S-1/A 1 a2072693zs-1a.txt S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 2002 REGISTRATION NO. 333-82438 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MEDICAL STAFFING NETWORK HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 7363 65-0865171 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 901 YAMATO ROAD, SUITE 110 BOCA RATON, FL 33431 (561) 226-9000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ROBERT J. ADAMSON PRESIDENT AND CHIEF EXECUTIVE OFFICER MEDICAL STAFFING NETWORK HOLDINGS, INC. 901 YAMATO ROAD, SUITE 110 BOCA RATON, FL 33431 (561) 226-9000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ Copies to: STEVEN J. GARTNER, ESQ. ALEJANDRO E. CAMACHO, ESQ. Willkie Farr & Gallagher Clifford Chance Rogers & Wells LLP 787 Seventh Avenue 200 Park Avenue New York, New York 10019 New York, New York 10166-0153 (212) 728-8000 (212) 878-8000 ------------------------------ 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, as amended, 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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d) 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, check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM TITLE OF SECURITIES AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED PRICE(1) REGISTRATION FEE Common Stock, par value $0.01............................... $152,735,000 $14,052

(1) Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Subject to Completion, dated April 15, 2002 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS 7,812,500 SHARES [LOGO] COMMON STOCK ---------------------------------------------------------------------- We are offering 7,812,500 shares of common stock in this initial public offering. No public market currently exists for our common stock. We have been approved to list our shares on the New York Stock Exchange under the symbol "MRN." We anticipate the public offering price will be between $15.00 and $17.00 per share. INVESTING IN OUR SHARES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.

PER SHARE TOTAL -------- ------------ Public Offering Price....................................... $ $ Underwriting Discount....................................... $ $ Proceeds to Medical Staffing Network Holdings, Inc.......... $ $

We have granted the underwriters a 30-day option to purchase up to 1,171,875 additional shares of common stock to cover over-allotments. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Lehman Brothers and Deutsche Bank Securities, on behalf of the underwriters, expect to deliver the shares on or about , 2002. -------------------------------------------------------------------------------- LEHMAN BROTHERS DEUTSCHE BANK SECURITIES ---------------- CREDIT SUISSE FIRST BOSTON JPMORGAN , 2002 [Graphic of Temporary Medical Staffing Professional] Why face the uncertainty of the healthcare staffing shortage alone? Experience the benefits of reliable, innovative staffing solutions. o per diem and travel nursing o per diem and travel allied health o physician locum tenens & permanent placement o CRNA locum tenens & permanent placement [Logo of Medical Staffing Network] TABLE OF CONTENTS

PAGE -------- Prospectus Summary.................... 1 Risk Factors.......................... 8 Forward-Looking Statements............ 15 Use of Proceeds....................... 16 Dividend Policy....................... 16 Capitalization........................ 17 Dilution.............................. 19 Selected Consolidated Financial Data and Other Data...................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 24 Business.............................. 32

PAGE -------- Management............................ 41 Employment Agreements................. 45 Certain Transactions.................. 51 Principal Stockholders................ 53 Description of Capital Stock.......... 55 Shares Eligible for Future Sale....... 59 Underwriting.......................... 61 Legal Matters......................... 65 Experts............................... 65 Where You Can Find More Information......................... 65 Index to Consolidated Financial Statements.......................... F-1

------------------------ You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy shares in any jurisdiction where such offer or any sale of shares would be unlawful. The information in this prospectus is complete and accurate only as of the date on the front cover regardless of the time of delivery of this prospectus or of any sale of shares. Until , 2002, 25 days after the date of this offering, all dealers that effect transactions in our shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. i PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. YOU SHOULD READ CAREFULLY THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES, APPEARING ELSEWHERE IN THIS PROSPECTUS. FOR CONVENIENCE IN THIS PROSPECTUS, "MEDICAL STAFFING NETWORK," "WE," "US," "THE COMPANY" AND "OUR" REFER TO MEDICAL STAFFING NETWORK HOLDINGS, INC. AND OUR SUBSIDIARIES, TAKEN AS A WHOLE. MEDICAL STAFFING NETWORK HOLDINGS, INC. OUR COMPANY We are a leading medical staffing company and the largest provider of per diem nurse staffing services (staffing assignments of less than 13 weeks in duration) in the United States as measured by revenues. Our per diem staffing assignments place our professionals, predominately nurses, at hospitals and other healthcare facilities to solve our clients' temporary staffing needs. In 2000, the temporary medical staffing industry generated $7.2 billion in revenues, 57% (or approximately $4.1 billion) of which was generated by the per diem nurse staffing industry. In 2001, approximately 75% of our revenues were derived from per diem nurse staffing. We believe we are also a leading provider of specialized radiology and diagnostic imaging technicians and clinical laboratory technicians, or "allied health" professionals, as measured by revenues. We serve our clients through what we believe to be the largest temporary medical staffing network in the United States, which, as of December 30, 2001, is comprised of 136 branches that provide nurse staffing on a per diem basis in 43 states. Our extensive client base includes over 7,000 healthcare facilities, including leading for-profit and not-for-profit hospitals, leading teaching hospitals and regional healthcare providers. As of December 30, 2001, our database contained profiles of over 25,000 active professionals who we place on temporary assignment in healthcare facilities, up 89% compounded annually from 7,000 on December 31, 1999. Our business has grown significantly since our founding in 1998. Over 70% of our revenue growth in 2001 was derived from organic sources with the remainder coming from acquisitions. The organic growth was comprised of same-store revenue growth (defined as revenue growth from our branches that have been open more than two years) and growth from branches opened in 2000 and 2001. Our same-store revenue growth has been the result of our ability to leverage our national network and leading brand name, successfully recruit nurses and cross-sell our services. Branches that we have opened, which we call our "de novo" branches, generated rapid revenue growth and typically achieved positive EBITDA within six months of operation. We opened 30 de novo branches in 2000 and 64 de novo branches in 2001. Due to our ability to leverage the fixed costs within our branches and our corporate overhead, our EBITDA has increased substantially from $7.1 million in 1999 to $32.4 million in 2001, and our EBITDA margin increased from 7.4% to 9.6% during the same period. In 2001, we experienced a net loss available to common stockholders of approximately $3.1 million and used approximately $1.7 million of net cash flow in operating activities. We believe the flexibility of our service offerings provides substantial value to our clients and professionals. We provide our clients with significant assistance in managing their profitability by giving them a high degree of control in managing their labor costs without sacrificing clinical expertise. In addition, working on a per diem basis allows our professionals substantial flexibility in balancing their careers with their lifestyle objectives. 1 INDUSTRY OVERVIEW According to THE STAFFING INDUSTRY REPORT, the temporary medical staffing industry was projected to grow to an $8.7 billion industry in 2001, representing a growth rate of 21%. The following factors are expected to drive the growth of the temporary medical staffing industry: - INCREASED UTILIZATION OF HEALTHCARE SERVICES. We expect healthcare needs of aging baby boomers and a projected increase in the utilization of higher acuity treatments to contribute to an increase in demand for healthcare services. - INTENSIFYING SHORTAGE OF NURSES INCREASES NEED FOR MEDICAL STAFFING SERVICES. The population of nurses is expected to continue to contract due to a decline in nursing school enrollments, an increase in the average age of nurses and the appeal to nurses of less demanding positions in lower acuity environments. This contraction has contributed to a shortage of nurses, which has required healthcare providers to increase their use of temporary medical services to meet their staffing needs. - WORKING ON A PER DIEM BASIS APPEALS TO NURSES. Working on a per diem basis provides a nurse with improved compensation levels and alternatives regarding work schedules and working conditions. - COST CONTAINMENT PRESSURES DRIVE PROVIDERS TO VARIABLE STAFFING MODELS. As healthcare providers have faced reductions in reimbursement rates and other cost containment pressures from payors, they have increasingly relied on temporary medical staffing as a means to improve their profitability. - INCREASED STAFFING REQUIRED DUE TO NEW LEGISLATION. Several states have enacted or are considering legislation that could have the effect of increasing demand for temporary healthcare services. COMPETITIVE CONSIDERATIONS We believe the following competitive strengths will allow us to continue our growth and to benefit from the favorable industry trends we are facing: - NATIONAL NETWORK AND LEADING BRAND NAME. We operate the largest per diem healthcare staffing network in the United States with 136 per diem branches in 43 states. This substantial market presence and the quality of the services we provide have allowed us to build the Medical Staffing Network name into a respected brand that is widely recognized by healthcare providers and professionals alike, both on a national and local basis. Furthermore, this network of branches provides a platform from which we can provide additional services to our clients. - SUCCESSFUL DE NOVO PROGRAM. We make extensive use of our carefully developed program for opening new branches, which we call our de novo program. Since 1998, we have opened 100 new branches using this program, including 64 in 2001. This strategy has enabled us to expand our U.S. presence and quickly and efficiently enter new markets. These branches have generated attractive financial results, including high growth, rapid EBITDA profitability and significant return on investment. We opened 30 de novo branches in 2000, which generated $48.9 million in revenues in 2001. - EXTENSIVE RECRUITING AND RETENTION EXPERTISE. We have developed a successful program for recruiting and retaining a pool of talented and highly credentialed healthcare professionals. A significant percentage of our recruiting is generated through word-of-mouth from our active pool of professionals. We attribute our success in this area to offering our professionals: -- flexible staffing assignments; -- competitive benefits packages; 2 -- choice of pay frequency (including daily); and -- leading continuing education programs available through the Internet. - ADVANCED INFORMATION SYSTEMS CAPABILITY ENHANCES RELATIONSHIPS WITH PROFESSIONALS AND CLIENTS. Our information systems provide us with several key advantages in our interactions with professionals and clients, including the ability to pay our professionals as frequently as daily, the ability of our clients to view on-line their account history, status, and staff credentials and the ability to efficiently administer staffing assignments. We believe that, in addition to providing benefits that professionals and clients value, our systems create valuable opportunities for our branch staff to maintain an active dialogue with our professionals and clients and foster unique relationships that distinguish us from our competitors. In addition, our systems maintain a detailed profile for each professional, enabling our branch staff to place professionals systematically according to their past experiences and expressed preferences. These capabilities lead our professionals to view us as an employer of choice. - SIGNIFICANT LOCAL PRESENCE FOSTERS STRONG CLIENT RELATIONSHIPS. Due to the immediate nature of the need for per diem staffing, it is necessary to maintain branch offices that are close to our clients' facilities. Our local branches are staffed to receive calls 24 hours a day, 365 days a year from our clients. We believe this level of service and responsiveness creates a highly differentiated and valued service for our clients. - MANAGEMENT EXPERTISE AND WELL-DEVELOPED, SCALEABLE INFRASTRUCTURE. We believe that our management expertise in the medical staffing industry, our extensive network of local branches, and our integrated and scalable information systems position us well for future growth. Approximately 80% of our senior managers have clinical backgrounds and, as a group, average 15 years of experience in the healthcare industry. Our customized information systems can be installed in new branches at low cost and allow our managers to be highly efficient. As a result, our infrastructure serves as a powerful vehicle for growth. However, the temporary medical staffing industry is highly competitive and some of our competitors have greater resources than we do. If our competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, if we are unable for any reason to attract temporary healthcare professional employees, or if we are unable to acquire or open branches in attractive markets, we could lose revenues or hospital and healthcare facility clients and our margins could decline, which could seriously harm our operating results. GROWTH STRATEGY We seek to continue our rapid growth by pursuing the following strategies: - FURTHER EXPAND OUR LEADERSHIP POSITION IN THE PER DIEM MEDICAL STAFFING INDUSTRY. We intend to maintain and grow our leadership position in the per diem medical staffing industry. By continuing to offer our clients and professionals highly attractive solutions and alternatives, we believe we can maintain and expand our leadership position. - DRIVE SAME-STORE REVENUE GROWTH. We intend to foster continued same-store revenue growth by increasing the number of professionals we recruit and staff, by increasing the number of facilities with which we work and by improving our staffing penetration at those facilities. - CONTINUE OUR DE NOVO DEVELOPMENT PROGRAM. We will continue to foster growth through new and existing de novo branches and to enter attractive new markets that demonstrate high demand for temporary medical staffing and complement our existing infrastructure. - EXPAND OUR SERVICE OFFERINGS TO OUR HEALTHCARE CLIENTS. We intend to leverage our local infrastructure and relationships with healthcare facilities to promote cross-selling opportunities. 3 - PURSUE SELECTIVE ACQUISITIONS. We intend to continue to use acquisitions to expand our U.S. presence and to add complementary service offerings. However, we do not have any commitments or agreements for any material acquisitions. CORPORATE INFORMATION We were incorporated in Delaware in 1998. Our principal executive offices are located at 901 Yamato Road, Suite 110, Boca Raton, FL 33431, and our telephone number is (561) 226-9000. Our website is located at www.msnhealth.com. Our website is not part of this prospectus. 4 THE OFFERING Common Stock Offered......................... 7,812,500 shares Common Stock Outstanding After the Offering................................... 28,808,982 shares Use of Proceeds.............................. We intend to use the proceeds from the offering to repay principal and accrued interest in the amount of approximately $62.4 million under our outstanding senior unsecured notes and $52.3 million of outstanding indebtedness under the senior credit facility of our subsidiary, Medical Staffing Network, Inc. See "Use of Proceeds." Proposed New York Stock Exchange Symbol...... "MRN" Except as otherwise noted, the outstanding share information in this prospectus excludes: - 2,033,080 shares of our common stock that we may issue upon the exercise of outstanding options as of December 30, 2001 at a weighted average exercise price of $5.55 per share; and - 813,833 shares of our common stock available for future issuance under our option plans as of December 30, 2001. Except as otherwise noted, all information in this prospectus: - assumes an initial public offering price of $16.00 per share, the midpoint of the estimated initial public offering price range; - assumes no exercise of the underwriters' over-allotment option; - assumes the conversion of all outstanding shares of preferred stock, including accrued dividends thereon, into 20,969,935 shares of common stock; - reflects the 3.069375 for 1 stock split that will occur prior to the closing of the offering; and - assumes the filing of our amended and restated certificate of incorporation, which will occur simultaneously with the closing of the offering. 5 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The following table presents summary consolidated financial data derived from our consolidated financial statements. The summary consolidated financial data below should be read in conjunction with the consolidated financial statements and related notes as well as the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Use of Proceeds" included elsewhere in this prospectus. The pro forma as adjusted consolidated income statement and other data for the year ended December 30, 2001 reflect the acquisition of Excel Staffing Services, Inc. and the recapitalization that occurred in October 2001, and are as adjusted for this offering and the expected use of proceeds as if these events occurred on January 1, 2001. The pro forma as adjusted consolidated balance sheet data as of December 30, 2001 gives effect to this offering as of December 30, 2001. The pro forma information is not necessarily indicative of the actual results of operations that would have occurred had the acquisition of Excel Staffing Services, Inc., the October 2001 recapitalization, and this offering occurred on January 1, 2001 nor do they represent any indication of future performance.

