SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)of the Securities and Exchange
Act of 1934 For the fiscal year ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 1-6081
COMFORCE CORPORATION
(formerly The Lori Corporation)
(Exact name of registrant as specified in its charter)
Delaware 36-23262248
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Marcus Avenue Lake Success, New York 11042
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 352-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 29, 1996 $44,370,000
-----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 29, 1996
- ---------------------------------------- --------------------------------
Common stock, $.01 par value 9,338,698
Documents Incorporated by Reference: None
<PAGE>
Item 1. Business
General
COMFORCE Corporation (the "Company" or "COMFORCE") is a leading provider of
technical staffing and consulting services in the information technology and
telecommunications sectors. Its operations are currently conducted through its
operating subsidiary, COMFORCE Global ("COMFORCE Global"). The Company has
entered into an asset purchase agreement to acquire the assets and business of
RRA Inc. and certain affiliated entities ("RRA") through a second operating
subsidiary, COMFORCE Technical Services, Inc. ("COMFORCE Technical Services").
COMFORCE Global provides telecommunications and computer specialists and
expertise on a project outsourcing basis, primarily to Fortune 500 companies
worldwide. It offers manpower on a contract basis to the telecommunications and
computer industries, on both a short-term and long-term basis, to meet its
customers' needs for virtually every staffing level within these industries,
including wireless infrastructure services, network management, engineering,
design and technical support. COMFORCE Global maintains an extensive data base
of technically skilled telecommunications and computer personnel, classified by
experience and geographic location, for its customers. A majority of COMFORCE
Global's business is derived from contract labor services provided to the
wireless sector.
Upon completion of the acquisition of RRA, COMFORCE Technical Services will
provide specialists for supplemental staffing assignments as well as outsourcing
and vendor-on-premises programs, primarily in the electronics, aviation,
telecommunications and information technology business sectors. In addition,
COMFORCE Technical Services provides specialists for mission-critical projects,
principally in the scientific and technical research and development fields,
including the areas of laser and weapons technology, environmental safety and
alternative energy source development. The proposed acquisition of RRA is
subject to various conditions and no assurance can be given that it will be
completed. See "Forward Looking and Other Statements" in this Item 1.
History
The Company was incorporated in Delaware in 1933. From 1985 until September
1995, the Company, under the name The Lori Corporation ("Lori"), designed and
distributed fashion jewelry (the "Jewelry Business"). Prior thereto, under the
names APECO Corporation and American Photocopy Equipment Company, the Company
engaged in various business activities, including the manufacture of photocopy
machines.
Due to continuing losses in the Jewelry Business and the erosion of the markets
for its products, in September 1995, the Company adopted a plan to discontinue
the Jewelry Business and determined to seek to enter into another line of
business. In June 1995, Lori contracted with current management to direct its
entry into the technical staffing business. On October 17, 1995, the Company
acquired all of the capital stock of COMFORCE Global. In addition, in connection
with its new business direction, the Company changed its name to COMFORCE
Corporation. ARTRA GROUP Incorporated ("ARTRA"), then the majority stockholder
of the Company, approved these transactions. At the time of the acquisition,
COMFORCE Global (formerly YIELD TechniGlobal) was one of several wholly-owned
subsidiaries of Spectrum Information Technologies, Inc., a Delaware corporation
("Spectrum"), which had a Chapter 11 petition pending. Originally founded in
1987, Spectrum had acquired YIELD TechniGlobal in 1993.
The purchase price paid by the Company for the COMFORCE Global stock was
approximately $6.4 million, net of cash acquired, consisting of cash of
approximately $5.6 million and 500,000 shares of the Company's Common Stock
issued as consideration for various fees and guarantees associated with the
transaction. The cash consideration included net cash payments to the selling
shareholders of approximately $5.2 million. The 500,000 shares issued by the
<PAGE>
Company consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing certain of the Company's obligations, (ii) 100,000 shares issued to
ARTRA in consideration of its agreeing to enter into the Assumption Agreement
described under "Discontinued Jewelry Business" in this Item 1, (iii) 150,000
issued to two unrelated parties for advisory services in connection with the
acquisition, and (iv) 150,000 shares issued to Peter R. Harvey, then a Vice
President and director of the Company, for guaranteeing certain of the Company's
obligations. See "Discontinued Jewelry Business" in this Item 1.
In October and November 1995, in order to fund the acquisition of COMFORCE
Global and meet certain working capital requirements, the Company sold 1,946,667
shares of its Common Stock in a private offering in units consisting of one
share of Common Stock with a detachable warrant to purchase one-half share of
Common Stock (973,333 shares in the aggregate) for a selling price of $3.00 per
unit. The gross proceeds from the offering were $5,840,000. The warrants have an
exercise price of $3.375 per share and are exercisable for a period of five
years from the date of grant commencing June 1, 1996 (except for certain
warrants which were subsequently amended to provide for immediate exercise, as
described below).
In order to facilitate the COMFORCE Global acquisition, ARTRA agreed to exchange
all of the Series C Preferred Stock of the Company then held by it (9,701
shares, which constituted all of the issued and outstanding Preferred Stock of
the Company) for 100,000 shares of the Company's Common Stock. The liquidation
value of the Series C Preferred Stock was $19.5 million in the aggregate.
In March 1996, the Company acquired all of the assets of Williams Communication
Services, Inc., a provider of telecommunications and technical staffing
services. The purchase price for the assets of Williams Communication Services,
Inc. ("Williams") was $2 million with a four year contingent payout based on
earnings of Williams. The value of the contingent payouts will not exceed $2
million, for a total purchase price not to exceed $4 million. The acquisition
was funded by a revolving line of credit with Chase Manhattan Bank.
In April 1996, the Company entered into an agreement to purchase the assets of
RRA. The purchase price of the assets of RRA is $4.75 million, with a three year
contingent payout based on earnings of RRA. The value of the contingent payout
will not exceed $1 million, for a total purchase price not to exceed $5.75
million. The proposed acquisition of RRA is subject to various conditions and no
assurance can be given that it will be completed. See "Forward Looking and Other
Statements" in this Item 1.
In April 1996, the Company amended the warrants held by two unaffiliated
stockholders to purchase 301,667 shares of the Company's Common Stock at
exercise prices ranging from $2.125 to $3.375 per share to permit immediate
exercise (in the case of warrants to purchase 241,667 shares not immediately
exercisable) and to provide for the issuance of one supplemental warrant at an
exercise price of $9.00 per share for each warrant exercised on or before April
12, 1996. Warrants to purchase all 301,667 shares were exercised in April 1996
for an aggregate exercise price of $943,000. The Company intends to use the
proceeds from the exercise of these warrants for working capital purposes.
On April 12, 1996, ARTRA sold the business and certain assets of the Company's
Lawrence Jewelry Corporation subsidiary.
Strategy
Plan for Growth
The Company believes that it is currently a leading provider of
telecommunications and information technology staffing services. The Company
established its telecommunications staffing business with the acquisition of
COMFORCE Global in October 1995, and further strengthened its base with the
acquisition of Williams in March 1996.
<PAGE>
The Company has identified the area of skilled technical contract labor and
consulting for the telecommunications and information technology sectors as a
potentially high growth, profitable market niche that could benefit from new
opportunities in the wireless telephone industry and growth in networked
information systems and the "information superhighway." The Company believes
that it is well positioned to capitalize on the anticipated continued growth in
the telecommunications and information technology and technical sectors due to
its size, geographic breadth and industry expertise in providing a wide range of
staffing services. The Company will seek to grow significantly through strategic
acquisitions, the opening of offices in new and existing markets and aggressive
recruiting, training, and marketing of industry specialists with a wide range of
technical expertise.
Strategic Acquisitions
The Company's growth strategy includes the acquisition of established,
profitable regional staffing companies in markets with attractive growth
opportunities. These "platform" companies are intended to serve as a basis for
future growth and, therefore, must have the management infrastructure and other
operating characteristics necessary to significantly expand the Company's
presence within a specific market sector or geographic area. In addition, the
Company has as an objective "tuck under" acquisitions of smaller companies which
can be integrated into the established platform companies to increase market
share and profits with minimal incremental expense. The Company believes that
its reputation in the industry and management style will facilitate its efforts
to acquire smaller businesses that are seeking alliances with larger staffing
companies to more effectively compete for national contracts. The Company's
senior management team has experience in identifying acquisition targets and
integrating acquired businesses into the Company's existing operations.
The Company intends to establish its technical services platform with the
acquisition of RRA, and is actively seeking an acquisition of a platform company
servicing the information technology market sector.
Internal Growth
The Company believes it can increase revenues through internal growth due to its
well-developed presence in the information technology and telecommunications
sectors. Further, the Company believes that it can achieve significant economies
of scale by opening and clustering branch offices in new and existing markets
through the allocation of management, advertising, recruiting and training costs
over a larger revenue base. In addition, the Company has targeted selected areas
of the technical services markets which it believes have high growth and profit
potential.
Entrepreneurial Environment.
The Company believes its entrepreneurial business environment rewards
performance. The Company has established guidelines that offer its managers
latitude in operational areas such as hiring, pricing, training, sales and
marketing. In addition, the Company has established profit-based compensation
plans and intends to implement a broadly distributed stock option program to
provide further incentive to employees through ownership in the Company.
RightSourcing(TM)
The Company believes that its RightSourcing(TM) services, which includes a
vendor-on-premise program, provides an attractive opportunity to grow its
operating revenues. Although these programs tend to have slightly lower gross
margins than traditional staffing services, the Company's objective will be to
achieve higher volumes and proportionately lower operating costs which yield
attractive margins. Under these programs, the Company assumes administrative
responsibility for coordinating all temporary personnel services throughout a
client's organization or location. The program provides the Company with an
opportunity to establish long-term relationships with clients and a more stable
source of revenue while providing clients with a dedicated, on-site account
<PAGE>
manager who can more effectively meet the client's changing staffing needs.
Market Overview and Industry Demand
The staffing services industry was once used predominantly as a short-term
solution during peak production periods or to temporarily replace workers due to
illness, vacation or abrupt termination. Since the mid-1980s, the staffing
services sector has evolved into a permanent and significant component of the
human resource plans of many corporations. Corporate restructuring, downsizing,
government regulations, advances in technology, and the desire by many companies
to shift employee costs from a fixed to a variable expense have resulted in the
use of a wide range of staffing alternatives by businesses. In addition, the
reluctance of employers to risk exposure of wrongful discharge has led to an
increase in companies using services such as the Company's Engagement Program as
a means of evaluating the qualifications of personnel before hiring them on a
full-time basis. Furthermore, many companies are adopting strategies which focus
on their core businesses and, as a result, are using outsourcing services such
as the Company's RightSourcing(TM) program to staff their non-core businesses.
The Company's core and ring approach to staffing is intended to provide its
customers with immediate access to a large pool of expertise while enabling them
to keep their fixed labor costs.
Telecommunications and information technology staffing services have become the
fastest growing segments of the staffing services industry, according to a
leading trade magazine. Demand for technical project support, wireless
development, software development and other computer and
telecommunications-related services has increased significantly during the last
decade. Many employers outsource their management information systems and
computer departments or have utilized the employees of staffing firms in an
attempt to meet the increased demand for computer-skilled personnel. According
to a leading trade magazine, the information technology services sector is
estimated to have had revenues of approximately $7.1 billion in 1994,
representing a 25% increase over 1993. This publication estimates 1995 revenues
in the information technology services sector to have been $8.9 billion, again
representing a 25% increase over the prior year.
The Company believes that the staffing services industry is highly fragmented
and is currently experiencing a trend toward consolidation, primarily due to the
increasing demands by large companies for centralized staffing services, which
smaller staffing companies are unable to meet. The growth of national and
regional accounts resulting from the centralization of staffing decisions by
national and larger regional companies has increased the importance of staffing
companies being able to offer services over a broad geographic area. In
addition, many smaller staffing companies are experiencing increased
difficulties due to factors such as significant working capital requirements,
limited management resources and an increasingly competitive environment.
Sales and Marketing
The Company has developed a sales and marketing strategy which targets accounts
at the international, national and local levels. Such accounts are solicited
through personal sales presentations, telephone marketing, direct mail
solicitation, referrals from clients and advertising in a variety of local and
national media.
The Company's international and national sales and marketing effort is and will
continue to be coordinated by management at the corporate level, which enables
the Company to develop a consistent, focused strategy to pursue national account
opportunities. This strategy allows the Company to capitalize on the desire of
international and national clients to work with a limited number of preferred
vendors for their staffing requirements.
Customers
The significant customers of the Company vary from time to time and the Company
<PAGE>
is not dependent upon any single customer. During the calendar year ended
December 31, 1995, sales to Harris Corporation and Motorola accounted for
approximately 12% and 23%, respectively, of the revenues of the Company (from
its technical staffing business) and of YIELD TechniGlobal (for the period prior
to its acquisition by the Company). In addition, other major customers of that
accounted for less than 10% of the business the Company (and YIELD TechniGlobal)
during such period included Alcatel Network Systems, Hughes Network Systems,
Inc., Ericsson Radio Systems, Inc., AT&T, Bell Atlantic and Sprint
International.
