<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMPUTER HORIZONS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-2638902
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
49 OLD BLOOMFIELD AVENUE
MOUNTAIN LAKES, NEW JERSEY 07046-1495
(973) 402-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN J. CASSESE
COMPUTER HORIZONS CORP.
49 OLD BLOOMFIELD AVENUE
MOUNTAIN LAKES, NEW JERSEY 07046-1495
(973) 402-7400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
DENNIS M. DIVENUTA, ESQ. ROBERT A. CANTONE, ESQ. CARLA S. NEWELL, ESQ.
COMPUTER HORIZONS CORP. HENRY E. LICHTENBERGER, ESQ. ANTHONY J. MCCUSKER, ESQ.
49 OLD BLOOMFIELD AVENUE PROSKAUER ROSE LLP GUNDERSON DETTMER
MOUNTAIN LAKES, NEW JERSEY 07046-1495 1585 BROADWAY STOUGH VILLENEUVE
PHONE: 973-402-7400 NEW YORK, NEW YORK 10036 FRANKLIN & HACHIGIAN, LLP
FAX: 973-402-7988 PHONE: 212-969-3000 155 CONSTITUTION DRIVE
FAX: 212-969-2900 MENLO PARK, CALIFORNIA 94025
PHONE: 415-321-2400
FAX: 415-321-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10(2)........ 3,450,000 $39.25 $135,412,500 $41,034.09
===============================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee on the basis of the average of the high and low prices for
the Common Stock, as reported on the Nasdaq National Market on August 12,
1997.
(2) Includes 450,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
------------------------
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
AUGUST 14, 1997
3,000,000 SHARES
Computer Horizons Corp. Logo
COMPUTER HORIZONS CORP.
COMMON STOCK
------------------
Of the 3,000,000 shares of Common Stock offered hereby, 2,500,000 are being
offered by Computer Horizons Corp. (the "Company" or "Computer Horizons") and
500,000 are being offered by Selling Shareholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders." The Company's Common Stock is traded on
the Nasdaq National Market under the symbol "CHRZ." On August 12, 1997, the last
reported sale price of the Common Stock as reported on the Nasdaq National
Market was $39.25 per share. See "Price Range of Common Stock."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)............ $ $ $ $
================================================================================================
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland on or about
, 1997.
------------------
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
FURMAN SELZ
PUNK, ZIEGEL & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH REGULATION M. SEE "UNDERWRITING."
------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") are hereby incorporated in this Prospectus by
reference and made a part hereof: (i) the Company's Annual Report on Form 10-K
for the year ended December 31, 1996; (ii) the Company's Quarterly Report on
Form 10-Q for the quarters ended March 31, 1997 and June 27, 1997; and (iii) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies, supersedes or replaces such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any and all
of the information that has been incorporated by reference in this Prospectus
(excluding exhibits unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to: Corporate
Secretary, Computer Horizons Corp., 49 Old Bloomfield Avenue, Mountain Lakes,
New Jersey 07046-1495, telephone number (973) 402-7400.
------------------
This Prospectus includes trademarks and trade names of the Company and other
corporations.
------------------
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
Notes thereto, appearing elsewhere or incorporated by reference in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in such forward-looking statements.
THE COMPANY
Computer Horizons is a diversified information technology services company
that provides IT staffing and solutions services, including Year 2000 services,
to major corporations. Founded in 1969 as a provider of IT staffing resources,
the Company has expanded through internal growth and acquisitions to become a
leading national provider of IT staffing services. The Company also offers its
clients various IT solutions services, including application development,
conversions/migrations, legacy maintenance outsourcing, enterprise network
management and knowledge transfer and training. The Company's Year 2000 solution
addresses all phases of Year 2000 projects from assessment through full
compliance and is based on its proprietary Signature 2000 Toolset. The Company's
Year 2000 services business, which represented approximately 2% of the Company's
revenues in the first six months of 1996, accounted for approximately 19% of its
revenues in the first six months of 1997.
Increasingly, organizations are addressing issues such as the need to
improve quality, shorten time to market and reduce costs by utilizing IT
solutions that facilitate rapid and flexible collection, analysis and
dissemination of information. As a result, an organization's ability to
effectively utilize new IT solutions in a cost-effective manner has become
critical in today's increasingly competitive business environment. During this
time of increasing reliance on IT, rapid technological change and other
challenges, such as the need for Year 2000 conversions, have strained the
capabilities of the internal IT departments within these organizations. As a
result of these factors and the need to focus their resources on core
competencies, large corporations are increasingly outsourcing these functions to
third party vendors of IT services. International Data Corporation ("IDC")
estimates that worldwide outsourcing spending was approximately $86 billion in
1996, and projects that such spending will grow to $140 billion in 2001. In
addition, the Gartner Group estimates the worldwide cost of fixing the Year 2000
problem to be between $300 and $600 billion.
The Company markets its services primarily to Fortune 500 companies with
significant information technology budgets and recurring staffing or software
development needs. In 1996, the Company provided services to over 450 clients,
including AT&T, Chase Manhattan Corporation, Citicorp, Dow Chemical Company,
Florida Power & Light Company, Ford Motor Company, International Business
Machines Corporation, MCI Communications Corporation, NYNEX Corporation and
Prudential Insurance Company of America. The Company has been successful in
generating repeat business from existing clients, with more than 90% of revenues
in each of 1994, 1995 and 1996 having been generated from clients that were also
clients during the prior year. The Company believes that its ability to offer a
broad range of staffing and solutions services and its established relationships
with many Fortune 500 companies provide it with significant advantages in the IT
services market.
As of June 27, 1997, the Company had approximately 2,700 billable
consultants (including independent contractors). The Company provides staffing
and solutions services through a network of 45 branch offices located in 21
states, the District of Columbia, Canada, England and India (including the
offices of the Company's India-based joint venture). The Company believes that
its ability to attract, motivate and retain highly skilled IT professionals on a
large scale is a core competency and maintains an internal staff of over 100
recruiters.
The Company's objective is to be the leading provider of comprehensive IT
staffing and solutions services to Fortune 500 companies. To achieve this
objective, the Company is seeking to: (i) maintain the Company's leadership
position in its core staffing business; (ii) increase its higher margin Year
2000 services business; (iii) develop new strategic solutions offerings; (iv)
expand its base of staffing and solutions clients; and (v) expand its geographic
presence through opening new offices, acquisitions and strategic partnerships or
alliances.
The Company's principal executive offices are located at 49 Old Bloomfield
Avenue, Mountain Lakes, New Jersey 07046-1495, (973) 402-7400.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,500,000 shares
Common Stock offered by the Selling
Shareholders............................... 500,000 shares
Common Stock to be outstanding after the
Offering................................... 27,057,374 shares(1)
Use of Proceeds.............................. Working capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbol................ CHRZ
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 27,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................... $102,206 $121,550 $152,192 $200,050 $233,858 $113,063 $145,463
Income from operations..... 4,470 7,494 11,011 17,575 18,440 9,110 15,277
Income before income
taxes.................... 3,892 6,910 10,373 17,571 19,162 9,429 15,525
Net income................. 2,026 3,704 5,686 9,907 11,232 5,440 8,925
Net income per share(2).... $ 0.10 $ 0.16 $ 0.27 $ 0.42 $ 0.44 $ 0.21 $ 0.35
Weighted average number of
shares of Common Stock
outstanding(2)........... 20,436 22,491 21,387 23,364 25,461 25,453 25,770
</TABLE>
<TABLE>
<CAPTION>
JUNE 27, 1997
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................ $59,810 $152,519
Total assets............................................................... 96,386 189,095
Long-term debt, including current portion.................................. 1,432 1,432
Shareholders' equity....................................................... 79,919 172,628
</TABLE>
- ---------------
(1) Includes shares outstanding as of June 27, 1997 and 7,500 shares of Common
Stock to be sold in the Offering by a Selling Shareholder upon the exercise
of an outstanding warrant. Excludes (i) an aggregate of 2,009,362 shares of
Common Stock issuable upon exercise of options outstanding under the
Company's 1985 Incentive Stock Option and Appreciation Plan, as amended,
1994 Incentive Stock Option and Appreciation Plan and the 1991 Directors
Stock Option Plan, as amended (collectively, the "Plans"), and (ii)
6,005,056 shares of Common Stock reserved for future issuance under the
Plans. Also excludes 36,000 shares of Common Stock issuable upon the
exercise of outstanding warrants.
(2) See Note 1 of Notes to Consolidated Financial Statements incorporated by
reference herein.
(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company at an assumed public offering price of $39.25 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds."
------------------
Except as otherwise indicated, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, and (ii) has been adjusted
to reflect the three-for-two split effected as a Common Stock dividend
distributed on June 9, 1997. Unless the context otherwise specifies, references
in this Prospectus to "Computer Horizons" or the "Company" refer to Computer
Horizons Corp. and its subsidiaries.
4
<PAGE> 6
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus. In
evaluating the Company's business, prospective investors should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
Fluctuations in Quarterly Operating Results. The Company's revenues and
operating results are subject to significant variation from quarter to quarter.
Revenues are subject to fluctuation based upon a number of factors, including
the timing and number of client projects commenced and completed during the
quarter, delays incurred in connection with projects, the Company's ability to
retain key personnel, the ability of the Company to develop, introduce and
market new and enhanced services, announcements by the Company or its
competitors, the growth rate of the market for IT staffing and solution
services, including Year 2000 services, and general economic conditions.
Unanticipated termination of a project or the decision by a client not to
proceed to the stage of a project anticipated by the Company could result in
decreased revenues and lower employee utilization rates which could have a
material adverse effect on the Company's business, operating results and
financial condition. For example, in the second quarter of 1996, the Company
lost a contract with a major client which resulted in a decline in solutions
revenues and net income. There can be no assurance that the Company will not
experience a similar loss in the future. The principal factors affecting the
Company's gross margin are the level of salary and other compensation related
expenses necessary to attract and retain qualified technical personnel and the
mix of staffing versus solutions business during the quarter. Compensation
levels can be impacted by a variety of factors including competition for
highly-skilled employees and inflation. The Company's operating results are also
subject to fluctuation as a result of other factors including the accuracy of
estimates of fixed-price projects, employee utilization rates and extraordinary
events such as acquisitions or litigation. The Company's operating results may
also be affected in the future by the licensing of its Signature 2000 Toolset
which it has recently begun to offer to third parties. To date, the Company has
only licensed the software to one client and there can be no assurance that it
will be successful in its future licensing activities. However, to the extent
the Company does license its software, the revenues from such licensing
activities may result in significant fluctuations in the Company's revenues and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company has from time to time disclosed bookings for its Year 2000
services business. These bookings include projects as to which the Company has
been advised that it has been awarded the business but which are not yet subject
to contractual arrangements as well as projects which are subject to fully
executed contracts. In addition, to the extent that the project is not being
undertaken on a fixed-price basis, bookings are based on the Company's estimate
of billings expected to result from such project. There can be no assurance that
the amounts included in bookings at any given time will result in revenues being
recognized in the time frame anticipated by the Company or at all. As a result,
bookings should not be relied upon as an indication of revenues in any future
period.
Due to all of the foregoing factors, in some future quarter or quarters the
Company's operating results may be below the expectations of securities analysts
and investors. For example, in the second quarter of 1996, the Company failed to
meet the expectations of securities analysts as a result of the loss of a major
client. Failure of the Company to meet such expectations would have a material
5
<PAGE> 7
adverse effect on the price of the Company's Common Stock. See "-- Potential
Volatility of Stock Price" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Recruitment and Retention of IT Professionals. The Company's business is
labor intensive and depends to a large extent on its ability to attract, train,
motivate and retain highly-skilled IT professionals and project managers. The
Company must continually identify and recruit technical personnel for both its
staffing and solutions businesses to fill new positions and to replace employees
who have left the Company. Qualified IT professionals are in great demand
worldwide and are likely to remain a limited resource for the foreseeable
future. In addition, the IT services industry has experienced high employee
turnover rates which have increased in recent periods and the Company's
experience has been consistent with such trends. There can be no assurance that
the Company will be successful in attracting a sufficient number of
highly-skilled employees in the future, or that it will be successful in
retaining existing and future employees and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, to the extent that the number of companies in
the IT services industry increases and such companies seek to expand their
employee bases, the competition for skilled employees and the compensation being
offered to such employees is likely to increase. As a result of the foregoing,
the Company may in the future be required to incur higher recruiting expenses
and increase its compensation levels, either of which could have a material
adverse effect on its business, operating results and financial condition. See
"Business -- Recruiting and Human Resources."
Risks Associated with Year 2000 Business; Risks Associated with New
Services. The Company expects to derive a significant percentage of its
solutions revenues from Year 2000 services through at least 1999. There can be
no assurance that the Company will be successful in increasing its Year 2000
business or, to the extent that such business increases, that the Company will
be able to meet the demand for such services on a timely basis. Any failure of
the Company to increase such business or meet such demand could have a material
adverse effect on the Company's business, operating results and financial
condition. While a substantial majority of the Company's current solutions
bookings are for Year 2000 projects, the Company expects this demand to begin to
decrease as the implementation and testing of many Year 2000 conversion projects
are completed. Any such decrease, to the extent it is not offset by an increase
in the Company's other businesses, could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, by
devoting significant resources during the next several years to its Year 2000
services business, the Company's ability to develop, introduce and market new
services could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company is seeking to leverage its knowledge of clients' IT systems and
applications obtained during Year 2000 projects into additional engagements
involving other solutions services including services not previously provided by
the Company. The Company's ability to successfully develop new services depends
on a number of factors, including its ability to identify and effectively
integrate new services into the Company's existing operating structure. The
identification and offering of new services in which the Company has little or
no experience or expertise could result in a significant diversion of
management's attention and place disproportionate demands on the Company's
operational, administrative and financial resources. There can be no assurance
that the Company will be successful in generating additional business from its
Year 2000 clients for other services or that the performance of any new service
offerings will meet management's expectations or provide the same gross margins
as the Company's existing operations. See "Business -- Services."
Dependence on Staffing Business. In the year ended December 31, 1996 and
the first six months of 1997, the Company's staffing business accounted for
approximately 73% and 68% of revenues, respectively. As a result, the Company's
future operating results depend in large part on the continued growth and
profitability of the Company's staffing business. Any decline in, or failure of
the Company's staffing business to grow at anticipated rates, as a result of
competition or otherwise, would have a material adverse effect on the Company's
business, operating results and
6
<PAGE> 8
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Concentration of Revenues; Dependence on Large Projects. The Company has
derived, and believes that it will continue to derive, a significant portion of
its revenues from a limited number of large clients. In the year ended December
31, 1996 and the first six months of 1997, the Company's ten largest clients
accounted for approximately 40% and 49% of its revenues, respectively. One
customer, AT&T, accounted for approximately 10% and 13% of revenues in the year
ended December 31, 1996 and the first six months of 1997, respectively. The
volume of work performed for specific clients is likely to vary from year to
year, and a major client in one year may not use the Company's services in a
subsequent year. For example, in the second quarter of 1996, the Company lost a
contract with a major client which resulted in a decline in solutions revenues
and net income. The loss of any large client could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Most of the Company's contracts are terminable by the client following
limited notice and without significant penalty. In addition, each stage of a
project represents a separate contractual commitment at the end of which the
client may elect not to proceed to the next stage of the project. There can be
no assurance that in the future one or more of the Company's major clients will
not terminate a contract, reduce the scope of a large project or elect not to
proceed to the stage of a project anticipated by the Company. The cancellation
or significant reduction in the scope of a large project could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Clients and Marketing."
Competition. The markets for the Company's services are highly
competitive. The Company believes that the market for IT staffing services is
highly fragmented and regionalized. As a result, in addition to competing with
larger providers of IT staffing services such as Cap Gemini SA, Computer Task
Group, Inc., Keane, Inc. and Mastech Corporation, the Company also competes with
a large number of regional providers of staffing services. In addition, the
Company competes for staffing projects with the information systems groups of
its prospective clients. In its solutions business, including its Year 2000
services business, the Company competes with consulting and system integration
firms, including Analysts International Corporation, Andersen Consulting, CIBER,
Inc., Computer Sciences Corporation, Electronic Data Systems Corp., Information
Management Resources, Inc., International Business Machines Corporation, Keane,
Inc. and the "Big Six" accounting firms. The Company also competes in the IT
solutions market with vendors of application software. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced, and expects to continue to face, additional competition from other
established and emerging companies. Increased competition may result in greater
pricing pressure which could have a material adverse effect on the Company's
operating results.
The Company believes competition will continue to intensify as the market
for IT services continues to develop and competitors focus on additional service
offerings such as Year 2000 services and European Monetary Union ("EMU")
conversion services. There can be no assurance that other companies will not
develop services, products and marketing approaches that will be more successful
than those of the Company. Many of the Company's current and potential
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in clients' requirements, or
to devote greater resources to the development, promotion, sale and support of
their services and products than the Company. In addition, current and potential
competitors may establish cooperative relationships among themselves or with
third parties to increase the ability of their services or products to address
the staffing and solutions needs of the Company's prospective clients.
Accordingly, it is possible that new competitors, alliances among competitors or
alliances between competitors and third parties may emerge and acquire
significant market share. If this were to occur, it could have a material
adverse effect on the Company's business, operating results and financial
condition.
7
<PAGE> 9
The Company believes that the principal competitive factors in its market
include quality of services and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that its ability to compete also depends in part
on a number of competitive factors outside its control, including the ability of
its competitors to hire, retain and motivate project managers and other IT
professional staff, the development by others of software that is competitive
with the Company's services and products and the extent of its competitors'
responsiveness to client needs. There can be no assurance that the Company can
maintain its competitive position against current and potential competitors or
that competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Competition."
Risks of Technological Change and Evolving Industry Standards. The IT
services industry is characterized by rapid technological change, changing
client requirements and new service and product introductions. The introduction
of competitive IT solutions embodying new technologies and the emergence of new
industry standards may render the Company's existing IT solutions or underlying
technologies obsolete or unmarketable. As a result, the Company will be
dependent in large part upon its ability to develop new IT solutions that
address the increasingly sophisticated needs of its clients, keep pace with new
competitive service and product offerings and emerging industry standards and
achieve broad market acceptance. There can be no assurance that the Company will
be successful in developing and marketing new IT solutions that respond to
technological change, changing client requirements or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of these new IT
solutions or that its IT solutions will adequately meet the requirements of the
marketplace and achieve market acceptance. See "Business -- Services."