PREDECESSOR JUNE 5, 1997 PRO FORMA (INCEPTION) AS ADJUSTED THROUGH FISCAL YEAR ENDED YEAR ENDED DECEMBER 31, ----------------------------------------------------- DECEMBER 30, 1997(1) 1998 (1) 1999 2000 2001 2001 (2) ------------ ----------- ----------- ----------- ----------- ------------ (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Service revenues........................ $ 2,744 $ 33,097 $ 96,456 $ 182,045 $ 338,380 $344,838 Cost of services rendered............... 2,020 25,066 72,922 135,971 252,089 257,003 ---------- ----------- ----------- ----------- ----------- -------- Gross profit............................ 724 8,031 23,534 46,074 86,291 87,835 Selling, general and administrative expenses (3).......................... 1,058 6,548 13,809 26,997 47,415 47,790 Corporate and administrative expenses... -- 1,324 2,578 4,711 6,428 6,453 Depreciation and amortization expenses.............................. 78 757 2,114 3,797 5,871 6,174 Recapitalization expenses............... -- -- -- -- 7,160 7,160 ---------- ----------- ----------- ----------- ----------- -------- (Loss) income from operations........... (412) (598) 5,032 10,569 19,417 20,258 Interest expense, net................... 11 518 1,867 5,007 14,312 10,049 ---------- ----------- ----------- ----------- ----------- -------- (Loss) income before provision for income taxes and extraordinary item... (423) (1,116) 3,165 5,562 5,105 10,209 Extraordinary loss, net (4)............. -- -- -- -- (2,732) -- Net (loss) income....................... (423) (1,116) 2,375 3,520 (1,306) 4,581 Deduct required dividends on convertible preferred stock (5)................... -- -- -- -- 1,804 -- ---------- ----------- ----------- ----------- ----------- -------- (Loss) income available to common stockholders.......................... (423) (1,116) 2,375 3,520 (3,110) 4,581 Net (loss) income per share: Basic (6)........................... $ (0.09) $ (0.15) $ 0.32 $ 0.46 $ (0.49) $ 0.16 Diluted (6)......................... $ (0.09) $ (0.15) $ 0.09 $ 0.13 $ (0.49) $ 0.15 Weighted average common shares outstanding: Basic (6)........................... 4,822,000 7,247,000 7,498,000 7,581,000 6,338,000 28,745,000 Diluted (6)......................... 4,822,000 7,247,000 25,586,000 26,817,000 6,338,000 30,197,000 OTHER DATA: EBITDA (7).............................. (334) 159 7,147 14,366 32,448 33,592 EBITDA % of revenue..................... NM 0.5% 7.4% 7.9% 9.6% 9.7% Number of per diem branches............. 1 26 34 74 136 136 Net cash flow used in operating activities............................ $ (19) $ (2,925) $ (2,219) $ (9,009) $ (1,654) Net cash flow used in investing activities............................ $ (4,293) $ (28,908) $ (20,939) $ (23,738) $ (14,611) Net cash flow provided by financing activities............................ $ 4,590 $ 31,927 $ 23,101 $ 32,638 $ 27,313

6

AS OF DECEMBER 30, 2001 ---------------------------- PRO FORMA ACTUAL AS ADJUSTED (8) --------- ---------------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash........................................................ $ 11,253 $ 11,253 Total assets................................................ 162,019 162,019 Total long term obligations and redeemable preferred stock..................................................... 291,970 52,655 Total stockholders' (deficit) equity........................ (157,722) 81,593