Recruiting of Contract Employees
The Company recruits its contract employees through an on-going program that
primarily utilizes local and national advertisements and job fairs. In addition,
the Company has succeeded in recruiting qualified employees through referrals
from its existing labor force. As a result, the Company has initiated a policy
whereby it pays referral fees to employees responsible for attracting new
recruits. The Company believes this balanced recruiting strategy will continue
to provide it with high quality contract employees to meet its staffing demands.
In the information technology services sector, the demand for software engineers
and technology consultants significantly exceeds supply. In an effort to attract
a wide spectrum of employees, the Company offers diverse employment options and
training programs. The approaches the Company is utilizing to attract personnel
who are in high demand include offering (i) full-time employee status with an
annual salary irrespective of assignment or (ii) hourly contingent worker status
with compensation tied to the duration of the assignment. The Company intends to
tailor its employment practices to attract personnel in areas of high demand.
Assessment and Training of Employees
To better meet the needs and requirements of its customers and to enhance the
marketability and job satisfaction of its employees, the Company utilizes a
comprehensive system to assess and train its employees. The Company conducts
extensive background, drug and skills screening of potential temporary employees
and contract consultants. The Company also provides these employees with
orientation courses that are tailored to the practices and policies of specific
clients. In addition, the Company offers a broad spectrum of courses concerning
mainframe applications development and maintenance, client/server technology and
desktop-user support.
Competition
The technical staffing sector in which the Company competes is fragmented and
highly competitive, with limited barriers to entry, although it appears to be
experiencing a trend toward consolidation, primarily due to the increasing
demands by large companies for centralized staffing services. With local
markets, smaller firms actively compete with the Company for business, and in
most of these markets, no single company has a dominant share of the market.
Technical services companies have traditionally focused on aerospace and
military contracts; however, since the demilitarization of the U.S. economy,
there has been increased focus by technical services companies on the
telecommunications industry. The Company's ability to compete is dependent on
many factors, including its ability to attract technical personnel, its ability
to offer its services on a cost efficient basis and its ability to successfully
service and support its customers. The Company also competes with larger
full-service and specialized competitors in international, national, regional
and local markets.
Intellectual Property
The Company does not own any patents, registered trademarks or copyrighted
information that is registered. However, the Company considers its employee
database to be proprietary.
<PAGE>
Employees
As of March 31, 1996, the Company employed approximately 22 full-time staff
employees and 800 contract employees (on a full-time equivalency basis) in its
technical staffing business. During 1995, the Company had an average of
approximately 250 employees on assignment per week.
The Company is responsible for and pays the employer's share of Social Security
taxes (FICA), federal and state unemployment taxes, workers' compensation
insurance, and other costs relating to its temporary employees. The Company does
not provide health insurance benefits to its temporary employees.
Centralized Business Operations
The Company provides temporary, contracting, and outsourcing services for
approximately 160 clients from its corporate headquarters located in Lake
Success, New York. COMFORCE Global has offices in New York, Washington D.C. and
Florida and plans to open offices in Texas, Illinois, California and Georgia
over the next twelve months. If the RRA acquisition is completed, the Company
expects to have additional offices in Arizona, New Mexico, California,
Washington State, Missouri and South Carolina.
Discontinued Jewelry Business
In September 1995, the Company adopted a plan to discontinue the Jewelry
Business and recorded a provision of $1 million for the estimated costs to
complete the disposal of this business, having earlier recorded a charge against
operations of $12.9 million to write-off the goodwill of the Jewelry Business at
June 30, 1995. In the fourth quarter of 1996, the Company revised its estimate
and provided an additional $600,000 to complete the disposition of the Jewelry
Business.
In conjunction with the COMFORCE Global acquisition, the Company and ARTRA
entered into an Assumption Agreement dated as of October 17, 1995 (the
"Assumption Agreement"), under which ARTRA agreed to pay and discharge
substantially all of the then existing liabilities and obligations of the
Company, including indebtedness, corporate guarantees, accounts payable and
environmental liabilities. ARTRA also agreed to assume responsibility for all
liabilities of the Jewelry Business from and after October 17, 1995, and is
entitled to receive the net proceeds, if any, from the sale thereof. On April
12, 1996, ARTRA sold the business and certain assets of the Company's Lawrence
Jewelry Corporation subsidiary, and, accordingly, will be entitled to the net
proceeds, if any, from this disposition after the satisfaction of its creditors.
No assurance can be given that ARTRA will be financially capable of satisfying
its obligations under the Assumption Agreement.
Environmental Matters
Previously the Company operated in excess of 20 manufacturing facilities for the
production of, inter alia, photocopy machines, photographic chemical and paper
coating prior to its entry into the Jewelry Business in 1985. These operations
were sold or discontinued in the late 1970s and early 1980s. Certain of these
facilities may have used and/or generated hazardous materials and may have
disposed of the hazardous substances, in most cases before laws had been enacted
governing the safe disposal of hazardous substances.
Although the controlling stockholders and current management had no involvement
in these operations, the Company could ultimately be held to be responsible for
clean-up costs at the manufacturing sites or at off-site waste disposal
locations under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), or under other Federal or state environmental
laws now or hereafter enacted. The Company has been notified by the Federal
Environmental Protection Agency that it is a potentially responsible party for
the disposal of hazardous substances by its predecessor company at a site on
Ninth Avenue in Gary, Indiana, but it has no records indicating that it
<PAGE>
deposited hazardous substances at the site and intends to vigorously defend
itself in this matter. Management is unable to assess whether the Company will
be found liable in this matter or to predict the amount of liability, if any.
Under the terms of the Assumption Agreement, ARTRA has agreed to pay and
discharge substantially all of the Company's pre-existing liabilities and
obligations, including environmental liabilities. Consequently, the Company is
entitled to indemnification from ARTRA for any such environmental liabilities,
although no assurance can be given that ARTRA will be financially capable of
satisfying its obligations under the Assumption Agreement.
Forward Looking and Other Statements
The statements above and elsewhere in this Report that suggest that the Company
will increase revenues and become profitable, achieve significant growth through
strategic acquisitions or other means, realize operating efficiencies, and like
statements as to the Company's objectives and management's beliefs are forward
looking statements. Various factors could prevent the Company from realizing
these objectives, including the following:
Unfavorable economic conditions generally or in the telecommunications or
computing industries could cause potential users of technical and computing
services to decide to cancel or postpone capital expansion, research and
development or other projects which require the engagement of temporary
technical staff workers or the use of consulting and other technical expertise
offered by the Company. In particular, the cable, telephone, wireless and other
segments of the telecommunications industry are competing for increasingly
overlapping shares of new and emerging markets, including through intense
lobbying in Congress. The failure of Congress to enact legislation, or of
regulatory agencies to adopt regulations, which open markets or ease
restrictions and burdens in the telecommunications industry, or other
unfavorable attitudes or uncertainties in the legislative, regulatory or
bureaucratic environments, could stem expected growth in this industry.
The Company's ability to expand through acquisitions is dependent on its ability
to identify attractive acquisition opportunities and to finance such
acquisitions, and no assurance can be given that it will be successful in doing
so. Heightened competition in the staffing industry by existing or new
competitors could make such acquisitions uneconomic or otherwise more difficult
or costly. Unless the Company's operations are considered to be successful by
bank or other institutional lenders or investors, it is unlikely that the
Company will be able to finance its expansion through acquisitions.
The Company is seeking to expand rapidly in what its management perceives as a
"window of opportunity" in the market. Expansion undertaken at an accelerated
pace, principally through acquisitions, creates added risk that the analysis of
businesses acquired will fail to uncover business risks or adequately reveal
weaknesses in the markets, management or operations being considered.
Furthermore, the Company expects in many cases to retain existing management of
acquired companies to manage the businesses acquired. Compensation incentives
designed to enroll the existing management, which the Company expects to offer,
are difficult to structure in a manner so as to provide lasting benefits to the
acquiring company.
Heightened competition for customers as well as for technical personnel could
adversely impact the Company's margins. Heightened competition for customers
could result in the Company being unable to maintain its current fee scales
without being able to reduce its personnel costs. Shortages of qualified
technical personnel, which currently exist in some technical specialties and
could occur in others in the future, could result in the Company being unable to
fulfill its customers' needs or in the customers electing to employ technical
staff directly (rather than using the Company's services) to ensure the
availability of such personnel. Many of the Company's competitors have more
extensive financial and personnel resources than does the Company.
The Company's proposed acquisition of the assets of RRA is subject to the
Company's completion, and satisfaction with the results, of its due diligence
review of RRA, the Company's receipt of consents to the assignment of contracts
<PAGE>
(and, in the case of certain government contracts, governmental clearances) from
certain significant customers of RRA, the satisfaction of RRA and its principals
of the short-term financing required to complete the acquisition as well as the
Company's long-term financing plans, and other customary contingencies, and no
assurance can be given that such conditions and contingencies will be satisfied.
Item 2. Properties
The Company and its COMFORCE Global subsidiary maintain their headquarters in a
2,500 square foot facility in Lake Success, New York under a lease which expires
in 2000. COMFORCE Global also maintains offices in New York, Washington D.C. and
Florida in leased facilities of from 750 to 2,000 square feet. The Company
believes that its facilities are adequate for their present and reasonably
anticipated future business requirements.
The Company's discontinued Lawrence Jewelry Corporation subsidiary (certain
assets of which were sold on April 12, 1996) maintains an 86,000 square foot
distribution facility in Woonsocket, Rhode Island under a lease which expires in
October 1996, and a 32,000 square foot distribution facility in Plymouth,
Minnesota under a lease which expires in 2003.
Item 3. Legal Proceedings
The Company has been notified by the Federal Environmental Protection Agency
that it is a potentially responsible party for the disposal of hazardous
substances by its predecessor company at a site on Ninth Avenue in Gary,
Indiana, but it has no records indicating that it deposited hazardous substances
at the site and intends to vigorously defend itself in this matter. Management
is unable to assess whether the Company will be found liable in this matter or
to predict the amount of liability, if any. Under the terms of the Assumption
Agreement, ARTRA has agreed to pay and discharge substantially all of the
Company's pre-existing liabilities and obligations, including environmental
liabilities. Consequently, the Company is entitled to indemnification from ARTRA
for any such environmental liabilities, although no assurance can be given that
ARTRA will be financially capable of satisfying its obligations under the
Assumption Agreement.
The Company is a party to routine contract, negligence and employment-related
litigation matters in the ordinary course of its business. No such pending
matters, individually or in the aggregate, if adversely determined, are believed
by management to be material to the business, results of operations or financial
condition of the Company. The Company insures against workers' compensation,
personal injury, property damage, professional malpractice, errors and
omissions, and fidelity losses. The Company maintains insurance in such amounts
and with such coverages and deductibles as management believes are reasonable
and prudent.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Company's security holders for consideration
during the fourth quarter of 1995.
<PAGE>
PART II
Item 5. Market For the Registrant's Common Equity and Related Shareholder
Matters
The Company's Common Stock, $.01 par value, is traded on the American Stock
Exchange ("AMEX"). The high and low sales prices for the Company's Common Stock,
as reported by the AMEX during the past two years, were as follows:
1996 1995 1994
-------------- --------------- ---------------
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter $10-3/8 $6 $3-7/8 $1-15/16 $6 $5
Second Quarter 3-1/2 2 7-1/8 3-1/8
Third Quarter 4-3/4 1- 9/16 8-1/8 5-1/4
Fourth Quarter 9-1/4 3- 1/4 6-3/8 1-7/8
COMFORCE anticipates that earnings, if any, will be retained for expansion of
its technical staffing and consulting services business at least through 1996
and, therefore, does not anticipate that dividends will be paid in 1996. Lori
did not pay dividends in 1995.
As of March 31, 1996, there were approximately 5,600 shareholders of record.
<PAGE>
Item 6. Selected Financial Data.
Following is a consolidated summary of selected financial data of the Company
for each of the five years in the period ended December 31, 1995. Certain
selected financial data for each of the four years in the period ended December
31, 1994 has been reclassified to reflect the discontinuance of the Company's
fashion costume jewelry business effective September 30, 1995. Selected
financial data for the year ended December 31, 1995 includes the operations of
COMFORCE Global from the date of its acquisition, completed on October 17, 1995.
