including all exhibits and financial statements) and all agreements and supplements provided for herein, this Agreement, the Preliminary and Supplemental Blue Sky Memoranda, the Irrevocable Power of Attorney and the Custody Agreement, including, without limitation, shipping expenses via overnight delivery and/or courier service to comply with applicable prospectus delivery requirements; and the costs and expenses associated with the production of materials related to, and travel expenses incurred by the management of the Company in connection with, the various meetings to be held between the Company's management and prospective investors. (b) All registration fees and expenses, including reasonable legal fees and disbursements of counsel for the Underwriters, incurred in connection with (i) the preparation of the Blue Sky Memoranda and Blue Sky filings and with qualifying or registering all or any part of the Shares for offer and sale under the Blue Sky Laws and (ii) the clearing of the public offering and the underwriting arrangements evidenced hereby with the NASD. (c) All fees and expenses related to printing of the certificates for the Shares, and all transfer taxes, if any, with respect to the sale and delivery of the Shares. -21- 22 Notwithstanding the foregoing, each Selling Stockholder shall be solely responsible for any transfer or sales tax imposed upon the transfer and sale of such Selling Stockholder's Shares to the Underwriters. All costs and expenses incident to the performance of any Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section will be borne and paid solely by each such Selling Stockholder. In the event any Selling Stockholder shall fail to pay such Selling Stockholder's costs, fees and expenses described in this section within five days after demand by the Representatives therefor, the Company shall be obligated to pay such costs, fees and expenses on demand. SECTION 10. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters under this Agreement shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders herein set forth as of the date hereof and as of each Closing Date, to the accuracy of the statements of the Company's officers, the Selling Stockholders and the Attorneys-in-Fact on behalf of the Selling Stockholders made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholders of their respective obligations hereunder, and to the following additional conditions, unless waived in writing by Baird on behalf of the Representatives: (a) The Registration Statement shall have been declared effective by the Commission not later than 5:30 p.m., Washington, D.C. time, prior to or on the date of this Agreement, or such later time as shall have been consented to by the Representatives, which consent shall be deemed to have been given if the Registration Statement shall have been declared effective on or before the date and time requested in the acceleration request submitted on behalf of the Representatives pursuant to Rule 461 under the Act; all filings required by Rules 424(b) and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission or any state securities commission nor, to the knowledge of the Company, shall any proceedings for that purpose have been initiated or threatened; and any request of the Commission or any state securities commission for inclusion of additional information in the Registration Statement, or otherwise, shall have been complied with to the satisfaction of the Representatives. (b) Since the dates as of which information is given in the Registration Statement: (i) there shall not have occurred any change or development involving, or which reasonably would be expected to involve, a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business; and (ii) the Company shall not have sustained any loss or interference from any labor dispute, strike, fire, flood, windstorm, accident or other calamity (whether or not insured) or from any court or governmental action, order or decree, -22- 23 the effect of which on the Company, in any such case described in clause (i) or (ii) above, is in the opinion of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Registration Statement and the Prospectus. (c) The Representatives shall not have advised the Company that the Registration Statement or the Prospectus contains an untrue statement of fact that, in the opinion of the Representatives or counsel for the Underwriters, is material, or omits to state a fact that, in the opinion of the Representatives or such counsel, is material and is required to be stated therein or necessary to make the statements therein not misleading. (d) The Representatives shall have received an opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, counsel for the Company, addressed to the Representatives, as the representatives of the Underwriters, and dated the First Closing Date or the Second Closing Date, as the case may be, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation and its status is active under the laws of its jurisdiction of incorporation, with full corporate power and authority to own, lease and operate its properties and conduct its business as presently conducted and as described in the Prospectus and the Registration Statement. The Company is duly registered and qualified to do business as a foreign corporation under the laws of, and either its status is active or it is in good standing as such in, each jurisdiction in which such registration or qualification is required, except where the failure to so register or qualify would not have a Material Adverse Effect. (ii) The authorized capital stock of the Company consists of 35,000,000 shares of Common Stock, $0.01 par value per share, and 3,000,000 shares of Preferred Stock, $0.01 par value per share, and all such stock conforms as to legal matters to the descriptions thereof in the Prospectus and the Registration Statement. (iii) The issued and outstanding shares of capital stock of the Company immediately prior to the issuance and sale of the Shares to be sold by the Company hereunder (including the shares to be sold by the Selling Stockholders) have been duly authorized and validly issued, are fully paid and nonassessable, and there are no preemptive, preferential or, except as described