------------------------------ (1) On March 1, 1998, we entered into a merger agreement with Southeast Staffing Partners, Inc., which for accounting and reporting purposes is our predecessor. Financial data prior to March 1, 1998 is that of our predecessor. The 1998 financial data include the January and February 1998 results of our predecessor, which were not significant. (2) Reflects the following adjustments as if the acquisition of Excel Staffing, Inc., the October 2001 recapitalization and this offering had occurred on January 1, 2001: (a) the operating results of Excel Staffing Services, Inc. of approximately $841,000 for the period from January 1, 2001 to the acquisition date, including additional amortization expense of approximately $303,000 related to $9.7 million of goodwill and other intangibles acquired in the Excel acquisition; (b) net decrease in interest expense of approximately $4.3 million as a result of the following: (i) reduction of approximately $5.8 million resulting from the repayment of approximately $81.2 million of revolving senior credit notes and a 12% subordinated promissory note; (ii) net incremental interest expense of approximately $1.8 million related to advances of $105 million on the $120 million senior credit facility entered into in connection with the October 2001 recapitalization, of which $55.4 million was repaid with proceeds from this offering; (iii) reduction in interest expense of approximately $1.3 million related to the 12% senior unsecured notes of approximately $59 million entered into in connection with the October 2001 recapitalization and repaid with the proceeds from this offering; (iv) net decrease in amortization expense of $200,000 related to debt issuance costs and the debt discount on the $81.2 million revolving senior credit facility and the net increase in amortization on the $120 million senior credit facility; and (v) incremental interest expense of approximately $1.2 million related to the interest rate swap agreement used to hedge certain cash flows related to the $120 million senior credit facility; and (c) additional income taxes of approximately $3.2 million, related to the above adjustments. (3) Includes provision for doubtful accounts. (4) Reflects the charges related to the early extinguishment of debt in connection with the October 2001 recapitalization. (5) Reflects 8% dividends accrued on Series I Convertible Preferred Stock issued in connection with the October 2001 recapitalization. The Series I Convertible Preferred Stock will be converted into common stock upon completion of the offering. (6) In calculating pro forma basic and diluted net income per share, we have given effect to the conversion of all of our outstanding redeemable preferred stock and accrued dividends thereon into common stock as if the conversion occurred at the beginning of the period. We will use approximately $114.7 million of the proceeds of the offering to repay outstanding debt. (7) EBITDA consists of net (loss) income excluding net interest, taxes, depreciation, amortization, and non-recurring recapitalization expenses. EBITDA is provided as a measure of financial performance commonly used as an indicator of a company's historical ability to service debt. EBITDA is presented because we believe it is a widely accepted financial indicator used by certain investors and securities analysts to analyze and compare companies on the basis of operating performance. EBITDA is not intended as an alternative to operating income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity determined in accordance with GAAP. EBITDA, as we define it, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. For further information, see our consolidated financial statements and related notes elsewhere in this prospectus. (8) Reflects the following adjustments as if the offering had occurred on December 30, 2001: (a) increase in stockholders' equity of $239.3 million as follows: (i) conversion of the Series I Convertible Preferred Stock into common stock ($124.6 million); and (ii) new issuances of common stock ($114.7 million); and (b) repayment of $54.1 million under our senior credit facility and $60.6 million of principal and accrued interest under our senior unsecured notes. 7 RISK FACTORS AN INVESTMENT IN OUR COMMON STOCK REPRESENTS A HIGH DEGREE OF RISK. THERE ARE A NUMBER OF FACTORS, INCLUDING THOSE SPECIFIED BELOW, WHICH MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL RESULTS OR STOCK PRICE. ADDITIONAL RISKS THAT WE DO NOT KNOW ABOUT OR THAT WE CURRENTLY VIEW AS IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OR ADVERSELY IMPACT OUR FINANCIAL RESULTS OR STOCK PRICE. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE MAKING A DECISION TO INVEST IN OUR COMMON STOCK. RISKS RELATED TO OUR BUSINESS AND INDUSTRY IF WE ARE UNABLE TO ATTRACT QUALIFIED NURSES AND ALLIED HEALTHCARE PROFESSIONALS FOR OUR HEALTHCARE STAFFING BUSINESS, OUR BUSINESS COULD BE NEGATIVELY IMPACTED. We rely significantly on our ability to attract and retain nurses and allied healthcare professionals who possess the skills, experience and licenses necessary to meet the requirements of our hospital and healthcare facility clients. We compete for healthcare staffing personnel with other temporary healthcare staffing companies and with hospitals and healthcare facilities. We must continually evaluate and expand our temporary healthcare professional network to keep pace with our hospital and healthcare facility clients' needs. Currently, there is a shortage of qualified nurses in most areas of the United States, competition for nursing personnel is increasing, and salaries and benefits have risen. We may be unable to continue to increase the number of temporary healthcare professionals that we recruit, decreasing the potential for growth of our business. Our ability to attract and retain temporary healthcare professionals depends on several factors, including our ability to provide temporary healthcare professionals with assignments that they view as attractive and to provide them with competitive benefits and wages. We cannot assure you that we will be successful in any of these areas. The cost of attracting temporary healthcare professionals and providing them with attractive benefit packages may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our hospital and healthcare facility clients, our profitability could decline. Moreover, if we are unable to attract and retain temporary healthcare professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients. WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND OUR SUCCESS DEPENDS ON OUR ABILITY TO REMAIN COMPETITIVE IN OBTAINING AND RETAINING HOSPITAL AND HEALTHCARE FACILITY CLIENTS AND TEMPORARY HEALTHCARE PROFESSIONALS. The temporary medical staffing business is highly competitive. We compete in national, regional and local markets with full-service staffing companies and with specialized temporary staffing agencies. Some of our competitors in the temporary nurse staffing sector include AMN Healthcare Services, Inc., Cross Country, Inc. and RehabCare Group, Inc. Some of these companies may have greater marketing and financial resources than we do. Competition for hospital and healthcare facility clients and temporary healthcare professionals may increase in the future and, as a result, we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues or hospital and healthcare facility clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline. In addition, the development of alternative recruitment channels could lead our hospital and healthcare facility clients to bypass our services, which would also cause our revenues and margins to decline. OUR BUSINESS DEPENDS UPON OUR CONTINUED ABILITY TO SECURE AND FILL NEW ORDERS FROM OUR HOSPITAL AND HEALTHCARE FACILITY CLIENTS, BECAUSE WE DO NOT HAVE LONG-TERM AGREEMENTS OR EXCLUSIVE CONTRACTS WITH THEM. We do not have long-term agreements or exclusive guaranteed order contracts with our hospital and healthcare facility clients. The success of our business depends upon our ability to continually secure new orders from hospitals and other healthcare facilities and to fill those orders with our temporary healthcare professionals. Our hospital and healthcare facility clients are free to place orders 8 with our competitors and may choose to use temporary healthcare professionals that our competitors offer them. Therefore, we must maintain positive relationships with our hospital and healthcare facility clients. If we fail to maintain positive relationships with our hospital and healthcare facility clients, we may be unable to generate new temporary healthcare professional orders and our business may be adversely affected. AN IMPORTANT PART OF OUR STRATEGY IS THE EXPANSION OF OUR BUSINESS THROUGH THE OPENING AND DEVELOPMENT OF DE NOVO BRANCHES. THE SUCCESS OF THIS EXPANSION DEPENDS ON OUR ABILITY TO CONTINUE TO IDENTIFY AND RETAIN LOCAL MANAGEMENT AND TO SECURE GOOD LOCATIONS. Since our founding in 1998, we have opened 100 de novo branches, including 64 de novo branches in 2001. This expansion activity has contributed substantially to our operating results and is an important part of our business strategy. Our ability to continue to open de novo branches depends on a number of factors, including identifying, attracting and retaining local management and securing good locations on acceptable terms. If our ability to continue to open de novo branches is impaired, our revenue growth may be adversely affected. In addition, if our existing de novo branches do not develop as quickly as we anticipate, or if we fail to integrate de novo branches effectively into our national network, our results of operations may be adversely affected. FLUCTUATIONS IN PATIENT OCCUPANCY AT OUR CLIENTS' HOSPITALS AND HEALTHCARE FACILITIES MAY ADVERSELY AFFECT THE DEMAND FOR OUR SERVICES AND THEREFORE THE PROFITABILITY OF OUR BUSINESS. Demand for our temporary healthcare staffing services is significantly affected by the general level of patient occupancy at our hospital and healthcare clients' facilities. When occupancy increases, hospitals and other healthcare facilities often add temporary employees before full-time employees are hired. As occupancy decreases, hospitals and other healthcare facilities typically reduce their use of temporary employees before undertaking layoffs of their regular employees. In addition, we may experience more competitive pricing pressure during periods of occupancy downturn. Occupancy at our clients' hospitals and healthcare facilities also fluctuates due to the seasonality of some elective procedures. We are unable to predict the level of patient occupancy at any particular time and its effect on our revenues and earnings. HEALTHCARE REFORM COULD NEGATIVELY IMPACT OUR BUSINESS OPPORTUNITIES, REVENUES AND MARGINS. The U.S. government has undertaken efforts to control increasing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and drug companies. In the recent past, the U.S. Congress has considered several comprehensive healthcare reform proposals. The proposals were generally intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. While the U.S. Congress did not adopt any comprehensive reform proposals, members of Congress may raise similar proposals in the future. If any of these proposals are approved, hospitals and other healthcare facilities may react by spending less on healthcare staffing, including nurses. If this were to occur, we would have fewer business opportunities, which could seriously harm our business. State governments have also attempted to control increasing healthcare costs. For example, the state of Massachusetts has recently implemented a regulation that limits the hourly rate payable to temporary nursing agencies for registered nurses, licensed practical nurses and certified nurses' aides. The state of Minnesota has also implemented a statute that limits the amount that nursing agencies may charge nursing homes. Other states have also proposed legislation that would limit the amounts that temporary staffing companies may charge. Any such current or proposed laws could seriously harm our business, revenues and margins. Furthermore, third party payors, such as health maintenance organizations, increasingly challenge the prices charged for medical care. Failure by hospitals and other healthcare facilities to obtain full 9 reimbursement from those third party payors could reduce the demand or the price paid for our staffing services. WE OPERATE IN A REGULATED INDUSTRY AND CHANGES IN REGULATIONS OR VIOLATIONS OF REGULATIONS MAY RESULT IN INCREASED COSTS OR SANCTIONS THAT COULD REDUCE OUR REVENUES AND PROFITABILITY. The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, payment for services and payment for referrals. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders. The extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare facility clients could suffer civil and/or criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses. In addition, our hospital and healthcare facility clients could receive reduced reimbursements, or be excluded from coverage, because of a change in the rates or conditions set by federal or state governments. In turn, violations of or changes to these laws and regulations that adversely affect our hospital and healthcare facility clients could also adversely affect the prices that these clients are willing or able to pay for our services. WE ARE DEPENDENT ON THE PROPER FUNCTIONING OF OUR INFORMATION SYSTEMS. Our company is dependent on the proper functioning of our information system, which we refer to as MSN HealthWorks, in operating our business. Critical information systems used in daily operations identify and match staffing resources and client assignments and regulatory credentialing scheduling and perform billing and accounts receivable functions. Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. If our information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could impact our ability to identify business opportunities quickly, to maintain billing and clinical records reliably, to pay our staff in a timely fashion and to bill for services efficiently. COMPETITION FOR ACQUISITION OPPORTUNITIES MAY RESTRICT OUR FUTURE GROWTH BY LIMITING OUR ABILITY TO MAKE ACQUISITIONS AT REASONABLE VALUATIONS. Since our founding in 1998, we have completed 18 acquisitions. Our business strategy includes increasing our market share and presence in the temporary healthcare staffing industry through strategic acquisitions of companies that complement or enhance our business. We have historically faced competition for acquisitions. In the future, this could limit our ability to grow by acquisitions or could raise the prices of acquisitions and make them less accretive to us. In addition, restrictive covenants in our credit facility, including a covenant that requires us to obtain bank approval for any acquisition over $10 million, may limit our ability to complete desirable acquisitions. If we are unable to secure necessary financing under our credit facility or otherwise, we may be unable to complete desirable acquisitions. WE MAY FACE DIFFICULTIES INTEGRATING OUR ACQUISITIONS INTO OUR OPERATIONS AND OUR ACQUISITIONS MAY BE UNSUCCESSFUL, INVOLVE SIGNIFICANT CASH EXPENDITURES OR EXPOSE US TO UNFORESEEN LIABILITIES. We continually evaluate opportunities to acquire healthcare staffing companies that complement or enhance our business and frequently have preliminary acquisition discussions with some of these companies. 10 These acquisitions involve numerous risks, including: - potential loss of key employees or clients of acquired companies; - difficulties integrating acquired personnel and distinct cultures into our business; - difficulties integrating acquired companies into our operating, financial planning and financial reporting systems; - diversion of management attention from existing operations; and - assumption of liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for their failure to comply with healthcare regulations. These acquisitions may also involve significant cash expenditures, debt incurrence and integration expenses that could seriously harm our financial condition and results of operations. Any acquisition may ultimately have a negative impact on our business and financial condition. SIGNIFICANT LEGAL ACTIONS COULD SUBJECT US TO SUBSTANTIAL UNINSURED LIABILITIES. In recent years, healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these actions involve large claims and significant defense costs. In addition, we may be subject to claims related to torts or crimes committed by our employees or temporary healthcare professionals. In some instances, we are required to indemnify our clients against some or all of these risks. A failure of any of our employees or healthcare professionals to observe our policies and guidelines intended to reduce these risks, relevant client policies and guidelines or applicable federal, state or local laws, rules and regulations could result in negative publicity, payment of fines or other damages. Our professional malpractice liability insurance and general liability insurance coverage may not cover all claims against us or continue to be available to us at a reasonable cost. If we are unable to maintain adequate insurance coverage or if our insurers deny coverage we may be exposed to substantial liabilities. WE MAY BE LEGALLY LIABLE FOR DAMAGES RESULTING FROM OUR HOSPITAL AND HEALTHCARE FACILITY CLIENTS' MISTREATMENT OF OUR HEALTHCARE PERSONNEL. Because we are in the business of placing our temporary healthcare professionals in the workplaces of other companies, we are subject to possible claims by our temporary healthcare professionals alleging discrimination, sexual harassment, negligence and other similar activities by our hospital and healthcare facility clients. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain qualified healthcare professionals in the future. IF WE BECOME SUBJECT TO MATERIAL LIABILITIES UNDER OUR SELF-INSURED PROGRAMS, OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED. We provide workers compensation coverage through a program that is partially self-insured. In addition, we provide medical coverage to our employees through a partially self-insured preferred provider organization. If we become subject to substantial uninsured workers compensation or medical coverage liabilities, our financial results may be adversely affected. OUR OPERATIONS MAY DETERIORATE IF WE ARE UNABLE TO CONTINUE TO ATTRACT, DEVELOP AND RETAIN OUR SALES PERSONNEL. Our success depends upon the performance of our sales personnel, especially regional directors, branch managers and staffing coordinators. The number of individuals who meet our qualifications for these positions is limited and we may experience difficulty in attracting qualified candidates. In addition, we commit substantial resources to the training, development and support of these individuals. Competition for qualified sales personnel in the line of business in which we operate is strong and 11 there is a risk that we may not be able to retain our sales personnel after we have expended the time and expense to recruit and train them. THE LOSS OF KEY SENIOR MANAGEMENT PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO REMAIN COMPETITIVE. We believe that the success of our business strategy and our ability to operate profitably depends on the continued employment of our senior management team, consisting of Robert J. Adamson, Kevin S. Little, Patricia G. Donohoe, Linda Duval and Jeffrey P. Jacobsen. If any members of our senior management team become unable or unwilling to continue in their present positions, our business and financial results could be materially adversely affected. WE HAVE A SUBSTANTIAL AMOUNT OF GOODWILL ON OUR BALANCE SHEET. OUR LEVEL OF GOODWILL MAY HAVE THE EFFECT OF DECREASING OUR EARNINGS OR INCREASING OUR LOSSES. As of December 30, 2001, we had $67 million of unamortized goodwill on our balance sheet, which represents the excess of the total purchase price of our acquisitions over the fair value of the net assets acquired. At December 30, 2001, goodwill represented 41% of our total assets. Currently, we amortize goodwill on a straight-line basis over the estimated period of future benefit of 20 years. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 142 requires that, subsequent to January 1, 2002, goodwill not be amortized but rather that it be reviewed annually for impairment. In the event impairment is identified, a charge to earnings would be recorded. We have adopted the provisions of SFAS No. 141 and SFAS No. 142 as of December 31, 2001. Although it does not affect our cash flow, amortization of goodwill or an impairment charge to earnings has the effect of decreasing our earnings or increasing our losses, as the case may be. If we are required to amortize a substantial amount of goodwill or take a charge to earnings, our stock price could be adversely affected. OUR COSTS OF PROVIDING HOUSING FOR NURSES AND OTHER HEALTHCARE PERSONNEL IN OUR TRAVEL BUSINESS MAY BE HIGHER THAN WE ANTICIPATE AND, AS A RESULT, OUR MARGINS COULD DECLINE. We currently have approximately 150 apartments on lease throughout the United States. If the costs of renting apartments and furniture for our nurses and other healthcare personnel increase more than we anticipate and we are unable to pass such increases on to our clients, our margins may decline. To the extent the length of a nurse's or other professional's housing lease exceeds the term of the nurse's or other professional's staffing contract, we bear the risk that we will be obligated to pay rent for housing we do not use. To limit the costs of unutilized housing, we try to secure leases with term lengths that match the term lengths of our staffing contracts, which typically last 13 weeks. In some housing markets we have had, and believe we will continue to have, difficulty identifying short-term leases. If we cannot identify a sufficient number of appropriate short-term leases in regional markets, or, if for any reason, we are unable to efficiently utilize the apartments we do lease, we may be required to pay rent for unutilized housing or, to avoid such risk, we may forego otherwise profitable opportunities. DEMAND FOR MEDICAL STAFFING SERVICES IS SIGNIFICANTLY AFFECTED BY THE GENERAL LEVEL OF ECONOMIC ACTIVITY AND UNEMPLOYMENT IN THE UNITED STATES. When economic activity increases, temporary employees are often added before full-time employees are hired. However, as economic activity slows, many companies, including our hospital and healthcare facility clients, reduce their use of temporary employees before laying off full-time employees. In addition, we may experience more competitive pricing pressure during periods of 12 economic downturn. Therefore, any significant economic downturn could have a material adverse impact on our condition and results of operations. RISKS RELATED TO THIS OFFERING OUR EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS WILL BE ABLE TO INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DISCOURAGE THE PURCHASE OF OUR OUTSTANDING SHARES AT A PREMIUM. After the offering, our executive officers and directors (including stockholders with which directors are affiliated) will control approximately 64.3% of our outstanding common stock. Warburg Pincus will own approximately 48.2% of our common stock. See "Principal Stockholders." This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale or merger of our company and may negatively affect the market price of our common stock. These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premium over the then-prevailing market price for shares of our common stock. Upon the completion of the offering, Warburg Pincus will continue to have the right under our stockholders agreement to designate two persons to our board of directors. As a result of this share ownership and minority representation on our board of directors, our current stockholders, in particular Warburg Pincus, will be able to influence all affairs and actions of our company, including matters requiring stockholder approval such as the election of directors and approval of significant corporate transactions. The interests of our executive officers, directors and principal stockholders may differ from the interests of the other stockholders. YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION IN BOOK VALUE PER SHARE. The initial public offering price of our common stock is substantially higher than what the net tangible book value per share of our outstanding common stock will be immediately after this offering. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares outstanding. If you purchase our common stock in this offering, you will incur an immediate dilution of approximately $15.53 in the net tangible book value per share of common stock. We also have a significant number of outstanding options to purchase our common stock with exercise prices significantly below the initial public offering price of the common stock. To the extent these options are exercised, you will experience further dilution. There are currently options to purchase 2,033,080 shares of our common stock outstanding, of which options to purchase 62,450 shares of our common stock are currently exercisable. IF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK IS SOLD INTO THE MARKET FOLLOWING THE OFFERING, THE MARKET PRICE OF OUR COMMON STOCK COULD SIGNIFICANTLY DECLINE, EVEN IF OUR BUSINESS IS DOING WELL. Sales of substantial amounts of our common stock in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock. An aggregate of 28,808,982 shares of common stock will be outstanding after this offering. Of these, the 7,812,500 shares offered by this prospectus will be freely tradable without restriction or further registration. On the day that is 181 days after completion of this offering, lockup agreements entered into by our directors, officers and certain existing stockholders will expire and such directors, officers and stockholders will be able to sell an aggregate total of 2,954,570 shares under Rule 144 of the Securities Act. The underwriters may also consent to release some or all of these shares for sale prior to that time. 13 Warburg Pincus and certain significant stockholders have demand registration rights to cause us to file, at our expense, a registration statement under the Securities Act covering resales of their shares any time after the earlier of October 26, 2004 and the date that is 181 days after the date on which our initial public offering closes. These shares will represent approximately 72.9% of our outstanding common stock, or 20,996,482 shares, upon completion of this offering. These shares may also be sold under Rule 144 of the Securities Act, depending on their holding period and subject to significant restrictions in the case of shares held by persons deemed to be our affiliates. In addition, after this offering, we also intend to register 3,259,384 shares of common stock for issuance under our stock option plans. Options to purchase 2,033,080 shares of common stock are currently issued and outstanding, of which, as of December 30, 2001, 9,355 options to purchase shares were vested. IF PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW DELAY OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY, WE MAY BE UNABLE TO CONSUMMATE A TRANSACTION THAT OUR STOCKHOLDERS CONSIDER FAVORABLE. Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to 15 million shares of "blank check" preferred stock. Without stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us. Applicable Delaware law may also discourage, delay or prevent someone from acquiring or merging with us. OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN OUR COMMON STOCK COULD SUFFER A DECLINE IN VALUE. There is currently no public market for our common stock. An active trading market for our common stock may not develop. You may be unable to resell the common stock you buy at or above the initial public offering price. We will establish the initial public offering price through negotiations with the representatives of the underwriters. You should not view the price they and we establish as any indication of prices that will prevail in the trading market. You may not be able to resell your shares at or above the initial public offering price due to fluctuations in the market price of our common stock caused by changes in our operating performance or prospects and other factors. With the current uncertainty about healthcare policy, reimbursement and coverage in the United States, there has been significant volatility in the market price and trading volume of securities of healthcare and other companies, which is unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock. Some specific factors that may have a significant effect on our common stock market price include: - actual or anticipated fluctuations in our operating results; - actual or anticipated changes in our growth rates or our competitors' growth rates; - actual or anticipated changes in healthcare policy in the United States and internationally; - conditions in the financial markets in general or changes in general economic conditions; - our inability to raise additional capital; - conditions of other medical staffing companies or the medical staffing industry generally; and - changes in stock market analyst recommendations regarding our common stock, other comparable companies or the medical staffing industry generally. 14 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, principally in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Generally, you can identify these statements because they use words such as "anticipates," "believes," "expects," "future," "intends," "plans," and similar terms. These statements are only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described on the previous pages and elsewhere in this prospectus. Given these uncertainties, the forward-looking statements discussed in this prospectus might not occur. These forward-looking statements are made as of the date of this prospectus. Except as may be required under applicable statutes, regulations or court decisions, we undertake no obligation to update or revise them. 15 USE OF PROCEEDS We estimate that the net proceeds from the sale of the 7,812,500 shares of common stock that we are offering will be approximately $114.7 million after deducting the underwriting discount and estimated offering expenses of $10.3 million and assuming an initial public offering price of $16.00 per share. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $132.1 million. We anticipate using the net proceeds of the offering to: Repay all of the principal and accrued interest under our outstanding senior unsecured notes, which we estimate will be approximately $62.4 million. As of December 30, 2001, $59.3 million aggregate principal amount of our senior unsecured notes was outstanding, plus accrued interest of approximately $1.3 million, all of which was issued in connection with our recapitalization. The senior unsecured notes bear interest at a rate of 12% per annum compounding quarterly. Amounts outstanding under our senior unsecured notes, including accrued interest, are due in October 2009. See "Certain Transactions" for more information on our senior unsecured notes. All of our outstanding senior unsecured notes are held by our stockholders and several of our employees, including our executive officers. Repay an aggregate of approximately $52.3 million of outstanding term loans under our senior credit facility. We entered into our senior credit facility in connection with our recapitalization and borrowed an aggregate of approximately $105 million in connection with the recapitalization. See "Certain Transactions," and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for more information on our senior credit facility. Upon making these debt payments, we will have approximately $53 million of outstanding indebtedness remaining under our senior credit facility. Borrowings under our senior credit facility bear interest at either a prime rate-based rate or Eurodollar-based rate plus the applicable percentage, as defined. Tranche A term loans and letters of credit under our senior credit facility in the aggregate principal amount of $45 million mature in 2006 and Tranche B term loans in the aggregate principal amount of $60 million mature in 2007. Proceeds from our senior facility were used to prepay approximately $83 million on our existing credit facility, representing all of the outstanding principal and accrued interest in respect of that facility, and to fund the payment of merger consideration in connection with the recapitalization. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for additional information regarding our sources and uses of capital. DIVIDEND POLICY We have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends on our common stock will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our board. In addition, our current senior credit facility prohibits us from declaring or paying any cash dividends without the consent of our lenders holding more than 50% of the outstanding loans under the facility. 16 CAPITALIZATION The following table sets forth our consolidated cash and cash equivalents and capitalization as of December 30, 2001. In the pro forma column, we have made adjustments to give effect to the conversion of all of our outstanding preferred stock, plus accrued dividends, into our common stock upon the closing of the offering, as if the conversion occurred on December 30, 2001. In the pro forma as adjusted column, we have made adjustments to give effect to the adjustments set forth above, and to give effect to the sale of 7,812,500 shares of our common stock at an assumed public offering price of $16.00 per share, and the application of the net proceeds of the offering to repay a portion of our outstanding debt. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock" and the notes to our consolidated financial statements included elsewhere in this prospectus for additional information.