Certain pro forma selected financial data for the year ended December 31, 1995
is presented as if COMFORCE Global had been acquired as of January 1, 1995.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues (A) $ 2,387 $ -- $ -- $ -- $ --
Stock compensation charge (B) 3,425 -- -- -- --
Loss from continuing operations (4,332) (2,282) (1,456) (421) (5,129)
Loss from discontinued operations (C) (17,211) (16,220) (216) (34,198) (1,970)
Loss before extraordinary credits (21,543) (18,502) (1,672) (34,619) (7,099)
Extraordinary credits (D) 6,657 8,965 22,057 -- --
Net earnings (loss) (14,886) (9,537) 20,385 (34,619) (7,099)
Earnings (loss) per share:
Loss from continuing operations (.95) (.72) (.39) (.13) (1.62)
Loss from discontinued operations (3.74) (5.08) (.06) (10.86) (.63)
Loss before extraordinary credits (4.69) (5.80) (.45) (10.99) (2.25)
Extraordinary credits 1.45 2.81 6.03 -- --
Net earnings (loss) (3.24) (2.99) 5.58 (10.99) (2.25)
Total assets (E) 8,536 18,704 40,174 42,818 66,877
Long-term debt -- -- -- 6,105 23,548
Receivable from (payable to) ARTRA (F) 1,046 (289) -- (16,025) (15,981)
Liabilities to be assumed by ARTRA (F) 4,240 -- -- -- --
Liabilities subject to compromise -- -- -- 41,500 --
Debt subsequently discharged -- 7,105 -- --
Cash dividends -- -- -- -- --
</TABLE>
<PAGE>
(A) Revenues for the year ended December 31, 1995 represent revenues of
COMFORCE Global from the date of its acquisition, October 17, 1995.
Selected financial data of the Company's fashion costume jewelry business
for the nine months ended September 30, 1995 and for each of the four
years in the period ended December 31, 1994 has been reclassified to
discontinued operations.
(B) Represents a non-recurring compensation charge related to the issuance of
the 35% common stock interest in the Company pursuant to employment or
consulting agreements with certain individuals to manage the Company's
entry into and development of the telecommunications and computer
technical staffing services business.
(C) The loss from discontinued operations for the year ended December 31, 1995
includes a charge to operations of $12,930,000 to write-off the remaining
goodwill of the Company's fashion costume jewelry operations effective
June 30, 1995 and a provision of $1,600,000 for loss on disposal of the
Company's fashion costume jewelry operations. The loss from discontinued
operations for the year ended December 31, 1994 includes a charge to
operations of $10,800,000 representing a write-off of New Dimensions
goodwill. The loss from discontinued operations for the year ended
December 31, 1992 includes charges to operations of $8,664,000
representing an impairment of goodwill at December 31, 1992 and $8,500,000
representing increased reserves for markdowns allowances and inventory
valuation.
(D) The 1995 and 1994 extraordinary credits represent gains from net discharge
of indebtedness under terms of the Company's debt settlement agreement
with its bank. The 1993 extraordinary credit represents a gain from a net
discharge of indebtedness due to the reorganization of the Company's New
Dimensions subsidiary. See Note 7 to the Company's Consolidated Financial
Statements.
(E) As partial consideration for a debt settlement agreement, in December,
1994 the Company's bank lender received all of the assets of Lori's former
New Dimensions subsidiary. See Note 7 to the Company's Consolidated
Financial Statements.
(F) In conjunction with the COMFORCE Global acquisition, ARTRA has agreed to
assume substantially all pre-existing Lori liabilities. During 1995, ARTRA
received $399,000 of advances from the Company. Subsequent to December 31,
1995 ARTRA repaid the above advances and made net payments of $647,000 to
reduce pre-existing Lori liabilities. Such payments have been included in
the Company's Consolidated Financial Statements at December 31, 1995 as
amounts receivable from ARTRA and as additional paid-in capital. To the
extent ARTRA is able to make subsequent payments, they will be recorded as
additional paid-in capital. In the fourth quarter of 1995, ARTRA exchanged
all of its shares of the Company's Series C cumulative preferred stock for
100,000 newly issued shares of the Company's common stock. During 1994,
ARTRA made net advances to Lori of $2,531,000. Effective December 29,
1994, ARTRA exchanged $2,242,000 of its notes and advances for additional
Lori preferred stock. In February 1993, ARTRA transferred all of its notes
to Lori's capital account. See Notes 9 and 15 to the Company's
Consolidated Financial Statements.
<PAGE>
On October 17, 1995, the Company completed the acquisition of all of the capital
stock of COMFORCE Global, a provider of telecommunications and computer
technical staffing and consulting services. Due to a pattern of reduced sales
volume resulting in continuing operating losses, in September 1995, the Company
adopted a plan to discontinue its Jewelry Business. The Company's consolidated
financial statements have been reclassified to report separately results of
operations of the discontinued Jewelry Business. Therefore, a comparison of the
Company's consolidated results of operations for the years ended December 31,
1995 and 1994 is not meaningful. The following tables present unaudited pro
forma results of continuing operations for the years ended December 31, 1995 and
1994 as if the acquisition of COMFORCE Global had been consummated as of January
1, 1994.
<TABLE>
<CAPTION>
Year Ended December 31 1995
(unaudited in thousands)
---------------------------------------------------
(A) COMFORCE Pro Forma
Historical Global(B) Adjustments Pro Forma
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,387 $ 9,568(C) $ 11,955
------- ------- -------
Operating costs and expenses:
Cost of revenues 1,818 7,178 8,996
Stock compensation (D) 3,425 3,425
Other operating costs and expenses 823 1,397 $ 113(E) 2,333
------- ------- -------
6,066 8,575 113 14,754
------- ------- -------- -------
Operating earnings (loss) (3,679) 993 (113) (2,799)
------- ------- -------- -------
Spectrum corporate management fees (G) (1,140) (1,140)
Interest and other non-operating expenses (618) 7 410(F) (201)
------- ------- -------- -------
(618) (1,133) 410 (1,341)
------- ------- -------- -------
Earnings (loss) from continuing operations
before income taxes (4,297) (140) 297 (4,140)
(Provision) credit for income taxes (35) 21 (14)
------- ------- -------- -------
Loss from continuing operations $ (4,232) $ (119) $ 297 $ (4,154)
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31 1994
(unaudited in thousands)
---------------------------------------------------
(A) COMFORCE Pro Forma
Historical Global(B) Adjustments Pro Forma
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 8,245 $ 8,245
------- -------
Operating costs and expenses:
Cost of revenues 6,418 6,418
Other operating costs and expenses $ 966 1,133 $ 79(E) 2,178
------- ------- -------- -------
966 7,551 79 8,596
------- ------- -------- -------
Operating earnings (loss) (966) 694 (79) (351)
------- ------- -------- -------
Spectrum corporate management fees (G) (803) (803)
Interest and other non-operating expenses (1,316) 9 (1,307)
------- ------- -------
(1,316) (794) (2,110)
------- ------- -------
Loss from continuing operations
before income taxes (2,282) (100) (79) (2,461)
Provision for income taxes (15) (15)
------- ------- -------- -------
Loss from continuing operations $ (2,282) $ (115) $ (79) $ (2,476)
======= ======= ======== =======
</TABLE>
<PAGE>
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
(A) Historical data for the year ended December 31, 1995 includes
COMFORCE Global's operations since its acquisition on October 17,
1995 through December 31, 1995 and corporate overhead costs for
the entire year ended December 31, 1995.
(B) The pro forma data presented for COMFORCE Global's operations is
for the periods prior to its acquisition on October 17, 1995, or
January 1, 1995 through October 16, 1995 and January 1, 1994
through December 31, 1994, respectively.
(C) Represents COMFORCE Global's revenues for the period January 1,
1995 through October 16, 1995, prior to its acquisition by the
Company.
(D) Represents a non-recurring compensation charge related to the
issuance of the 35% common stock interest in the Company pursuant
to employment or consulting agreements with certain individuals to
manage the Company's entry into and development of the
telecommunications and computer technical staffing services
business.
(E) Amortization of goodwill arising from the COMFORCE Global
acquisition for the periods January 1, 1995 through October 16,
1995 and January 1, 1994 through December 31, 1994, respectively.
(F) Reverse interest expense on notes and other liabilities to be
assumed by ARTRA.
(G) Corporate management fees from COMFORCE Global's former parent,
Spectrum Information Technologies, Inc., not directly related to
the operations of COMFORCE Global. In the opinion of management,
the amount of these fees do not represent costs to be incurred by
COMFORCE Global on a stand alone basis.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion supplements the information found in the consolidated
financial statements and related notes:
Change in Business
From 1985 until September 1995, the Company, under the name The Lori Corporation
("Lori"), designed and distributed fashion jewelry. Due to continuing losses in
Lori's fashion jewelry operations (the "Jewelry Business") and the erosion of
the markets for its products, the Company determined to seek to enter into
another line of business. In June 1995, Lori contracted with current management
to direct its entry into the technical staffing business. On October 17, 1995,
the Company acquired all of the capital stock of COMFORCE Global Inc. (formerly
YIELD TechniGlobal) ("COMFORCE Global"), a provider of technical staffing and
consulting services in the information technology and telecommunications
sectors. Accordingly, on October 17, 1995, the Company became a provider of
technical staffing and consulting services. In connection with its new business
direction, the Company changed its name to COMFORCE Corporation. As discussed
under "Discontinued Jewelry Business" in this Item 7, effective September 30,
1995, the Company adopted a plan to discontinue the Jewelry Business.
The purchase price paid by the Company for the COMFORCE Global stock was
approximately $6.4 million, net of cash acquired, consisting of cash of
approximately $5.6 million and 500,000 shares of the Company's Common Stock
issued as consideration for various fees and guarantees associated with the
transaction. The cash consideration included net cash payments to the selling
shareholders of approximately $5.2 million. The 500,000 shares issued by the
Company consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing certain of the Company's obligations, (ii) 100,000 shares issued to
ARTRA GROUP Incorporated ("ARTRA"), then the majority stockholder of the
Company, in consideration of its agreeing to enter into the Assumption Agreement
described below, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the acquisition, and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of the Company, for
guaranteeing certain of the Company's obligations. The shares issued to Peter R.
Harvey and ARTRA are subject to approval by the Company's shareholders.
In order to facilitate the COMFORCE Global acquisition, ARTRA agreed to exchange
all of the Series C Preferred Stock of the Company then held by it (9,701
shares, which constituted all of the issued and outstanding Preferred Stock of
the Company) for 100,000 shares of the Company's Common Stock. The liquidation
value of the Series C Preferred Stock was $19.5 million in the aggregate. In
addition, the Company and ARTRA entered into an Assumption Agreement dated as of
October 17, 1995 (the "Assumption Agreement"), under which ARTRA agreed to pay
and discharge substantially all of the then existing liabilities and obligations
of the Company, including indebtedness, corporate guarantees, accounts payable
and environmental liabilities. ARTRA also agreed to assume responsibility for
all liabilities of the Jewelry Business from and after October 17, 1995, and is
entitled to receive the net proceeds, if any, from the sale thereof. On April
12, 1996, ARTRA sold the business and certain assets of the the Company's
Lawrence Jewelry Corporation subsidiary, and, accordingly, will be entitled to
the net proceeds, if any, from this disposition after the satisfaction of its
creditors. No assurance can be given that ARTRA will be financially capable of
satisfying its obligations under the Assumption Agreement.
In October and November 1995, in order to fund the acquisition of COMFORCE
Global and meet certain working capital requirements, the Company sold 1,946,667
shares of its Common Stock in a private offering in units consisting of one
share of Common Stock with a detachable warrant to purchase one-half share of
Common Stock (973,333 shares in the aggregate) for a selling price of $3.00 per
unit. The gross proceeds from the offering were $5,840,000. The warrants have an
exercise price of $3.375 per share and are exercisable for a period of five
years from the date of grant commencing June 1, 1996 (except for certain
<PAGE>
warrants which were subsequently amended to provide for immediate exercise, as
described below).
The acquisition of COMFORCE Global was accounted for by the purchase method and,
accordingly, the assets and liabilities of COMFORCE Global were included in the
Company's financial statements at their estimated fair market value at the date
of acquisition.
In March 1996, the Company acquired all of the assets of Williams Communication
Services, Inc.("Williams"), a regional provider of telecommunications and
technical staffing services. The purchase price for the assets of Williams was
$2 million with a four year contingent payout based on earnings of Williams. The
value of the contingent payouts will not exceed $2 million, for a total purchase
price not to exceed $4 million. The acquisition was funded by a revolving line
of credit with Chase Manhattan Bank.
In April 1996, the Company entered into an agreement to purchase the assets of
RRA Inc. and certain affiliated entities ("RRA"). The purchase price of the
assets of RRA is $4.75 million, with a three year contingent payout based on
earnings of RRA. The value of the contingent payout will not exceed $1 million,
for a total purchase price not to exceed $5.75 million. The proposed acquisition
of RRA is subject to various conditions and no assurance can be given that it
will be completed. See "1996 Plan of Operations" in this Item 7.
In April 1996, the Company amended the warrants held by two unaffiliated
stockholders to purchase 301,667 shares of the Company's Common Stock at
exercise prices ranging from $2.125 to $3.375 per share to permit immediate
exercise (in the case of warrants to purchase 241,667 shares not immediately
exercisable) and to provide for the issuance of one supplemental warrant at an
exercise price of $9.00 per share for each warrant exercised on or before April
12, 1996. Warrants to purchase all 301,667 shares were exercised in April 1996
for an aggregate exercise price of $943,000. The Company intends to use the
proceeds from the exercise of these warrants for working capital purposes.