Fixed-Price Contracts. The Company offers certain of its services on a
fixed-price rather than on a time and materials or best efforts basis. Although
the Company draws upon the past experience of its project managers and senior
technical personnel to estimate the cost of performing fixed-price projects, the
Company has a limited history upon which to base such estimates. Since under the
terms of such contracts the Company bears the risk of cost overruns and
inflation in connection with these projects, the Company's failure to estimate
accurately the resources and time required for a project or its failure to
complete its contractual obligations within the time frame committed could have
a material adverse effect on the Company's operating results and financial
condition. In the past, the Company has been required to commit unanticipated
additional resources to complete certain projects, which negatively affected the
Company's profitability on such projects and there can be no assurance that the
Company will not experience similar situations in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks Associated with Failure to Manage Growth and a Changing
Business. The Company has recently experienced a period of significant growth
that has placed, and could continue to place, a significant strain on its
management and operations. From June 1996 to June 1997, the number of the
Company's billable consultants has increased from approximately 2,200 to 2,700
full-time employees and independent contractors, and further increases are
expected during the remainder of 1997. The Company has also expanded
geographically by opening new offices and it intends to open additional offices
which will require that the Company successfully replicate its current business
model in remote locations. In addition, the Company is seeking to further expand
its solutions business, including its Year 2000 services business. The Company's
ability to manage future growth, if any, will require the Company to continually
enhance its operational and financial control systems, implement new systems as
necessary, and will depend on its ability to attract, train, assimilate and
retain qualified personnel. The Company is in the process of identifying a new
accounting system which it intends to begin implementing in late 1997 in order
to provide it with the flexibility to address the variations in billing
arrangements required for its solutions business. Although the Company intends
to run its existing and new systems in parallel for some period of time, there
can be no assurance that the Company will not experience difficulties in the
operation of its new
8
<PAGE> 10
accounting system which could result in delays or disruptions in billing its
clients. Any significant delays or disruptions in the Company's billing cycle
could have a material adverse effect on the Company's operating results in the
affected period. The failure of the Company's management to respond effectively
to future growth, if any, and the changing nature of its business could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Market Opportunity."
Risks Associated with Potential Acquisitions. As part of the Company's
strategy, it intends to pursue strategic acquisitions. Such acquisitions could
present significant challenges to the Company's management. There is significant
competition for acquisition opportunities in the IT services industry which may
make the completion of acquisitions more difficult and expensive. In addition,
some competitors for these acquisition candidates have greater resources than
the Company. If the Company is successful in completing acquisitions, it will
face numerous risks, including difficulties assimilating new operations and
personnel, the need to manage geographically remote businesses and the diversion
of management attention from other business concerns. Any acquisition, depending
on its size, could result in the use of a significant portion of the Company's
cash, or if such acquisition is made utilizing the Company's securities, could
result in significant dilution to the Company's shareholders. Furthermore, there
can be no assurance that any acquired service capacity or technology will gain
acceptance in the Company's markets. Should the Company's management fail to
respond effectively to these challenges, future acquisitions could have a
materially adverse effect on the Company's business, operating results and
financial condition. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence on Key Personnel. The Company is dependent to a significant
extent on the efforts, direction and guidance of its senior management,
including John J. Cassese, the Company's Chairman of the Board, President and
Chief Executive Officer, and other key personnel. The Company has entered into
employment agreements with its executive officers, each of which contains
provisions limiting these employees' rights to compete with the Company and hire
its employees. The Company maintains and is the beneficiary under a key person
life insurance policy in the amount of $3.8 million with respect to Mr. Cassese.
The loss of any of the Company's senior management or key personnel and, in
particular, Mr. Cassese, or the inability to attract and retain key management
personnel in the future, could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks Associated with India Joint Venture. The Company is seeking to
leverage its relationship with Birla Horizons International, an India-based
joint venture between National Engineering Industries Limited ("NEI"), an
affiliate of The Birla Group, and the Company (the "Joint Venture") to provide
lower-cost, offshore solutions services to its clients. The Board of Directors
of the Joint Venture, consisting of an equal number of representatives of the
Company and NEI, controls and manages the business of the Joint Venture. In the
event of a deadlock among the Board of Directors of the Joint Venture which is
not resolved within 15 days, the Company or NEI may terminate the Joint Venture
by giving 30 days notice to the other party. If the Joint Venture is terminated
as a result of such a deadlock, the non-terminating party will have the right to
purchase the terminating party's shares in the Joint Venture at fair market
value for a period of 30 days. If the non-terminating party does not purchase
such shares during the 30 day period, the terminating party will be entitled to
sell its shares in the Joint Venture to a third party. There can be no assurance
that the Board of Directors of the Joint Venture will not become deadlocked or
that, as a result of such deadlock, the Company or NEI will not have a right to
terminate the Joint Venture. Any termination of the Joint Venture, whether
arising from a deadlock of the Board of Directors or otherwise, could result in
the loss of the Company's offshore outsourcing capabilities. Such a loss could
have a material adverse effect on the Company's business, operating results and
financial condition.
9
<PAGE> 11
Since the Company does not directly oversee the services provided by the
Joint Venture, there can be no assurance that such services will be of the same
quality as the services provided by the Company. To the extent that there are
delays or problems with deliverables provided by the Joint Venture, the
Company's relationships with its clients may be adversely affected and the
Company may be required to incur expenses to remedy any problems that arise as a
consequence, either of which could have a material adverse effect on the
Company's business, operating results and financial condition. The Company
encountered problems of this nature in connection with an early project
involving the Joint Venture's resources. Furthermore, the Company must maintain
active satellite communications between its offices and the Joint Venture's
offices in order to effectively leverage its relationship with the Joint
Venture. Any disruption of the Company's ability to transmit voice and data
through satellite communications to India over a prolonged period of time could
have a material adverse effect on the Company's business, operating results and
financial condition.
In addition, the Joint Venture is subject to the risks associated with
doing business in India. India's central and state governments are significantly
involved in the Indian economy as regulators. In the recent past, the government
of India has provided significant tax incentives and relaxed certain regulatory
restrictions in order to encourage foreign investment in certain sectors of the
economy. Certain of these benefits that directly affect the Joint Venture
include, among others, tax holidays, liberalized import and export duties and
preferential rules on foreign investment and repatriation. Changes in the
business or regulatory climate of India could have a material adverse effect on
the Joint Venture's business, operating results and financial condition. In
addition, India has experienced significant inflation, shortages of foreign
exchange and has been subject to civil unrest. Changes in inflation, interest
rates, taxation or other social, political, economic or diplomatic developments
affecting India in the future could have a material adverse effect on the
Company's business, operating results and financial condition.
Increasing Significance of Non-U.S. Operations and Risks Associated with
International Operations. The Company anticipates that over the next several
years it will increase its investment in international operations and that an
increasing percentage of its revenues may be generated outside of the U.S. The
Company's international operations depend greatly upon business, immigration and
technology transfer laws in those countries, and upon the continued development
of technology infrastructure. As a result, the Company's business is subject to
the risks generally associated with non-U.S. operations including, unexpected
changes in regulatory environments, difficulties in managing international
operations, dependence on foreign partners, fluctuations in currency exchange
rates, longer accounts receivable payment cycles and greater difficulties in
collecting accounts receivable, potential foreign tax consequences, including
the impact of repatriation of earnings, tariffs and other trade barriers,
political unrest and changing conditions in countries in which the Company's
services are provided or facilities are located. If any such factors were to
render the conduct of business in a particular country undesirable or
impracticable, there could be a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Strategy."
Risks Associated with IT Industry Trend Toward Preferred Vendor
Relationships. To reduce their need to manage a large number of IT service
providers and to obtain more favorable pricing, certain businesses are seeking
to use a limited number of "preferred vendors." The Company believes that this
trend toward preferred vendors will become increasingly common in the
marketplace, may result in pricing pressure and will decrease the number of
available business opportunities. The Company is aggressively pursuing preferred
vendor contracts in order to obtain new or additional business from large
clients. However, there can be no assurance that the Company will be awarded
preferred vendor contracts, and the Company's inability to win such contracts
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, while preferred vendor contracts
often generate higher volumes, they may result in lower gross margins. As a
result, there can be no assurance that the Company will be able to maintain its
gross margin if it is awarded preferred vendor contracts. The Company's
inability to
10
<PAGE> 12
sustain its gross margins on such contracts could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- Strategy."
Risk of Increased Government Regulation of Immigration. The Company and
the Joint Venture in the past have relied and in the future expect to rely
increasingly upon attracting and retaining individuals with technical and
project management skills from other countries. There is a limit to the number
of new H-1B petitions that the Immigration and Nationalization Services may
approve in any government fiscal year, and in years, such as this year, in which
the limit is reached, the Company may be unable to obtain H-1B visas necessary
to bring critical foreign employees to the U.S. Compliance with existing U.S.
immigration laws, or changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain H-1B
employees in the U.S., could increase competition for technical personnel and
increase the Company's cost of recruiting and retaining the requisite number of
IT professionals which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Birla
Horizons International."
Risks Related to Intellectual Property Protection. The Company relies
primarily upon a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual arrangements to protect its
proprietary rights. In addition, the Company has applied for one patent in the
U.S. related to Time Engineer, a tool which automates certain aspects of the 28
year windowing approach to Year 2000 remediation. There can be no assurance that
a patent will be issued pursuant to this application or that, if granted, such
patent would survive a legal challenge to its validity or provide significant
protection to the Company. Despite the Company's efforts to protect its
proprietary rights, there can be no assurance that the steps taken by the
Company will be adequate to deter misappropriation of its proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that the
Company's competitors will not independently develop similar technology.
While the Company to date has not received any claims that its intellectual
property rights infringe on the intellectual property rights of others, there
can be no assurance that such a claim will not be asserted against the Company
in the future, that the assertion of such claims will not result in litigation
or that the Company would prevail in such litigation or be able to obtain a
license for the use of any infringed intellectual property from a third party on
commercially reasonable terms. The risk of infringement claims against the
Company will increase if other parties are able to successfully obtain patents
for software products and processes related to the Company's business. In
particular, the Company is aware of one issued patent related to a particular
method for addressing the Year 2000 problem. If that patent were asserted
against the Company and found to be valid, enforceable and infringed by the use
of Time Engineer, the Company could be subject to a claim for damages and could
be prevented from offering any service or product which uses or incorporates
Time Engineer unless it is able to obtain a license on commercially reasonable
terms. The Company's revenues to date from the use of Time Engineer have not
been material and the Company does not expect such revenues to be material in
the future. Any such claims, regardless of their outcome, could result in
substantial cost to the Company, require the Company to modify the manner in
which it provides services and divert management's attention from the Company's
operations, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Intellectual Property Rights."
Potential Liability to Clients. Much of the Company's business involves
projects that are critical to the operations of its clients' businesses and
provide benefits that may be difficult to quantify. Any failure in a client's
system could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. While the Company
attempts to contractually limit its liability for damages arising from its IT
services, there can be no assurance the limitations of liability set forth in
its service contracts will be enforceable in all instances or would otherwise
protect the Company from liability for damages. While the Company currently
maintains general liability insurance, including coverage for errors and
omissions, there can be no
11
<PAGE> 13
assurance that the Company will avoid significant claims and attendant
publicity. Furthermore, there can be no assurance that the Company's insurance
coverage will be adequate or that such coverage will remain available at
acceptable costs. Successful claims brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, operating results and financial condition.
Employment Liability Risks. As a provider of staffing services, the
Company places employees at its clients' businesses. Risks associated with this
activity include possible claims of discrimination and harassment, liabilities
for errors and omissions by the Company's employees, misuse of client
proprietary information or intellectual property, injury to Company or client
employees, misappropriation of client property, other criminal activity, torts
and other similar claims. In certain circumstances, the Company may be held
responsible for the actions of persons not under the Company's direct control.
While the Company has not had significant problems with respect to such
employment liability, there can be no assurance that the Company will not
experience such problems in the future.
Broad Discretion in Use of Proceeds. A substantial portion of the net
proceeds to be received by the Company in connection with the Offering will be
allocated to working capital and general corporate purposes. Accordingly,
management of the Company will have broad discretion with respect to the
expenditure of such proceeds. In particular, the Company could use a portion of
these funds for the acquisition of complementary businesses, products and
technologies, although it has no present agreements or commitments with respect
to any such transaction. There can be no assurance that the Company will deploy
these proceeds in a manner that enhances shareholder value. See "-- Risks
Associated with Potential Acquisitions" and "Use of Proceeds."
Offering to Benefit Principal Selling Shareholder. The Offering will
provide a substantial benefit to John J. Cassese, the Company's Chairman of the
Board, President and Chief Executive Officer. Based upon an assumed public
offering price of $39.25 per share, Mr. Cassese will receive net proceeds from
the Offering, after deduction of underwriting discounts and commissions, of
approximately $18.4 million. See "Principal and Selling Shareholders."
Potential Volatility of Stock Price. The trading price of the Company's
Common Stock has been subject to significant fluctuations in the past. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations, particularly among technology companies, which often have
been unrelated to the operating performance of particular companies. Any
announcement with respect to any unfavorable variance in revenues or net income
from levels generally expected by securities analysts or investors for a given
period would have an immediate and significant effect on the trading price of
the Common Stock. In addition, factors such as announcements of technological
innovations or new services or products by the Company, its competitors or other
third parties, rumors of such innovations or new services or products, changing
market conditions in the IT services industry, changes in estimates by
securities analysts, announcements of extraordinary events, such as acquisitions
or litigation, or general economic conditions may have a significant impact on
the market price of the Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against such companies. There can
be no assurance that such litigation will not occur in the future with respect
to the Company. Such litigation could result in substantial costs and a
significant diversion of management's attention and resources, which could have
a material adverse effect upon the Company's business, operating results and
financial condition. See "Price Range of Common Stock."
Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue up to 150,000 shares of Preferred Stock and to determine the
rights, preferences, privileges and restrictions, including voting and
conversion rights of such shares, without any further vote or action by the
shareholders. The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no present plan to issue Preferred Stock.
The Company is also subject to the anti-takeover provisions of Section 912 of
the New York Business Corporation Law, which will prohibit the
12
<PAGE> 14
Company from engaging in a "business combination" with an "interested
shareholder" for a period of five years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. The application of Section 912
could have the effect of delaying or preventing a change in control of the
Company. In addition, the Company has adopted a shareholder rights plan or
"poison pill" which would have certain anti-takeover effects. The distribution
of the Preferred Stock Purchase Rights, under the terms of the Rights Agreement
dated July 9, 1989, as amended, would cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board of
Directors of the Company. Furthermore, the Company's option plans also provide
for acceleration upon certain events resulting in changes of control. Each of
the foregoing provisions could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. There can be no assurance that
such provisions will not have an adverse effect on the value received by the
holders of the Company's Common Stock. See "Description of Capital
Stock -- Preferred Stock" and "-- Preferred Stock Rights Plan."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds from the sale of 2,500,000 shares of Common Stock offered
by the Company, assuming an offering price of $39.25 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
will be approximately $92.6 million ($109.4 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any of
the proceeds from the sale of the 500,000 shares of Common Stock being offered
by the Selling Shareholders.
The Company intends to use the net proceeds for working capital and other
general corporate purposes, including the expansion of its business. The Company
may use a portion of the net proceeds to acquire information technology
businesses and/or technology, although there can be no assurance that any such
acquisition will be made. The Company regularly evaluates acquisition
candidates, conducts preliminary discussions and intends to pursue acquisition
opportunities available to it. However, the Company does not currently have any
agreements with respect to any such acquisition. Pending its use, the Company
intends to invest the net proceeds in short-term, investment grade securities.
See "Risk Factors -- Risks Associated with Potential Acquisitions" and "-- Broad
Discretion in Use of Proceeds."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market and is quoted on
the Nasdaq National Market under the symbol CHRZ. The following table sets forth
for each period indicated the high and low closing sales prices for the Common
Stock as reported on the Nasdaq National Market. See "Risk Factors -- Potential
Volatility of Stock Price."
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1995
First Quarter.................................................. $ 5.63 $ 3.93
Second Quarter................................................. 7.22 4.89
Third Quarter.................................................. 10.56 6.78
Fourth Quarter................................................. 17.78 7.67
Fiscal Year 1996
First Quarter.................................................. 25.67 12.67
Second Quarter................................................. 36.00 22.00
Third Quarter.................................................. 28.17 10.00
Fourth Quarter................................................. 25.83 16.17
Fiscal Year 1997
First Quarter.................................................. 25.42 16.83
Second Quarter................................................. 38.88 19.67
Third Quarter (through August 12, 1997)........................ 44.13 34.00
</TABLE>
On August 12, 1997, the last reported sale price of the Common Stock was
$39.25 per share. As of June 27, 1997, the Company had approximately 1,100
shareholders of record.
DIVIDEND POLICY
The Company has never paid cash dividends on Common Stock and does not
contemplate paying cash dividends on the Common Stock in the foreseeable future.
Net income, if any, will be used to finance the development and expansion of the
Company's business. Future dividend policy will depend upon the Company's net
income, capital requirements, financial condition and other factors considered
relevant by the Company's Board of Directors. In addition, the Company is
subject to certain restrictions relating to the payment of dividends under the
terms of the notes governing its long-term debt.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth as of June 27, 1997: (i) the actual
capitalization of the Company; and (ii) the capitalization of the Company as
adjusted to reflect the sale hereby of the 2,500,000 shares of Common Stock
offered by the Company at an assumed public offering price of $39.25 per share
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company).
<TABLE>
<CAPTION>
JUNE 27, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion........................... $ 1,432 $ 1,432
Shareholders' equity:
Preferred Stock, $.10 par value; authorized and unissued, 200,000
shares, including 50,000 shares of Series A.................... -- --
Common Stock, $.10 par value; authorized, 60,000,000 shares;
26,336,757 shares issued, actual and 28,844,257 shares issued,
as adjusted(1)................................................. 2,634 2,884
Additional paid-in capital........................................ 32,018 124,477
Retained earnings................................................. 59,915 59,915
Treasury stock at cost (1,786,883 shares)......................... (14,648) (14,648)
-------- --------
Total shareholders' equity................................ 79,919 172,628
-------- --------
Total capitalization................................. $ 81,351 $ 174,060
======== ========
</TABLE>
- ---------------
(1) Excludes (i) an aggregate of 2,009,362 shares Common Stock issuable upon
exercise of options outstanding under the Company's Plans as of June 27,
1997, and (ii) 6,005,056 shares of Common Stock reserved for future issuance
under the Company's Plans. Also excludes 36,000 shares of Common Stock
issuable upon the exercise of outstanding warrants.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data for December 31, 1995 and 1996 and
for the years ended December 31, 1994, 1995 and 1996 are derived from, and are
qualified by references to, the audited Consolidated Financial Statements
incorporated by reference in this Prospectus and should be read in conjunction
with such Consolidated Financial Statements and Notes. The income statement data
for the years ended December 31, 1992 and 1993, and the balance sheet data as of
December 31, 1992, 1993 and 1994 are derived from audited consolidated financial
statements not included or incorporated by reference in this Prospectus. The
selected financial data as of June 27, 1996 and 1997 and for the six months
ended June 27, 1996 and 1997 are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary to present fairly the data as of such dates and for such
periods. The results for interim periods are not necessarily indicative of
results to be expected for the year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 27,
------------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................... $102,206 $121,550 $152,192 $200,050 $233,858 $113,063 $145,463
Costs and expenses:
Direct costs................ 74,200 87,800 108,189 140,344 163,272 79,328 99,121
Selling, general and
administrative............ 23,536 26,256 32,992 42,131 52,146 24,625 31,065
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 4,470 7,494 11,011 17,575 18,440 9,110 15,277
Other income (expenses):
Interest income (expense)
net....................... (578) (584) (638) (365) (163) (124) 35
Equity in net earnings of
Joint Venture............. -- -- -- 361 885 443 213
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 3,892 6,910 10,373 17,571 19,162 9,429 15,525
Income taxes.................. 1,866 3,206 4,687 7,664 7,930 3,989 6,600
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 2,026 $ 3,704 $ 5,686 $ 9,907 $ 11,232 $ 5,440 $ 8,925
======== ======== ======== ======== ======== ======== ========
Net income per share(1)....... $ 0.10 $ 0.16 $ 0.27 $ 0.42 $ 0.44 $ 0.21 $ 0.35
======== ======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding(1)....... 20,436 22,491 21,387 23,364 25,461 25,453 25,770
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 27,
------------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............. $20,317 $17,531 $20,484 $39,224 $50,562 $43,827 $59,810
Total assets................ 41,249 40,600 49,150 76,037 88,412 79,984 96,386
Notes payable -- banks...... -- -- 3,200 -- -- -- --
Long-term debt, including
current portion........... 8,572 7,399 5,844 5,684 3,299 3,299 1,432
Shareholders' equity........ $26,856 $25,689 $29,917 $54,267 $68,814 $61,232 $79,919
OPERATING DATA:
Billable consultants(2)..... 1,181 1,376 1,879 2,206 2,510 2,193 2,657
Branch offices(3)........... 29 30 33 39 43 39 45
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements incorporated by
reference in this Prospectus.