DECEMBER 30, 2001 ----------------------------------- PRO FORMA, ACTUAL PRO FORMA AS ADJUSTED --------- --------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Cash..................................................... $ 11,253 $ 11,253 $ 11,253 Long-term debt: Term loans (1)......................................... 100,630 100,630 46,554 Revolving loans (2).................................... 15,047 15,047 15,047 12% senior unsecured notes (3)......................... 60,624 60,624 -- Capitalized lease obligations.......................... 991 991 991 Other.................................................. 35 35 35 --------- --------- --------- Total debt............................................... 177,327 177,327 62,627 Less current maturities................................ 10,365 10,365 10,365 Total long-term debt................................. 166,962 166,962 52,262 Preferred stock: Series I Convertible Preferred Stock, 7,000,000 shares authorized, 6,602,865 shares issued and outstanding; no shares issued and outstanding pro forma or pro forma, as adjusted................................... 124,615 -- -- Stockholders' equity: Common stock, $0.01 par value, 75,000,000 shares authorized--actual, pro forma and pro forma as adjusted, 26,547 issued and outstanding--actual, 20,590,832 issued and outstanding--pro forma and 28,403,332 issued and outstanding--pro forma as adjusted............................................. -- 206 284 Additional paid-in capital............................. -- 124,409 239,031 Promissory notes for purchase of common stock.......... (4,551) (4,551) (4,551) Accumulated deficit.................................... (153,171) (153,171) (153,171) --------- --------- --------- Total stockholders' (deficit) equity................. $(157,722) $ (33,107) $ 81,593 --------- --------- --------- Total capitalization................................. $ 133,855 $ 133,855 $ 133,855 ========= ========= =========