in the Prospectus, other rights to subscribe for or purchase any shares of capital stock of the Company, and to such counsel's knowledge, no shares of capital stock of the Company have been issued in violation of such rights. -23- 24 (iv) Except for the Subsidiaries and except as to its relationship with Amrop as has been disclosed to the Representatives in writing, the Company has no subsidiaries and the Company does not own any equity interest in or control, directly or indirectly, any other corporation, limited liability company, partnership, joint venture, association, trust or other business organization; each Subsidiary has been duly incorporated and is validly existing as a corporation, and either its status is active or it is in good standing, under the laws of its jurisdiction of incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Prospectus and the Registration Statement; each Subsidiary is duly registered and qualified to do business as a foreign corporation under the laws of, and either its status is active or it is in good standing as such in, each jurisdiction in which such registration or qualification is required, except where the failure to so register or qualify would not have a Material Adverse Effect; the issued and outstanding shares of the capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and there are no preemptive, preferential or other rights to subscribe for or purchase any shares of capital stock of any Subsidiary and no shares of capital stock of any Subsidiary have been issued in violation of such rights; the Company owns directly and beneficially all of the issued and outstanding capital stock of each Subsidiary, free and clear of any and all liens, claims, encumbrances and security interests. (v) The certificates for the Shares to be delivered hereunder are in due and proper form and conform to the requirements of applicable law and, when duly countersigned by the Company's transfer agent and delivered to the Representatives or upon the order of the Representatives against payment of the agreed consideration therefor in accordance with the provisions of this Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable, and free of any preemptive, preferential or other rights to subscribe for or purchase shares of Common Stock. (vi) The Registration Statement has become effective under the Act, and to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or are threatened under the Act or any Blue Sky Laws. The Registration Statement and the Prospectus and any amendment or supplement thereto (except for the financial statements and other statistical or financial data included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act. No facts have come to the attention of such counsel which lead it to believe that either the Registration Statement or the Prospectus or any amendment or supplement thereto, contains any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated -24- 25 therein or necessary to make the statements therein not misleading or that the Prospectus, as of the First Closing Date or the Second Closing Date, as the case may be, contained any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made (except for the financial statements and other financial data included therein as to which such counsel need express no opinion). To such counsel's knowledge, there are no legal or governmental proceedings pending or threatened, including, without limitation, any such proceedings that are related to environmental or employment discrimination matters, required to be described in the Registration Statement or the Prospectus which are not so described or which question the validity of this Agreement or any action taken or to be taken pursuant thereto, nor is there any transaction, relationship, agreement, contract or other document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement by the Act, which is not described or filed as required. (vii) The Company has full corporate power and authority to enter into and perform this Agreement. The performance of the Company's obligations hereunder and the consummation of the transactions described herein have been duly authorized by the Company by all necessary corporate action and this Agreement has been duly executed and delivered by and on behalf of the Company, and is a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except that rights to indemnity or contribution may be limited by applicable law or the policies underlying such laws and except as enforceability of this Agreement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by equitable principles limiting the right to specific performance or other equitable relief. No consent, approval, authorization or other order or decree of any court, regulatory or governmental body, arbitrator, administrative agency or other instrumentality of the United States or other country or jurisdiction having jurisdiction over the Company is required for the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement (except for compliance with the Act, the Exchange Act, applicable Blue Sky Laws and the clearance of the underwriting arrangements by the NASD). (viii) The execution, delivery and performance of this Agreement by the Company will not: (A) violate any provisions of the Articles of Incorporation or Bylaws of the Company or any Subsidiary; (B) violate any provisions of, or result in the breach, modification or termination of, or constitute a default under, any agreement, lease, franchise, license, indenture, permit, mortgage, deed of trust, other -25- 26 evidence of indebtedness or other instrument to which the Company or any Subsidiary is a party or by which the Company or such Subsidiary, or any of their respective owned or leased property, is bound, and which is filed as an exhibit to the Registration Statement; or (C) violate any statute, ordinance, order, rule, decree or regulation of any court, regulatory or governmental body, arbitrator, administrative agency or other instrumentality of the United States or other country or jurisdiction having jurisdiction over the Company or any Subsidiary (assuming compliance with all applicable federal and state securities laws). (ix) To such counsel's knowledge, except as described in the Prospectus, there