(2) Does not include billable consultants employed by the Joint Venture.
(3) Includes offices of the Joint Venture.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in "Risk Factors" and elsewhere in this Prospectus. In evaluating the
Company's business, prospective investors should consider carefully the
following factors in addition to the other information set forth in this
Prospectus.
OVERVIEW
Computer Horizons is a diversified information technology services company
that provides staffing and solutions services, including its Year 2000 services,
to major corporations. In 1996, the Company provided services to 46 of the
Fortune 100 companies, accounting for approximately 60% of the Company's
revenues in that year.
The Company was founded in 1969 as a provider of IT staffing resources.
From 1969 to 1992, the Company expanded through internal growth and acquisitions
to become a national provider of IT staffing resources. In 1992, the Company
commenced a strategic initiative to expand its business to provide solutions
services. The primary motivation for the initiative was to provide more value
added services to clients and to improve the Company's profitability. The
Company has been successful in generating repeat business from existing clients,
with more than 90% of revenues in each of 1994, 1995 and 1996 having been
generated from clients that were also clients during the prior year.
The Company's staffing business accounted for approximately 73% and 68% of
total revenues in the year ended December 31, 1996 and the first six months of
1997, respectively. As a result, the Company's future operating results depend
in large part on the continued growth and profitability of the Company's
staffing business. Virtually all of the revenues derived from the staffing
business are based on time and materials billing arrangements under contracts
which are generally cancelable upon short notice. See "Risk Factors --
Dependence on Staffing Business."
The Company's solutions offerings consist of Year 2000 services,
application development, conversions/migrations, legacy maintenance outsourcing,
enterprise network management and knowledge transfer and training. During the
five year period from 1992 to 1996, revenues from the Company's solutions
business grew from approximately $2.0 million to $63.0 million. The solutions
business, including Year 2000 services, accounted for approximately 27% and 32%
of revenues in the year ended December 31, 1996 and in the first six months of
1997, respectively. Revenues from Year 2000 services increased significantly as
a percentage of solutions revenues in the first six months of 1997, representing
a majority of total solutions revenues. While the Company expects to derive a
significant percentage of its solutions revenues from Year 2000 services through
at least 1999, the Company expects this demand to begin to decrease as the
implementation and testing of many Year 2000 conversion projects are completed.
Any such decrease, to the extent that it is not offset by an increase in the
Company's other businesses, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors -- Risks Associated with Year 2000 Business; Risks Associated with New
Services."
The Company provides its services primarily to businesses in four industry
sectors. For the years ended December 31, 1995 and 1996 and the first six months
of 1997, financial services clients represented approximately 29%, 29% and 31%,
respectively, of the Company's total revenues.
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<PAGE> 19
Financial services clients include those in insurance, brokerage, banking and
non-depository credit institutions.
Telecommunications clients represented approximately 20%, 24% and 25% of
total revenues for the years ended December 31, 1995 and 1996 and the first six
months of 1997, respectively. Manufacturing sector clients were approximately
24%, 20% and 15% for the years ended December 31, 1995 and 1996 and for the
first six months of 1997, respectively. For the Company's services sector, which
includes business services and computer processing services, total revenues
totaled approximately 12%, 11% and 8% for the years ended December 31, 1995 and
1996 and for the first six months of 1997, respectively.
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenues from a limited number of large clients. In
the year ended December 31, 1996 and the first six months of 1997, the Company's
10 largest clients accounted for approximately 40% and 49% of its revenues,
respectively. One client, AT&T, accounted for approximately 10% and 13% of
revenues in the year ended December 31, 1996 and the first six months of 1997,
respectively. The volume of work performed for specific clients is likely to
vary from year to year, and a major client in one year may not use the Company's
services in a subsequent year. For example, in the second quarter of 1996, the
Company lost a contract with a major client which resulted in a decline in
solutions revenues and net income. The loss of any large client could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors -- Concentration of Revenues; Dependence
on Large Projects."
To address the Year 2000 opportunity, the Company invested in the
development of a proprietary methodology and toolset. All of the costs of such
development were expensed as incurred. The toolset, known as the Signature 2000
Toolset, was initially intended to be a driver for the sale of services and not
to generate product sales. However, the Company has recently begun offering to
license the Signature 2000 Toolset. To date, only one client, a major defense
contractor, has licensed the toolset for its internal use.
The Company provides solutions services to clients on either a time and
materials basis, fixed-price basis or a best efforts basis, which is a time and
material arrangement whereby the Company must seek authorization from the client
before exceeding the fee estimate in the contract. For services performed on a
time and materials basis or a best efforts basis, the Company recognizes
revenues as services are performed. Revenues from fixed-fee contracts are
recognized under the percentage of completion method, with revenues and gross
profit adjustments made when required to reflect revisions in estimated total
costs and contract values. In fixed-fee arrangements, the Company bears the
risks of costs overruns and, generally, inflation. To mitigate this risk, the
Company seeks to carefully define the expectations and deliverables in detailed
statements of work. During the years ended December 31, 1994, 1995 and 1996 and
the first six months of 1997, revenues from fixed-fee contracts represented
approximately 3%, 5%, 5% and 9%, respectively, of total revenues. The increase
in fixed-fee contracts is directly related to the increase in the Company's Year
2000 services. See "Risk Factors -- Fixed-Price Contracts."
The Company's direct costs consist of salaries and benefits for its
billable IT consultants (including independent contractors), and represents the
Company's most significant expense. Because of the increasing demand for IT
professionals worldwide, the Company is experiencing inflationary pressure on
wages. Such inflationary pressures are more significant in the solutions
business. A contributing factor to the increasing demand is believed to be the
projected resources needed to correct the Year 2000 problem. There can be no
assurance that the Company will be successful in attracting a sufficient number
of highly-skilled employees in the future, or that it will be successful in
retaining existing and future employees and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, to the extent that the number of companies in
the IT services industry increases and such companies seek to expand their
employee bases, the competition for skilled employees and the compensation to be
offered to such employees is likely to increase. As a result of the foregoing,
the
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<PAGE> 20
Company may in the future be required to incur higher recruiting expenses and
increase its compensation levels, either of which could have a material adverse
effect, on its business, operating results and financial condition. The Company
believes that since its IT professionals are "at will" employees a substantial
portion of its expenses are variable and accordingly the Company has the ability
to adjust expense levels to account for changing market conditions. See "Risk
Factors -- Recruitment and Retention of IT Professionals."
Selling, general and administrative expenses consist principally of
salaries, commissions and related benefit costs for its corporate and support
staff, sales and marketing and recruiting personnel. As of June 27, 1997, the
Company had approximately 430 selling, general and administrative personnel,
including approximately 100 full-time recruiters.
In 1995, the Company entered into a joint venture with NEI, an affiliate of
The Birla Group, a large multinational conglomerate located in India. The
purpose of the equally owned joint venture is to facilitate bringing staffing
resources to the United States as well as to perform certain IT services in
India at costs significantly lower than those in the U.S. The Joint Venture is
accounted for in the Company's financial statements using the equity method of
accounting, whereby the Company's 50% share of the Joint Venture's net income or
loss is recorded as other income or loss. See "Risk Factors -- Risks Associated
with India Joint Venture."
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 27,
------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Direct costs................................ 71.1 70.1 69.8 70.1 68.1
Selling, general and administrative......... 21.7 21.0 22.3 21.8 21.4
----- ----- ----- ----- -----
Income from operations........................ 7.2 8.9 7.9 8.1 10.5
Other income (expense):
Interest expense, net....................... (0.4) (0.2) (0.1) (0.2) 0.0
Equity in net earnings of Joint Venture..... 0.0 0.2 0.4 0.4 0.1
----- ----- ----- ----- -----
Income before income taxes.................... 6.8 8.9 8.2 8.3 10.6
Income taxes:
Current..................................... 3.3 4.1 3.6 4.0 5.0
Deferred.................................... (0.2) (0.2) (0.2) (0.5) (0.5)
----- ----- ----- ----- -----
Net income.................................... 3.7% 5.0% 4.8% 4.8% 6.1%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 27, 1997 COMPARED TO SIX MONTHS ENDED JUNE 27, 1996
Revenues. Revenues increased from $113.1 million in the first six months
of 1996 to $145.5 million in the first six months of 1997, an increase of $32.4
million or 29%. Staffing revenues increased from $77.0 million in the first six
months of 1996 to $98.9 million in the first six months of 1997, an increase of
$21.9 million or 28%. Solutions revenues, including Year 2000 services,
increased from $36.1 million in the first six months of 1996 to $46.6 million in
the first six months of 1997, an increase of $10.5 million or 29%. Year 2000
services revenues increased from $2.5 million in the first six months of 1996 to
$27.8 million in the first six months of 1997, an increase of $25.3 million. The
Company's Year 2000 business accounted for approximately 2% of total revenues in
the first six months of 1996 versus approximately 19% of total revenues in the
first six months of 1997. Solutions revenues, excluding Year 2000 services,
decreased from $33.6 million in the first six
19
<PAGE> 21
months of 1996 to $18.8 million in the first six months of 1997, a decrease of
$14.8 million or 44%. Approximately $8.0 million of the decrease is related to
the loss of a contract with a major client in the second quarter of 1996. The
remainder of the decrease is attributable to a shift in client demand and the
Company's increased focus on its Year 2000 business.
Direct Costs. Direct costs increased from $79.3 million in the first six
months of 1996 to $99.1 million in the first six months of 1997. Gross margin
increased from 29.9% in the first six months of 1996 to 31.9% for the first six
months of 1997. The increase in gross margin was primarily due to stable margins
in the Company's staffing business and an increase in the Company's higher
margin Year 2000 business. The Company's margins are subject to fluctuation due
to a number of factors, including the level of salary and other compensation
related expenses necessary to attract and retain qualified technical personnel
and the mix of staffing versus solutions business during a particular quarter.
See "Risk Factors -- Fluctuations in Quarterly Operating Results."
Selling, General and Administrative. Selling, general and administrative
expenses increased in absolute dollars from $24.6 million in the first six
months of 1996 to $31.1 million in the first six months of 1997, an increase of
$6.5 million or 26.2%. As a percentage of revenues, selling, general and
administrative expenses decreased slightly from 21.8% of revenues in the first
six months of 1996 to 21.4% of revenues in the first six months of 1997. The
increase in selling, general and administrative expenses in absolute dollars was
primarily a result of salaries and commissions for additional sales and
recruiting personnel and, to a lesser extent, growth in the Company's general
and administrative infrastructure.
Income from Operations. Operating margins increased from 8.1% in the first
six months of 1996 to 10.5% in the first six months of 1997. This increase was
primarily due to an increase in the Company's higher margin Year 2000 solutions
business.
Other Income. Other income decreased from $0.3 million in the first six
months of 1996 to $0.2 million in the first six months of 1997, a decrease of
approximately $0.1 million or 22.3%. This decrease was primarily the result of a
decrease in earnings from the Joint Venture, which was offset in part by a
decrease in net interest expense. The Joint Venture's decreased earnings in the
first six months of 1997 were primarily due to costs associated with increased
headcount, particularly in marketing and project management personnel as it
expanded its solutions business. The Company expects that the Joint Venture will
continue to make significant investments in personnel which will result in
continued lower earning levels for the Joint Venture in the second half of 1997.
Provision for Income Taxes. The effective tax rate for federal, state and
local income taxes was 42.3% and 42.5% in the first six months of 1996 and 1997,
respectively.
Net Income. Net income increased from $5.4 million in the first six months
of 1996 to $8.9 million in the first six months of 1997, an increase of $3.5
million or 64.1%. Net income per share increased from $0.21 in the first six
months of 1996 to $0.35 in the first six months of 1997 on higher weighted
average shares outstanding (25.5 million versus 25.8 million). All net income
per share and share amounts have been adjusted to reflect a three-for-two split
effected as a Common Stock dividend distributed on June 9, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased from $200.1 million in the year ended
December 31, 1995 to $233.9 million in the year ended December 31, 1996, an
increase of $33.8 million or 17%. Staffing revenues increased from $140.9
million in the year ended December 31, 1995 to $170.7 million in the year ended
December 31, 1996, an increase of $29.8 million or 21%. Solutions revenues,
including Year 2000 services, increased from $59.1 million in the year ended
December 31, 1995 to $63.2 million in the year ended December 31, 1996, an
increase of $4.1 million or 7%. Year 2000 revenues increased from nil for the
year ended December 31, 1995 to $10.4 million for the year ended December 31,
1996. Solutions revenues, excluding Year 2000 services, decreased from $59.1
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<PAGE> 22
million in the year ended December 31, 1995 to $52.7 million in the year ended
December 31, 1996, a decrease of $6.4 million or 11%. The decrease in solutions
revenues, excluding Year 2000 services, was primarily related to the loss of a
contract with a major client in the second quarter of 1996.
Direct Costs. Direct costs increased from $140.3 million in the year ended
December 31, 1995 to $163.3 million for the year ended December 31, 1996. Gross
margin increased from 29.9% for the year ended December 31, 1995 to 30.2% for
the year ended December 31, 1996. The increase in gross margin was primarily due
to stable margins in the Company's staffing business and an increase in the
Company's higher margin Year 2000 business. The Company's margins are subject to
fluctuation due to a number of factors, including the level of salary and other
compensation related expenses necessary to attract and retain qualified
technical personnel and the mix of staffing versus solutions business during a
particular quarter. See "Risk Factors -- Fluctuations in Quarterly Operating
Results."
Selling, General and Administrative. Selling, general and administrative
expenses increased in absolute dollars from $42.1 million in the year ended
December 31, 1995 to $52.1 million in the year ended December 31, 1996, an
increase of $10.0 million or 23.8%. As a percentage of revenues, selling,
general and administrative expenses increased from 21.0% in the year ended
December 31, 1995 to 22.3% in the year ended December 31, 1996. The increase in
selling, general and administrative expenses in 1996 was primarily a result of
salaries and commissions for additional personnel, infrastructure necessary to
pursue large, high profile opportunities, and marketing expenses incurred to
raise the Company's visibility through public relations, trade shows and
conferences.
Income from Operations. Income from operations increased from $17.6
million for the year ended December 31, 1995 to $18.4 million in the year ended
December 31, 1996, an increase of $0.8 million or 4.9%. Operating margins
decreased from 8.8% in the year ended December 31, 1995 to 7.9% in the year
ended December 31, 1996. The increase in absolute dollars was attributable to
increased revenues and improved gross margins, offset by the impact of the
unexpected termination of a large contract in the second quarter of 1996 and the
increase in selling, general and administrative expenses in 1996. The Company's
business is labor-intensive and, as such, is sensitive to inflationary trends.
This sensitivity applies to client billing rates, as well as to payroll costs.
However, there can be no assurance that the Company will be able to recover any
cost increases through increased billing rates.
Other Income. Other income increased from nil in the year ended December
31, 1995 to $0.7 million in the year ended December 31, 1996. This increase was
primarily a result of reduced interest expenses as the Company reduced its
outstanding debt with a portion of the net proceeds from its June 1995 public
offering and by the increased earnings of the Joint Venture.
Provision for Income Taxes. The effective tax rate for federal, state and
local income taxes was 43.6% and 41.4% in the years ended December 31, 1995 and
1996, respectively. The 1996 rate reflects an increase in undistributed earnings
of the Joint Venture for which taxes have not been provided.
Net Income. Net income increased from $9.9 million in the year ended
December 31, 1995 to $11.2 million in the year December 31, 1996, an increase of
$1.3 million or 13.4%. Net income increased from $0.42 per share in the year
ended December 31, 1995 to $0.44 per share in the year ended December 31, 1996.