17 The outstanding share information in the table above is based on the number of shares outstanding as of December 30, 2001. The table above excludes: - 2,033,080 shares of our common stock that we may issue upon the exercise of outstanding options at a weighted average exercise price of $5.55 per share; - 813,833 shares of our common stock available for future issuance under our option plans; and - 1,171,875 shares of our common stock that may be purchased by the underwriters to cover over-allotments. ------------------------ (1) Actual amount includes approximately $630,000 of accrued interest at December 30, 2001. (2) Actual amount includes approximately $47,000 of accrued interest at December 30, 2001. (3) Actual amount includes approximately $1,305,000 of accrued interest at December 30, 2001. 18 DILUTION Our historical net tangible book deficiency as of December 30, 2001 was $101.4 million. Our pro forma net tangible book deficiency as of December 30, 2001 was $101.4 million, or $4.92 per share. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding, giving effect to the conversion of all of our outstanding shares of preferred stock, including accrued dividends on these shares, into 20,564,285 shares of our common stock, as if the conversion occurred on December 30, 2001. After giving effect to this conversion, the sale of the 7,812,500 shares of common stock we propose to offer pursuant to this prospectus and the application of the net proceeds therefrom, and after deducting the underwriting discount and estimated offering expenses, our net tangible book value as of December 30, 2001 would have been $13.3 million, or $0.47 per share. This represents an immediate increase in net tangible book value of $3,819.89 per share to our existing stockholders and an immediate dilution of $15.53 per share to new investors. Whenever the book value is less than the investor paid, the investor suffers dilution. The dilution to investors in the offering is illustrated in the following table: Assumed initial public offering price per share............. $16.00 ------ Net tangible book value (deficiency) per share at December 30, 2001................................................ $(3,819.42) ---------- Increase per share attributable to cash payments made by new investors............................................. $ 3,819.89 ---------- Net tangible book value per share after this offering....... $ 0.47 ------ Dilution in net tangible book value per share to new investors................................................. $15.53 ====== The following table enumerates the number of shares of common stock issued, the total consideration paid and the average price per share paid by our existing stockholders. The following table also enumerates, as of December 30, 2001, the number of shares of common stock purchased and the total consideration paid, calculated before deduction of the underwriting discount and estimated offering expenses, and the average price per share paid by the new investors in this offering assuming the sale by us of 7,812,500 shares of our common stock at an assumed initial offering price of $16.00 per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- --------------------------- PRICE PER NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE ---------- ---------- -------------- ---------- --------- (IN THOUSANDS) Existing stockholders............... 20,590,832 72% $124,780 50% $ 6.06 New investors....................... 7,812,500 28 125,000 50 $ 16.00 ---------- ----- -------- ----- ------- Total............................. 28,403,332 100% $249,780 100% ========== ===== ======== =====

The information presented in the previous table with respect to existing stockholders assumes the conversion of all of our outstanding preferred stock, plus accrued dividends on these shares, into 20,564,285 shares of our common stock as if such conversion occurred on December 30, 2001. The table assumes no exercise of stock options. As of December 30, 2001, there were options outstanding to purchase 2,033,080 shares of our common stock at a weighted average exercise price of $5.55 per share. If all outstanding options were exercised, the total number of shares outstanding would be 30,436,412, the percent of shares purchased by new investors would be 26%; the total amount of consideration paid by all stockholders would be $261.1 million; the percent of consideration paid by new investors would be 48%; the average price per share paid by option holders would be $5.55; and the average price per share paid by all stockholders would be $8.58. See "Management" and "Description of Capital Stock" for information regarding outstanding options and preferred stock. 19 SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER DATA The summary consolidated financial data of Medical Staffing Network Holdings, Inc., formerly known as MSN Holdings, Inc., is provided below. The income statement data for the period from June 5, 1997 through December 31, 1997 are derived from the audited financial statements of Southeast Staffing Partners, Inc., our predecessor, that are not included in this prospectus. The 1998 income statement data are derived from the audited consolidated financial statements of Medical Staffing Network Holdings, Inc. that are not included in this prospectus. The 1998 income statement data includes the operating results of our predecessor for the period from January 1, 1998 through February 28, 1998, which results were not material. The income statement data for 1999, 2000 and 2001 are derived from our audited consolidated financial statements of Medical Staffing Network Holdings, Inc. that are included elsewhere in this prospectus. The summary consolidated financial data below should be read in conjunction with the consolidated historical financial statements and related notes as well as the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Use of Proceeds" appearing elsewhere in this prospectus.