1996 Plan of Operations
The Company believes that it is currently a leading provider of
telecommunications and information technology staffing services. The Company
established its telecommunications staffing business with the acquisition of
COMFORCE Global in October 1995, and further strengthened its base with the
acquisition of Williams in March 1996. COMFORCE Global provides
telecommunications and computer specialists and expertise on a project
outsourcing basis, primarily to Fortune 500 companies worldwide. It offers
manpower on a contract basis to the telecommunications and computer industries,
on both a short-term and long-term basis, to meet its customers' needs for
virtually every staffing level within these industries, including wireless
infrastructure services, network management, engineering, design and technical
support.
The Company intends to establish its technical services platform with the
acquisition of RRA, and is actively seeking an acquisition of a platform company
servicing the information technology market sector. Upon completion of the
acquisition of RRA, COMFORCE Technical Services will provide specialists for
supplemental staffing assignments as well as outsourcing and vendor-on-premises
programs, primarily in the electronics, aviation, telecommunications and
information technology business sectors. As described below, the proposed
acquisition of RRA is subject to various conditions and no assurance can be
given that it will be completed.
The Company has identified the area of skilled technical contract labor and
consulting for the telecommunications and information technology sectors as a
potentially high growth, profitable market niche that could benefit from new
opportunities in the wireless telephone industry and growth in networked
information systems and the "information superhighway." The Company believes
that it is well positioned to capitalize on the anticipated continued growth in
the telecommunications and information technology and technical sectors due to
its size, geographic breadth and industry expertise in providing a wide range of
staffing services. The Company will seek to grow significantly through strategic
<PAGE>
acquisitions, the opening of offices in new and existing markets and aggressive
recruiting, training, and marketing of industry specialists with a wide range of
technical expertise.
The Company's growth strategy includes the acquisition of established,
profitable regional staffing companies in markets with attractive growth
opportunities. These "platform" companies are intended to serve as a basis for
future growth and, therefore, must have the management infrastructure and other
operating characteristics necessary to significantly expand the Company's
presence within a specific market sector or geographic area. In addition, the
Company has as an objective "tuck under" acquisitions of smaller companies which
can be integrated into the established platform companies to increase market
share and profits with minimal incremental expense.
The Company believes it can also increase revenues though internal growth due to
its well-developed presence in the information technology and telecommunications
sectors. Further, the Company believes that it can achieve significant economies
of scale by opening and clustering branch offices in new and existing markets
through the allocation of management, advertising, recruiting and training costs
over a larger revenue base. In addition, the Company has targeted selected areas
of the technical services markets which it believes have high growth and profit
potential.
The statements above and elsewhere in this Report that suggest that the Company
will increase revenues and become profitable, achieve significant growth through
strategic acquisitions or other means, realize operating efficiencies, and like
statements as to the Company's objectives and management's beliefs are forward
looking statements. Various factors could prevent the Company from realizing
these objectives, including the following:
Unfavorable economic conditions generally or in the telecommunications or
computing industries could cause potential users of technical and computing
services to decide to cancel or postpone capital expansion, research and
development or other projects which require the engagement of temporary
technical staff workers or the use of consulting and other technical expertise
offered by the Company. In particular, the cable, telephone, wireless and other
segments of the telecommunications industry are competing for increasingly
overlapping shares of new and emerging markets, including through intense
lobbying in Congress. The failure of Congress to enact legislation, or of
regulatory agencies to adopt regulations, which open markets or ease
restrictions and burdens in the telecommunications industry, or other
unfavorable attitudes or uncertainties in the legislative, regulatory or
bureaucratic environments, could stem expected growth in this industry.
The Company's ability to expand through acquisitions is dependent on its ability
to identify attractive acquisition opportunities and to finance such
acquisitions, and no assurance can be given that will be successful in doing so.
Heightened competition in the staffing industry by existing or new competitors
could make such acquisitions uneconomic or otherwise more difficult or costly.
Unless the Company's operations are considered to be successful by bank or other
institutional lenders or investors, it is unlikely that the Company will be able
to finance its expansion through acquisitions.
The Company is seeking to expand rapidly in what its management perceives as a
"window of opportunity" in the market. Expansion undertaken at an accelerated
pace, principally through acquisitions, creates added risk that the analysis of
businesses acquired will fail to uncover business risks or adequately reveal
weaknesses in the markets, management or operations being considered.
Furthermore, the Company expects in many cases to retain existing management of
acquired companies to manage the businesses acquired. Compensation incentives
designed to enroll the existing management, which the Company expects to offer,
are difficult to structure in a manner so as to provide lasting benefits to the
acquiring company.
Heightened competition for customers as well as for technical personnel could
adversely impact the Company's margins. Heightened competition for customers
could result in the Company being unable to maintain its current fee scales
without being able to reduce its personnel costs. Shortages of qualified
<PAGE>
technical personnel, which currently exist in some technical specialties and
could occur in others in the future, could result in the Company being unable to
fulfill its customers' needs or in the customers electing to employ technical
staff directly (rather than using the Company's services) to ensure the
availability of such personnel. Many of the Company's competitors have more
extensive financial and personnel resources than does the Company.
The Company's proposed acquisition of the assets of RRA is subject to the
Company's completion, and satisfaction with the results, of its due diligence
review of RRA, the Company's receipt of consents to the assignment of contracts
(and, in the case of certain government contracts, governmental clearances) from
certain significant customers of RRA, the satisfaction of RRA and its principals
of the short-term financing required to complete the acquisition as well as the
Company's long-term financing plans, and other customary contingencies, and no
assurance can be given that such conditions and contingencies will be satisfied.
Results of Operations
On October 17, 1995, the Company completed the acquisition of all of the capital
stock of COMFORCE Global, a provider of technical staffing and consulting
services in the information technology and telecommunications sectors. Due to a
pattern of reduced sales volume resulting in continuing operating losses, in
September 1995, the Company adopted a plan to discontinue its Jewelry Business.
The Company's consolidated financial statements have been reclassified to report
separately results of operations of the discontinued Jewelry Business.
Therefore, a comparison of the Company's consolidated results of operations for
the years ended December 31, 1995 and December 31, 1994 or of December 31, 1994
and December 31, 1993 is not meaningful. See "Discontinued Jewelry Business" in
this Item 7 for a discussion of the discontinued operations.
Pro Forma 1995 Compared to Pro Forma 1994
Set forth below is a discussion of the Company's pro forma results of continuing
operations for the years ended December 31, 1995 and December 31, 1994. The
Company's pro forma results of continuing operations for the years ended
December 31, 1995 and December 31, 1994 are presented in Item 6 of this Report
as if the acquisition of COMFORCE Global had been consummated as of January 1,
1994.
Pro forma revenues of $11,955,000 for the year ended December 31, 1995 were
$3,710,000, or 45.0%, higher than pro forma revenues for the year ended December
31, 1994. The increase in 1995 pro forma revenues is attributable to the overall
growth and expansion of COMFORCE Global's telecommunications and computer
technical staffing services business. Pro forma cost of revenues of $8,996,000
for the year ended December 31, 1995 increased $2,578,000 as compared to pro
forma cost of revenues for the year ended December 31, 1994. Pro forma cost of
revenues in the year ended December 31, 1995 was 75.2% of pro forma revenues
compared to a pro forma cost of revenues percentage of 77.8% for the year ended
December 31, 1994. The 1995 pro forma cost of revenues increase is principally
attributable to the increase in sales volume as noted above. The 1995 pro forma
cost of revenues percentage decrease of 2.6% is primarily attributable to
certain consulting fees incurred in 1994.
Pro forma operating expenses for the year ended December 31, 1995 increased
$3,580,000 as compared to pro forma operating expenses for the year ended
December 31, 1994. The 1995 increase in pro forma operating expenses is
principally attributable to a compensation charge of $3,425,000 related to the
issuance of a 35% interest in the Company as additional compensation for certain
individuals to enter into employment or consulting services agreements to manage
the Company's entry into and development of the telecommunications and computer
technical staffing services business.
Pro forma operating loss in the year ended December 31, 1995 was $2,799,000 as
compared to pro forma operating loss of $351,000 in the year ended December 31,
1994. The increased 1995 pro forma operating loss is principally attributable to
a compensation charge of $3,425,000 related to the issuance of a 35% interest in
<PAGE>
the Company as additional compensation for certain individuals to enter into
employment or consulting services agreements to manage the Company's entry into
and development of the telecommunications and computer technical staffing
services business, partially offset by an increased pro forma gross margin
attributable to the overall growth and expansion of COMFORCE Global's
telecommunications and computer technical staffing services business.
Corporate management fees from COMFORCE Global's former parent, Spectrum
Information Technologies, Inc., reflect an allocation of corporate overhead;
however, such charges will no longer continue as a result of COMFORCE Global's
acquisition by the Company in October 1995. In the opinion of management, the
amount of these fees are not representative of costs incurred by COMFORCE Global
on a stand alone basis.
Pro forma other expense, principally interest, net for the year ended December
31, 1995 decreased $1,106,000 as compared to the year ended December 31, 1994.
The 1995 decrease is principally due to the 1994 and 1995 discharges of
indebtedness under terms of the bank loan agreements of Lori and its fashion
costume jewelry subsidiaries.
Due to the Company's tax loss carryforwards and the uncertainty of future
taxable income, no income tax benefit was recognized in connection with the
Company's 1995 and 1994 pre-tax losses from continuing operations.
Liquidity and Capital Resources
Management believes that the Company will generate cash flow from operations
which, together with proceeds from the exercise of certain warrants of $943,000
in April 1996, will be sufficient to fund its telecommunications and computer
technical staffing services business for the remainder of 1996; however, the
Company does not expect to have sufficient liquidity or capital resources to
fund its planned expansion through acquisitions and other means. The Company
intends to seek debt and/or equity financing to fund such planned expansion. See
"Change in Business" and "1996 Plan of Operations" in this Item 7.
Cash and cash equivalents provided by the Company, COMFORCE Global, from October
17, 1995 through December 31, 1995 are as follows:
The net increase in cash and cash equivalents of $313,000 is comprised of net
cash provided by operating activities of $317,000 and cash used in investing
activities of $4,000. Cash flows used in investing activities is attributable to
purchase of equipment for the new COMFORCE Global offices.
Cash and cash equivalents for the Company on a consolidated basis for the years
1995 and 1994 are as follows:
Cash and cash equivalents decreased $134,000 during the year ended December 31,
1995. Cash flows used by operating activities of $2,023,000 and cash flows used
by investing activities of $5,686,000 exceeded cash flows from financing
activities of $7,575,000. Cash flows used by operating activities were
principally attributable to the Company's loss from operations, exclusive of the
effect of a charge to operations of $12,930,000 representing an impairment of
goodwill at the Company's discontinued Jewelry Business, a compensation charge
to continuing operations of $3,425,000 representing the issuance in aggregate of
a 35% interest in the Company as additional consideration under employment or
consulting services agreements with certain individuals to manage the Company's
entry into and development of the telecommunications and computer technical
staffing services business, and the effects of other non-cash charges. Cash
flows from investing activities consisted of a down payment and certain other
acquisition related costs aggregating $5,580,000 in connection with the COMFORCE
Global acquisition completed in October 1995, expenditures for retail fixtures
for the discontinued Jewelry Business of $631,000 and expenditures for equipment
of $25,000, less $550,000 deposited in trust in December 1994 used to fund an
installment payment in January 1995 for court-ordered payments arising from the
<PAGE>
May 1993 reorganization of the former New Dimensions subsidiary. Cash flows from
financing activities were attributable to proceeds from a private placement of
the Company's common stock (used principally to fund the COMFORCE Global
acquisition) and a net increase in short-term borrowings used principally to
fund working capital requirements.
During the year ended December 31, 1995, the Company's working capital
deficiency increased by $851,000. The increase in working capital deficiency is
principally attributable to net liabilities of the discontinued Jewelry Business
and a short-term loan used to fund the down payment for the COMFORCE Global
acquisition.
Discontinued Jewelry Business
In conjunction with the COMFORCE Global acquisition, the Company and ARTRA
entered into an Assumption Agreement dated as of October 17, 1995 (the
"Assumption Agreement"), under which ARTRA agreed to pay and discharge
substantially all of the then existing liabilities and obligations of the
Company, including indebtedness, corporate guarantees, accounts payable and
environmental liabilities. ARTRA also agreed to assume responsibility for all
liabilities of the Jewelry Business from and after October 17, 1995, and is
entitled to receive the net proceeds, if any, from the sale thereof. On April
12, 1996, ARTRA sold the business and certain assets of the Company's Lawrence
Jewelry Corporation subsidiary, and, accordingly, will be entitled to the net
proceeds, if any, from this disposition after the satisfaction of its creditors.