All net income per share and share amounts have been adjusted to reflect a
three-for-two split effected as a Common Stock dividend distributed on June 9,
1997.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statements of operations data
for the six quarters in the period ended June 27, 1997, both in dollar amounts
and as percentages of revenues. This
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<PAGE> 23
information has been derived from unaudited financial statements that, in the
Company's opinion, reflect all normal recurring adjustments that the Company
considers necessary to present a fair statement of the results of operations in
the quarterly periods. The data set forth should be read in conjunction with the
Consolidated Financial Statements and Notes thereto incorporated by reference in
this Prospectus. The operating results for any quarter are not necessarily
indicative of results for future quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
MAR. 29, JUNE 27, SEPT. 27, DEC. 31, MAR. 31, JUNE 27,
1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 57,031 $ 56,032 $ 57,275 $ 63,520 $ 69,749 $ 75,714
Direct costs........................ 39,368 39,960 39,756 44,188 47,899 51,222
Selling, general and
administrative.................... 12,120 12,505 13,177 14,344 14,955 16,110
-------- -------- -------- -------- -------- --------
Income from operations.............. 5,543 3,567 4,342 4,988 6,895 8,382
Interest income (expense), net...... (41) (83) (16) (23) 35 --
Equity in net earnings of Joint
Venture........................... 213 230 200 242 150 63
-------- -------- -------- -------- -------- --------
Income before income taxes.......... 5,715 3,714 4,526 5,207 7,080 8,445
Income taxes........................ 2,413 1,576 1,893 2,048 2,998 3,602
-------- -------- -------- -------- -------- --------
Net income.......................... $ 3,302 $ 2,138 $ 2,633 $ 3,159 $ 4,082 $ 4,843
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
----------------------------------------------------------------
MAR. 29, JUNE 27, SEPT. 27, DEC. 31, MAR. 31, JUNE 27,
1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs.......................... 69.0 71.3 69.4 69.6 68.7 67.6
Selling, general and administrative... 21.3 22.3 23.0 22.6 21.4 21.3
----- ----- ------ ----- ----- -----
Income from operations................ 9.7 6.4 7.6 7.8 9.9 11.1
Interest income (expense), net........ (0.1) (0.2) 0.0 0.0 0.1 --
Equity in net earnings of Joint
Venture............................. 0.4 0.4 0.3 0.4 0.2 0.1
----- ----- ------ ----- ----- -----
Income before income taxes............ 10.0 6.6 7.9 8.2 10.2 11.2
Income taxes.......................... 4.2 2.8 3.3 3.2 4.3 4.8
----- ----- ------ ----- ----- -----
Net income............................ 5.8% 3.8% 4.6% 5.0% 5.9% 6.4%
===== ===== ====== ===== ===== =====
</TABLE>
The Company's revenues and operating results are subject to significant
variation from quarter to quarter. Revenues are subject to fluctuation based
upon a number of factors, including the timing and number of client projects
commenced and completed during the quarter, delays incurred in connection with
projects, the Company's ability to retain key personnel, the ability of the
Company to develop, introduce and market new and enhanced services,
announcements by the Company or its competitors, the growth rate of the market
for IT staffing and solutions services, including Year 2000 services and general
economic conditions. Unanticipated termination of a project or the decision by a
client not to proceed to the stage of a project anticipated by the Company could
result in decreased revenues and lower employee utilization rates which could
have a material adverse effect on the Company's business, operating results and
financial condition. For example, in the second quarter of 1996, the Company
lost a contract with a major client which resulted in a decline in solutions
revenues and net income. There can be no assurance that the Company will not
experience a similar loss in the future.
The principal factors affecting the Company's gross margin are the level of
salary and other compensation related expenses necessary to attract and retain
qualified technical personnel and the mix of staffing versus solutions business
during the quarter. Compensation levels can be impacted by
22
<PAGE> 24
a variety of factors including competition for highly-skilled employees and
inflation. The Company's operating results are also subject to fluctuation as a
result of other factors including the accuracy of estimates of fixed-price
projects, employee utilization rates and extraordinary events such as
acquisitions or litigation. The Company's operating results may also be affected
in the future by the licensing of its Signature 2000 Toolset which it has
recently begun to offer to third parties. To date, the Company has only licensed
the software to one client and there can be no assurance that it will be
successful in its future licensing activities. However, to the extent the
Company does license its software, the revenues from such licensing activities
may result in significant fluctuations in the Company's revenues and operating
results. See "Risk Factors -- Fluctuations in Quarterly Operating Results."
The Company has from time-to-time disclosed bookings for its Year 2000
services business. These bookings include projects as to which the Company has
been advised that it has been awarded the business but which are not yet subject
to contractual arrangements as well as projects which are subject to fully
executed contracts. In addition, to the extent that the project is not being
undertaken on a fixed-price basis, bookings are based on the Company's estimate
of billings expected to result from such project. There can be no assurance that
the amounts included in bookings at any given time will result in revenues being
recognized in the time frame anticipated by the Company or at all. As a result,
bookings should not be relied upon as an indication of revenues in any future
period.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, the Company has financed its operations primarily through the
public sale of its Common Stock, borrowing under its bank lines of credit and
cash generated from operations. At June 27, 1997, the Company had $3.8 million
in cash and cash equivalents, $59.8 million in working capital and no borrowings
under its bank lines of credit. As an employee-based services company which pays
its workforce bi-weekly, growth places increasing demands on cash balances.
Net cash used in operating activities was $6.0 million for the first six
months of 1997 primarily as a result of an increase in accounts receivable,
largely due to growth in the Company's solutions business. In the years ended
December 31, 1995 and 1996, net cash provided by operating activities was $1.9
million and $4.9 million, respectively, consisting primarily of net income,
offset in part by an increase in accounts receivable.
Net cash used in investing activities was $6.1 million, $2.5 million and
$1.5 million in the years ended December 31, 1995 and 1996 and the first six
months of 1997, respectively. Net cash used in investing activities in 1995
consisted primarily of approximately $3.0 million of additional goodwill
resulting from earn-out provisions in connection with the Company's acquisition
of Unified Systems Solutions, Inc. and Strategic Outsourcing Services, Inc., the
purchase of furniture and equipment and the establishment of client-specific
outsourcing centers. Net cash used in investing activities in the year ended
December 31, 1996 and the first six months of 1997 consisted primarily of
purchases of equipment and furniture.
Net cash provided by financing activities was $11.1 million and $0.3
million in the year ended December 31, 1995 and the first six months of 1997,
respectively. Net cash provided by financing activities in 1995 consisted
primarily of $13.3 million in net proceeds from the Company's public offering of
Common Stock, offset in part by the repayment following the offering of
outstanding bank debt of $6.0 million. For the year ended December 31, 1996, net
cash used in financing activities was $0.7 million, resulting primarily from the
scheduled repayment of long-term debt.
At June 27, 1997, the Company had a current ratio position of 5.0 to 1, no
long-term debt and no outstanding borrowings under its two unsecured
discretionary lines of credit for $10.0 million and $15.0 million, respectively.
The $10.0 million line of credit bears interest at a rate of LIBOR plus fifty
basis points (6.625% as of June 27, 1997) and the $15.0 million line of credit
bears interest at a rate to be mutually agreed upon by the bank and the Company
at the time of borrowing. The Company also has outstanding two long-term notes
each bearing interest at a rate of 9.55%. As of June 27,
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<PAGE> 25
1997, approximately $1.4 million remained outstanding under the Notes and will
become due on April 15, 1998.
The Company believes that the net proceeds of the Offering received by the
Company, together with cash flow from operations and existing cash balances will
be sufficient to meet its working capital and capital expenditure requirements
at least through 1998.
ACCOUNTS RECEIVABLE
The Company's accounts receivable were $44.7 million, $54.3 million and
$68.7 million at December 31, 1995, December 31, 1996 and June 27, 1997,
respectively. Days sales outstanding for the Company were 71 at December 31,
1995, 77 days at December 31, 1996 and 82 days at June 27, 1997. The increase in
days outstanding is directly related to the Company's expanding solutions
business. Billing and collection processes associated with the Company's
solutions business as opposed to standard time and material contracts in the
staffing business contribute to longer days sales outstanding because of several
factors, including: (i) fixed deliverable-based billing periods, as opposed to
weekly or bi-weekly; (ii) longer contract finalization periods before initial
billings can proceed; and (iii) more complicated billing data, requiring greater
accumulation and processing time for invoicing clients.
EFFECTS OF INFLATION
The Company's most significant costs are salaries and related benefits for
its consultants and other professionals. Compensation levels for IT
professionals with the specialized skills necessary to perform services provided
by the Company have increased at a rate greater than that of general wage
inflation. As a result, the Company must adequately anticipate these
salary/benefit increases, particularly when pricing fixed-fee contracts. There
can be no assurance that the Company will be able to recover these cost
increases through increased billing rates. See "Risk Factors -- Recruitment and
Retention of IT Professionals" and "-- Fixed-Price Contracts."
24
<PAGE> 26
BUSINESS
OVERVIEW
The Company is a diversified IT services company that provides IT staffing
and solutions services, including Year 2000 services, to major corporations.
Founded in 1969 as a provider of IT staffing resources, the Company has expanded
through internal growth and acquisitions to become a leading national provider
of IT staffing services. In recent years, the Company has leveraged its existing
client base and expanded its role as a leading provider of IT services by
offering its clients various IT solutions services, including application
development, conversions/migrations, legacy maintenance outsourcing, enterprise
network management and knowledge transfer and training. The Company was an early
entrant into the Year 2000 market and offers a Year 2000 solution based upon the
Company's proprietary Signature 2000 Toolset. The Company's Year 2000 solution
covers all phases of Year 2000 projects from assessment through full compliance.
The Company's Year 2000 services business, which represented approximately 2% of
the Company's revenues in the first six months of 1996, accounted for
approximately 19% of its revenues in the first six months of 1997. The Company
offers its services domestically and internationally through a network of 45
offices, located in 21 states, the District of Columbia, Canada, England and
India (including the offices of the Joint Venture). The Company markets its
services primarily to Fortune 500 companies with significant information
technology budgets and recurring staffing or software development needs. The
Company believes that its ability to offer a broad range of staffing and
solutions services and its established relationships with many Fortune 500
companies provide it with significant advantages in the IT services market.
MARKET OPPORTUNITY
The demand for IT services has grown dramatically as business computing
needs have changed. Increased competition, globalization and rapid technological
change are forcing organizations to make fundamental changes in their business
processes. Increasingly, organizations are addressing issues such as the need to
improve quality, shorten time to market and reduce costs by utilizing IT
solutions that facilitate rapid and flexible collection, analysis and
dissemination of information. As a result, an organization's ability to
effectively utilize new IT solutions in a cost-effective manner has become
critical in today's increasingly competitive business environment. During this
time of increasing reliance on IT, rapid technological change and other
challenges, such as the need for Year 2000 conversions, further strain the
capabilities of the internal IT departments within these organizations. As a
result of these factors and the need to focus their resources on core
competencies, large corporations are increasingly outsourcing these functions to
third party vendors of IT services.
IDC estimates that worldwide outsourcing spending was approximately $86
billion in 1996, and projects that such spending will grow to $140 billion in
2001. In addition, the Gartner Group estimates that the worldwide cost of fixing
the Year 2000 problem to be between $300 and $600 billion. The Year 2000
problem, which prevents existing software applications from properly
interpreting dates after 1999, represents a significant opportunity for IT
service providers. While the Year 2000 problem clearly impacts legacy systems,
it also extends beyond legacy systems, as many newer systems have been
constructed to interoperate with legacy systems, and therefore have adopted the
same programming practice with regard to information describing the date.
Solutions to the Year 2000 problem include: (i) renovation of existing
applications with Year 2000 compliant code; (ii) replacement of existing
software with Year 2000 compliant software; and (iii) re-engineering of legacy
applications to Year 2000 compliant client/server technologies.
The IT services industry is highly fragmented, with a large number of
providers, including IT staffing organizations, solutions providers and
providers of both staffing and solutions services. Professional staffing
organizations provide technical staffing to meet the needs of organizations for
particular skillsets or to accomplish critical, time sensitive projects.
Solutions providers are retained to develop or implement IT-based solutions to
business problems. The principal buyers of IT services are large corporations
with recurring needs for staffing and solutions services. Buyers of
25
<PAGE> 27
professional staffing services typically require technically competent personnel
at a specific location, on short notice, for highly variable engagement length
and at competitive terms. In this environment, professional staffing
organizations must maintain effective recruiting organizations in a local
geographic market and closely manage the utilization of personnel. In contrast,
solutions providers are typically engaged to solve a specific business problem,
such as a Year 2000 problem, either in collaboration with the client's IT
organization or on a turnkey vendor basis. In the solutions environment, well
defined technical capabilities and individual professionals with specific
expertise are selected based on the particular requirements of the buyer,
including in many cases specialized skill sets and experience profiles.
In an attempt to reduce cost and management complexity, many large
corporations are seeking to reduce the number of suppliers of IT services that
they use by establishing preferred vendor relationships with IT service
providers that are able to address a broad range of problems.
STRATEGY
The Company's objective is to be the leading provider of comprehensive IT
staffing and solutions services to Fortune 500 companies. The Company's
principal strategies for achieving this goal are as follows:
Maintain Leadership Position in Staffing. The Company intends to continue
to expand its core staffing business and to leverage its existing relationships
to achieve preferred vendor status with large clients. In 1996, the Company
provided staffing services to over 450 clients. The Company's 28 years of
experience in the staffing business and large recruiting organization enables it
to quickly respond to the staffing requirements of new and existing clients. The
Company intends to continue to expand its capacity in recruiting, which the
Company believes is the most critical business function required for a staffing
business. The Company's recruiting capabilities include over 100 full time
recruiters, located in its offices throughout the United States.
Increase Year 2000 Business. The Company intends to continue to actively
market its Year 2000 services to new and existing clients. A key element of the
Company's strategy is to leverage its knowledge of clients' existing IT systems
and applications obtained during Year 2000 projects into additional engagements
involving other solutions services. The Company has also recently begun to offer
to license its Year 2000 tools. The decision to license the Signature 2000
Toolset by the Company was designed to: (i) reach potential clients; (ii) expand
the Company's market presence; and (iii) gain access to companies that do not
utilize third party service providers.
Develop Strategic Solutions Offerings. The Company is seeking to leverage
its established staffing business by developing strategic solutions offerings
such as Year 2000 services. The Company believes that the client relationships
it has developed in its staffing business provide it with insight into client
organizations, IT environments and IT service requirements that offer it
advantages in marketing additional services to those clients. By continuing to
enhance the IT solutions that it offers, the Company believes that it will be
able to expand its business relationships with existing clients, increase the
size of the projects that it undertakes and attract new clients. The Company has
begun to implement this strategy with its successful Year 2000 services business
which has grown from $2.5 million in the first six months of 1996 to $27.8
million in the first six months of 1997. The Company believes that the solutions
business has the potential to offer higher margins than its traditional staffing
business. The Company intends to develop additional strategic solutions
offerings, including those needed to address EMU conversion services, enterprise
data warehousing and universal repository automation, Internet/intranet services
and software testing solutions.
Expand Client Base. The Company seeks to expand its client base by growing
its established staffing business, by offering strategic solutions and services
and by expanding its geographic presence, both domestically and internationally.
By offering its Year 2000 services, the Company has been able to expand its
client base beyond its existing staffing clients. The Company believes that the
status of being a strategic solutions provider offers the Company access to
chief information
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<PAGE> 28
officers and other high level decision makers, increasing its visibility as a
strategic supplier of IT services and increasing its ability to cross-sell other
services.
Expand Geographic Presence. The Company intends to continue to expand
domestically and internationally by opening new offices, pursuing strategic
acquisitions of other IT services companies and entering into strategic
partnerships or alliances. The Company's clients are large organizations that
utilize IT services in multiple geographic locations. The Company believes that
many of its existing and potential clients are seeking to consolidate the number
of IT services vendors they utilize and that larger service providers with a
direct presence in multiple geographic markets will have a competitive advantage
in pursuing that business. The Company has grown from 33 offices at January 1,
1995 to 45 offices at June 27, 1997, including the offices of the Joint Venture.
SERVICES
The Company offers a wide range of IT services, including staffing, Year
2000 services, application development, conversions/migrations, legacy
maintenance outsourcing, enterprise network management and knowledge transfer
and training. The Company can provide each of these services alone or together
with others as a comprehensive package. The Company can undertake full or shared
project responsibility with the client or simply provide IT professionals with
specified skills to augment the client's internal IT staff on an as-needed
basis. Projects can be performed at the client's facilities or at the Company's
own facilities.
The following is a brief description of certain of the Company's principal
services:
Staffing Services
The Company provides highly-skilled IT professionals to large organizations
to augment their internal IT staffs. Large corporations are increasingly relying
on third party IT service providers in order to increase their focus on core
competencies, shift fixed overhead to variable cost staffing and address the
need for variable personnel for special projects. The Company has staffing
professionals based in 45 offices in 21 states, the District of Columbia,
Canada, England and India (including the offices of the Joint Venture). The
Company places staff from a period of a few days to years, with an average
length assignment of several months. The Company believes that its broad
geographic reach, quick response time and skilled personnel will provide it with
a competitive advantage as clients seek to reduce the number of IT service
vendors they utilize. Staffing services represented approximately 73% and 68% of
revenues for the year ended December 31, 1996 and the first six months of 1997,
respectively.
Solutions Services
Year 2000 Services. The Company has been providing Year 2000 services since
1995 utilizing its proprietary Signature 2000 Toolset. The Signature 2000
Toolset brings automation to all Year 2000 phases, from assessment through full
compliance. The Company has developed a formal project management methodology
that addresses all aspects of the Year 2000 problem in mainframe, client/server
and LAN environments. This methodology helps assure a quality process and
addresses application portfolio analysis, impact assessment, strategic planning,
conversion, testing and implementation. The Company markets its Year 2000
methodology through LBMS, Inc., a leading methodology vendor. The Company has
developed Year 2000 software factories in the U.S. and, through the Joint
Venture, in India to provide rapid offsite delivery of Year 2000 services. These
services leverage the capacity of the Company with its proven process, project
management, quality assurance practices and technology to cost-effectively
convert bulk volumes of COBOL, C and C++ application code. The Company has
completed approximately 110 projects covering one or more Year 2000 phases for
31 clients and is currently working on approximately 100 projects covering one
or more Year 2000 project phases for 37 clients.
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<PAGE> 29
Other Solutions Services
Application Development. The Company develops and implements business
application systems in a large variety of technologies. This includes
distributed architectures which integrate servers, mini and mainframe systems,
workstations, terminals and communication gateways. Services are provided by the
Company across the full project lifecycle, including business requirements,
technical specifications, prototypes, design specifications, coding, test
planning and execution. The services are supported by project management and
quality assurance practices to provide on time, quality deliverables.
Conversions/Migrations. The Company provides its clients with conversion
and migration services to upgrade or move legacy applications to newer
technologies. Services include language level upgrades, language conversions, as
well as the re-platforming (migration) of applications. The Company will assist
its clients in the selection of viable systems platforms, creation of migration
plans, development of customized software applications, and systems and database
integration. The Company specializes in integrating LAN environments into single
heterogeneous networks and unifying networks into WANs.
Legacy Maintenance Outsourcing. The Company provides its clients with
project management and technical services to support the ongoing maintenance and
enhancement of mission-critical business applications. Using a proven transition
approach, the Company can transfer all or part of the client's resources to the
outsourcing engagement or staff the entire engagement with the Company's
consultants. A disciplined maintenance methodology and incident tracking and
metrics database allows the Company to reduce maintenance expense and improve
the quality and timeliness of maintenance enhancements.
Enterprise Network Management. The Company provides comprehensive network
and systems management solutions to its clients. Offerings are provided across
major functional areas, including help desk and service desk, network monitoring
and configuration, systems and applications management. The Company's solutions
typically include project management, process definition and integration
services. The Company also has reseller rights in selected markets to certain
enterprise management software and hardware that may be incorporated into the
Company's solutions.
Knowledge Transfer and Training. The Company offers both standard
curricula and custom-tailored courses for a client's particular environment and
needs. Comprehensive courses cover languages, hardware, software, tools,
methodologies, and management and productivity skills. The Company's offerings
include application downsizing, graphical interfaces, open systems, computer
aided software engineering and information engineering technologies, relational
technology and personal computer software and hardware. The Company also has
reseller and training rights in selected markets to certain development tools
used as an aid in building client/server applications.
Offshore Outsourcing. Through the Joint Venture, the Company is seeking to
provide clients with offshore solutions development such as legacy systems
maintenance, client/server systems development and migration, help desk
activities and applications design and coding more cost-effectively than can be
done domestically.