PREDECESSOR JUNE 5, 1997 (INCEPTION) THROUGH FISCAL YEAR ENDED DECEMBER 31, --------------------------------------------------- 1997 (1) 1998 (1) 1999 2000 2001 ------------- ---------- ---------- ---------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Service revenues...................................... $ 2,744 $ 33,097 $ 96,456 $ 182,045 $ 338,380 Cost of services rendered............................. 2,020 25,066 72,922 135,971 252,089 ---------- ---------- ---------- ---------- ---------- Gross profit.......................................... 724 8,031 23,534 46,074 86,291 Selling, general and administrative expenses (2)...... 1,058 6,548 13,810 26,997 47,415 Corporate and administrative expenses................. -- 1,324 2,578 4,711 6,428 Depreciation and amortization expenses................ 78 757 2,114 3,797 5,871 Recapitalization expenses (3)......................... -- -- -- -- 7,160 ---------- ---------- ---------- ---------- ---------- (Loss) income from operations......................... (412) (598) 5,032 10,569 19,417 Interest expense, net................................. 11 518 1,867 5,007 14,312 ---------- ---------- ---------- ---------- ---------- (Loss) income before provision for income taxes and extraordinary items................................. (423) (1,116) 3,165 5,562 5,105 Extraordinary loss, net (4)........................... -- -- -- -- (2,732) Net (loss) income..................................... (423) (1,116) 2,375 3,520 (1,306) Deduct required dividends on convertible preferred stock (5)........................................... -- -- -- -- 1,804 ---------- ---------- ---------- ---------- ---------- (Loss) income available to common stockholders........ $ (423) $ (1,116) $ 2,375 $ 3,520 $ (3,110) Net (loss) income per share: Basic............................................... $ (0.09) $ (0.15) $ 0.32 $ 0.46 $ (0.49) Diluted............................................. $ (0.09) $ (0.15) $ 0.09 $ 0.13 $ (0.49) Weighted average common shares outstanding: Basic............................................... 4,822,000 7,247,000 7,498,000 7,581,000 6,338,000 Diluted............................................. 4,822,000 7,247,000 25,586,000 26,817,000 6,338,000 OTHER OPERATING DATA: EBITDA (6)............................................ (334) 159 7,147 14,366 32,448 EBITDA % of revenue................................... NM 0.5% 7.4% 7.9% 9.6% Number of per diem branches........................... 1 26 34 74 136 Net cash flow used in operating activities............ $ (19) $ (2,925) $ (2,219) $ (9,009) $ (1,654) Net cash flow used in investing activities............ $ (4,293) $ (28,908) $ (20,939) $ (23,738) $ (14,611) Net cash flow provided by financing activities........ $ 4,590 $ 31,927 $ 23,101 $ 32,638 $ 27,313

AS OF DECEMBER 31, -------------------------------------------- AS OF PREDECESSOR DECEMBER 30, 1997 (1) 1998 (1) 1999 2000 2001 ----------- -------- -------- -------- ------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash.................................................... $ 279 $ 372 $ 314 $ 205 $ 11,253 Total assets............................................ 5,035 44,574 70,695 111,836 162,019 Total liabilities and redeemable preferred stock........ 1,358 41,047 64,792 101,929 319,741

20

AS OF DECEMBER 31, -------------------------------------------- AS OF PREDECESSOR DECEMBER 30, 1997 (1) 1998 (1) 1999 2000 2001 ----------- -------- -------- -------- ------------- (DOLLARS IN THOUSANDS) Total stockholders' equity (deficit).................... 3,677 3,528 5,903 9,907 (157,722)

------------------------------ (1) On March 1, 1998, we entered into a merger agreement with Southeast Staffing Partners, Inc., which for accounting and reporting purposes, is our predecessor. Financial data prior to March 1, 1998 are that of our predecessor. The 1998 financial data include the January and February 1998 results of our predecessor, which results were not material. (2) Includes provision for doubtful accounts. (3) Reflects non-recurring costs incurred in connection with the recapitalization in October 2001. (4) Reflects the charges related to the early extinguishment of debt in connection with the recapitalization. (5) Reflects 8% dividends accrued on the Series I Convertible Preferred Stock issued in connection with the recapitalization. This preferred stock will be converted into common stock upon completion of the offering. (6) EBITDA consists of net (loss) income excluding net interest, taxes, depreciation, amortization, and non-recurring recapitalization expenses. EBITDA is provided as a measure of financial performance commonly used as an indicator of a company's historical ability to service debt. EBITDA is presented because we believe it is a widely accepted financial indicator used by certain investors and securities analysts to analyze and compare companies on the basis of operating performance. EBITDA is not intended as an alternative to operating income as an indicator of operating performance or cash flows from operating activities as a measure of liquidity determined in accordance with GAAP. EBITDA, as we define it, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. For further information, see our consolidated financial statements and related notes elsewhere in this prospectus. 21 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS We acquired Excel Staffing Services, Inc. on June 10, 2001 and entered into a recapitalization on October 26, 2001. In October 2001, an investment group led by Warburg Pincus acquired a majority ownership of our company in a transaction that resulted in a recapitalization. The recapitalization was accounted for as a leveraged recapitalization of the company and, accordingly, the company retained the historical cost basis of accounting. The pro forma condensed consolidated statements of operations for the year ended December 30, 2001 gives effect to the acquisition of Excel Staffing Services, Inc. and the recapitalization as if the transactions had occurred on January 1, 2001. The pro forma information for the year ended December 30, 2001, as adjusted for this offering, reflects the repayment of certain of our indebtedness using a portion of the net proceeds received from this offering as if this offering and the repayment had occurred on January 1, 2001. The pro forma information is not necessarily indicative of the actual results of operations that would have occurred had the acquisition of Excel Staffing Services, Inc., the recapitalization in October 2001, and this offering occurred on the assumed dates nor do they represent any indication of future performance. The pro forma condensed consolidated statement of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

FISCAL YEAR ENDED 2001 ------------------------------------------------------------------------------------- MEDICAL EXCEL STAFFING STAFFING NETWORK SERVICES, PRO FORMA ADJUSTMENTS PRO FORMA HOLDINGS, INC. INC. (1) RECAPITALIZATION COMBINED FOR OFFERING AS ADJUSTED --------------- ---------- ---------------- ----------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Service revenues...................... $338,380 $6,458 $ -- $ 344,838 $ -- $ 344,838 Cost of services rendered............. 252,089 4,914 257,003 257,003 Selling, general and administrative expenses (2)........................ 47,415 375 47,790 47,790 Corporate and administrative expenses............................ 6,428 25 6,453 6,453 Depreciation and amortization expenses............................ 5,871 303 6,174 6,174 Recapitalization expenses............. 7,160 -- 7,160 7,160 ---------- ------ ----------- ----------- Income from operations................ 19,417 841 20,258 20,258 Interest expense, net................. 14,312 352 6,225 (3) 20,889 (10,840) (4) 10,049 ---------- ------ ----------- ----------- Income before provision for income taxes............................... 5,105 489 (631) 10,209 Income tax expense.................... 3,679 196 (2,366) (5) 1,509 4,119 (5) 5,628 ---------- ------ ----------- ----------- Income (loss) from continuing operations.......................... 1,426 293 (2,140) 4,581 Basic (loss) income per share before extraordinary loss.................. $ (0.06 ) (6) $(461.97 ) (7) $ 0.16 Diluted (loss) income per share before extraordinary loss.................. $ (0.06 ) (6) $(461.97 ) (7) $ 0.15 Weighted average common shares outstanding: Basic............................... 6,338,000 27,000 28,745,000 Diluted............................. 6,338,000 27,000 30,197,000