No assurance can be given that ARTRA will be financially capable of satisfying
its obligations under the Assumption Agreement.
At March 31, 1995 and at December 31, 1994, Lori's business plan had anticipated
that the restructuring of its debt, along with a consolidation and restructuring
of its Jewelry Business, would permit it to obtain a sufficient level of
borrowings to fund its capital requirements in 1995 and beyond. However, due to
the continued losses from operations and its inability to obtain conventional
bank financing, management of Lori determined in September 1995 to discontinue
the Jewelry Business. The Company recorded a provision of $1 million for the
estimated costs to complete the disposal of this business, having earlier
recorded a charge against operations of $12.9 million to write-off the goodwill
of the Jewelry Business at June 30, 1995. In the fourth quarter of 1996, the
Company revised its estimate and provided an additional $600,000 to complete the
disposition of the Jewelry Business.
Environmental Matters
The Company has been notified by the Federal Environmental Protection Agency
that it is a potentially responsible party for the disposal of hazardous
substances by its predecessor company at a site on Ninth Avenue in Gary,
Indiana, but it has no records indicating that it deposited hazardous substances
at the site and intends to vigorously defend itself in this matter. Management
is unable to assess whether the Company will be found liable in this matter or
to predict the amount of liability, if any. Under the terms of the Assumption
Agreement, ARTRA has agreed to pay and discharge substantially all of the
Company's pre-existing liabilities and obligations, including environmental
liabilities. Consequently, the Company is entitled to indemnification from ARTRA
for any such environmental liabilities, although no assurance can be given that
ARTRA will be financially capable of satisfying its obligations under the
Assumption Agreement. See note 2 to the Company's consolidated financial
statements.
Net Operating Loss Carryforwards
At December 31, 1995, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $53,000,000 available to be applied against
future taxable income, if any, expiring principally in 1996 - 2010. Section 382
of the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's Common Stock occurs. The Company has recently issued a significant
number of shares of its Common Stock in conjunction with the COMFORCE Global
<PAGE>
acquisition and certain related transactions. Accordingly, the Company is
currently subject to significant limitations regarding the utilization of its
Federal income tax loss carryforwards.
Seasonality
The Company's recently acquired technical staffing and consulting services
business is not subject to significant seasonal fluctuations.
Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 31,1996. The Company believes that
adoption will not have a material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock based
compensation is not mandatory, the pronouncement requires companies that choose
not to adopt the new fair value accounting to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle is
effective for the Company's fiscal year ending December 31, 1996. The Company
believes that adoption will not have a material impact on its financial
statements as the Company will not adopt the new fair value accounting, but
instead comply with the disclosure requirements.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in the economy; however, to the
extent permitted by competition, the Company generally passes increased costs to
its customers.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Schedules as listed on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference to "Information
Concerning Directors and Nominees" and "Information Concerning Executive
Officers" in the Company's Proxy Statement to be filed with the Securities and
Exchange Commission on or before April 29, 1996.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to "Executive
Compensation" in the Company's Proxy Statement to be filed with the Securities
and Exchange Commission on or before April 29, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to "Principal
Stockholders" in the Company's Proxy Statement to be filed with the Securities
and Exchange Commission on or before April 29, 1996.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to
"Transactions with Management and Others" in the Company's Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 29, 1996.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedules as listed on Page F-1.
3. Exhibits as listed on Page E-1.
(b) Reports on Form 8-K.
On October 11, 1995 the Company filed a Current Report on
Form 8-K to report that the Company had entered into (i) a
stock purchase agreement under which the Company agreed to
participate in the acquisition of COMFORCE Global, and (ii)
employment and consulting services agreements with certain
individuals to manage the Company's entry into and
development of the telecommunications and computer technical
staffing services business.
On October 31, 1995 the Company filed a Current Report on
Form 8-K to report the completion of the acquisition of
COMFORCE Global.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMFORCE Corporation
By: /s/ Michael Ferrentino
----------------------
Michael Ferrentino
President
Date: April 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Michael Ferrentino President (Principal
------------------- Executive Officer) and
Michael Ferrentino Director April 15, 1996
/s/ Andrew Reiben Chief Financial Officer
------------------- (Principal Financial
Andrew Reiben and Accounting Officer) April 15, 1996
/s/ Richard Barber
-------------------
Richard Barber Director April 15, 1996
/s/ Keith Goldberg
-------------------
Keith Goldberg Director April 15, 1996
/s/ Glen Miller
-------------------
Glen Miller Director April 15, 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
COMFORCE CORPORATION AND SUBSIDIARIES
Report of Independent Accountants F- 2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 F- 3
Consolidated Statements of Operations
for the years ended December 31, 1995, 1994 and 1993 F- 5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993 F- 6
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 F- 7
Notes to Consolidated Financial Statements F- 8
Schedules:
II. Valuation and Qualifying Accounts F-27
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
COMFORCE Corporation
We have audited the consolidated financial statements and the financial
statement schedules of COMFORCE Corporation (formerly The Lori Corporation) and
Subsidiaries as listed in the index on page F-1 of this Form 10-K. These
financial statements and financial statement schedules are the responsibility of
COMFORCE Corporation's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
COMFORCE Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 15, 1996
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1995 1994
-------- --------
ASSETS
Current assets:
Cash and equivalents $649 $783
Restricted cash and equivalents - 550
Receivables, including $151 of
unbilled revenue in 1995 and
allowance for doubtful accounts
and markdowns of $1,338 in 1994 1,754 814
Inventories - 2,105
Other 61 260
Receivable from ARTRA GROUP Incorporated 1,046 -
--------- ---------
Total current assets 3,510 4,512
--------- ---------
Property and equipment
Equipment 97 1,376
Leasehold improvements - 187
--------- ---------
97 1,563
Less accumulated depreciation and amortization 7 1,119
--------- ---------
90 444
--------- ---------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of
$51 in 1995 and $3,415 in 1994 4,801 13,140
Other 135 608
--------- ---------
4,936 13,748
--------- ---------
$8,536 $18,704
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1995 1994
-------- --------
LIABILITIES
Current liabilities:
Notes payable $500
Current maturities of long-term debt - $750
Accounts payable, including $289 due to
ARTRA GROUP Incorporated in 1994 75 3,703
Accrued expenses, including $250 due to
a related party in 1995 719 905
Income taxes 214 -
Liabilities to be assumed by
ARTRA GROUP Incorporated,
and net liabilities of
discontinued operations 3,699 -
--------- ---------
Total current liabilities 5,207 5,358
--------- ---------
Debt subsequently discharged - 7,105
--------- ---------
Noncurrent liabilities to be
assumed by ARTRA GROUP Incorporated 541 -
--------- ---------
Obligations expected to be settled by
the issuance of common stock 550 -
--------- ---------
Other noncurrent liabilities - 963
--------- ---------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 1,000 shares,
all series; Series C, issued 10 shares in 1994,
including accrued dividends - 19,515
Common stock, $.01 par value;
authorized 10,000 shares;
issued 9,309 shares in 1995
and 3,265 shares in 1994 92 32
Less restricted common stock (100 shares) - (700)
Additional paid-in capital 95,993 65,392
Accumulated deficit (93,847) (78,961)
--------- ---------
2,238 5,278
--------- ---------
$8,536 $18,704
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(In thousands, except per share data)
1995 1994* 1993*
--------- --------- ---------
Revenues $2,387
---------
Costs and expenses:
Cost of revenues 1,818
Stock compensation 3,425
Selling, general and administrative 823 $966 $701
--------- --------- ---------
6,066 966 701
--------- --------- ---------
Operating loss (3,679) (966) (701)
--------- --------- ---------
Other expense:
Interest expense (585) (1,316) (754)
Other expense, net (33) - (1)
--------- --------- ---------
(618) (1,316) (755)
--------- --------- ---------
Loss from continuing operations
before income taxes (4,297) (2,282) (1,456)
Provision for income taxes (35) - -
--------- --------- ---------
Loss from continuing operations (4,332) (2,282) (1,456)
Loss from discontinued operations (17,211) (16,220) (216)
--------- --------- ---------
Loss before extraordinary credits (21,543) (18,502) (1,672)
Extraordinary credits,
net discharge of indebtedness 6,657 8,965 22,057
--------- --------- ---------
Net earnings (loss) ($14,886) ($9,537) $20,385
========= ========= =========
Earnings (loss) per share:
Continuing operations ($0.95) ($0.72) ($0.39)
Discontinued operations (3.74) (5.08) (0.06)
--------- --------- ---------
Loss before extraordinary credits (4.69) (5.80) (0.45)
Extraordinary credits 1.45 2.81 6.03
--------- --------- ---------
Net earnings (loss) ($3.24) ($2.99) $5.58
========= ========= =========
Weighted average number of shares
of common stock and common
stock equivalents outstanding 4,596 3,195 3,656
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------
* As reclassified for discontinued operations.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(In thousands, except share data)
<TABLE>
<CAPTION>
Restricted Total
Preferred Stock Common Stock Common Stock Additional Shareholders'
----------------- ------------------- ---------------- Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
------- --------- ---------- ------- -------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 7,459 $17,273 3,148,526 $31 $44,626 ($89,809) ($27,879)
Net earnings - - - - - 20,385 20,385
Transfer of notes payable
to ARTRA to Lori's
capital account - - - - 15,990 - 15,990
Exercise of stock
options and warrants - - 9,250 - 38 - 38
Common stock issued to
pay liabilities - - 5,532 - 32 - 32
Fractional shares purchased - - (536) - (6) - (6)
------- --------- ---------- ------- -------- ---------- -----------
Balance at December 31, 1993 7,459 17,273 3,162,772 31 60,680 (69,424) 8,560
Net loss - - - - - (9,537) (9,537)
ARTRA capital contributions - - - - 4,000 - 4,000
Lori preferred stock issued
in exchange for ARTRA
notes and advances 2,242 2,242 - - - - 2,242
Common stock issued under terms
of debt settlement agreement - - 100,000 1 699 - 700
Restricted common stock - - - 100,000 ($700) - - (700)
Exercise of stock
options and warrants - - 2,500 - - - 13 - 13
Fractional shares purchased - - (253) - - - - - -
------- --------- ---------- ------- -------- ------- -------- ---------- -----------
Balance at December 31, 1994 9,701 19,515 3,265,019 32 100,000 (700) 65,392 (78,961) 5,278
Net earnings - - - - - - - (14,886) (14,886)
Common stock issued as
consideration for
debt restructuring - - 150,000 2 - - 335 - 337
Common stock issued as
additional consideration for
short-term borrowings - - 141,176 1 - - 229 - 230
Common stock issued
to pay liabilities - - 115,098 1 - - 374 - 375
Common stock sold through
private placements - - 1,946,667 19 - - 5,820 - 5,839
Common stock issued under
compensation agreements with
individuals to manage the
Company's telecommunications
and computer technical
staffing services business - - 3,091,304 31 - - 2,844 - 2,875
Common stock issued as
additionalconsideration for
Global purchase guarantee - - 350,000 3 - - 587 - 590
Common stock issued as
compensation for
Global acquisition fees - - 150,000 2 - - 251 - 253
Common stock issued to ARTRA
in exchange for the Company's
entire preferred stock issue (9,701) (19,515) 100,000 1 - - 19,514 - -
Restricted common stock issued
as additonal consideration
for short-term borrowings - - - - (100,000) 700 - - 700
Liabilities assumed by ARTRA - - - - - - 647 - 647
Fractional shares purchased - - (66) - - - - - -
------- --------- ---------- ------- -------- ------- -------- ---------- -----------
Balance at December 31, 1995 - - 9,309,198 $92 - - $95,993 ($93,847) $2,238
======= ========= ========== ======= ======== ======= ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($14,886) ($9,537) $20,385
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (6,657) (8,965) (22,057)
Provision for disposal of fashion costume jewelry business 1,600 - -
Depreciation of property, plant and equipment 101 438 503
Amortization of excess of cost over net assets acquired 261 1,018 1,018
Impairment of goodwill 12,930 10,800 -
Amortization of other assets 374 648 217
Common stock compensation 3,657 - -
Changes in assets and liabilities, net of the effects of
the acquisition of COMFORCE Global and
the discontinued fashion costume jewelry business:
(Increase) decrease in receivables 857 2,117 (1,503)
Decrease in inventories 2,105 1,098 1,453
Decrease in other current and noncurrent assets 170 153 574
Decrease in payables and accrued expenses (2,127) (513) (616)
Increase (decrease) in other current and noncurrent liabilities (408) (468) (521)
--------- --------- ---------
Net cash flows used by operating activities (2,023) (3,211) (547)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of COMFORCE Global, net of cash acquired (5,580) - -
Additions to property, plant and equipment (25) (32) (108)
Retail fixtures (631) (665) (951)
Payment of liabilities with restricted cash 550 (550) -
--------- --------- ---------
Net cash flows used by investing activities (5,686) (1,247) (1,059)
--------- --------- ---------
Cash flows from financing activities:
Net increase in short-term debt 2,486 (138) (12)
Proceeds from long-term borrowings - 1,241 4,863
Reduction of long-term debt (750) (444) (3,587)
Proceeds from private placement of common stock 5,839 - -
ARTRA capital contribution - 1,500 -
Notes and advances from ARTRA - 2,531 -
Other - 11 49
--------- --------- ---------
Net cash flows from financing activities 7,575 4,701 1,313
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (134) 243 (293)
Cash and equivalents, beginning of year 783 540 833
--------- --------- ---------
Cash and equivalents, end of year $649 $783 $540
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest $273 $435 $1,421
Income taxes paid (refunded), net 7 24 12
Supplemental schedule of noncash investing and financing activities:
Common stock issued as consideration for
debt restructuring and short-term loans $567 - -
Common stock issued for fees and costs
in conjunction with the acquisition of COMFORCE Global 843 - -
Issue common stock to pay liabilities 374 - -
ARTRA common stock issued to Lori's bank lender
under terms of the debt settlement agreement - $2,500 -
Transfer New Dimensions assets, net of cash of $674,
to Lori's bank lender under terms of the debt settlement agreement - 6,475 -
Lori preferred stock issued in exchange for ARTRA notes and advances - 2,242 -
Notes payable to ARTRA transferred to Lori's capital account - - $15,990
Debt refinanced - - 6,105
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of COMFORCE Corporation
("COMFORCE" or the "Company"), formerly The Lori Corporation ("Lori") are
presented on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company currently operates in one industry segment as a provider of
telecommunications and computer technical staffing and consulting services
worldwide. As discussed in Note 4, in September 1995, the Company adopted a plan
to discontinue its Jewelry Business ("Jewelry Business") conducted by its two
wholly-owned subsidiaries Lawrence Jewelry Corporation ("Lawrence") and
Rosecraft, Inc. ("Rosecraft").