Signature 2000 Toolset
The Company has recently begun to offer for license its Signature 2000
Toolset. The Signature 2000 Toolset was developed for use by the Company in
providing Year 2000 services and enables the user to identify all date fields
within an application, assess the potential impact of the lines of code on the
overall application, reformat the date fields to permit the processing of dates
after December 31, 1999 and test the reformatted code. The Signature 2000
Toolset can be used in support of either a date expansion or a process-driven
approach. The Signature 2000 Toolset
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<PAGE> 30
includes common copy members, an audit trail, optional dynamic aging and a
unique design resulting in minimal to no impact on processing times. The
Signature 2000 Toolset is applicable to more than 25 programming languages,
databases and technologies and runs on mainframes and workstations.
The IT services industry is characterized by rapid technological change,
changing client requirements and new product and service introductions. The
introduction of competitive IT solutions embodying new technologies and the
emergence of new industry standards may render the Company's existing IT
solutions or underlying technologies obsolete or unmarketable. As a result, the
Company will be dependent in large part upon its ability to develop new IT
solutions that maintain technological leadership, address the increasingly
sophisticated needs of its clients, keep pace with new competitive service and
product offerings and emerging industry standards and achieve broad market
acceptance. See "Risk Factors -- Risks of Technological Change and Evolving
Industry Standards."
CLIENTS AND MARKETING
The Company focuses its marketing efforts on large businesses, primarily
Fortune 500 and comparably sized companies and institutions with significant
information technology budgets and recurring staffing or software development
needs. In 1996, the Company provided services to approximately 450 clients in a
range of industries including telecommunications, financial services,
manufacturing and services, among others. The following is a representative list
of the Company's clients:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS MANUFACTURING
- --------------------------------------------- ---------------------------------------------
<S> <C>
Ameritech Corporation Dow Chemical Company
AT&T Ford Motor Company
GTE Corporation International Business Machines Corporation
Lucent Technologies, Inc. International Paper Company
MCI Communications Corporation Lockheed Martin Corporation
Northern Telecom Limited Procter & Gamble
NYNEX Corporation Square D Company
Standard Oil Co.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES SERVICES
- --------------------------------------------- ---------------------------------------------
<S> <C>
Allstate Corporation Andersen Consulting
American Express Company Florida Power & Light Company
Chase Manhattan Corporation HFS, Inc.
CIGNA Corporation
Citicorp
Lutheran Brotherhood
Merrill Lynch & Co., Inc.
Prudential Insurance Company of America
</TABLE>
The Company has historically derived, and expects in the future to derive,
a significant percentage of its revenues from a relatively small number of
clients. In the year ended December 31, 1996 and the first six months of 1997,
the Company's ten largest clients accounted for approximately 40% and 49% of its
revenues, respectively. AT&T accounted for approximately 10% and 13% of revenues
in the year ended December 31, 1996 and the first six months of 1997,
respectively. In accordance with industry practice, most of the Company's
contracts are terminable by either the client or the Company on short notice.
See "Risk Factors -- Concentration of Revenues; Dependence on Large Projects."
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<PAGE> 31
The Company markets its services through a combination of account
representatives located both at the branch offices and the solutions
subsidiaries. Account representatives are assigned to a limited number of
accounts, generally no more than eight, in order to develop an in-depth
understanding of each client's information technology needs and form strong
client relationships. Commissions constitute a significant portion of the total
compensation of account representatives, and are based upon the gross profit
from business originated by each representative.
RECRUITING AND HUMAN RESOURCES
The Company believes that its ability to recruit, hire and retain
highly-skilled IT professionals on a large scale, timely basis is a core
competency. The Company devotes significant resources to recruitment,
maintaining more than 100 recruiters at the branch, regional and corporate
levels. Each potential applicant is interviewed, tested and graded by the
Company's recruiting personnel, and the applicant's file is scanned into the
Company's image-based centralized repository. This database, which may be
accessed by appropriate personnel throughout the Company, can be searched by a
number of different criteria, including specific skills or qualifications.
As of June 27, 1997, the Company employed approximately 3,100 persons
(including independent contractors) consisting of approximately 2,670 IT
professionals, 80 in sales and marketing, 100 recruiters and 250 in general and
administrative positions. In addition, as of June 27, 1997, the Joint Venture
employed approximately 500 employees. None of the employees of the Company are
covered by a collective bargaining agreement. The Company has never experienced
a work stoppage and considers its relations with its employees to be good.
Although to date the Company generally has been successful in attracting
employees and independent contractors with the skills needed to fulfill client
engagements, qualified IT professionals are in great demand worldwide and are
likely to remain a limited resource for the foreseeable future. In addition, the
IT services industry has experienced high employee turnover rates which have
increased in recent periods and the Company's experience has been consistent
with such trends. There can be no assurance that the Company will be successful
in attracting a sufficient number of highly-skilled employees in the future, or
that it will be successful in retaining existing and future employees and the
failure to do so could have a material adverse effect on the Company's business,
operating results and financial condition. The Company and the Joint Venture
have in the past and expect to increasingly in the future rely upon attracting
and retaining individuals with technical and project management skills from
other countries. Compliance with existing U.S. immigration laws, or changes in
such laws making it more difficult to hire foreign nationals or limiting the
ability of the Company and the Joint Venture to retain H-1B employees in the
U.S., could increase competition for technical personnel and increase the
Company's and the Joint Venture's cost of recruiting and retaining the requisite
number of IT professionals any of which could have a material adverse effect on
the Company's business, operating results and financial condition. See "Risk
Factors -- Recruitment and Retention of IT Professionals" and "-- Risk of
Increased Government Regulation of Immigration."
ORGANIZATION AND OFFICES
The Company's organizational structure gives the Company the flexibility
and resources to deliver services to its clients on-site at the client's
locations, off-site at the Company's U.S. locations and offshore at the Joint
Venture's facilities.
The Company services its clients through its network of 45 offices located
in 21 states, the District of Columbia, Canada, England and India (including the
offices of the Joint Venture). The Company believes that its national branch
office network and continuous recruiting efforts provide it with significant
capabilities to attract local IT professionals with the appropriate skill level
for on-site service on a timely basis. The Company has also developed standards,
methodologies and
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<PAGE> 32
management techniques which are applied consistently from engagement to
engagement across all branch offices.
The Company, through the Joint Venture, operates five facilities that
provide the Company with offshore software development resources and access to
the labor pools of India, Canada and Europe. The Company subcontracts with the
Joint Venture on specific client engagements and believes that the Joint Venture
allows it to offer clients worldwide, high quality, cost-effective software and
support services.
Set forth below is a list of the branch offices of the Company and of the
Joint Venture:
<TABLE>
<CAPTION>
EASTERN REGION CENTRAL REGION MIDWEST/WEST REGION
- ------------------ ----------------- -----------------------------
<S> <C> <C>
Hartford, CT Atlanta, GA Phoenix, AZ
Pompano Beach, FL Indianapolis, IN Concord, CA
Boston, MA Louisville, KY Los Angeles, CA
Iselin, NJ Charlotte, NC Colorado Springs, CO
Mountain Lakes, NJ Raleigh, NC Denver, CO
Parsippany, NJ Cincinnati, OH Cedar Rapids, IA
New York, NY Cleveland, OH Chicago, IL
Philadelphia, PA Columbus, OH Detroit, MI
Dayton, OH Bloomington, MN
Memphis, TN Minneapolis, MN
Nashville, TN Kansas City/St. Louis, MO
Dallas, TX
Houston, TX
</TABLE>
<TABLE>
<CAPTION>
COMMUNICATIONS
CLIENTS GROUP INTERNATIONAL BIRLA HORIZONS INTERNATIONAL
- ------------------ ----------------- -----------------------------
<S> <C> <C>
Washington, DC Toronto, Canada New Delhi, India
Jacksonville, FL London, England London, England
Orlando, FL Sunnyvale, CA
Tampa, FL Iselin, NJ
Clark, NJ Toronto, Canada
Dallas, TX
</TABLE>
BIRLA HORIZONS INTERNATIONAL
In March, 1995, the Company and NEI, an affiliate of The Birla Group,
formed the Joint Venture. The Company and NEI each own 50% of the Joint Venture.
To date, the Joint Venture has primarily been a provider of IT staffing
services. The Joint Venture is seeking to expand its services to provide
solutions services, including Year 2000 services, legacy systems maintenance,
application development and enhancements and program design for coding. In 1997,
the Joint Venture made investments in marketing and project management personnel
in order to support the development of its solutions business. The Joint
Venture, based in New Delhi, India, has access to less expensive labor than in
the U.S. to execute, code and test projects that are designed and developed in
the U.S. When required, direct communications lines can be established between
the Joint Venture locations and clients' computer centers, which, in the case of
U.S. clients, can create efficiencies because of time differences. The Joint
Venture's global presence provides it access to labor pools in India and Europe
for provision of on-site services or offshore software development. As of June
27, 1997, the Joint Venture employed approximately 500 employees. See "Risk
Factors -- Risks Associated with India Joint Venture" and "-- Increasing
Significance of Non-U.S. Operations and Risks Associated with International
Operations."
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<PAGE> 33
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that the market for IT staffing services is highly fragmented and
regionalized. As a result, in addition to competing with larger providers of IT
staffing services such as Cap Gemini SA, Computer Task Group, Inc., Keane, Inc.
and Mastech Corporation, the Company also competes with a large number of
regional providers of staffing services. In addition, the Company competes for
staffing projects with the information systems groups of its prospective
clients. In its solutions business, including its Year 2000 services business,
the Company competes with consulting and system integration firms, including
Analysts International Corporation, Andersen Consulting, CIBER, Inc. Computer
Sciences Corporation, Electronic Data Systems Corp., Information Management
Resources, Inc., International Business Machines Corporation, Keane, Inc. and
the "Big Six" accounting firms. The Company also competes with vendors of
application software. In addition, there are relatively low barriers to entry
into the Company's markets and the Company has faced, and expects to continue to
face, additional competition from other established and emerging companies.
Increased competition may result in greater pricing pressure which could
adversely affect the Company's gross margins.
The Company believes competition will continue to intensify as the market
for IT services continues to develop and competitors focus on additional service
offerings such as the EMU. There can be no assurance that other companies will
not develop products, services and marketing approaches that will be more
successful than those of the Company. Many of the Company's current and
potential competitors have significantly greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in client requirements,
or to devote greater resources to the development, promotion, sale and support
of their products and services than the Company. In addition, current and
potential competitors may establish cooperative relationships among themselves
or with third parties to increase the ability of their products or services to
address the staffing and solutions needs of the Company's prospective clients.
Accordingly, it is possible that new competitors, alliances among competitors or
alliances between competitors and third parties may emerge and acquire
significant market share. If this were to occur, it could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company believes that the principal competitive factors in its market
include quality of services and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that its ability to compete also depends in part
on a number of competitive factors outside its control, including the ability of
its competitors to hire, retain and motivate project managers and other IT
professional staff, the development by others of software that is competitive
with the Company's products and services and the extent of its competitors'
responsiveness to client needs. Although the Company believes that its services
and products currently compete favorably with respect to such factors, there can
be no assurance that the Company can maintain its competitive position against
current and potential competitors or that competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily upon a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual arrangements to
protect its proprietary rights. In addition, the Company has applied for one
patent in the U.S. related to Time Engineer, a tool which automates certain
aspects of the 28 year windowing approach to Year 2000 remediation. There can be
no assurance that a patent will be issued pursuant to this application or that,
if granted, such patent would survive a legal challenge to its validity or
provide significant protection to the Company. Despite the Company's efforts to
protect its proprietary rights, there can be no assurance that the steps taken
by the Company will be adequate to deter misappropriation of its proprietary
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<PAGE> 34
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that the
Company's competitors will not independently develop similar technology.
While the Company to date has not received any claims that its intellectual
property rights infringe on the intellectual property rights of others, there
can be no assurance that such a claim will not be asserted against the Company
in the future, that the assertion of such claims will not result in litigation
or that the Company would prevail in such litigation or be able to obtain a
license for the use of any infringed intellectual property from a third party on
commercially reasonable terms. The risk of infringement claims against the
Company will increase if other parties are able to successfully obtain patents
for software products and processes related to the Company's business. In
particular, the Company is aware of one issued patent related to a particular
method for addressing the Year 2000 problem. If that patent were asserted
against the Company and found to be valid, enforceable and infringed by the use
of Time Engineer, the Company could be subject to a claim for damages and could
be prevented from offering any service or product which uses or incorporates
Time Engineer unless it is able to obtain a license on commercially reasonable
terms. The Company's revenues to date from the use of Time Engineer have not
been material and the Company does not expect such revenues to be material in
the future. Any such claims, regardless of their outcome, could result in
substantial cost to the Company, require the Company to modify the manner in
which it provides services and divert management's attention from the Company's
operations, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors -- Risks
Related to Intellectual Property Protection."
FACILITIES
The Company's principal executive offices, the headquarters of certain of
its subsidiaries and one of its three software facilities are located in an
approximately 63,000 square-foot facility which the Company leases at an
aggregate current annual rent of $1,028,000 for a term expiring on December 31,
1999. The Company's remaining 39 offices, aggregate approximately 134,000 square
feet and are leased at aggregate current annual rents of approximately
$1,855,000 for various terms, with no lease commitment extending past December
31, 2001.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings or
governmental investigation and is not aware of any threatened litigation or
governmental investigation.
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<PAGE> 35
MANAGEMENT
The following table sets forth certain information with respect to the
Company's directors, senior management and certain key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
John J. Cassese............... 52 Chairman of the Board, President and Chief Executive
Officer
William J. Murphy............. 53 Executive Vice President and Chief Financial Officer
Michael J. Shea............... 37 Vice President and Controller
Charles J. McCourt............ 53 Senior Vice President
Barry D. Olson................ 48 Senior Vice President
Robert J. Palmieri............ 45 Senior Vice President
Terry C. Quinn................ 40 Senior Vice President
Pamela A. Fredette............ 45 President -- Solutions Division
Steven J. Morgenthal.......... 38 President -- USS Enterprise Management Division
Thomas J. Berry............... 72 Director
Rocco J. Marano............... 69 Director
Wilfred R. Plugge............. 72 Director
</TABLE>
John J. Cassese, a co-founder of the Company, has been its Chairman of the
Board, President and Chief Executive Officer since 1982. Mr. Cassese graduated
from Rutgers University where he earned a B.S. in Marketing.
William J. Murphy joined the Company in January 1997 as Executive Vice
President and Chief Financial Officer. From 1984 to 1997, he was a partner in
the national accounting firm of Grant Thornton LLP. Mr. Murphy is a graduate of
Seton Hall University where he earned a B.S. in Accounting. He is licensed as a
Certified Public Accountant in the states of New York and New Jersey.
Michael J. Shea, the Corporate Controller since March 1995 when he joined
the Company, has also served as Vice President since February 1996. Before
joining the Company, Mr. Shea was the Director of Internal Audit from September
1992 to February 1995 and the Manager of Financial Reporting from January 1989
to August 1992 at Booz, Allen & Hamilton, Inc., a management consulting company.
Mr. Shea is a graduate of St. Bonaventure University where he earned a B.B.A. in
Accounting. He is licensed as a Certified Public Accountant in the State of New
York.
Charles J. McCourt has served as Senior Vice President of the
Communications Industry Group since February 1996. From 1991 to 1996, he was a
Regional Vice President focusing on telecommunications. Mr. McCourt is a
graduate of Fairleigh Dickinson University with a B.S. in Marketing.
Barry D. Olson has served as a Senior Vice President of the Company since
November 1994, and has directed the Company's Midwest/West Region since 1989.
Mr. Olson joined the Company in 1984. Mr. Olson graduated from Concordia
University where he earned a B.A. in Mathematics.
Robert J. Palmieri has served as a Senior Vice President of the Company
since November 1994. He has directed the Company's Eastern Region since 1992,
and for a number of years prior thereto was responsible for other regions of the
Company's business. Mr. Palmieri joined the Company in 1972. Mr. Palmieri
graduated from St. John's University where he earned a B.S. in Management.
Terry C. Quinn has served as a Senior Vice President of the Company in
charge of the Central Region since November 1994, a responsibility he had held
as Regional Vice President since 1987.
Pamela A. Fredette joined the Company's Solutions Division in 1993. In
January 1996, she was promoted to President. Prior to joining the company, Ms.
Fredette was the owner of a consulting firm which specialized in database
management and applications development services. Ms. Fredette is a
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<PAGE> 36
graduate of Rutgers University where she earned a B.S. in History/Political
Science. She also earned an M.S. in Computer Science from the New Jersey
Institute of Technology.
Steven J. Morgenthal has served as President of the USS Enterprise
Management Division since January 1996. Mr. Morgenthal joined the Company
through its acquisition of Unified Systems Solutions, an IT solutions company,
in 1993 where he served as a Senior Vice President. Mr. Morgenthal graduated
from Pace University where he earned a B.A. in Psychology. He also earned an
M.S. in Human Factors Engineering from Stevens Institute of Technology.
Thomas J. Berry, a director of the Company since 1989, was Executive
Advisor and Executive Assistant to the Postmaster General, U.S. Postal Services,
from 1986 to 1993. Prior to 1986, he was a Vice President of AT&T, a
telecommunications company.
Rocco J. Marano, has been a director of the Company since 1995. From 1991
to 1994, Mr. Marano was Chairman of Blue Cross Blue Shield -- New Jersey, an
insurance company. From 1984 to 1991, he was President of Bellcore (Bell
Communications Research), a telecommunications company.
Wilfred R. Plugge, a director of the Company since 1983, retired in 1987 as
Vice President -- International Operations of SRI International, a private
research institute.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
August 8, 1997 and as adjusted to reflect the sale of the shares of Common Stock
offered hereby with respect to (i) the Selling Shareholder, (ii) all persons
known to the Company to own beneficially more than 5% of the outstanding Shares
of Common Stock, (iii) each of the Company's directors, (iv) each of the
executive officers named in the Company's summary compensation table
incorporated by reference in this Prospectus and (v) all directors and executive
officers as a group. Except as otherwise noted, the address for the Shareholders
named in the table is 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey
07046-1495.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO AFTER
OFFERING(1) NUMBER OF OFFERING(1)(2)
5% SHAREHOLDERS, EXECUTIVE OFFICERS AND ------------------- SHARES -------------------
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Putnam Investments, Inc.(3).................. 3,240,598 13.2% -- 3,240,598 12.0%
One Post Office Square
Boston, MA
02109
Essex Investment Management Company(4)....... 1,395,394 5.7% -- 1,395,394 5.2%
125 High Street
Boston, MA
02110
John J. Cassese(5)........................... 2,126,054 8.4% 492,500 1,633,554 5.9%
William J. Murphy............................ 500 * -- 500 *
Michael J. Shea(6)........................... 8,237 * -- 8,237 *
Thomas J. Berry(7)........................... 57,638 * -- 57,638 *
Rocco J. Marano(8)........................... 55,688 * -- 55,688 *
Wilfred R. Plugge(9)......................... 40,500 * -- 40,500 *
All directors and executive officers as a
group (six persons)(10).................... 2,288,617 9.1% 492,500 1,796,117 6.5%
OTHER SELLING SHAREHOLDER
Dennis M. DiVenuta(11)....................... 7,500 * 7,500 -- *
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options or warrants
currently exercisable, or exercisable within 60 days of August 8, 1997, are
deemed outstanding for computing the percentage of the person holding such
options or warrants but are not deemed outstanding for computing the
percentage of any other person.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Putnam Investments, Inc. on behalf of itself and Marsh & McLennan
Companies, Inc. Americas, Putnam Investment Management, Inc., the Putnam
Advisory Company, Inc. and Putnam New Opportunities Fund, filed a Schedule
13G Statement with the Commission stating that as of January 28, 1997,
through its wholly-owned registered investment advisor subsidiaries, it may
be deemed to have shared dispositive power with respect to 3,240,598 shares
of the Company's Common Stock and to have shared voting power with respect
to 474,726 of said shares. Putnam Investments, Inc. and Marsh & McLennan
disclaim beneficial ownership of all 3,240,598 of said shares.