------------------------------ (1) Represents the historical operating results of Excel Staffing Services, Inc. for the period from January 1, 2001 through June 10, 2001, except for depreciation and amortization expenses ($303,000) and interest expense ($352,000) from January 1, 2001 through the date of acquisition, which represent pro forma adjustments to reflect amortization of goodwill and intangibles and interest expense on the debt entered into to finance the acquisition. (2) Includes provision for doubtful accounts. 22 (3) Reflects the following adjustments related to the October 2001 recapitalization: - Net incremental interest expense of approximately $5.2 million as a result of the advances of $105 million on the $120 million senior credit facility ($11.3 million) offset by a reduction of interest expense ($6.1 million) related to the assumed repayment of approximately $81.2 million of the revolving senior credit notes and the 12% subordinated promissory note. The interest rates in effect at December 30, 2001 were used to compute the pro forma incremental interest expense. - Increase in interest expense, net of $1.2 million related to the interest rate swap agreement used to hedge certain cash flows related to the $120 million senior credit facility. The fixed interest rate of the interest rate swap (4.34%) offset by the variable interest rate in effect at December 30, 2001 (1.799%) was used to compute the pro forma interest expense. - Net decrease in amortization expense of $200,000 related to debt issuance costs and the debt discount on the $81.2 million revolving senior credit facility ($760,000) and the net increase in amortization expense on the $120 million senior credit facility ($560,000). (4) Reflects the following adjustments related to the use of proceeds of approximately $114.7 million: - Reduction in interest expense of approximately $7.4 million related to the assumed repayment of $62.4 million of 12% senior unsecured notes entered into in the recapitalization. - Reduction in interest expense of approximately $3.4 million related to the assumed repayment of $52.3 million of the $120 million senior credit facility entered into in the recapitalization. The interest rates in effect at December 30, 2001 were used to compute the pro forma as adjusted interest expense. (5) Adjustments to reflect income tax expense utilizing combined federal and state statutory rates for the effect of the pro forma adjustments. (6) Income from continuing operations was reduced by $1.8 million of dividends accrued on the Series I Convertible Preferred Stock. As a result, all potential common stock equivalents are antidilutive. (7) Pro Forma Combined income from continuing operations was reduced by $10.1 million of dividends accrued on the Series I Convertible Preferred Stock. As a result, all potential common stock equivalents are antidilutive. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS. OVERVIEW OF OUR COMPANY We are a leading medical staffing company and the largest provider of per diem nurse staffing services in the United States as measured by revenues. More than two-thirds of our clients are acute care hospitals, clinics and surgical and ambulatory care centers. We serve both for-profit and not-for-profit organizations that range in scope from one facility to national chains with over 100 facilities. Our clients pay us directly. We do not receive a material portion of our revenues from Medicare or Medicaid reimbursements or similar state reimbursement programs. All of our revenues are derived from providing healthcare staffing services. Approximately 75% of our 2001 revenues were derived from per diem nurse staffing, while allied healthcare professional staffing represented 16% of our 2001 revenues, travel nurse staffing (assignments lasting more than thirteen weeks) represented 8% of our 2001 revenues and physician staffing represented 1% of our 2001 revenues. Approximately 90% of our organic revenue growth in 2001 was the result of increased volume with the balance the result of increased pricing. Since 1998, we have opened 100 new de novo branches (branches opened internally since our inception as opposed to branches acquired from third parties), including 30 in 2000 and 64 in 2001. We closed one de novo branch in 2000 and five de novo branches in 2001. The de novo branches opened in 2000 generated $48.9 million in revenues in 2001. We intend to continue to identify and develop opportunities to open de novo branches as they arise. However, our ability to continue to open de novo branches depends on a number of factors, including identifying, attracting and retaining local management and securing good locations on acceptable terms. If our ability to continue to open de novo branches is impaired, our revenue growth could be affected. In 2001, we purchased substantially all of the assets of one medical staffing company for an aggregate purchase price of $9.8 million. In 2000, we purchased substantially all of the assets of five medical staffing companies for an aggregate purchase price of $22.0 million. In 1999, we purchased substantially all of the assets of three medical staffing companies, and all of the outstanding capital stock of one medical staffing company, for an aggregate purchase price of $19.7 million. All such acquisitions were accounted for as purchases and, accordingly, the results of these acquired businesses are included in our consolidated financial statements from the acquisition dates. In October 2001, an investment group led by Warburg Pincus acquired majority ownership of us in a transaction that recapitalized our business. Our recapitalization was accounted for as a leveraged recapitalization of our company and, accordingly, we have retained the historical cost basis of accounting. In connection with the recapitalization, we incurred approximately $165 million of indebtedness, approximately $83 million of which was used to repay existing indebtedness. 24 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected financial data expressed as a percentage of total revenues:

FISCAL YEAR ENDED ------------------------------------ 1999 2000 2001 -------- -------- -------- Service revenues............................................ 100% 100% 100% Cost of services rendered................................... 75.6 74.7 74.5 Gross profit................................................ 24.4 25.3 25.5 Selling, general and administrative expenses(1)............. 14.3 14.8 14.0 Corporate and administrative expenses....................... 2.7 2.6 1.9 EBITDA (2).................................................. 7.4 7.9 9.6 Depreciation and amortization expenses...................... 2.2 2.1 1.8 Recapitalization expenses................................... -- -- 2.1 Income from operations...................................... 5.2 5.8 5.7 Interest expense, net....................................... 1.9 2.8 4.2 Income before income taxes and extraordinary loss........... 3.3 3.0 1.5 Provision for income taxes.................................. 0.8 1.1 1.1 Income before extraordinary loss............................ -- -- 0.4 Extraordinary loss on early extinguishment of debt, net of income tax benefit........................................ -- -- 0.8 Net income (loss)........................................... 2.5% 1.9% NM

------------------------ (1) Includes provision for doubtful accounts. (2) We define EBITDA as income before interest, income taxes, depreciation, amortization and non-recurring recapitalization costs. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations, investing or financing activities or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. EBITDA, as we define it, is not necessarily comparable to other similarly titled captions of other companies. COMPARISON OF YEAR ENDED DECEMBER 30, 2001 TO YEAR ENDED DECEMBER 31, 2000 SERVICE REVENUES. Our service revenues for 2001 increased $156.3 million, or 85.9%, from $182.1 million in 2000 to $338.4 million in 2001. The majority of the increase in revenues in 2001 was attributable to a $123.2 million increase in our per diem nurse staffing revenues from $129.8 million in 2000 to $253.0 million in 2001. A majority of the increase in sales revenues in 2001 was the result of volume increases from same-store growth and de novo branch openings. The balance of the increase in sales revenues was the result of price increases. De novo branches opened in 2000 contributed $38.9 million of the increase in revenues and de novo branches opened in 2001 contributed $24.9 million of the increase. Acquisitions completed in 2000 contributed $20.4 million of the increase in revenues and acquisitions in 2001 contributed $9.1 million of the increase. The balance of the 2001 per diem nurse staffing revenue growth came from a $29.9 million increase in the revenue of branches opened prior to 2000. Service revenues from our staffing divisions other than the per diem nurse staffing division collectively increased $33.1 million, or 63.4%, from $52.2 million in 2000 to $85.3 million in 2001. Acquisitions completed in 2000 contributed $12.6 million to the increase. The balance of the growth in 2001 of $20.5 million came from organic growth. 25 COST OF SERVICES RENDERED. Cost of services rendered increased $116.1 million, or 85.4%, from $136.0 million in 2000 to $252.1 million in 2001. The increase was attributable to the 85.9% increase in service revenues. GROSS PROFIT. Gross profit increased $40.2 million, or 87.2%, from $46.1 million in 2000 to $86.3 million in 2001, representing gross margin percentages of 25.3% in 2000 and 25.5% in 2001. The increase in gross margin percentage in 2001 is the result of improved gross profit margins in our per diem nurse and allied staffing divisions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $20.4 million, or 75.6%, from $27.0 million in 2000 to $47.4 million in 2001. As a percentage of revenue, selling, general and administrative expenses decreased from 14.8% in 2000 to 14.0% in 2001. CORPORATE AND ADMINISTRATIVE EXPENSES. Corporate and administrative expenses increased $1.7 million, or 36.5%, from $4.7 million in 2000 to $6.4 million in 2001. As a percentage of revenue, corporate and administrative expenses decreased from 2.6% in 2000 to 1.9% in 2001. The decrease as a percentage of revenue was a result of increased operating leverage. The decrease occurred despite significant expansion of the corporate infrastructure required to sustain the rapid growth of the business. EBITDA. As a result of the above, EBITDA increased $18.0 million, or 125.9% from $14.4 million in 2000 to $32.4 million in 2001. As a percentage of revenue, EBITDA increased from 7.9% in 2000 to 9.6% in 2001. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expense increased $2.1 million, or 54.6%, from $3.8 million in 2000 to $5.9 million in 2001. The increase was due in part to a full year of goodwill amortization on our 2000 acquisitions and the goodwill amortization on our 2001 acquisitions. The balance of the increase was the result of depreciation on fixed asset additions. In July 2001, the Financial Accounting Standards Board issued FAS No. 141, BUSINESS COMBINATIONS and FAS No. 142, INTANGIBLE ASSETS. FAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated before July 1, 2001. FAS 142 further clarifies the criteria to recognize intangible assets separately from goodwill and promulgates that goodwill and certain intangible assets not be amortized. Instead, these assets will be reviewed for impairment annually with any related losses recognized in earnings when incurred. These standards apply to us beginning December 31, 2001 for existing intangible assets and July 1, 2001 for business combinations completed after June 30, 2001. As a result of the adoption of FAS 142, goodwill will not be amortized in 2002. RECAPITALIZATION EXPENSES. Recapitalization expenses for 2001 were $7.2 million, comprised of non-capitalizable costs incurred in conjunction with our recapitalization in October 2001. The recapitalization was accounted for as a leveraged recapitalization and, accordingly, we retained the historical cost basis of accounting. INCOME FROM OPERATIONS. As a result of the above, income from operations increased $8.8 million, or 83.7%, from $10.6 million in 2000 to $19.4 million in 2001. As a percentage of revenue, income from operations decreased from 5.8% in 2000 to 5.7% in 2001. INTEREST EXPENSE, NET. Net interest expense increased $9.3 million, or 185.9% from $5.0 million in 2000 to $14.3 million in 2001. Of the $9.3 million increase, $5.0 million of net interest expense was due to the appreciation of the value of outstanding put warrants, as a result of the increase in the fair value of our common stock. These put warrants were issued in connection with a $20 million subordinated promissory note issued by us on September 29, 2000. The balance of the increase was primarily the result of a higher average outstanding debt balance in 2001, which was primarily the result of 26 borrowings made for acquisitions in 2000, the 2001 acquisition and the debt incurred in conjunction with our recapitalization, offset in part by lower average interest rates. INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. Income before income taxes and extraordinary loss decreased $0.5 million, or 8.2%, from $5.6 million to $5.1 million in 2001. PROVISION FOR INCOME TAXES. Our provision for income taxes was $2.0 million in 2000 and $3.7 million in 2001 representing effective tax rates of 36.7% in 2000 and 72.1% in 2001. The difference in the effective rate in 2001 and our expected effective rate of 41.0% is attributable to non-deductible costs incurred in conjunction with our recapitalization. INCOME BEFORE EXTRAORDINARY LOSS. Income before extraordinary loss decreased $2.1 million, or 59.5%, from $3.5 million in 2000 to $1.4 million in 2001. EXTRAORDINARY LOSS, ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT. The extraordinary loss on early extinguishment of debt in 2001 of $2.7 million, net of an income tax benefit of $1.7 million was attributable to the write off of deferred financing costs and note discounts associated with the debt that was repaid in conjunction with our October 2001 recapitalization. NET INCOME (LOSS). Net income decreased $4.8 million from net income of $3.5 million to a net loss of $1.3 million in 2001. COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999 SERVICE REVENUES. Our service revenues for 2000 increased $85.6 million, or 88.7%, from $96.5 million in 1999 to $182.0 million in 2000. The majority of the increase in revenues in 2000 was attributable to a $56.2 million increase in our per diem nurse staffing revenues from $73.6 million in 1999 to $129.8 million in 2000. Acquisitions completed in 1999 contributed $10.9 million of the increase in revenues and acquisitions completed in 2000 contributed $8.5 million of the increase. De novo branches opened in 1999 contributed $6.5 million of the increase in revenues and de novo branches opened in 2000 contributed $10.0 million of the increase. The balance of the 2000 per diem revenue growth of $20.3 million resulted from an increase in the revenues of branches opened prior to 1999. Service revenues from our staffing divisions other than the per diem nurse staffing division collectively increased $29.3 million, or 128.1%, from $22.9 million in 1999 to $52.2 million in 2000. Acquisitions completed in 1999 contributed $24.2 million to the increase and acquisitions completed in 2000 contributed $3.1 million. The balance of the growth in 2000 of $2.0 million came from organic growth. COST OF SERVICES RENDERED. Cost of services rendered increased $63.1 million, or 86.6%, from $72.9 million in 1999 to $136.0 million in 2000. The increase was attributable to the 88.7% increase in service revenues. GROSS PROFIT. Gross profit increased $22.6 million, or 95.8%, from $23.5 million in 1999 to $46.1 million in 2000, representing gross margin percentages of 24.4% in 1999 and 25.3% in 2000. The increase was attributable to a disproportionate increase in our non per diem nurse staffing revenues, which have a higher relative gross margin than the per diem nurse gross margin. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $13.2 million, or 95.3%, from $13.8 million in 1999 to $27.0 million in 2000. As a percentage of revenue, selling, general and administrative expenses increased from 14.3% in 1999 to 14.8% in 2000. This increase was due to the expenses required to establish the infrastructure for our de novo branches opened in 2000. 27 CORPORATE AND ADMINISTRATIVE EXPENSES. Corporate and administrative expenses increased $2.1 million, or 82.7%, from $2.6 million in 1999 to $4.7 million in 2000. As a percentage of revenue, corporate and administrative expenses decreased from 2.7% in 1999 to 2.6% in 2000. The decrease as a percentage of revenue was a result of increased operating leverage. The decrease occurred despite significant expansion of the corporate infrastructure required to sustain the rapid growth of the business. EBITDA. As a result of the above, EBITDA increased $7.3 million, or 101.4% from $7.1 million in 1999 to $14.4 million in 2000. As a percentage of revenue, EBITDA increased from 7.4% in 1999 to 7.9% in 2000. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expense increased $1.7 million, or 79.6%, from $2.1 million in 1999 to $3.8 million in 2000. The increase was due in part to a full year of goodwill amortization on our 1999 acquisitions and the goodwill amortization on our 2000 acquisitions. The balance of the increase was the result of depreciation on fixed asset additions. INCOME FROM OPERATIONS. Income from operations increased $5.6 million, or 110.6%, from $5.0 million in 1999 to $10.6 million in 2000. As a percentage of revenue, income from operations increased from 5.2% in 1999 to 5.8% in 2000. INTEREST EXPENSE, NET. Net interest expense increased $3.1 million, or 168.1% from $1.9 million in 1999 to $5.0 million in 2000. The increase of net interest expense was due to the higher average outstanding debt balance in 2000 which was primarily the result of the borrowings made for acquisitions in 1999 and 2000 and a higher weighted average borrowing rate. PROVISION FOR INCOME TAXES. Our provision for income taxes was $0.8 million in 1999 and $2.0 million in 2000 representing an effective tax rate of 25.0% in 1999 and 36.7% in 2000. The difference in the effective rate in 1999 and our expected effective rate of 37.0% is attributable to the release of a valuation allowance of approximately $0.8 million on our deferred tax asset upon determination that the benefit of the deferred tax asset will be realized coupled with the utilization of a net operating loss carryforward to offset 1999 taxable income. In accordance with FAS 109, we evaluate evidence, both positive and negative, to determine if a valuation allowance is required. NET INCOME. Net income increased by $1.1 million, or 48.2%, from $2.4 million in 1999 to $3.5 million in 2000. QUARTERLY RESULTS OF OPERATIONS The following table presents a summary of our unaudited quarterly operating results for each of the four quarters in 2000 and 2001. We derived this information from unaudited interim financial statements that have been prepared on a basis consistent with the financial statements contained elsewhere in this prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with our audited financial statements and related notes. The operating results for any quarter are not necessarily indicative of results for any future period. 28