are no holders of Common Stock or other securities of the Company, or securities that are convertible or exchangeable into Common Stock or other securities of the Company, that have rights to the registration of such securities under the Act or any Blue Sky Laws. (x) The Common Stock has been designated as a National Market Security on Nasdaq and is registered under the Exchange Act. (xi) Neither the Company nor any Subsidiary is, or with the giving of notice or passage of time or both would be, in violation of its respective Articles of Incorporation or Bylaws or, to such counsel's knowledge, in default in any material respect in the performance of any agreement, lease, franchise, license, permit, mortgage, deed of trust, evidence of indebtedness or other instrument, or any other document that is filed as an exhibit to the Registration Statement, to which the Company or any Subsidiary is subject or bound. (xii) Neither the Company nor any Subsidiary is an "investment company," an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended, and, upon its receipt of any proceeds from the sale of the Shares, the Company will not become or be deemed to be an "investment company" thereunder. (xiii) The description in the Registration Statement and the Prospectus of statutes, law, regulations, legal and governmental proceedings, and contracts and other legal documents described therein fairly and correctly present, in all material respects, the information required to be included therein by the Act. (xiv) All offers and sales by the Company and each Subsidiary of their respective capital stock before the date hereof were at all relevant times duly registered under or exempt from the registration requirements of the Act, and were duly registered under or the subject of an available exemption from the registration requirements of any applicable Blue Sky Laws. -26- 27 In rendering such opinion, counsel for the Company may rely, to the extent counsel deems such reliance proper, as to matters of fact upon certificates of officers of the Company and of governmental officials, and copies of all such certificates shall be furnished to the Representatives for the Underwriters on or before each Closing Date. Counsel for the Company also may rely upon an opinion(s) of local counsel with respect to matters governed by the laws of jurisdictions other than Florida, provided that (a) a copy of each opinion so relied upon is delivered to the Underwriters and is in form and substance satisfactory to counsel to the Underwriters and (b) such counsel shall state in their opinion that they believe they are justified in relying upon such local counsel's opinion. (e) The Representatives shall have received an opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, counsel for the Selling Stockholders, addressed to the Representatives, as the representatives of the Underwriters, and dated the First Closing Date, to the effect that: (i) Each of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement has been duly authorized, if applicable, executed and delivered by or on behalf of each Selling Stockholder and each such agreement constitutes the valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with its respective terms, except that rights to indemnity or contribution thereunder may be limited by applicable law and except as enforceability of such agreement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting the rights of creditors and by equitable principles limiting the right to specific performance or other equitable relief; (ii) The execution, delivery and performance of this Agreement, the Irrevocable Power of Attorney and the Custody Agreement will not, if applicable, result in the violation of any provisions of the Articles of Incorporation, By-laws or other governing documents of such Selling Stockholder, or constitute a breach, or be in contravention, of any provision of any agreement, franchise, license, indenture, mortgage, deed of trust or other instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or such Selling Stockholder's property may be bound or affected, or any statute, rule or regulation applicable to such Selling Stockholder, or violate any order or decree of any court, regulatory or governmental body, administrative body or instrumentality of the United States or other jurisdiction having jurisdiction over such Selling Stockholder or any of such Selling Stockholder's property, which violation would reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, properties, net worth or results of operations of such Selling Stockholder; -27- 28 (iii) Such Selling Stockholder has full legal right, power and authority, and has secured any consent, approval, authorization and order required, to enter into and perform this Agreement, the Irrevocable Power of Attorney and the Custody Agreement and to sell, assign, transfer and deliver title to the Shares to be sold by such Selling Stockholder as provided herein; and upon delivery to the Underwriters or upon the order of the Representatives against payment of the agreed consideration therefor in accordance with the provisions of this Agreement, the Underwriters will acquire good and marketable title to the Shares to be sold hereunder by such Selling Stockholder, free and clear of all voting trust arrangements, liens, encumbrances, security interests, equities, claims and community or marital property rights; and (iv) To such counsel's knowledge, the information concerning the Selling Stockholders contained in the Prospectus under the caption "Principal and Selling Stockholders" complies in all material respects with the Act. In rendering such opinion, counsel for the Selling Stockholders may rely, to the extent counsel deems such reliance proper, as to matters of fact upon certificates of the Selling Stockholders, and copies of all such certificates shall be furnished to the Representatives and counsel for the Underwriters on or before each Closing Date. (f) The Representatives shall have received an opinion of Neal, Gerber & Eisenberg, counsel for the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, with respect to the issuance and sale of the Shares by the Company, the Registration Statement and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents and shall have exhibited to them such papers and records as they request for the purpose of enabling them to pass upon such matters. (g) The Representatives shall have received on each Closing Date, a certificate of Robert L. Pearson, President and Chief Executive Officer, and Jack P. Wissman, Executive Vice President and Chief Financial Officer of the Company, to the effect that: (i) The representations and warranties of the Company set forth in Section 2 hereof are true and correct as of the date of this Agreement and as of the date of such certificate, and the Company has complied with all the agreements and satisfied all the conditions to be performed or satisfied by it at or prior to the date of such certificate. (ii) The Commission has not issued an order preventing or suspending the use of the Prospectus or any Preliminary Prospectus or any amendment or supplement thereto; no stop order suspending the effectiveness of the Registration Statement has been issued; and to the knowledge of the respective signatories, no proceedings for -28- 29 that purpose have been initiated or are pending or contemplated under the Act or under the Blue Sky Laws of any jurisdiction. (iii) Each of the respective signatories has carefully examined the Registration Statement and the Prospectus, and any amendment or supplement thereto, and such documents contain all statements required to be stated therein, and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and since the date on which the Registration Statement was initially filed, no event has occurred that was required to be set forth in an amended or supplemented prospectus or in an amendment to the Registration Statement that has not been so set forth. (iv) Since the date on which the Registration Statement was initially filed with the Commission, there shall not have occurred any change or development involving, or which reasonably would be expected to involve, a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business, except as disclosed in the Prospectus and the Registration Statement as heretofore amended or (but only if the Representatives expressly consent thereto in writing) as disclosed in an amendment or supplement thereto filed with the Commission and delivered to the Representatives after the execution of this Agreement; since such date and except as so disclosed or in the ordinary course of business, the Company has not incurred any liability or obligation, direct or indirect, or entered into any transaction which is material to the Company; since such date and except as so disclosed, there has not been any change in the outstanding capital stock of the Company, or any change that is material to the Company in the short-term debt or long-term debt of the Company; since such date and except as so disclosed, the Company has not acquired any of the Common Stock or other capital stock of the Company nor has the Company declared or paid any dividend, or made any other distribution, upon its outstanding Common Stock payable to stockholders of record on a date prior to such Closing Date; since such date and except as so disclosed, the Company has not incurred any material contingent obligations, and no material litigation is pending or threatened against the Company; and, since such date and except as so disclosed, the Company has not sustained any material loss or interference from any strike, fire, flood, windstorm, accident or other calamity (whether or not insured) or from any court or governmental action, order or decree. The delivery of the certificate provided for in this subsection (g) shall be and constitute a representation and warranty of the Company as to the facts required in the immediately foregoing clauses (i), (ii), (iii) and (iv) to be set forth in said certificate. -29- 30 (h) The Representatives shall have received a certificate from each Selling Stockholder (which may be signed by such Selling Stockholder's Attorneys-in-Fact, or either of them), dated the First Closing Date, to the effect that: (i) the representations and warranties of such Selling Stockholder in Section 3 of this Agreement are true and correct as of the date of this Agreement and as of the First Closing Date, as if again made on and as of the First Closing Date, and such Selling Stockholder has complied with all of the agreements and satisfied all of the conditions to be performed or satisfied by such Selling Stockholder at or prior to the First Closing Date; and (ii) such Selling Stockholder has no reason to believe that the Registration Statement or any amendment thereto at the time it was declared effective by the Commission contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as amended or supplemented, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) At the time this Agreement is executed and also on each Closing Date, there shall be delivered to the Representatives a letter addressed to the Representatives, as the representative of the Underwriters, from Arthur Andersen LLP, the Company's independent accountants, the first letter to be dated the date of this Agreement, the second letter to be dated the First Closing Date and the third letter (if applicable) to be dated the Second Closing Date, which shall be in form and substance satisfactory to the Representatives and shall contain information as of a date within five days of the date of such letter. There shall not have been any change or decrease set forth in any of the letters referred to in this subsection (i) which makes it impracticable or inadvisable in the judgment of the Representatives to proceed with the public offering or purchase of the Shares as contemplated hereby. (j) The Shares shall have been qualified or registered for sale under the Blue Sky Laws of such jurisdictions as shall have been specified by the Representatives, the underwriting terms and arrangements for the offering shall have been cleared by the NASD, and the Common Stock shall have been designated for inclusion as a Nasdaq National Market security on Nasdaq and shall have been registered under the Exchange Act. (k) Such further certificates and documents as the Representatives may reasonably request (including certificates of officers of the Company). All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are