At December 31, 1994, ARTRA GROUP INCORPORATED ("ARTRA"), a public company whose
shares are traded on the New York Stock Exchange, owned, through its
wholly-owned subsidiary Fill-Mor Holding, Inc. ("Fill-Mor"), approximately 62.9%
of the common stock and all of the outstanding preferred stock of the Company.
As discussed in Note 15, at December 31, 1995, ARTRA owned approximately 25% of
the Company's common stock.
As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of COMFORCE Global Inc. ("COMFORCE Global"), formerly Spectrum
Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. COMFORCE Global provides telecommunications and
computer technical staffing and consulting services worldwide to Fortune 500
companies and maintains an extensive, global database of technical specialists,
with an emphasis on wireless communications capability. On October 17, 1995,
Lori completed the acquisition of one hundred percent of the capital stock of
COMFORCE Global. In connection with the re-focus of Lori's business, Lori
changed its name to COMFORCE Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Intercompany accounts and
transactions are eliminated.
B. Cash Equivalents
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
As required under terms of a debt settlement agreement (see Note 7), at December
31, 1994, the Company maintained a deposit in trust of $550,000 to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of the Company's former New Dimensions Accessories,
Ltd., ("New Dimensions") subsidiary. The installment payment was made in
January, 1995.
C. Accounts Receivable and Unbilled Accounts Receivable
Accounts receivable consists of those amounts due to the Company for staffing
services rendered to various customers. Accrued revenue consists of revenues
earned and recoverable costs for which billings have not yet been presented to
the customers as of the balance sheet date.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
D. Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
E. Intangible Assets and Other Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. At December 31, 1995, the excess of purchase price over the
fair value of net assets acquired (goodwill) is reflected as an intangible asset
and amortized on a straight-line basis over a period of 20 years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through forecasted future operations.
F. Revenue Recognition
Revenue for providing staffing services is recognized at the time such services
are rendered.
G. Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to recovered or settled.
H. Use of Estimates In Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
I. Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 31, 1996. The Company believes that
adoption will not have a material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock based
compensation is not mandatory, the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle is
effective for the Company's fiscal year ending December 31, 1996. The Company
believes that adoption will not have a material impact on its financial
statements as the Company will not adopt the new fair value accounting, but
instead comply with the disclosure requirements.
3. COMFORCE GLOBAL ACQUISITION
On September 11, 1995, Lori signed a stock purchase agreement to participate in
the acquisition of one hundred percent of the capital stock of COMFORCE Global,
Inc. ("COMFORCE Global"), formerly Spectrum Global Services, Inc. d/b/a YIELD
Global, a wholly owned subsidiary of Spectrum Information Technologies, Inc.
("Spectrum") for consideration of approximately $6.4 million, net of cash
acquired, consisting of cash of approximately $5.6 million and 500,000 shares of
the Company's common stock issued as consideration for various fees and
guarantees associated with the transaction. The cash consideration included net
cash payments to the selling shareholders of approximately $5.2 million. The
500,000 shares of the Company's common stock issued as consideration for the
COMFORCE Global transaction included 150,000 shares issued to Peter R. Harvey,
then a vice president and director of the Company and currently the president of
ARTRA and 100,000 shares issued to ARTRA for their guarantee to the selling
shareholder of the payment of the COMFORCE Global purchase price at closing. The
shares issued to Peter R. Harvey and ARTRA are subject to approval by the
Company's shareholders. Additionally, in conjunction with the COMFORCE Global
acquisition, ARTRA has agreed to substantially all pre-existing Lori liabilities
and indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation.
COMFORCE Global provides telecommunications and computer technical staffing
services worldwide to Fortune 500 companies and maintains an extensive, global
database of technical specialists, with an emphasis on wireless communications
capability. The acquisition of COMFORCE Global, completed on October 17, 1995,
was accounted for by the purchase method and, accordingly, the assets and
liabilities of COMFORCE Global were included in the Company's financial
statements at their estimated fair market value at the date of acquisition and
of COMFORCE Global's operations are included in the Company's statement of
operations from the date of acquisition. The excess of purchase price over the
fair value of COMFORCE Global's net assets acquired (goodwill) of $4,852,000 is
being amortized on a straight-line basis over twenty years. In connection with
the re-focus of the Company's business, Lori changed its name to COMFORCE
Corporation.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 shares of the Company's common stock at $3.00 per
share (total proceeds of approximately $5,800,000) plus detachable warrants to
purchase approximately 970,000 shares of the Company's common stock at $3.375
per share. The warrants expire five years from the date of issue.
The following unaudited pro forma condensed consolidated statements of
operations for the years ended December 31, 1995 and 1994, present the Company's
results of operations as if the acquisition of COMFORCE Global and the related
private placement of the Company's common stock had been consummated as of
January 1, 1994.
COMFORCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical Global (A) Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,387 $ 9,568 $ 11,955
---------- ---------- ----------
Stock compensation (E) 3,425 3,425
Other operating costs and expenses 2,641 8,575 $ 113 (B) 11,329
---------- ---------- ------ ----------
6,066 8,575 113 14,754
---------- ---------- ------ ----------
Operating earnings (loss) (3,679) 993 (113) (2,799)
---------- ---------- ------ ----------
Spectrum corporate management fees (D) (1,140) (1,140)
Interest and other non-operating expenses (618) 7 410 (C) (201)
---------- ---------- ------ ----------
(618) (1,133) 410 (1,341)
---------- ---------- ------ ----------
Earnings (loss) from continuing operations
before income taxes (4,297) (140) 297 (4,140)
(Provision) credit for income taxes (35) 21 (14)
---------- ---------- ------ ----------
Loss from continuing operations $ (4,332) $ (119) $ 297 $ (4,154)
========== ========== ====== ==========
Loss per share from continuing operations $ (.95) $ (.45)
========== ==========
Weighted average shares outstanding (F) 4,596 9,309
========== ==========
</TABLE>
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
COMFORCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical Global (A) Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 8,245 $ 8,245
---------- ----------
Operating costs and expenses $ 966 $ 7,551 $ 79(B) 8,596
---------- ---------- ------ ----------
Operating earnings (loss) (966) 694 (79) (351)
---------- ---------- ------ ----------
Spectrum corporate management fees (D) (803) (803)
Interest and other non-operating expenses (1,316) 9 (1,307)
---------- ---------- ------ ----------
(1,316) (794) (2,110)
---------- ---------- ------ ----------
Loss from continuing operations before income taxes (2,282) (100) (79) (2,461)
Provision for income taxes (15) (15)
---------- ---------- ------ ----------
Loss from continuing operations $ (2,282) $ (115) $ (79) $ (2,476)
========== ========== ====== ==========
Loss per share from continuing operations $ (.72) $ (.28)
========== ==========
Weighted average shares outstanding (F) 3,195 8,833
========== ==========
</TABLE>
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
(A) The pro forma data presented for COMFORCE Global's
operations is for the periods prior to its acquisition on
October 17, 1995, or January 1, 1995 through October 16,
1995 and January 1, 1994 through December 31, 1994,
respectively.
(B) Amortization of goodwill arising from the COMFORCE Global
acquisition.
(C) Reverse interest expense on notes and other liabilities to
be assumed by ARTRA.
(D) Corporate management fees from COMFORCE Global's former
parent, Spectrum Information Technologies,Inc. The amount
of these management fees may not be representative of
costs incurred by COMFORCE Global on a stand alone basis.
(E) Represents a non-recurring compensation charge related to
the issuance of the 35% common stock interest in the
Company pursuant to employment or consulting agreements
with certain individuals to manage the Company's entry
into and development of the telecommunications and
computer technical staffing services business.
(F) Pro forma weighted average shares outstanding includes
shares of the Company's common stock issued in the private
placement that funded the COMFORCE Global transaction,
shares issued for fees and costs associated with the
COMFORCE Global acquisition and shares issued certain
individuals to manage the Company's entry into and
development of the telecommunications and computer
technical staffing services business.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. DISCONTINUED OPERATIONS
In September 1995, the Company adopted a plan to discontinue its Jewelry
Business. A provision of $1,000,000 was recorded in September 1995 and an
additional provision of $600,000 was recorded during the fourth quarter of 1995
for the estimated costs to complete the disposal of the Jewelry Business.
The Company's consolidated financial statements have been reclassified to report
separately results of operations of the discontinued Jewelry Business.
Additionally, in conjunction with the COMFORCE Global acquisition (see Note 3),
ARTRA has agreed to assume sustantially all pre-existing liabilities of the
Company and its discontinued Jewelry Business and indemnify COMFORCE in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation. Accordingly at December 31, 1995, the Company's
consolidated balance sheet has been reclassified to report separately the net
liabilities to be assumed by ARTRA, including net liabilities of the
discontinued Jewelry Business (see Note 9). The December 31, 1994 consolidated
balance has not been reclassified.
The operating results of the discontinued Jewelry Business for the nine months
ended September 30, 1995 and the years ended December 31, 1994 and 1993 (in
thousands) consists of:
1995 1994 1993
---------- ---------- ----------
Net sales $ 10,588 $ 34,431 $ 46,054
========== ========== ==========
Loss from operations before
income taxes $ (15,606) $ (16,210) $ (183)
Provision for income taxes (5) (10) (33)
---------- ---------- ----------
Loss from operations (15,611) (16,220) (216)
---------- ---------- ----------
Provision for disposal
of business (1,600) - -
Provision for income taxes - - -
---------- ---------- ----------
Loss on disposal of business (1,600) - -
---------- ---------- ----------
Loss from discontinued operations $ (17,211) $ (16,620) $ (216)
========== ========== ==========
In April 1996, ARTRA sold the business and certain assets of the Jewelry
Business. As discussed above, ARTRA has agreed to assume any liabilities of the
discontinued Jewelry Business and will be entitled to the net proceeds, if any
from this disposition.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. INVENTORIES
At December 31, 1994 inventories of the Company's discontinued Jewelry Business
(in thousands) consisted of:
Raw materials and supplies $ 115
Work in process 19
Finished goods 1,971
-------
$ 2,105
=======
Inventories were stated at the lower of cost or market, with cost determined by
the first-in, first-out (FIFO) method.
6. CONCENTRATION OF RISK
The accounts receivable of the Company's COMFORCE Global subsidiary at December
31, 1995 consist primarily of amounts due from telecommunication companies. As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition of the telecommunications industry. At December 31, 1995,
COMFORCE Global had 9 customers with accounts receivable balances that
aggregated 67% of the Company's total trade accounts receivable. Percentages of
total revenues from significant customers from the date of COMFORCE Global's
acquisition (October 17, 1995) through December 31, 1995 are summarized as
follows:
Customer 1 17.3%
Customer 2 12.6%
Customer 3 10.1%
The Company's COMFORCE Global subsidiary maintains cash in bank accounts which
at times may exceed federally insured limits. COMFORCE Global has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on its cash balances. Management believes it mitigates
such risk by investing its cash through major financial institutions.
7. EXTRAORDINARY GAINS RELATED TO DISCONTINUED OPERATIONS
Per terms of a debt settlement agreement, borrowings due a bank under the loan
agreements of Lori and its fashion costume jewelry subsidiaries and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in March 1995, as discussed below, the
balance of this indebtedness was discharged.