(4) Essex Investment Management Company filed a Schedule 13G Statement with the
Commission stating that as of January 10, 1997, it may be deemed to have
sole dispositive power with
36
<PAGE> 38
respect to 1,395,394 shares of the Company's Common Stock and to have sole
voting power with respect to 996,706 of said shares. Essex Investment Management
disclaims beneficial ownership of all 1,395,394 of said shares.
(5) Includes options exercisable for 584,537 shares within 60 days of August 8,
1997.
(6) Includes options exercisable for 4,218 shares within 60 days of August 8,
1997.
(7) Includes options exercisable for 57,638 shares within 60 days of August 8,
1997.
(8) Includes options exercisable for 32,688 shares within 60 days of August 8,
1997.
(9) Includes options exercisable for 20,250 shares within 60 days of August 8,
1997.
(10) Includes options exercisable for 699,331 shares within 60 days of August 8,
1997 (see notes 5, 6, 7, 8 and 9).
(11) Consists of a warrant exercisable for 7,500 shares within 60 days of August
8, 1997.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 60,000,000 shares of Common Stock and
200,000 shares of preferred stock, $.10 par value (the "Preferred Stock"). Based
upon outstanding shares of Common Stock on June 27, 1997, 27,057,374 shares of
Common Stock and no shares of Preferred Stock will be outstanding upon
completion of the Offering. As of June 27, 1997, 8,014,418 shares of Common
Stock were reserved for issuance under the Company's Plans, of which 2,009,362
shares were subject to outstanding options. In addition, as of June 27, 1997,
warrants to purchase an aggregate of 43,500 shares of the Company's Common Stock
were outstanding.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of shareholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of the
voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect any
directors. Under New York State law, the approval of the holders of two-thirds
of all outstanding stock is required to effect a merger of the Company or
disposition of all or substantially all of the Company's assets.
Subject to the rights of holders of any series of Preferred Stock that may
be issued in the future, the holders of the Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a voluntary
or involuntary liquidation of the Company, all shareholders are entitled to a
pro rata distribution of the assets of the Company remaining after payment of
claims of creditors and liquidation preferences of any preferred stock.
PREFERRED STOCK
The Company is authorized to issue 200,000 shares of Preferred Stock in one
or more series, the terms of which may be fixed by the Board of Directors.
Except as described below under "Preferred Stock Purchase Rights," the Board of
Directors has not created any series of Preferred Stock, and it is not possible
to state the actual effect of any issuance of one or more series of preferred
stock upon the rights of holders of Common Stock until the Board of Directors of
the Company determines the rights of the holders of such series of the preferred
stock. Such effects might, however, include: (a) reduction of the amount of
funds otherwise available for payment of cash dividends on Common Stock; (b)
restrictions on the payment of cash dividends on Common Stock; (c) dilution of
the voting power of the Common Stock, to the extent that any series of issued
preferred stock has voting
37
<PAGE> 39
rights or is convertible into Common Stock; and (d) the holders of Common Stock
not being entitled to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences, if any, in respect of any outstanding
series of preferred stock.
PREFERRED STOCK RIGHTS PLAN
Pursuant to a Rights Agreement dated as of July 6, 1989, as amended
("Rights Agreement"), between the Company and Chase Manhattan Bank (formerly
Chemical Bank), as Rights Agent, each outstanding share of Common Stock has
attached to it one Right which entitles the registered holder of such share to
purchase from the Company one one-hundredth ( 1/100) of a share of Series A
Preferred Stock, par value $.10 per share, (the "Series A Preferred"), at a
price of $30.00 per one one-hundredth ( 1/100) of a share (the "Purchase
Price"), subject to adjustment.
The Rights are attached to all certificates representing shares of Common
Stock and no separate Rights Certificates (as defined below) are distributed nor
will be distributed until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire beneficial ownership of 20% or more
of the outstanding Common Stock (an "Acquiring Person"), or (ii) 10 business
days (or such later day as may be determined by action of the Board of Directors
prior to such time as any person or group becomes an Acquiring Person) following
the commencement of a tender offer or exchange offer if, upon consummation
thereof, any person or group would be the beneficial owner of 20% or more of the
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"). The date of announcement of the existence of an Acquiring
Person referred to in clause (i) above is hereinafter referred to as the "Share
Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the Distribution
Date (or earlier redemption, exchange or expiration of the Rights), all new
Common Stock certificates issued upon the transfer or new issuance of shares of
Common Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding will also constitute the transfer of the Rights
associated with Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights (the "Rights Certificates") will be mailed to holders of record of
the Common Stock on the Distribution Date and, thereafter, such separate Rights
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on July 16, 1999 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are redeemed or
exchanged by the Company as described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, the Rights Agreement provides that proper
provisions shall be made so that each holder of a Right, except as provided
below, shall thereafter have the right to receive, upon exercise, shares of
Common Stock (or, in the Company's option, Common Stock Equivalents, as such
term is defined in the Rights Agreement) having a value equal to two times the
exercise price of the Right. Upon the occurrence of the event described in the
first sentence of this paragraph, any Rights beneficially owned by (i) an
Acquiring Person or an Associate or Affiliate (as such terms are defined in the
Rights Agreement) of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (a) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (b) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement
38
<PAGE> 40
or understanding which has a primary purpose or effect the avoidance of the
Rights Agreement, shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of the Rights Agreement or otherwise.
In the event that, following the earlier of the Distribution Date and the
Share Acquisition Date, (i) the Company engages in a merger or other business
combination transaction in which the Company is not the surviving corporation,
(ii) the Company engages in a merger or other business combination transaction
with another person in which the company is the surviving corporation, but in
which the Common Stock are changed or exchanged, or (iii) more than 50% of the
Company's assets or earning power is sold or transferred, the Rights Agreement
provides that proper provision shall be made so that each holder of a Right
(except Rights which previously have been voided as described above) shall
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the Right, common stock of the acquiring company having a
value equal to two times the exercise price of the Right.
The Purchase Price payable, and the number of shares of Series A Preferred
or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series A
Preferred, (ii) upon the grant to holders of the Series A Preferred of certain
rights, options or warrants to subscribe for shares of Series A Preferred or
convertible securities at less than the current market price of the Series A
Preferred, or (iii) upon the distribution to holders of Series A Preferred of
evidences of indebtedness, shares of Preferred Stock, assets or cash (excluding
a regular semiannual cash dividend) or of subscription rights, options or
warrants (other than those referred to above).
The number of outstanding Rights and the number of shares of Series A
Preferred issuable upon exercise of each Right are also subject to adjustment in
the event of a stock split of the Common Stock or a stock dividend on the Common
Stock payable in shares of Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractions
which are integral multiples of one one-hundredth of a share of Series A
Preferred, which may, at the election of the Company, be evidenced by depository
receipts) and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Series A Preferred on the last trading date prior to the
date of exercise.
At any time prior to the Share Acquisition Date, the Board of Directors of
the Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right (the "Redemption Price"). Before the redemption period expires, it may
be extended by the Board. Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Rights, the Rights will terminate
and the only right to the holders of Rights will be to receive the Redemption
Price. At any time after the time that any person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may exchange the Rights (except Rights which previously have been voided
as described above), in whole, but not in part, at an exchange ratio of one
share of Common Stock (or one Common Stock Equivalent) per Right.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. The terms of the Rights may be amended by the
Company and the Rights Agent, provided, that, following the earlier of the Share
Acquisition Date and the Distribution Date, the amendment does not adversely
affect the interests of holders of Rights (other than an Acquiring Person) and
provided that no amendment shall be made which decreases the Redemption Price.
39
<PAGE> 41
The Rights have certain anti-takeover effects. The Rights would cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on the Rights being redeemed. The Rights should
not interfere with any merger or other business combination approved by the
Company because the Rights may be redeemed by the Board of Directors of the
Company at any time prior to such time as any entity becomes an Acquiring
Person. See "Risk Factors -- Anti-Takeover Provisions."
CERTAIN PROVISIONS OF NEW YORK LAW
New York law regulates "business combinations," a term covering a broad
range of transactions, between "resident domestic corporations" (as defined,
which term includes the Company) and an "interested shareholder", which is
defined as any person beneficially owning 20% or more of the outstanding voting
stock of the resident domestic corporation or any affiliate or associate of such
owner. However, if the interested shareholder has owned at least 5% of such
outstanding voting stock at all times from October 30, 1985 to the date on which
the interested shareholder first attains 20% ownership (the "Stock Acquisition
Date"), the proposed business combination is exempt from this statute. Under the
statute, a resident domestic corporation may not engage in any business
combination with any interested shareholder unless (a) if the business
combination is to occur within five years of the date the shareholder acquired
20% or more ownership, either the business combination or the stock acquisition
was previously approved by the board of directors, or (b) the business
combination is approved by a majority of outstanding voting shares (not
including those shares owned by the interested shareholder) which approval may
not be effectively given until approximately five years after the interested
shareholder's Stock Acquisition Date, or (c) the business combination occurs
after five years after the interested shareholder's Stock Acquisition Date and
the consideration paid to the non-interested shareholders meets certain
stringent conditions imposed by the statute. The restrictions imposed by the
statute will not apply to a corporation which amends its by-laws by the
affirmative vote of a majority of its outstanding voting stock (not including
those shares held by an interested shareholder) to "opt out" of the statute;
provided that such amendment will not be effective for 18 months after such vote
and will not apply to any business combination where the Stock Acquisition Date
is on or prior to the date of the amendment. The Company has not opted out of
the statute and the Board of Directors does not anticipate seeking shareholder
approval therefor.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock is Registrar & Transfer Company, 10
Commerce Drive, Cranford, New Jersey 07016.
40
<PAGE> 42
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC, Furman Selz LLC and Punk,
Ziegel & Company L.P., have severally agreed to purchase from the Company and
the Selling Shareholders the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................................
UBS Securities LLC...............................................................
Furman Selz LLC..................................................................
Punk, Ziegel & Company L.P.......................................................
------
Total............................................................................ 3,000,000
======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 450,000 and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liability under the
Securities Act.
The Selling Shareholders and all of the officers of the Company have agreed
not to offer, sell, contract to sell, or otherwise dispose of any of such Common
Stock for a period of 90 days after the date of this Prospectus without the
prior written consent of the Representatives of the Underwriters.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
41
<PAGE> 43
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the restricted period
immediately preceding the pricing of the Common Stock offered hereby. The
Commission has, however, adopted exemptions from its rules that permit passive
market making under certain conditions. The rules permit an Underwriter to
continue to make a market subject to certain conditions, including that its bid
not exceed the highest bid by a market maker not connected with the Offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
Common Stock during the restricted period.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of Common Stock above the market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Shareholders by Proskauer Rose LLP, 1585
Broadway, New York, New York 10036. Certain legal matters in connection with the
Offering will be passed upon for the Representatives by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California 94025.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for the three years ended December 31, 1996, incorporated by
reference in this Prospectus and Registration Statement have been audited by
Grant Thornton LLP, independent public accountants, as indicated in their report
with respect thereto and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-3 under the
Securities Act with the Commission with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus regarding the contents of any contract
or other document to which reference is made are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. A copy of the Registration
Statement and the exhibits thereto may be inspected without charge at the
offices of the Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C.
20549, and copies of all or any part of the Registration Statement may be
obtained
42
<PAGE> 44
from the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission web site also contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission. The Common Stock of the Company is quoted on
the Nasdaq National Market. Reports, proxy and information statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
43
<PAGE> 45
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN SO AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE ANY OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Documents Incorporated by Reference... 2
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 14
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Consolidated Financial and
Operating Data...................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 25
Management............................ 34
Principal and Selling Shareholders.... 36
Description of Capital Stock.......... 37
Underwriting.......................... 41
Legal Matters......................... 42
Experts............................... 42
Additional Information................ 42
</TABLE>
======================================================
======================================================
3,000,000 SHARES
Computer Horizons Corp. Logo
COMPUTER HORIZONS CORP.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
UBS SECURITIES
FURMAN SELZ
PUNK, ZIEGEL & COMPANY
, 1997
======================================================
<PAGE> 46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being registered
hereby other than the Underwriters' discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee............................................................. $ 41,034
NASD registration fee............................................................ 14,041
Nasdaq listing fee............................................................... 17,500
Accounting fees and expenses..................................................... 100,000
Legal fees and expenses.......................................................... 250,000
Blue Sky fees.................................................................... 5,000
Cost of printing and engraving................................................... 100,000
Transfer agent's fees............................................................ 5,000
Miscellaneous.................................................................... 67,425
--------
Total.................................................................. $600,000
========
</TABLE>
All amounts except the registration fees and Nasdaq additional listing fee
are estimated.
- ---------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") provides, as permitted by Section 402(b) of the New York
Business Corporation Law (the "BCL") that no director shall be personally liable
to the Company or any shareholder for damages for any breach of duty as a
director, provided that the Certificate of Incorporation does not eliminate or
limit the liability of any director if a judgment or other final adjudication
adverse to him establishes that (i) his acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law, (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled or (iii) his acts violated Section 719 of the BCL.
The Certificate of Incorporation also provides, in accordance with Section
722 of the BCL, that each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he, or a person of whom he is the legal
representative, (1) is or was a director or officer of the Company or (2) is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent), shall be indemnified and held harmless by
the Company to the fullest extent authorized or permitted by applicable law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said law permitted the Company to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgements, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his heirs, executors and administrators, provided,
however, that, except for actions brought to enforce such indemnification
rights, the Company shall indemnify any such person seeking
II-1
<PAGE> 47
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company. The right to indemnification conferred in the
Certificate of Incorporation is a contract right and includes the rights to be
paid by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition, provided, however, that, if the BCL requires,
the payment of such expenses incurred by a director or officer in his capacity
as such (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
with respect to an employee benefit plan) in advance of the final disposition of
a proceeding, shall be made only upon delivery to the Company of an undertaking
by or on behalf of such director or officer to repay all amounts so advanced as
to which it shall ultimately be determined that such director or officer is not
entitled to be indemnified.
The Certificate of Incorporation further provides, in accordance with the
BCL, that the indemnification rights provided therein are not exclusive of any
other rights that any person may have, and that the Company may, subject to
certain restrictions imposed by the BCL, maintain insurance to protect itself
and its officers and directors against expenses, liabilities and losses, whether
or not the Company would be permitted to indemnify such person against such
expenses, liabilities and losses under the BCL.
The Company currently has a $5,000,000 directors' and officers' liability
insurance policy.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement Among the
Company and Alex. Brown & Sons
Incorporated as Representatives of the
Underwriters, UBS Securities, Furman,
Selz, LLC and Punk, Ziegel & Company L.P.
3(a-1) Certificate of Incorporation as amended Exhibit 3(a) to Registration Statement on
through 1971 Form S-1 (File No. 2-42259)
3(a-2) Certificate of Amendment dated May 16, Exhibit 3(a-2) to Form 10K for the fiscal
1983 to Certificate of Incorporation year ended February 28, 1983
3(a-3) Certificate of Amendment dated June 15, Exhibit 3(a-3) to Form 10K for the fiscal
1988 to Certificate of Incorporation year ended December 31, 1988
3(a-4) Certificate of Amendment dated July 6, Exhibit 3(a-4) to Form 10K for the fiscal
1989 to Certificate of Incorporation year ended December 31, 1994
3(a-5) Certificate of Amendment dated February Exhibit 3(a-4) to Form 10K for the year
14, 1990 to Certificate of Incorporation ended December 31, 1989
3(a-6) Certificate of Amendment dated May 1, Exhibit 3(a-6) to Form 10K for the fiscal
1991 to Certificate of Incorporation year ended December 31, 1989
3(a-7) Certificate of Amendment dated July 12, Exhibit 3(a-7) to Form 10K for the fiscal
1994 to Certificate of Incorporation year ended December 31, 1994
3(b) Bylaws, as amended and presently in Exhibit 3(b) to Form 10K for the year
effect ended December 31, 1988
4(a) Rights Agreement dated as of July 6,1989 Exhibit 1 to Registration Statement on
between the Company and Chase Manhattan Form 8-A dated July 7, 1989
(formerly known as Chemical Bank), as
Rights Agent ("Rights Agreement") which
includes the form of Rights Certificate
as Exhibit B
</TABLE>
II-2
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
4(b) Amendment No. 1 dated as of February 13, Exhibit 1 to Amendment No. 1 on Form 8
1990 to Rights Agreement dated February 13, 1990 to Registration
Statement on Form 8-A
4(c) Amendment No. 2 dated as of August 10, Exhibit 4(c) to Form 10K for the fiscal
1994 to Rights Agreement year ended December 31, 1994
4(d) Employee's Savings Plan and Amendment Exhibit 4.4 to Registration Statement on
Number One Form S-8 dated December 5, 1995
4(e) Employee's Savings Plan Trust Agreement Exhibit 4.5 to Registration Statement on
as Amended and Restated Effective January Form S-8 dated December 5, 1995
1, 1996
5* Opinion of Proskauer Rose LLP
10(a) Employment Agreement dated as of February Exhibit 10(a) to Form 10K for the fiscal
16, 1990 between the Company and John J. year ended December 31, 1989
Cassese
10(b) Employment Agreement dated as of March 6, Exhibit 10(c) to Form 10K for the fiscal
1997 between the Company and Michael J. year ended December 31, 1996
Shea
10(c) Note Agreement dated as of March 15, 1998 Exhibit 10(i) to Form 10K for the fiscal
between the Company and Massachusetts year ended December 31, 1988
Mutual Life Insurance Company
10(d) 1991 Directors' Stock Option Plan, as Exhibit 10(g) to Form 10K for the fiscal
amended year ended December 31, 1994
10(e) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K for the fiscal
Appreciation Plan year ended December 31, 1994
10(f) $10,000,000 Discretionary Line of Credit Exhibit 10(h) to Form 10K for the fiscal
from PNC Bank year ended December 31, 1996
10(g) Employment Agreement dated as of January
1, 1997 between the Company and William
J. Murphy
10(h) $15,000,000 Discretionary Line of Credit
from Chase Manhattan Bank dated as of
June 30, 1997
11 Statement regarding computation of per
share earnings (for the years ended
December 31, 1994, 1995 and 1996)
23.1 Consent of Grant Thornton LLP
23.2* Consent of Proskauer Rose LLP (included as part of Exhibit No. 5)
24 Power of Attorney (included on the
signature page of the Registration
Statement)
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to
II-3
<PAGE> 49
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suite or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mountain Lakes, State of New Jersey, on the 14th day
of August, 1997.