satisfactory to the Representatives and to Neal, Gerber & Eisenberg, counsel for the Underwriters. The Company and the Selling Stockholders shall furnish the Representatives with such manually signed or conformed copies of such opinions, certificates, letters and documents as the Representatives may reasonably request. -30- 31 If any condition to the Underwriters' obligations hereunder to be satisfied prior to or at either Closing Date is not so satisfied, this Agreement at the election of the Representatives will terminate upon notification to the Company and the Attorneys-in-Fact, or any one of them, for the Selling Stockholders without liability on the part of (i) any Underwriter, including the Representatives, (ii) the Company or the Selling Stockholders except for the provisions of Section 7(o) hereof, the expenses to be paid by the Company and the Selling Stockholders pursuant to Section 9 hereof and (iii) except to the extent provided in Section 12 hereof. SECTION 11. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. The Company and the Selling Stockholders will use their respective best efforts to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement, and, if such stop order is issued, to obtain as soon as possible the lifting thereof. -31- 32 SECTION 12. INDEMNIFICATION. (a) The Company and each of the Selling Stockholders, jointly and severally, subject to the last paragraph of this Section 12, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act, from and against any losses, claims, damages, expenses, liabilities or actions in respect thereof ("CLAIMS"), joint or several, to which such Underwriter or each such controlling person may become subject under the Act, the Exchange Act, Blue Sky Laws or other federal or state statutory laws or regulations, at common law or otherwise (including payments made in settlement of any litigation), insofar as such Claims arise out of or are based upon any breach of any representation, warranty or covenant made by the Company in this Agreement, or any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or in any application filed under any Blue Sky Law or other document executed by the Company for that purpose or based upon written information furnished by the Company and filed in any state or other jurisdiction to qualify any or all of the Shares under the securities laws thereof (any such document, application or information being hereinafter called a "BLUE SKY APPLICATION") or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company and each of the Selling Stockholders, jointly and severally, subject to the last paragraph of this Section 12, agree to reimburse each Underwriter and each such controlling person for any legal fees or other expenses incurred by such Underwriter or any such controlling person in connection with investigating or defending any such Claim. Notwithstanding the foregoing, however, the Company and the Selling Stockholders will not be liable in any such case to the extent that (i) any such Claim arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus or supplement thereto or in any Blue Sky Application in reliance upon and in conformity with the written information furnished to the Company pursuant to Section 5 of this Agreement, or (ii) such statement or omission was contained or made in any Preliminary Prospectus and corrected in the Prospectus and (A) any such Claim suffered or incurred by any Underwriter (or any person who controls such Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter, and (B) in any case where such delivery is required by the Act, such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares, unless such failure was due to failure by the Company to provide copies of the Prospectus to the Underwriters as required by this Agreement. The indemnification obligations of the Company and each of the Selling Stockholders as provided above are in addition to and in no way limit any liabilities the Company and each of the Selling Stockholders may otherwise have. -32- 33 (b) Each of the Selling Stockholders, severally and not jointly, agrees to indemnify and hold harmless each Underwriter and each controlling person from and against any Claims to which such Underwriter or each such controlling person may become subject under the Act, the Exchange Act, Blue Sky Laws or other federal or state statutory laws or regulations, at common law or otherwise (including payments made in settlement of any litigation), insofar as such Claims arise out of or are based upon any breach of any representations, warranty or covenant made by such Selling Stockholder in this Agreement. (c) Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and each of its officers who signs the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act or the Exchange Act and each Selling Stockholder against any Claim to which the Company, or any such director, officer, controlling person or Selling Stockholder may become subject under the Act, the Exchange Act, Blue Sky Laws or other federal or state statutory laws or regulations, at common law or otherwise (including payments made in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter and Baird), insofar as such Claim arises out of or is based upon any breach of any representation, warranty or covenant made by such Underwriter in this Agreement, any untrue or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or in any Blue Sky Application, or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or in any Blue Sky Application, in reliance solely upon and in conformity with the written information furnished by the Representatives to the Company pursuant to Section 5 of this Agreement. Each Underwriter will severally reimburse any legal fees or other expenses incurred by the Company, or any such director, officer, controlling person or Selling Stockholder in connection with investigating or defending any such Claim, and from any and all Claims solely resulting from failure of an Underwriter to deliver a Prospectus, if the person asserting such Claim purchased Shares from such Underwriter and a copy of the Prospectus (as then amended if the Company shall have furnished any amendments thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended) would