In conjunction with the debt settlement agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were advanced to Lori and used to fund amounts due the bank as
discussed below. The loan, due June 30, 1995, with interest payable monthly at
10%, was collateralized by 100,000 shares of the
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's common stock. The 100,000 shares of the Company's common stock,
originally issued to the bank under terms of a debt settlement agreement, were
carried in the Company's consolidated balance sheet at December 31, 1994 as
restricted common stock. In August, 1995 the loan was extended until September
15, 1995 and the lender received the above mentioned 100,000 shares of the
Company's common stock as consideration for the loan extension. The loan was
repaid by ARTRA in February, 1996.
The Company recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor to
$10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and
$2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23,
1994 calculated (in thousands) as follows:
Amounts due the bank under loan agreements of Lori
and its fashion costume jewelry subsidiaries $ 22,749
Less amounts due the bank at December 29, 1994 (7,855)
--------
Bank debt discharged 14,894
Accrued interest and fees discharged 3,635
Other liabilities discharged 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash (1,900)
ARTRA common stock (400,000 shares) (2,500)
New Dimensions assets assigned to the
bank at estimated fair value (7,149)
--------
Net extraordinary gain $ 8,965
========
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to the Company of $6,657,000 ($1.45 per share) in the first
quarter of 1995. The $750,000 note payment was funded with the proceeds of a
$850,000 short-term loan from a former director of the Company. As consideration
for assisting in the debt restructuring, the former director received 150,000
shares of the Company's common stock valued at $337,500 ($2.25 per share) based
upon the Company's closing market value on March 30, 1995. The first quarter
1995 extraordinary gain was calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries $ 7,855
Less amounts due the bank applicable to Lori (561)
--------
Bank debt discharged 7,294
Less fair market value of the Company's
common stock issued as consideration
for the debt restructuring (337)
Other fees and expenses (300)
--------
Net extraordinary gain $ 6,657
========
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reorganization of Lori's former New Dimensions subsidiary resulted in a 1993
extraordinary gain of $22,057,000 ($6.03 per share) from a net discharge of
indebtedness calculated (in thousands) as follows:
Amount due on New Dimensions' 12.75% Senior Notes,
including accrued interest $ 22,822
Trade liabilities and accrued expenses 3,231
--------
Total unsecured claims 26,053
Less present value of payments
due to unsecured creditors (2,725)
Less present value of bank
restructuring loan fee (1,271)
--------
Net extraordinary gain $ 22,057
========
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt (in thousands) consists of:
December 31, December 31,
1995 1994
------ ------
Notes payable
Amount due to a former related party,
interest at the prime rate plus 1% $ 750
Accounts receivable credit facility,
discontinued operations 1,535
Other, interest principally at 15% 1,736
4,021
Less:
Liabilities to be assumed by ARTRA (1,986)
Liabilities included with
discontinued operations (1,535)
------
$ 500
======
Long-term debt
Amounts due a bank term under terms of
a debt settlement agreement $ 7,855
Current scheduled maturities (750)
Debt subsequently discharged (7,105)
------
$ -
======
In October 1995, COMFORCE Global entered into an agreement with a bank that
provides for a revolving line of credt with interest at the prime rate plus
1/2%. Borrowings, collateralized by the assets of COMFORCE Global and an
unlimited guarantee of COMFORCE, are limited to a a borrowing base, as defined
in the agreement, up to a maximum of $800,000. As of December 31, 1995, COMFORCE
Global had not yet utilized any funds available under the revolving credit loan.
The fair value of the Company's notes payable is estimated based on the quoted
market prices of the same or similar issues or on the current rates offered to
the Company for notes of the same remaining maturity.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As discussed in Note 7, ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry
subsidiaries entered into an agreement with Lori's bank lender to settle
obligations due the bank. As partial consideration for the debt settlement
agreement the bank received a $750,000 Lori note payable due March 31, 1995.
The $750,000 note due the bank was paid and the remaining indebtedness of Lori
and Fill-Mor was discharged, resulting in an additional extraordinary gain to
Lori of $6,657,000 in 1995. The $750,000 note payment was funded with the
proceeds of a $850,000 short-term loan from a former director of the Company.
The loan provided for interest at the prime rate plus 1%. As consideration for
assisting with the debt restructuring, the former director received 150,000
shares of the Company's common stock valued at $337,500 ($2.25 per share) based
upon the closing market value on March 30, 1995. The principal amount of the
loan was reduced $750,000 at July 31, 1995. The remaining loan principle was not
repaid on its scheduled to maturity date of July 31, 1995. Per terms of the loan
agreement, the former director received an additional 50,000 of the Company's
common stock as compensation for the non-payment of the loan at its originally
scheduled maturity. At December 31, 1995, the $750,000 note was classified in
the Company's consolidated balance sheet as liabilities to be assumed by ARTRA.
The loan was paid in full in March 1996 by ARTRA pursuant to the assumption
agreement as discussed in Note 9.
During the second and third quarters of 1995, Lori entered into a series of
agreements with certain unaffiliated lenders that provided for short-term loans
with interest at 15%. As additional compensation certain lenders received an
aggregate of 91,176 shares of the Company's common stock and certain lenders
received warrants to purchase an aggregate of 195,000 shares of the Company's
common stock at prices ranging from $2.00 per share to $2.50 per share, the fair
market value at the dates of grant. The warrants expire five years from the date
of issue. The proceeds from these loans were used to fund the September $500,000
down payment on the COMFORCE Global acquisition, with the remainder used to fund
working capital requirements of the Company's discontinued Jewelry Business. At
December 31, 1995, short-term loans with an aggregate principal balance of
$1,236,000 were classified in the Company's consolidated balance sheet as
liabilities to be assumed by ARTRA.
In August, 1995 Lori obtained a credit facility for the factoring of the
accounts receivable of its discontinued Jewelry Business. The credit facility
provides for advances of 80% of receivables assigned, less allowances for
markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility are collateralized by the accounts receivable, inventory and
equipment of Lori's discontinued fashion costume jewelry subsidiaries and
guaranteed by Lori. At December 31, 1995 outstanding borrowings under this
credit facility of $1,535,000, along with other net liabilities of the
discontinued Jewelry Business, were classified in the Company's consolidated
balance sheet as liabilities to be assumed by ARTRA and net liabilities of the
discontinued Jewelry Business.
9. LIABILITIES TO BE ASSUMED BY ARTRA GROUP INCORPORATED AND NET
LIABILITIES OF DISCONTINUED OPERATIONS
In conjunction with the COMFORCE Global acquisition (see Note 3), ARTRA has
agreed to assume substantially all pre-existing Lori liabilities and indemnify
COMFORCE in the event any future liabilities arise concerning pre-existing
environmental matters and business related litigation. Additionally, ARTRA
agreed to assume all of the assets and liabilities of the Company's discontinued
Jewelry Business. In April 1996, ARTRA sold the business and certain assets of
the Jewelry Business.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 1995 liabilities to be assumed by ARTRA GROUP Incorporated and
net liabilities of the discontinued Jewelry Business (in thousands) consist of:
Current:
Liabilities to be assumed by ARTRA
Notes payable $1,986
Court ordered payments 990
Accrued expenses 349
------
3,325
Net liabilities of the discontinued
Jewelry Business 374
------
$3,699
======
Noncurrent:
Liabilities to be assumed by ARTRA
Court ordered payments $ 541
======
As noted in the table above, as of December 31, 1995, ARTRA has agreed to assume
$3,866,000 of pre-existing Lori liabilities. Subsequent to December 31, 1995
ARTRA made net payments of $647,000 to reduce pre-existing Lori liabilities.
Such payments have been included in the Company's consolidated financial
statements at December 31, 1995 as amounts receivable from ARTRA and as
additional paid-in capital. To the extent ARTRA is able to make subsequent
payments, they will be recorded as additional paid-in capital. The ability of
ARTRA to satisfy these obligations is uncertain. The financial statements of
ARTRA include an explanatory paragraph indicating substantial doubt about the
ability of ARTRA to continue as a going concern. The amounts receivable from
ARTRA, exclusive of subsequent payments have not been reflected in the Company's
financial statements at December 31, 1995. No collateral has been provided in
support of these obligations.
At December 31, 1995, liabilities to be assumed by ARTRA included $1,531,000 of
court ordered payments arising from the May 3, 1993 reorganization of New
Dimensions. As of April 15, 1996, the $541,000 installment payment due December
31, 1995 has not been paid.
10. PREFERRED STOCK
The Company's Series C cumulative preferred stock, owned in its entirety by
ARTRA, accrued dividends at the rate of 13% per annum on its liquidation value.
Accumulated dividends were $7,011,000 at December 31, 1994. In the fourth
quarter of 1995, ARTRA exchanged its Series C cumulative preferred stock for
100,000 newly issued shares of the Company's common stock. The issuance of these
shares of the Company's common stock to ARTRA are subject to approval by the
Company's shareholders.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. STOCK OPTIONS AND WARRANTS
Long-Term Stock Investment Plan
On December 16, 1993 Lori's stockholders approved the Long-Term Stock Investment
Plan (the "1993 Plan"), effective January 1, 1993, which authorizes the grant of
options to purchase the Company's common stock to executives, key employees and
non-employee consultants and agents of the Company and its subsidiaries. The
1993 Plan authorizes the awarding of Stock Options, Incentive Stock Options and
Alternative Appreciation Rights. The 1993 Plan reserved 1,500,000 shares of the
Company's common stock for grant on or before December 31, 2002.
As of March 16, 1993, the Company's Board of Directors approved the issuance of
non-qualified options to purchase an aggregate of 555,628 shares of the
Company's common stock at an exercise price of $1.125 per share (the closing
price of Lori common stock on March 15, 1993) to a corporation controlled by the
former vice chairman , president and director of the Company and to an agent of
the Company. The options were granted in connection with management agreements
entered into with them pursuant to which they agreed to provide managerial and
supervisory services to the Company and its discontinued fashion costume jewelry
subsidiaries. Additionally, as of March 16, 1993, the Company's Board of
Directors approved the issuance of options to purchase an aggregate of 370,000
shares of the Company's common stock at an exercise price of $1.125 per share
(the closing price of the Company's common stock on March 15, 1993) to then
certain executives, key employees, agents and a director of the Company. The
options were granted under the Company's 1982 Stock Option Plan (the "1982
Plan"), subject to stockholder approval of the amendment of the 1982 Plan.
Subsequent thereto, counsel to the Company advised the Board that the 1982 Plan,
which had expired, could not be amended and extended.
Accordingly, on October 12, 1993, the Board of Directors of the Company approved
a proposed Long-Term Stock Investment Plan of the Company (the "Plan" or the
"Option Plan") which authorizes the grant of options to purchase the Company's
common stock to executives, key employees and agents of the Company and its
subsidiaries. In connection with this approval, the Board approved the issuance
under the Plan (subject to the approval and adoption of the Plan by the
stockholders) of options on the same terms as the original March 16, 1993
options which it had previously authorized under the 1982 Plan. The Plan was
approved by the stockholders at the December 16, 1993 annual meeting, effective
as of January 1, 1993.
Incentive Stock Option Plan
Options to purchase common shares of the Company have been granted to certain
officers and key employees under the 1982 Incentive Stock Option Plan ("the
plan"), which initially reserved 250,000 shares of the Company's common stock.
On December 19, 1990, the Company's stockholders approved an increase in the
number of shares available for grant under the plan to 500,000. The plan expired
in 1992. At December 31, 1995, options to purchase 4,500 shares of the Company's
common stock at $5.00 per share were outstanding. The options expire June 9,
1998.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Options
A summary of stock option transactions for the years ended December 31
is as follows:
1995 1994 1993
--------- --------- ---------
Outstanding at January 1:
Shares 959,378 1,098,544 19,416
$ 1.125 $ 1.125 $ 5.00
Prices to to to
$ 5.00 $ 12.19 $ 12.19
Options granted:
Shares - - 1,079,628
$ 1.125
Prices - - to
$ 3.125
Options exercised:
Shares - (2,500) (500)
Price - $ 5.00 $ 5.00
Options canceled:
Shares (19,250) (136,666) -
$ 3.125 $ 3.125
Prices to to -
$ 5.00 $ 12.19
Outstanding at December 31:
Shares 940,128 959,378 1,098,544
========= ======== =========
$ 1.125 $ 1.125 $ 1.125
Prices to to to
$ 5.00 $ 5.00 $ 12.19
Options exercisable at December 31 940,128 940,710 18,916
========= ======== =========
Options available for future grant
at December 31 564,372 546,372 420,372
========= ======== =========
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Warrants
At December 31, 1995, warrants were outstanding to purchase a total of 1,184,583
of the Company's common shares at prices ranging from $2.00 per share to $4.00
per share. The warrants expire five years from the date of issue at various
dates through 2000.