COMPUTER HORIZONS CORP.
By: /s/ JOHN J. CASSESE
------------------------------------
John J. Cassese
Chairman of the Board, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Cassese and William J. Murphy, and either
of them, his attorney-in-fact, with full power of substitution, for him in all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
either of them, or their substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 14, 1997.
<TABLE>
<C> <S>
/s/ JOHN J. CASSESE Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer
John J. Cassese
/s/ WILLIAM J. MURPHY Executive Vice President and Chief Financial
- --------------------------------------------- Officer
William J. Murphy (Principal Financial Officer) and Secretary
/s/ MICHAEL J. SHEA Vice President, Chief Accounting Officer and
- --------------------------------------------- Controller
Michael J. Shea (Principal Accounting Officer)
/s/ THOMAS J. BERRY Director
- ---------------------------------------------
Thomas J. Berry
/s/ ROCCO J. MARANO Director
- ---------------------------------------------
Rocco J. Marano
Director
- ---------------------------------------------
Wilfred R. Plugge
</TABLE>
II-5
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement Among the
Company and Alex. Brown & Sons
Incorporated as Representatives of the
Underwriters, UBS Securities, Furman,
Selz, LLC and Punk, Ziegel & Company
3(a-1) Certificate of Incorporation as amended Exhibit 3(a) to Registration Statement on
through 1971 Form S-1 (File No. 2-42259)
3(a-2) Certificate of Amendment dated May 16, Exhibit 3(a-2) to Form 10K for the fiscal
1983 to Certificate of Incorporation year ended February 28, 1983
3(a-3) Certificate of Amendment dated June 15, Exhibit 3(a-3) to Form 10K for the fiscal
1988 to Certificate of Incorporation year ended December 31, 1988
3(a-4) Certificate of Amendment dated July 6, Exhibit 3(a-4) to Form 10K for the fiscal
1989 to Certificate of Incorporation year ended December 31, 1994
3(a-5) Certificate of Amendment dated February Exhibit 3(a-4) to Form 10K for the year
14, 1990 to Certificate of Incorporation ended December 31, 1989
3(a-6) Certificate of Amendment dated May 1, Exhibit 3(a-6) to Form 10K for the fiscal
1991 to Certificate of Incorporation year ended December 31, 1989
3(a-7) Certificate of Amendment dated July 12, Exhibit 3(a-7) to Form 10K for the fiscal
1994 to Certificate of Incorporation year ended December 31, 1994
3(b) Bylaws, as amended and presently in Exhibit 3(b) to Form 10K for the year
effect ended December 31, 1988
4(a) Rights Agreement dated as of July 6, 1989 Exhibit 1 to Registration Statement on
between the Company and Chase Manhattan Form 8-A dated July 7, 1989
Bank (formerly known as Chemical Bank),
as Rights Agent ("Rights Agreement")
which includes the form of Rights
Certificate as Exhibit B
4(b) Amendment No. 1 dated as of February 13, Exhibit 1 to Amendment No. 1 on Form 8
1990 to Rights Agreement dated February 13, 1990 to Registration
Statement on Form 8-A
4(c) Amendment No. 2 dated as of August 10, Exhibit 4(c) to Form 10K for the fiscal
1994 to Rights Agreement year ended December 31, 1994
4(d) Employee's Savings Plan and Amendment Exhibit 4.4 to Registration Statement on
Number One Form S-8 dated December 5, 1995
4(e) Employee's Savings Plan Trust Agreement Exhibit 4.5 to Registration Statement on
as Amended and Restated Effective January Form S-8 dated December 5, 1995
1, 1996
5* Opinion of Proskauer Rose LLP
10(a) Employment Agreement dated as of February Exhibit 10(a) to Form 10K for the fiscal
16, 1990 between the Company and John J. year ended December 31, 1989
Cassese
10(b) Employment Agreement dated as of March 6, Exhibit 10(c) to Form 10K for the fiscal
1997 between the Company and Michael J. year ended December 31, 1996
Shea
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
- ------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
10(c) Note Agreement dated as of March 15, 1998 Exhibit 10(i) to Form 10K for the fiscal
between the Company and Massachusetts year ended December 31, 1988
Mutual Life Insurance Company
10(d) 1991 Directors' Stock Option Plan, as Exhibit 10(g) to Form 10K for the fiscal
amended year ended December 31, 1994
10(e) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K for the fiscal
Appreciation Plan year ended December 31, 1994
10(f) $10,000,000 Discretionary Line of Credit Exhibit 10(h) to Form 10K for the fiscal
from PNC Bank year ended December 31, 1996
10(g) Employment Agreement dated as of January
1, 1997 between the Company and William
J. Murphy
10(h) $15,000,000 Discretionary Line of Credit
from Chase Manhattan Bank dated as of
June 30, 1997
11 Statement regarding computation of per
share earnings (for the years ended
December 31, 1994, 1995 and 1996)
23.1 Consent of Grant Thornton LLP
23.2* Consent of Proskauer Rose LLP (included
as Exhibit No. 5)
24 Power of Attorney (included on the
signature page of the Registration
Statement)
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
(i) The Company will (A) use its best
efforts to cause the Registration Statement to become effective or, if the
procedure in Rule 430A of the Rules and Regulations is followed, to prepare and
timely file with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representative containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, and (B) not file any
amendment to the Registration Statement or supplement to the Prospectus or
document incorporated by reference therein of which the Representative shall not
previously have been advised and furnished with a copy or to which the
Representative shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the
Representative promptly (A) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (B) of receipt of
any comments from the Commission, (C) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, and (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(iii) The Company will cooperate with the
Representative in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representative may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company will,
from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representative may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon
the order of, the Representative, from time to time, as many copies of any
Preliminary Prospectus as the Representative may reasonably request. The Company
will deliver to, or upon the order of, the Representative during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representative may reasonably request. The Company will deliver to the
Representative at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
10
<PAGE> 2
therewith, and will deliver to the Representative such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), including documents incorporated by
reference therein, and of all amendments thereto, as the Representative may
reasonably request.
(v) The Company will comply with the Act
and the Rules and Regulations, and the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will either (i) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with the
Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally
available to its security holders, as soon as it is practicable to do so, but in
any event not later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in reasonable
detail, covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earning statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules
and Regulations and will advise you in writing when such statement has been so
made available.
(vii) The Company will, for a period of
five years from the Closing Date, deliver to the Representative copies of annual
reports and copies of all other documents, reports and information furnished by
the Company to its shareholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the Act
or the Exchange Act, as amended. The Company will deliver to the Representative
similar reports with respect to significant subsidiaries, as that term is
defined in the Rules and Regulations, which are not consolidated in the
Company's financial statements.
(viii) No offering, sale, short sale or
other disposition of any shares of Common Stock of the Company or other
securities convertible into or exchangeable or exercisable for shares of Common
Stock or derivative of Common Stock (or agreement for such) will be made for a
period of 90 days after the date of this Agreement, directly or indirectly, by
the Company otherwise than hereunder or with the prior written consent of Alex.
Brown & Sons Incorporated.
(ix) The Company will list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
11
<PAGE> 3
(x) The Company has caused each officer
and director of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivative of Common Shares
owned by such person or request the registration for the offer or sale of any of
the foregoing (or as to which such person has the right to direct the
disposition of) for a period of 90 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of Alex. Brown &
Sons Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net
proceeds of its sale of the Shares as set forth in the Prospectus and shall file
such reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance with Rule
463 under the Act.
(xii) The Company shall not invest, or
otherwise use the proceeds received by the Company from its sale of the Shares
in such a manner as would require the Company or any of the Subsidiaries to
register as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
(xiii) The Company will maintain a transfer
agent and, if necessary under the jurisdiction of incorporation of the Company,
a registrar for the Common Stock.
(xiv) The Company will not take, directly
or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
(b) The Selling Shareholders covenant and agree
with the several Underwriters that:
(i) No offering, sale, short sale or
other disposition of any shares of Common Stock of the Company or other capital
stock of the Company or other securities convertible, exchangeable or
exercisable for Common Stock or derivative of Common Stock owned by the Selling
Shareholder or request the registration for the offer or sale of any of the
foregoing (or as to which the Selling Shareholder has the right to direct the
disposition of) will be made for a period of 90 days after the date of this
Agreement, directly or indirectly, by such Selling Shareholder otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the
Underwriters' compliance with the reporting and withholding provisions of the
Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend
Tax Compliance Act of 1983 with respect to the transactions herein contemplated,
the Selling Shareholder agrees to deliver to you prior to or at the Closing
12
<PAGE> 4
Date a properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(iii) Such Selling Shareholders will not
take, directly or indirectly, any action designed to cause or result in, or that
has constituted or might reasonably be expected to constitute, the stabilization
or manipulation of the price of any securities of the Company.
5. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company and the Selling Shareholder; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the NASD of
the terms of the sale of the Shares; the Listing Fee of the Nasdaq National
Market; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. To the extent, if at all, that the
Selling Shareholder engages special legal counsel to represent him in connection
with this offering, the fees and expenses of such counsel shall be borne by such
Selling Shareholder. Any transfer taxes imposed on the sale of the Shares to the
several Underwriters will be paid by the Sellers pro rata. The Company agrees to
pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
directed shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company and its Subsidiaries. The Sellers
shall not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representative pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholder to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company and
the Selling Shareholder shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters.
13
<PAGE> 5
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and the Selling Shareholder contained herein, and to the performance by
the Company and the Selling Shareholder of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all
post-effective amendments thereto shall have become effective and any and all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional information (to
be included in the Registration Statement or otherwise) shall have been
disclosed to the Representative and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company or the Selling Shareholder, shall be contemplated by the Commission and
no injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representative shall have received on
the Closing Date or the Option Closing Date, as the case may be, the opinion of
Proskauer Rose LLP, counsel for the Company and the Selling Shareholder, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of the
State of New York, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement;
each of the Subsidiaries has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; the Company
and each of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, or in which the failure to qualify would have a materially
adverse effect upon the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company or a Subsidiary; and, to the best of
such counsel's knowledge, the outstanding shares of capital stock of each of the
Subsidiaries is owned free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in the Subsidiaries are
outstanding.
(ii) The Company has authorized and
outstanding capital stock as set forth under the caption "Capitalization" in the
Prospectus; the authorized shares of the
14
<PAGE> 6
Company's Common Stock have been duly authorized; the outstanding shares of the
Company's Common Stock, including the Shares to be sold by the Selling
Shareholder, have been duly authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform to the description thereof contained
in the Prospectus; the certificates for the Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of shareholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or
contemplated by the Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital stock of
the Company and there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or evidencing
the right to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any Common Shares or other
securities of the Company included in the Registration Statement or the right,
as a result of the filing of the Registration Statement, to require registration
under the Act of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has
become effective under the Act and, to the best of the knowledge of such
counsel, no stop order proceedings with respect thereto have been instituted or
are pending or threatened under the Act.
(v) The Registration Statement, the
Prospectus and each amendment or supplement thereto and document incorporated by
reference therein comply as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable and the applicable
rules and regulations thereunder (except that such counsel need express no
opinion as to the financial statements and related schedules [or incorporated by
reference] therein). The conditions for the use of Form S-3, set forth in the
General Instructions thereto, have been satisfied.
(vi) The statements under the captions
"Description of Capital Stock" and "Underwriting" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law, fairly summarize in all material respects the information called for
with respect to such documents and matters.
(vii) Such counsel does not know of any
contracts or documents required to be filed as exhibits to or incorporated by
reference in the Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed, incorporated by
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<PAGE> 7
reference or described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly summarized
in all material respects.
(viii) Such counsel knows of no material
legal or governmental proceedings pending or threatened against the Company or
any of the Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or by-laws of the
Company, or any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound.
(x) This Agreement has been duly
authorized, executed and delivered by the Company.
(xi) No approval, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in connection with the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the NASD or
as required by State securities and Blue Sky laws as to which such counsel need
express no opinion) except such as have been obtained or made, specifying the
same.
(xii) The Company is not, and will not
become, as a result of the consummation of the transactions contemplated by this
Agreement, and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly
authorized, executed and delivered on behalf of the Selling Shareholder.
(xiv) The Selling Shareholder has full
legal right, power and authority, and any approval required by law (other than
as required by State securities and Blue Sky laws as to which such counsel need
express no opinion), to sell, assign, transfer and deliver the portion of the
Shares to be sold by such Selling Shareholder.
(xv) The Custodian Agreement and the
Power of Attorney executed and delivered by the Selling Shareholder is valid and
binding.
(xvi) The Underwriters (assuming that they
are bona fide purchasers within the meaning of the Uniform Commercial Code) have
acquired good and marketable title to the Shares being sold by the Selling
Shareholder on the Closing Date, and the Option Closing Date, as the case may
be, free and clear of all liens, encumbrances, equities and claims.
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<PAGE> 8
In rendering such opinion Proskauer Rose LLP may rely as to
matters governed by the laws of states other than New York or Federal laws on
local counsel in such jurisdictions and as to the matters set forth in
subparagraphs (xiii), (xiv) and (xv) on opinions of other counsel representing
the Selling Shareholder, provided that in each case Proskauer Rose LLP shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, at the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A under the
Act) and as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Proskauer Rose LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(c) The Representative shall have received from
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
Dettmer"), counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs ___________________ of Paragraph (b) of this Section
6, and that the Company is a duly organized and validly existing corporation
under the laws of the State of New York. In rendering such opinion, Gunderson
Dettmer may rely as to all matters governed other than by the laws of the State
of California or Federal laws on the opinion of counsel referred to in Paragraph
(b) of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Gunderson
Dettmer may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representative shall have received at or
prior to the Closing Date from Gunderson Dettmer a memorandum or summary, in
form and substance satisfactory to
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<PAGE> 9
the Representative, with respect to the qualification for offering and sale by
the Underwriters of the Shares under the State securities or Blue Sky laws of
such jurisdictions as the Representative may reasonably have designated to the
Company.
(e) You shall have received, on each of the
dates hereof, the Closing Date and the Option Closing Date, as the case may be,
a letter dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Grant & Thornton
LLP confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on
the Closing Date or the Option Closing Date, as the case may be, a certificate
or certificates of the Chief Executive Officer and the Chief Financial Officer
of the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has
become effective under the Act and no stop order suspending the effectiveness of
the Registrations Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties
of the Company contained in Section 1 hereof are true and correct as of the
Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been
made pursuant to Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the
Registration Statement and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration Statement
and Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, and
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the earnings,
18
<PAGE> 10
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries taken
as a whole, whether or not arising in the ordinary course of business.
(g) The Company and the Selling Shareholder
shall have furnished to the Representative such further certificates and
documents confirming the representations and warranties, covenants and
conditions contained herein and related matters as the Representative may
reasonably have requested.
(h) The Firm Shares and Option Shares, if any,
have been approved for designation upon notice of issuance on the Nasdaq
National Market.
(i) The Lockup Agreements described in Section
4(x) are in full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representative and to Gunderson
Dettmer, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representative by notifying the Company and the Selling Shareholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
(a) The Company and the Selling Shareholder,
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary
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<PAGE> 11
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse each Underwriter and each such controlling person upon demand for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a subpoena
or governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and the Selling Shareholder will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representative specifically for use in the preparation
thereof. In no event, however, shall the liability of any Selling Shareholder
for indemnification under this Section 8(a) exceed the proceeds received by such
Selling Shareholder from the Underwriters in the offering. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Shareholder may otherwise have.
(b) Each Underwriter severally and not jointly
will indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling Shareholder,
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company or any
such director, officer, Selling Shareholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
Selling Shareholder or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representative specifically for use
in the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any
governmental investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification
20
<PAGE> 12
provided for in Section 8(a) or (b) shall be available to any party who shall
fail to give notice as provided in this Section 8(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was materially prejudiced by the failure to give such notice, but
the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 8(a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company and the Selling Shareholder in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party
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<PAGE> 13
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Shareholder on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholder
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholder on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) the Selling Shareholder shall not be required to
contribute any amount in excess of the proceeds received by such Selling
Shareholder from the Underwriters in the offering. The Underwriters' obligations
in this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or
expenses for which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or
22
<PAGE> 14
expenses are incurred. The indemnity and contribution agreements contained in
this Section 8 and the representations and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Shareholder), you, as Representative of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholder such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representative, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholder or you as the Representative of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholder
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representative, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. Notices.
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<PAGE> 15
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown &
Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202,
Attention: ___________; with a copy to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202. Attention: General Counsel; if to
the Company or the Selling Shareholders, to Computer Horizons Corp., 49 Old
Bloomfield Avenue, Mountain Lake, New Jersey 07046 Attention: John J. Cassese.
11. Termination.
This Agreement may be terminated by you by notice to the
Sellers as follows:
(a) at any time prior to the earlier of (i) the
time the Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any
of the following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (vii) the suspension of trading of the Company's common stock
by the Commission on the Nasdaq National Market or (viii) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this
Agreement.
12. Successors.
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<PAGE> 16
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Shareholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
The Company, the Selling Shareholder and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Selling Shareholder, the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
COMPUTER HORIZONS CORP.
By:
John J. Cassese
President and Chief Executive Officer
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<PAGE> 17
___________________________________
John J. Cassese
___________________________________
Dennis M. DiVenuta
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the date
first above written.