have cured the defect giving rise to such Claim. The indemnification obligations of each Underwriter as provided above are in addition to any liabilities any such Underwriter may otherwise have. Notwithstanding the provisions of this Section, no Underwriter shall be required to indemnify or reimburse the Company, or any officer, director, controlling person or Selling Stockholder in an aggregate amount in excess of the total price at which the Shares purchased by any such Underwriter hereunder were offered to the public, less the amount of any damages such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. -33- 34 (d) Each Selling Stockholder, severally and not jointly, agrees to indemnify and hold harmless the Company, each of its directors and each of its officers who signs the Registration Statement, and each person, if any, controlling the Company within the meaning of the Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each Underwriter set forth in subsection (a) of this section. In case any Claim shall be brought or asserted against the Company, its directors, such officers or any such controlling person, in respect of which indemnity may be sought against any Selling Stockholder, such Selling Stockholder shall have the rights and duties given to the Company, and the Company, such directors or officers and any such controlling person shall have the rights and duties given to the Underwriters by subsection (a) of this section. (e) Promptly after receipt by an indemnified party under this Section 12 of notice of the commencement of any action in respect of a Claim, such indemnified party will, if a Claim in respect thereof is to be made against an indemnifying party under this Section 12, notify the indemnifying party in writing of the commencement thereof; but, provided that the indemnifying party is not materially adversely prejudiced by any delay in so notifying or failure to so notify, the omission so to notify the indemnifying party will not relieve an indemnifying party from any liability it may have to any indemnified party under this Section 12 or otherwise. In case any such action is brought against any indemnified party, and such indemnified party notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in and, to the extent that he, she or it may wish, jointly with all other indemnifying parties, similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and any indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to the indemnified party and/or other indemnified parties which are different from or additional to those available to any indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. (f) Upon receipt of notice from the indemnifying party to such indemnified party of the indemnifying party's election to assume the defense of such action and upon approval by the indemnified party of counsel selected by the indemnifying party, the indemnifying party will not be liable to such indemnified party under this Section 12 for any legal fees or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, unless: (i) the indemnified party shall have employed separate counsel in connection with the assumption of legal defenses in accordance with the proviso to the last sentence of subsection (e) of this Section 12 (it being understood, however, that the indemnifying party shall not be liable for the legal fees and expenses of more than one separate counsel, approved by Baird, if one or more of the Underwriters or their controlling persons are the indemnified parties); -34- 35 (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the indemnified party's notice to the indemnifying party of commencement of the action; or (iii) the indemnifying party has authorized the employment of counsel at the expense of the indemnifying party. (g) If the indemnification provided for in this Section is unavailable to an indemnified party under subsection (a), (b), (c) or (d) hereof in respect of any Claim referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall, subject to the limitations hereinafter set forth, contribute to the amount paid or payable by such indemnified party as a result of such Claim: (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, each Selling Stockholder and the Underwriters from the offering of the Shares; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Company, each Selling Stockholder and the Underwriters in connection with the statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative benefits received by each of the Company, each Selling Stockholder and the Underwriters shall be deemed to be in such proportion so that the Underwriters are responsible for that portion represented by the percentage that the amount of the underwriting discounts and commissions per share appearing on the cover page of the Prospectus bears to the public offering price per share appearing thereon, and the Company (including its officers and directors and controlling persons), and each of the Selling Stockholders, are responsible for the remaining portion. The relative fault of the Company, each Selling Stockholder and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, such Selling Stockholder or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the Claims referred to above shall be deemed to include, subject to the limitations set forth in subsections (e) and (f) of this Section 12, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. (h) The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata -35- 36 or per capita allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method or allocation which does not take into account the equitable considerations referred to in subsection (f) of this Section 12. Notwithstanding the other provisions of this Section 12, no Underwriter shall be required to contribute any amount that is greater than the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 12 are several in proportion to their respective underwriting commitments and not joint. (i) Notwithstanding any provision of this section 12 to the contrary, the liability of each of the Selling Stockholders arising under this section 12 shall not exceed the proceeds received by such Selling Stockholder from the Underwriters for the Shares sold by such