2000 2001 ----------------------------------------- ----------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Service revenues................. $35,389 $40,179 $47,948 $58,529 $70,479 $81,166 $93,005 $93,731 Cost of services rendered........ 26,206 29,971 35,819 43,975 52,510 60,363 69,322 69,894 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit..................... 9,183 10,208 12,129 14,554 17,969 20,803 23,683 23,837 Operating Expenses: Selling, general and administrative expenses (1)................. 5,295 6,279 6,953 8,469 9,304 11,125 13,383 13,603 Corporate and administrative expenses..................... 954 1,296 1,172 1,290 1,392 1,707 1,744 1,584 Depreciation and amortization expenses....................... 857 940 962 1,037 1,268 1,370 1,508 1,726 Operating income................. 2,076 1,693 3,042 3,758 6,005 6,601 6,728 84 Pre-tax income................... 1,167 631 1,889 1,875 3,095 3,126 3,207 (4,323) Net income....................... 699 378 1,133 1,309 1,857 1,876 1,924 (6,963) EBITDA (2)....................... 2,934 2,633 4,004 4,795 7,272 7,971 8,556 8,650

------------------------ (1) Includes provision for doubtful accounts. (2) We define EBITDA as income before interest, income taxes, depreciation, amortization and non-recurring recapitalization costs. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations, investing or financing activities or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. EBITDA, as we define it, is not necessarily comparable to other similarly titled captions of other companies. SEASONALITY Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences for destinations by our temporary healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas that experience seasonal fluctuations in population, particularly Florida, during the winter and summer months. These facilities adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs. Historically, the number of temporary healthcare professionals on assignment has increased from December through March followed by declines or minimal growth from April through November. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year. LIQUIDITY AND CAPITAL RESOURCES We have funded our cash needs since 1999 through various equity and debt issuances and through cash flow from operations. Currently, we have no commitments to make any material capital expenditures. In October 2001, an investment group led by Warburg Pincus acquired a majority interest in our company in a recapitalization that provided us with proceeds from new equity and senior debt issuances totaling approximately $156.6 million and advances from a new senior credit facility totaling $105.0 million. Together, these funds were used to provide us with working capital for operations, to retire then-outstanding debt obligations and accrued interest totaling approximately $82.0 million, as consideration for the acquisition of the former stockholders' equity interests for approximately $173.0 million, and to pay recapitalization costs of approximately $7.2 million. 29 As of December 30, 2001, we had cash totaling $11.2 million, working capital totaling $54.7 million and unused availability under our committed credit facility totaling $5.0 million. We used $1.7 million of cash from operating activities during 2001 compared to $9.0 million of cash from operating activities during 2000. Cash flows from operating activities was positively impacted in 2001 due to improvements in earnings before non-cash expenses and was negatively impacted due to cash required to fund our de novo program. Because we rely on cash flow from operations as a source of liquidity, we are subject to the risk that a decrease in the demand for our staffing services could have an adverse impact on our liquidity. Decreased demand for our staffing services could result from an inability to attract qualified healthcare professionals, fluctuations in patient occupancy at our hospital and healthcare facility clients and changes in state and federal regulations relating to our business. Our senior credit facility consists of a $100.0 million term loan arrangement and allows us to borrow up to an additional $20.0 million under a revolving line of credit. The term loan bears interest at variable effective interest rates with a weighted average interest rate of 6.2% as of December 30, 2001, and is due in quarterly installments beginning March 31, 2003 through its maturity in October 2006 for tranche A in the amount of $40 million and October 2007 for tranche B in the amount of $60 million. Our senior credit facility is collateralized by substantially all of our assets and requires us to comply with various quarterly financial covenants, including covenants for ratios of leverage and fixed charges to EBITDA. At December 30, 2001, we were in compliance with all covenants under our senior credit facility. As the borrower under our senior credit facility, our subsidiary, Medical Staffing Network, Inc., may only pay dividends or make other distributions to us in the amount of $250,000 in any fiscal year to pay our operating expenses. This limitation on our subsidiary's ability to distribute cash to us will limit our ability to obtain and service any additional debt at the holding company level. In addition, our subsidiary is subject to restrictions under the senior credit facility against incurring additional indebtedness. Our senior unsecured notes bear interest compounding quarterly at a rate of 12% per annum and are due in October 2009. Interest is payable in full on the maturity date. The notes, which are unsecured obligations, are structurally subordinated to amounts due under our senior credit facility. As of December 30, 2001, there was $115.0 million outstanding under our senior credit facility, and $60.6 million of principal and accrued interest outstanding under our senior unsecured notes. As of December 30, 2001, the weighted average interest rate for the loans under our senior credit facility was 6.2%. We intend to use a portion of the proceeds of this offering to repay approximately $62.4 million of our senior notes including accrued interest, and to pay $52.3 million of our term loans under our senior credit facility, leaving an outstanding balance of approximately $55 million. We believe that our current cash balances, together with our existing credit lines and other available sources of liquidity and expected cash flows from our operating activities, will be sufficient for us to meet our current and future financial obligations, as well as to provide us with funds for working capital, anticipated capital expenditures and other needs for at least the next 12 months. No assurance can be given, however, that this will be the case. In the longer term, we may require additional equity and debt financing to meet our working capital needs, or to fund our acquisition activities, if any. There can be no assurance that additional financing will be available when required or, if available, will be available on satisfactory terms. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to interest rate risk arises principally from the variable rates associated with our senior credit facility. On December 30, 2001, we had borrowings of $115.0 million under our senior credit facility that were subject to variable rates, with a blended rate of 6.2%. As of December 30, 2001, an adverse change of 1.0% in the interest rate of all such borrowings outstanding would have 30 caused us to incur an increase in interest expense of approximately $0.6 million on an annual basis after considering the effect of the interest rate swap described below. We are party to an interest rate swap agreement with a notional amount of $50 million. Under the swap agreement, the net settlement is computed on a quarterly basis as the difference between the 90 day LIBOR and the fixed rate of 4.34%. This results in a fixed interest rate on $50 million of borrowings under our credit facility at 4.34% effective December 24, 2001, plus the applicable margin. The fair value of the swap at December 30, 2001 wa