ALEX. BROWN & SONS INCORPORATED
As Representative of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: _________________________________
_________________________
Authorized Officer
26
<PAGE> 18
SCHEDULE I
SCHEDULE OF UNDERWRITERS
UNDERWRITER NUMBER OF FIRM SHARES TO BE PURCHASED
Alex. Brown & Sons Incorporated
UBS Securities LLC
Furman Selz LLC
Punk, Ziegel & Company
---------
TOTAL 2,500,000
=========
<PAGE> 19
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDER
SELLING SHAREHOLDER NUMBER OF FIRM SHARES TO BE SOLD
- ------------------- --------------------------------
John J. Cassese 492,500
Dennis M. DiVenuta 7,500
-------
TOTAL 500,000
=======
<PAGE> 20
SCHEDULE III
SCHEDULE OF OPTION SHARES
MAXIMUM NUMBER OF PERCENTAGE OF TOTAL NUMBER
NAME OF SELLER OPTION SHARES TO BE SOLD OF OPTION SHARES
Alex. Brown & Sons
Incorporated
UBS Securities LLC
Furman Selz LLC
Punk, Ziegel & Company
--------- ----
TOTAL 450,000 100%
========= ====
<PAGE> 1
EXHIBIT 10(g)
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1997, by and
between Computer Horizons Corp., a New York corporation with offices at 49 Old
Bloomfield Avenue, Mountain Lakes, New Jersey 07046 (hereinafter called the
"Company"), and William J. Murphy, residing at 184 Andover Drive, Wayne, New
Jersey 07470 (hereinafter called the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive as its
Chief Financial Officer and Executive Vice President and the Executive is
willing to serve the Company in such capacity;
WHEREAS, the Company and the Executive desire to set forth the
terms and conditions of such employment.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants and agreements herein contained, the Company and the
Executive agree as follows:
1. Employment. The Company hereby agrees to employ the
Executive, and the Executive agrees to be employed by the Company, on the terms
and conditions herein contained.
2. Term. Except as otherwise provided in this Agreement, the
Executive shall be employed under this Agreement for a three year period
commencing on the date hereof (the "Employment Term").
3. Duties. The Executive shall serve as the Company's Chief
Financial Officer. In such capacity the Executive shall report to the Board of
Directors of the Company (the "Board of Directors") and the Company's Chief
Executive Officer, and shall perform such duties and functions, consistent with
his status as a senior executive officer of the Company, as may be assigned by
the Board of Directors or the Chief Executive Officer. During the Employment
Term, the Executive shall devote substantially all of his business time and his
best efforts, energies, skills and attention to the business and affairs of the
Company. The foregoing shall not limit the Executive's right to be involved in
civic or charitable activities and manage his own personal investments, provided
that such activities do not materially interfere with his providing of his
services hereunder. The Executive, without additional compensation and subject
to the preceding provisions of this Section 3 and the other terms of this
Agreement, shall also serve, if so requested by the Board of Directors, in
senior management capacities of subsidiaries of the Company.
<PAGE> 2
4. Salary and Bonus.
(a) During the Employment Term, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a base salary at the rate of $225,000 per annum. The base
salary payable to the Executive hereunder may be increased, but not decreased,
from time to time, in the sole discretion of the Board of Directors. (The base
salary, as it may be increased form time to time, is hereinafter referred to as
the "Base Salary".)
(b) During the Employment Term, the Executive shall be
entitled to receive, in addition to Base Salary, such annual cash bonuses, if
any, as the Board of Directors may, in its sole discretion, award the Executive.
5. Other Compensation and Benefits. During the Employment
Term, the Executive shall be entitled to:
(a) participate in all benefit, pension, retirement, deferred
compensation, savings, welfare and other employee benefit plans and policies in
which members of the Company's senior management generally are entitled to
participate (collectively, the "Benefit Plans"), in accordance with their
respective terms as in effect form time to time;
(b) receipt of all fringe benefits and perquisites maintained
by the Company from time to time for members of senior management generally, in
accordance with the policies of the Company with regard to such benefits and
perquisites as in effect from time to time;
(c) vacation each year in accordance with the Company's
policies for members of senior management generally as in effect form time to
time;
(d) such other compensation, if any, as the Company may, in
its sole discretion, award to the Executive.
6. Death Prior to Termination of Employment. If the Executive
shall die during the Employment Term, the Company shall have no liability or
further obligation except as follows:
(a) The Company shall pay the Executive's estate or designated
beneficiaries, as applicable, when otherwise due, any unpaid Base Salary for the
period prior to the Executive's death, any declared or awarded but unpaid
bonuses, whether pursuant to any bonus plan or otherwise, any unpaid amounts due
under any incentive plan in accordance with its terms, and any other unpaid
amounts due the Executive under any other Benefit Plans in accordance with the
terms of such Benefit Plans (collectively, the "Entitlements").
(b) The Executive's estate or designated beneficiaries, as
applicable, shall have such rights, if any, under the Benefit Plans and all
other employee benefit, fringe benefit or
2
<PAGE> 3
incentive plans maintained or offered by Company as may be provided in such
plans and any grants to the Executive thereunder in accordance with their
respective terms (collectively, the "Rights").
7. Termination Due to Disability. If the Executive shall
become physically or mentally incapable of performing his duties as provided in
Section 3 of this Agreement and such incapacity shall last for a period of at
least one hundred eighty (180) consecutive days, the Company may, at its
election at any time thereafter while the Executive remains incapable of
performing his duties hereunder, terminate the Executive's employment hereunder,
effective immediately, by giving the Executive written notice of such
termination. In such event, the Company shall have no other obligation to the
Executive or his dependents hereunder other than the obligation to pay or
provide the Entitlements and the Rights.
8. Termination for Cause. The Company may terminate the
Executive's employment hereunder for Cause by giving the Executive ten days'
written notice of such termination. For purposes of this Agreement, Cause shall
mean: (a) the Executive's embezzlement, willful breach of fiduciary duty or
fraud with regard to the Company or any of its assets or businesses, (b) the
Executive's conviction of, or pleading of nolo contendere with regard to, a
felony (other than a traffic violation) or any other crime involving moral
turpitude, or (c) any other breach by the Executive of a material provision of
this Agreement that remains uncured for thirty (30) days after written notice
thereof is given to the Executive. In such event, the Company shall have no
obligation to the Executive or his dependents other than to pay, when otherwise
due, any unpaid Base Salary for the period prior to such termination and to pay
or provide the Rights. In addition, the Company shall be entitled to exercise
all rights and remedies against the Executive that it may have under applicable
law.
9. Termination for Good Reason. The Executive may terminate
his employment hereunder for Good Reason upon written notice thereof to the
Company. For purposes of this Agreement, "Good Reason" shall mean the occurrence
or failure to cause the occurrence (as applicable) of any of the following
events without the Executive's express prior written consent: (a) any material
demotion of the Executive, any material reduction in the Executive's authority
or responsibility or any other material change in the terms of the Executive's
employment which is inconsistent with Section 3 hereof; (b) the failure of any
successor or assign of the Company (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to assume specifically the obligations of
the Company hereunder in accordance with Section 17 of this Agreement; (c) any
breach by the Company of any material provision of this Agreement that is not
cured by the Company within 30 days after written notice thereof from the
Executive; or (d) if a Change of Control has occurred, either (i) the failure to
provide the Executive with a cash bonus for each fiscal year of the Company
ending during the Employment Term and after the Change of Control at least equal
to the highest bonus earned by, or awarded to, the Executive in respect of any
fiscal year of the Company ending prior to the Change of Control or, if higher,
the fiscal year in which such Change of Control occurs, or (ii) the failure by
the Company to continue in effect any Benefit Plan in which the Executive or any
of his dependents is participating immediately prior to such Change of Control
or plans or
3
<PAGE> 4
arrangements that in the aggregate provide the Executive with substantially
similar benefits, or the taking of any action by the Company that would
adversely affect the Executive's or his dependent's participation in, or reduce
the Executive's or his dependent's benefits under, any of such Benefit Plans or
arrangements or the replacements thereof, providing that the foregoing shall not
limit the Company's right to make changes in such plans to comply with
applicable laws or otherwise, provided that the Company shall otherwise
compensate the Executive for any loss (including but not limited to tax
benefits) to the Executive as a result of such changes.
10. Consequences of Termination of Employment by the Executive
for Good Reason or by the Company Without Cause. Subject to Section 12 hereof,
in the event the Executive terminates his employment for Good Reason pursuant to
Section 9 hereof or the Company terminates the Executive's employment other than
for Cause or Disability, then the Company shall be deemed to have breached this
Agreement, and the Executive shall be entitled to exercise all rights and
remedies that he may have hereunder and under applicable law. Without limiting
the generality of the preceding sentence, the Company shall in any event pay the
Entitlements to the Executive within five (5) days of the date of termination of
employment and shall provide the Rights.
11. Consequences of Termination of Employment by the Executive
without Good Reason. If Executive's employment hereunder is terminated by the
Executive without Good Reason, the Company shall have no other obligation to the
Executive hereunder other than the obligation to pay or provide to Entitlements
and the Rights.
12. Change of Control.
(a) Subject to Subsection 12(b) hereof, if, and only if, a
Change of Control of the Company shall occur and either (i) the Executive
continues to be employed by the Company through the end of the Employment Term
or (ii) after such Change of Control the Executive terminates his employment for
Good Reason or the Company terminates the Executive's employment other than for
Cause or Disability, then the Executive shall be entitled to receive from the
company (without limiting any additional rights that the may have under
applicable law in the case of termination prior to the expiration of the
Employment Term), within five (5) days after the expiration of the Employment
Term (whether or not the Executive is then employed by the Company) or the
termination of the Executive's employment (as applicable), a lump sum payment
equal to the sum of (x) the Entitlements and (y) the product of (A) two and (B)
the sum of (1) the Executive's Base Salary and (2) the highest annual bonus
amount the Executive was awarded during the Employment Term. The Company shall
also provide to Rights.
(b) Notwithstanding anything else herein, to the extent the
Executive would be subject to the excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), on the amounts in Section 2(a)
above and such other amounts or benefits he received from the Company and
required to be included in the calculation of parachute payments for purposes of
Sections 280G and 4999 of the Code, the amounts provided under this Agreement
shall be automatically reduced to an amount one dollar less than the amount
that,
4
<PAGE> 5
when combined with such other amounts and benefits required to be so included,
would subject the Executive to the excise tax under Section 4999 of the Code if,
and only if, the reduced amount received by the Executive would be greater than
the unreduced amount to be received by the Executive minus the excise tax
payable under Section 4999 of the Code on such amount and the other amounts and
benefits received by the Executive and required to be included in the
calculation of a parachute payment for purposes of Section 280G and 4999 of the
Code.
(c) For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if: (i) any person (as defined in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any
Subsidiary and any employee benefit plan sponsored or maintained by the Company
or any Subsidiary (including any trustee of any such plan acting in his capacity
as trustee), but including a "group" as defined in Section 13(d)(3) of the
Exchange Act, becomes the beneficial owner of shares of the Company having at
least 20% of the total number of votes that may be cast for the election of
directors of the Company; (ii) the shareholders of the Company shall approve any
merger or other business combination of the Company, sale of all or
substantially all of the Company's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction involving only the
Company and one or more of its Subsidiaries, or a Transaction immediately
following which the shareholders of the Company immediately prior to the
Transaction continue to have a majority of the voting power in the resulting
entity (excluding for this purpose any shareholder owning directly or indirectly
more than 10% of the shares of the other company involved in the Transaction),
or (iii) within any 24 month period beginning on or after the date hereof, the
persons who were directors of the Company immediately before the beginning of
such period (the "Incumbent Directors") shall cease (for any reason other than
death) to constitute at least a majority of the Board or the board of directors
of any successor to the Company, provided that, any director who was not a
director as of the date hereof shall be deemed to be an incumbent Director if
such director was elected to the Board by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually or by prior operation of this Section 12(b)
unless such election, recommendation or approval was the result of an actual or
threatened election contest of the type contemplated by Regulation 14a-11
promulgated under the Exchange Act or any successor provision. Notwithstanding
the foregoing, no Change of Control of the Company shall be deemed to have
occurred for purposes of this Agreement by reason of any actions or events in
which the Executive participates in a capacity other than in his capacity as an
executive or director of the Company, provided that the Executive's voting or
tendering, exchanging or otherwise disposing of any or all his shares of the
Company's capital stock shall not be deemed participation. For purposes of this
Section 12(b), "Subsidiary" shall mean any entity in which the Company owns,
directly or indirectly, at least 50% of the outstanding securities generally
entitled to vote for the election of directors.
13. Non-Competition; Confidential Information.
(a) The Executive agrees that, if he terminates his employment
without Good Reason (except pursuant to Section 12) hereunder or he is
terminated for Cause, he will not, for a
5
<PAGE> 6
period of one year after such termination of employment with the Company, in any
manner, directly or indirectly (or have a substantial ownership in, manage,
operate, or control any entity which shall directly or indirectly): (i) perform,
or cause to be performed, or solicit or aid, in any manner, solicitation of, any
work of a type performed by the Company for any firm, corporation, or other
entity ("Customer") with which, at any time during the twelve (12) month period
prior to termination of the Employment Period, the Company or any Subsidiary
conducted any business, or (ii) induce any personnel to leave the service of the
Company or any Subsidiary.
(b) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses: (i) obtained by the Executive during his employment by the Company
or any of its affiliated companies and (ii) not otherwise public knowledge or
known within the Company's industry. After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company, unless compelled pursuant to the order of a court or
other body having jurisdiction over such matter or upon the advice of counsel,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
(c) The Executive agrees that the remedy at law for any breach
by him of the foregoing shall be inadequate and that the Company shall be
entitled to injunctive relief. This section constitutes an independent and
separable covenant that shall be enforceable notwithstanding any right or remedy
that the Company may have under any other provision of this Agreement or
otherwise.
14. Garnishment. The benefits payable under this Agreement
shall not be subject to garnishment, execution or levy of any kind, and any
attempt to cause any benefits to be so subjected shall not be recognized.
15. Notice. Any Notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by certified mail, return receipt requested, by Federal Express, Express
Mail or similar overnight delivery or courier service, or by telecopy,
answerback received. Notice to the Executive shall be delivered to his address
set forth at the head of this agreement, and notice to the Company shall be sent
as follows:
Computer Horizons Corp.
49 Old Bloomfield Avenue
Mountain Lakes, New Jersey 07096
Any notice given by certified mail shall be deemed given five
days after the time of certification thereof. Any notice given by other means
permitted by this Section 13 will be deemed given at the time of receipt
thereof.
6
<PAGE> 7
Any party may by notice given in accordance with this Section
to the other parties, designate another address or person for receipt of notices
hereunder.
16. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New Jersey
without reference to its conflict of law provisions.
17. Successors; Binding Agreement. The Company shall require
any successor (whether direct or indirect, by purchase of stock or assets,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, expressly to assume and agree, in a written
instrument in form and substance satisfactory to the Executive and his counsel,
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Notwithstanding anything herein to the contrary, this Agreement may not be
assigned by the Company without the prior written consent of the Executive. This
agreement shall inure to the benefit of, and be enforceable by, the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. This Agreement is personal to the
Executive and neither this Agreement nor any rights hereunder may be assigned by
the Executive.
18. No Mitigation; No Set-Off. The Company agrees that if the
Executive's employment with the Company is terminated during the Employment Term
for any reason whatsoever, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to this Agreement. Further, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Executive or benefit provided to the Executive as the
result of employment by another employer or otherwise.
19. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer of the Company
as may be specifically designated by the Board of Directors of the Company. No
waiver by either hereto party of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
20. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE> 8
21. Separability. If any provisions of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
22. Non-Exclusivity of Rights. Nothing in this Agreement shall
prejudice, prevent or limit the Executive's previously vested rights under, or
continuing or future participation in, any benefit, bonus, incentive, equity or
other plan or program provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other currently existing plan or agreement
regarding severance from employment with the Company or statutory entitlements.
23. Beneficiary. The Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable under this
Employment Agreement following his death by giving the Company written notice
thereof in accordance with the applicable Company policies. In the event of the
Executive's death or judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed and the Executive has hereunto set his hand as of the date
first set forth above.
COMPUTER HORIZONS CORP.
By: /s/ John J. Cassese
------------------------
Authorized Officer
/s/ William J. Murphy
------------------------
William J. Murphy
8
<PAGE> 1
EXHIBIT 10(h)
THE CHASE MANHATTAN BANK SALVATORE C. SETTINERI
4 Campus Drive Vice President
Parsippany, NY 07054
Tel 201-734-1030
Fax 201-734-1120
June 30, 1997
Mr. David W. Bialick, Treasurer
Computer Horizons Corporation
49 Old Bloomfield Avenue
Mountain Lakes, NJ 07046-1495
Dear Mr. Bialick:
We are pleased to advise you that based on your annual financial statements for
the fiscal year 12/31/96, The Chase Manhattan Bank (the "Bank") has approved
your request for a line of credit in the aggregate amount of $15,000,000.00.
Our officers may, at their discretion, make short term loans to Computer
Horizons Corp. (the "Borrower") on such terms as are mutually agreed upon
between us, from time to time.
Borrowing under this line of credit is intended to be used to meet the normal
short term working capital needs of Computer Horizons Corp.
As this line is not a commitment, credit availability is, in addition, subject
to your execution and delivery of such documentation as the Bank deems
appropriate and the receipt and continuing satisfaction with current financial
information, which information will be furnished to the Bank as it may from
time to time reasonably request. This line of credit expires on June 30, 1998.
We are pleased to be of service and trust you will call upon us to assist in
any of your banking requirements.
Sincerely,
/s/ SALVATORE C. SETTINERI
Salvatore C. Settineri
Vice President
<PAGE> 1
EXHIBIT 11
Computer Horizons Corp. and Subsidiaries
EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Primary
Average shares outstanding 23,927,000 21,858,000 19,983,000
Stock options 1,534,000 1,506,000 1,404,000
----------- ---------- ----------
Primary weighted average of common
and common equivalent shares outstanding 25,461,000 23,364,000 21,387,000
=========== ========== ==========
Fully diluted
Average shares outstanding 23,927,000 21,858,000 19,983,000
Stock options 1,611,000 1,628,000 1,469,000
----------- ---------- ----------
Fully diluted weighted average number
of common and common equivalent
shares outstanding 25,538,000 23,486,000 21,452,000
=========== ========== ==========
Net income $11,232,000 $9,907,000 $5,686,000
=========== ========== ==========
Earnings per share
Primary $0.44 $0.42 $0.27
===== ===== =====
Fully diluted $0.44 $0.42 $0.27
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 27, 1997, accompanying the consolidated
financial statements of Computer Horizons Corp. appearing in the 1996 Annual
Report of the Company to its shareholders incorporated by reference in the
Annual Report on Form 10-K for the year ended December 31, 1996, and our report
dated January 27, 1997, accompanying the financial statement schedule included
in that Form 10-K, which are incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned reports and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
Parsippany, New Jersey
August 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-27-1997
<CASH> 3,751
<SECURITIES> 0
<RECEIVABLES> 70,252
<ALLOWANCES> 1,576
<INVENTORY> 0
<CURRENT-ASSETS> 74,580
<PP&E> 10,424
<DEPRECIATION> 6,050
<TOTAL-ASSETS> 96,386
<CURRENT-LIABILITIES> 14,770
<BONDS> 0
0
0
<COMMON> 2,634
<OTHER-SE> 77,285
<TOTAL-LIABILITY-AND-EQUITY> 96,386
<SALES> 0
<TOTAL-REVENUES> 145,463
<CGS> 0
<TOTAL-COSTS> 99,121
<OTHER-EXPENSES> 30,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (35)
<INCOME-PRETAX> 15,525
<INCOME-TAX> 6,600
<INCOME-CONTINUING> 8,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,925
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