Selling Stockholder. SECTION 13. DEFAULT OF UNDERWRITERS. It shall be a condition to the obligations of each Underwriter to purchase the Shares in the manner as described herein, that, except as hereinafter provided in this Section, each of the Underwriters shall purchase and pay for all the Shares agreed to be purchased by such Underwriter hereunder upon tender to the Representatives of all such Shares in accordance with the terms hereof. If any Underwriter or Underwriters default in their obligations to purchase Shares hereunder on either the First Closing Date or the Second Closing Date and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of Shares which the Underwriters are obligated to purchase on such Closing Date, the Representatives may make arrangements for the purchase of such Shares by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Shares which such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of Shares with respect to which such default or defaults occur is greater than ten percent (10%) of the total number of Shares which the Underwriters are obligated to purchase on such Closing Date, and arrangements satisfactory to the Representatives for the purchase of such Shares by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any nondefaulting Underwriter, the Company or any Selling Stockholder except for the expenses to be paid by the Company pursuant to Section 9 hereof and except to the extent provided in Section 12 hereof. In the event that Shares to which a default relates are to be purchased by the nondefaulting Underwriters or by another party or parties, the Representatives shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, for not more than -36- 37 seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangements, may be effected. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. SECTION 14. EFFECTIVE DATE. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. Such execution and delivery shall include an executed copy of this Agreement sent by telecopier, facsimile transmission or other means of transmitting written documents. SECTION 15. TERMINATION. Without limiting the right to terminate this Agreement pursuant to any other provision hereof, this Agreement may be terminated by the Representatives prior to or on the First Closing Date and the over-allotment option from the Company referred to in Section 6 hereof, if exercised, may be cancelled by the Representatives at any time prior to or on the Second Closing Date, if in the judgment of the Representatives, payment for and delivery of the Shares is rendered impracticable or inadvisable because: (a) additional governmental restrictions, not in force and effect on the date hereof, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or the American Stock Exchange, or trading in securities generally shall have been suspended or materially limited on either such exchange or on Nasdaq or a general banking moratorium shall have been established by either federal or state authorities in New York, Chicago or Milwaukee; (b) any event shall have occurred or shall exist which makes untrue or incorrect in any material respect any statement or information contained in the Registration Statement or which is not reflected in the Registration Statement but should be reflected therein to make the statements or information contained therein not misleading in any material respect; or (c) an outbreak or escalation of hostilities or other national or international calamity or any substantial change in political, financial or economic conditions shall have occurred or shall have accelerated to such extent, in the judgment of the Representatives, as to have a material adverse effect on the financial markets of the United States, or to make it impracticable or inadvisable to proceed with completion of the sale of and payment for the Shares as provided in this Agreement. Any termination pursuant to this Section shall be without liability on the part of any Underwriter to the Company or any Selling Stockholder, or on the part of the Company or any Selling Stockholder to any Underwriter, except for expenses to be paid by the Company pursuant to Section 9 hereof or reimbursed by the Company pursuant to Section 7(o) hereof and except as to indemnification to the extent provided in Section 12 hereof. -37- 38 SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties, covenants and other statements of the Company, of its officers or directors, of the Selling Stockholders, and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, any Selling Stockholder or the Company or any of its or their partners, officers, directors or any controlling person, as the case may be, and will survive delivery of and payment for the Shares sold hereunder. SECTION 17. NOTICES. All communications hereunder will be in writing and, if sent to the Representatives, will be mailed, delivered, telecopied (with receipt confirmed) or telegraphed and confirmed to C. Christopher Coetzee, Robert W. Baird & Co. Incorporated, 227 West Monroe Street, Suite 2100, Chicago, Illinois 60606, with a copy to Helen N. Kaminski, Neal, Gerber & Eisenberg, Two North LaSalle Street, Chicago, Illinois 60602, and if sent to the Company, will be mailed, delivered, telecopied (with receipt confirmed) or telegraphed and confirmed to the Company at Lamalie Associates, Inc., Northdale Plaza, Suite 220E, 3903 Northdale Boulevard, Tampa, Florida 33624-1824, Attention: Jack P. Wissman, with a copy to Richard M. Leisner, Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, 2700 Barnett Plaza, 101 East Kennedy Boulevard, Tampa, Florida 33602; and, if sent to the Selling Stockholders, will be mailed, delivered, telecopied (with receipt confirmed) or telegraphed and confirmed to the Attorneys-in-Fact, or either of them, in care of the Company, with copies to Richard M. Leisner, Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Professional Association, 2700 Barnett Plaza, 101 East Kennedy Boulevard, Tampa, Florida 33602 SECTION 18. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors, personal representatives and assigns, and to the benefit of the officers and directors and controlling persons referred to in Section 12 hereof and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 19. PARTIAL UNENFORCEABILITY. If any section, paragraph, clause or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph clause or provision hereof. SECTION 20. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Wisconsin without reference to conflict of law principles thereunder. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument, and shall be effective when at least one counterpart hereof shall have been executed by or on behalf of each party hereto. -38- 39 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, each of the Selling Stockholders and the several Underwriters, including the Representatives, all in accordance with its terms. Very truly yours, LAMALIE ASSOCIATES, INC. By: ----------------------------------------- Robert L. Pearson, President and Chief Executive Officer THE SELLING STOCKHOLDERS: By: ----------------------------------------- Jack P. Wissman, Attorney-in-Fact By: ----------------------------------------- Philip R. Albright, Attorney-in-Fact The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ROBERT W. BAIRD & CO. INCORPORATED THE ROBINSON-HUMPHREY COMPANY, INC. J.C. BRADFORD & CO. By: ROBERT W. BAIRD & CO. INCORPORATED Acting as Representatives of the several Underwriters (including themselves) identified in Schedule II annexed hereto. By: ---------------------------------------------- C. Chris Coetzee, Managing Director -39- 40 LAMALIE ASSOCIATES, INC. SCHEDULE I
NUMBER OF FIRM NUMBER OF OPTIONAL SHARES SHARES ------ ------ The Company __________ __________ The Selling Stockholders:
-40- 41 LAMALIE ASSOCIATES, INC. SCHEDULE II
NO. FIRM SHARES NAME OF UNDERWRITER PURCHASED - ------------------- --------- Robert W. Baird & Co. Incorporated.......................................................... The Robinson-Humphrey Company, LLC.......................................................... J.C. Bradford & Co.......................................................................... Total.....................................................................
-41- EX-5 3 OPINION OF TRENAM, KEMKER ET AL 1 EXHIBIT 5 TRENAM, KEMKER, SCHARF, BARKIN, FRYE, O'NEILL & MULLIS PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW TAMPA OFFICE ST. PETERSBURG OFFICE 2700 BARNETT PLAZA 2100 BARNETT TOWER 101 EAST KENNEDY BOULEVARD ONE PROGRESS PLAZA POST OFFICE BOX 1102 POST OFFICE BOX 2245 TAMPA, FLORIDA 33601-1102 ST PETERSBURG, FLORIDA 33731-2245 TELEPHONE (813) 223-7474 TELEPHONE (813) 898-7474 TELEFAX (813) 229-6553 TELEFAX (813) 821-0407 PLEASE REPLY TO TAMPA June 9, 1998 Securities and Exchange Commission Judiciary Plaza 450 5th Street, N.W. Washington, DC 20549 Re: Lamalie Associates, Inc. Registration Statement on Form S-1 File No. 333-52075 ---------------------------------- Ladies and Gentlemen: We have represented Lamalie Associates, Inc. (the "Company") in connection with the Company's Registration Statement on Form S-1 (File No. 333-52075), as amended (the "Registration Statement") relating to the proposed public offering by the Company and by certain stockholders of the Company (the "Selling Stockholders") of an aggregate of up to 3,000,000 shares (3,450,000 shares if the Underwriters' over-allotment option is exercised)(the "Shares") of the Company's Common Stock (the "Offering"). This opinion is being provided as Exhibit 5 to the S-1 Registration Statement. In our capacity as counsel to the Company in connection with the Registration Statement and the Offering, we have examined and are familiar with: the Company's Articles of Incorporation and Bylaws, as currently in effect, the Registration Statement and such other corporate records, documents and instruments as in our opinion are necessary or relevant as the basis for the opinions expressed below. As to various questions of fact material to our opinion, we have relied without independent investigation on statements or certificates of officials and representatives of the Company, the Department of State of the State of Florida and others. In all such examinations, we have assumed the genuineness of all signatures on original and certified documents and the conformity 2 to original and certified documents of all copies submitted to us as conformed, photostatic or other exact copies. We express no opinion as to the law of any jurisdiction other than the general corporate law of the State of Florida and the Federal laws of the United States of America. Based upon and in reliance on the foregoing, we are of the opinion that: 1. The Company is a duly organized and validly existing as a corporation under the laws of the State of Florida and its status as such is active. 2. The Shares being offered and sold by the Selling Stockholders (the "Selling Stockholder Shares") are duly authorized, validly issued, fully paid and non-assessable shares of the capital stock of the Company. 3. When the following events shall have occurred: a. the Registration Statement shall have become effective in accordance with the Securities Act of 1933, as amended; b. the Shares being offered and sold by the Company (the "Company Shares") shall have been offered and sold as provided in the Registration Statement, and the consideration specified in the Registration Statement shall have been received by the Company; and c. the certificates representing the Company Shares shall have been executed, countersigned and issued by or on behalf of the Company, the Company Shares so offered and sold in the Offering will be duly authorized, validly issued, fully paid and non-assessable shares of the capital stock of the Company. This firm hereby consents to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to it under the heading "Legal Matters." Sincerely, TRENAM, KEMKER, SCHARF, BARKIN, FRYE, O'NEILL & MULLIS, Professional Association By: /s/ J. Cary Ross, Jr. -------------------------------- EX-23.2 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Tampa, Florida, June 8, 1998 EX-23.3 5 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated February 20, 1998, with respect to the balance sheets of Ward Howell International, Inc. as of December 31, 1997 and 1996 and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 included herein. KPMG PEAT MARWICK LLP New York, New York June 9, 1998 -----END PRIVACY-ENHANCED MESSAGE-----