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 of the Company's common shares at $3.00 per share
(total proceeds of approximately $5,800,000) plus detachable warrants to
purchase 973,333 Lori common shares at $3.375 per share. The warrants expire
five years from the date of issue.
Principally during the second and third quarters of 1995, Lori entered into a
series of agreements with certain unaffiliated investors that provided for
$1,800,000 of short-term loans that provide for interest at 15%. As additional
compensation certain lenders received an aggregate of 91,176 Lori common shares
and certain lenders received warrants to an aggregate of 195,000 shares of the
Company's common stock at prices ranging from $2.00 per share to $2.50 per
share, the fair market value at the dates of grant. The warrants expire five
years from the date of issue.
On November 23, 1988, Lori issued warrants to purchase 25,000 of its common
shares, at $4.00 per share, to an investment banker as additional compensation
for certain financial and advisory services. During 1993, the warrant holder
exercised warrants to purchase 8,750 shares of the Company's common stock. At
December 31, 1995, warrants to purchase 16,250 shares of the Company's common
stock at $4.00 per share remained outstanding.
12. COMMITMENTS AND CONTINGENCIES
The Company's COMFORCE Global subsidiary leases certain office space and
equipment used in its telecommunications and computer technical staffing
services business. At December 31, 1995, future minimum lease payments under
operating leases that have an initial or remaining noncancellable term of more
than one year (in thousands) are:
Year
1996 $ 62
1997 64
1998 65
1999 63
2000 38
-------
$ 292
=======
Rental expense from continuing operations was $17,000 in 1995.
The aggregate commitment for future salaries at December 31, 1995, excluding
bonuses, during the remaining term of all management and employment agreements
is approximately $700,000.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. INCOME TAXES
A summary of the provision (credit) for income taxes relating to operations is
as follows:
1995 1994 1993
-------- -------- -------
(in thousands)
Continuing operations:
State $ 35 $ 10 $ 33
======== ======== ========
The 1995 and 1994 extraordinary credits represent net gains from discharge of
bank indebtedness under the loan agreements of Lori and its discontinued fashion
costume jewelry subsidiaries. The 1993 extraordinary credit represents a gain
from a net discharge of indebtedness at the Company's former New Dimensions
subsidiary. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits due to the utilization of
tax loss carryforwards.
The difference between the statutory Federal income tax rate and the effective
income tax rate is reconciled as follows:
% of Earnings (Loss)
Before Income Taxes
----------------------------
1995 1994 1993
------ ------ ------
Statutory Federal tax rate
Provision (Benefit) (34.0) (34.0) 35.0
State and local taxes,
net of Federal benefit .3 .1 .2
Current year tax loss not utilized 4.7 - -
Amortization of goodwill .6 3.6 .8
Impairment of goodwill 30.0 38.6 -
Previously unrecognized benefit from
utilizing tax loss carryforwards - (8.2) (35.8)
----- ----- -----
1.6 .1 .2
===== ===== =====
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. INCOME TAXES, Continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1995 and 1994 and their
approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ---------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable $ 500 $ 200 $ 1,300 $ 500
Inventories
700 300 300 100
Accrued other
900 300 400 200
Net operating loss 42,000 16,400 54,000 21,100
-------- ---------
Total deferred tax asset 17,200 21,900
-------- ---------
Machinery and equipment (200) (100) (400) (200)
-------- --------
Total deferred tax liability
(100) (200)
-------- --------
Valuation allowance (17,100) (21,700)
-------- --------
Net deferred tax asset $ - $ -
======== ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.
At December 31, 1995, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $42,000,000 available to be applied against
future taxable income, if any, expiring principally in 1996 - 2010. Section 382
of the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. The Company has recently issued a significant
number of shares of its common stock in conjunction with the COMFORCE Global
acquisition and certain related transactions. Accordingly, the Company is
currently subject to significant limitations regarding the utilization of its
Federal income tax loss carryforwards.
14. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of common stock and common stock equivalents
(options and warrants), unless anti-dilutive, outstanding during the year. Fully
diluted earnings per share is not presented since the result is equivalent to
primary earnings per share.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. RELATED PARTY TRANSACTIONS
Effective July 4, 1995, Lori and ARTRA entered into employment agreements with
two individuals and a consulting services agreement one individual to manage
Lori's entry into and development of the telecommunications and computer
technical staffing services business. As additional compensation, the agreements
provided for the issuance in aggregate of a 35% common stock interest in the
Company. The Company incurred a compensation charge of $3,425,000 related to the
issuance of the 35% common stock interest in the Company (approximately
3,700,000 common shares, after certain anti-dilutive provisions). In October
1996, the Company issued approximately 3,100,000 shares of its common stock to
the above individuals. The remaining common shares due the above individuals
will be issued in 1996 after shareholder approval of an increase in the
Company's authorized common shares. The cost of the remaining common shares to
be issued in 1996 ($550,000) is classified in the Company's consolidated balance
sheet at December 31, 1995 as obligations expected to be settled by the issuance
of common stock. The shares of the Company's common stock issued and to be
issued in accordance with the above agreements were valued at $.93 per share
based upon the Company's average closing market price on the American Stock
Exchange for the period beginning 5 business days prior to and ending 5 business
days after the acceptance of the employment or consulting services agreements
(July 4, 1995), as discounted for dilution, blockage and restricted
marketability. After the issuance of these common shares, plus the effects of
the issuance of common shares sold by private placements and other common shares
issued in conjunction with the COMFORCE Global acquisition, ARTRA's common stock
ownership interest in the Company was reduced to approximately 25% at December
31, 1995.
In connection with the COMFORCE Global acquisition, a $500,000 fee was earned by
the above mentioned consultant, of which $250,000 was paid in 1995.
In conjunction with an agreement (see Note 7) to settle borrowings due a bank
under the loan agreements of Lori and its fashion costume jewelry subsidiaries
and Fill-Mor, ARTRA entered into a $1,850,000 short-term loan agreement with a
non-affiliated corporation, the proceeds of which were advanced to Lori and used
to fund amounts due Lori's bank. The loan, due June 30, 1995, was collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, were carried in the Company's consolidated balance sheet at December
31, 1994 as restricted common stock. In August, 1995 the loan was extended until
September 15, 1995 and the lender received the above mentioned 100,000 Lori
common shares as consideration for the loan extension. The loan was repaid by
ARTRA in February, 1996. Accordingly, the carrying value of these 100,000 Lori
common shares was transferred to ARTRA as reduction of amounts due to ARTRA.
In the fourth quarter of 1995, ARTRA exchanged its interest in the entire issue
of the Company's Series C cumulative preferred stock for 100,000 newly issued
shares of the Company's common stock. The issuance of these shares of the
Company's common stock to ARTRA are subject to approval by the Company's
shareholders. During 1995, ARTRA received $399,000 of advances from the Company.
In 1996, the Company advanced ARTRA an additional $54,000. ARTRA repaid the
above advances and paid down $647,000 of the pre-existing Lori liabilities it
assumed in conjunction with the COMFORCE Global acquisition as discussed in Note
9.
During 1994, ARTRA made net advances to Lori of $2,531,000. The advances
consisted of a $1,850,000 short-term note with interest at 10%, the proceeds of
which were used to fund the $1,900,000 cash payment to the bank in conjunction
with the Amended Settlement Agreement with Lori's bank lender, and certain
non-interest bearing advances used to fund Lori working capital requirements.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally, the August 18, 1994
Settlement Agreement required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In February, 1993, ARTRA transferred all of its notes (with a principal value of
$15,990,000) to Lori's capital account.
Through 1995, ARTRA had provided certain financial, accounting and
administrative services for the Company's corporate entity. Additionally, the
Company's corporate entity had leased its administrative office space from
ARTRA. During 1995, 1994 and 1993 fees for these services amounted to $91,000,
$151,000 and $115,000, respectively.
16. LITIGATION
The Company has been notified by the Federal Environment Protection Agency that
it is a potentially responsible party for the disposal of hazardous substances
by its predecessor company at a site on Ninth Avenue in Gary, Indiana. The
Company has no records indicating that it deposited hazardous substances at this
site and intends to vigorously defend itself in this matter.
In conjunction with the COMFORCE Global acquisition (see Notes 3 and 8), ARTRA
has agreed to assume substantially all pre-existing Lori liabilities and
indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. See Note 9
for a further discussion of liabilities to be assumed by ARTRA.
The Company and its subsidiaries are parties in various business related
litigation which, in the opinion of management, will not have a material adverse
effect on the Company's financial position and results of operations.
17. SUBSEQUENT EVENTS
On March 1, 1996, COMFORCE Global, Inc., a wholly-owned subsidiary of COMFORCE
acquired substantially all of the assets of Williams Communication Services
("Williams"), a provider of telecommunications and technical staffing services
for consideration consisting of cash of $2,000,000 and contingent rights to
future payments based on earnings over a four year period. The acquisition of
Williams, funded principally by a $2.25 million revolving credit facility with a
bank, will be accounted for by the purchase method.
The Company has entered into an agreement to acquire the assets and business of
RRA Inc. ("RRA"), a provider of technical staffing services in the electronics,
telecommunications and information technology business sectors. The completion
of the acquisition of RRA is subject to certain contingencies which include the
completion of and satisfaction with due diligence, as well as satisfactory
financing to complete the acquisition.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
(1) (2)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
------------------- --------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1995:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 207 $ 25 $ 232 $ -
======== ========= ======= ========
Allowance for markdowns $ 835 $ 291 $ 1,126 (A) $ -
Allowance for doubtful accounts 503 424 927 (A) -
-------- --------- ------- --------
$ 1,338 $ 715 $ 2,053 $ -
======== ========= ======= ========
For the year ended December 31, 1994:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,150 $ 218 $ 4,161 (B) $ 207
======== ========= ======= ========
Allowance for markdowns $ 2,499 $ 4,799 $ 6,463 (C) $ 835
Allowance for doubtful accounts 432 269 198 (D) 503
-------- --------- ------- --------
$ 2,931 $ 5,068 $ 6,661 $ 1,338
======== ========= ======= ========
For the year ended December 31, 1993:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,900 $ 172 $ 922 (B) $ 4,150
======== ========= ======= ========
Allowance for markdowns $ 5,280 $ 5,722 $ 8,503 (C) $ 2,499
Allowance for doubtful accounts 557 335 460 (D) 432
-------- --------- ------- --------
$ 5,837 $ 6,057 $ 8,963 $ 2,931
======== ========= ======= ========
(A) Principally amounts reclassified to discontinued operations.
(B) Principally inventory written off, net of recoveries.
(C) Principally markdowns taken.
(D) Principally uncollectible accounts written off, net of recoveries.
</TABLE>
<PAGE>
INDEX OF EXHIBITS
(A) Exhibits included herein:
3.4 Certificate of Ownership (Merger) of COMFORCE Corporation into
the Company.
10.6 Amendment dated October 6, 1995 of Letter Agreement dated June
29, 1995, regarding employment or consulting services among the
Company, ARTRA Group Incorporated, James L. Paterek, Michael
Ferrentino and Christopher P. Franco.
10.7 Employment Agreement dated December 9, 1995 between the Company
and Michael Ferrentino.
10.8 Employment Agreement dated December 9, 1995 between the Company
and Christopher Franco.
10.9 Assumption Agreement dated October 17, 1995 between the Company
and ARTRA GROUP Incorporated respecting ARTRA's assumption of
substantially all of the Company's pre-existing liabilities.
10.10 Asset Purchase Agreement dated as of April 11, 1996 among
Lawrence Jewelry Corporation, ARTRA GROUP Incorporated, the
Company and Hanover Advisors, Inc. respecting the disposition of
the assets of the Company's Jewelry Business.
11.1 Computation of earnings per share and equivalent share of Common
Stock for the three years ended December 31, 1995.
21.1 List of Subsidiaries.
(B) Exhibits incorporated herein by reference:
3.1 Restated Certificate of Incorporation of the Company (included as
an exhibit to the Company's Registration Statement on Form S-2
(Registration No. 2-98628) and incorporated herein by reference).
3.2 Certificate of Amendment of Certificate of Incorporation of the
Company filed with the Delaware Secretary of State February 12,
1991 (included as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated
herein by reference).
3.3 Bylaws of the Company, as amended and restated effective December
19, 1990 (included as an exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference).
10.1 Management Agreement dated as of April 9, 1993 between the
Company and Nitsua, Ltd. (a corporation wholly-owned by Austin
Iodice, formerly Lori's Chairman and Chief Executive Officer)
(included as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1992 and incorporated herein
by reference).
<PAGE>
10.2 Letter Agreement dated June 29, 1995, regarding employment or
consulting services among the Company, ARTRA Group Incorporated,
James L. Paterek, Michael Ferrentino and Christopher P. Franco
(included as an exhibit to the Company's Current Report on Form
8-K dated September 11, 1995 and incorporated herein by
reference).
10.3 Stock Purchase Agreement dated September 11, 1995 among Spectrum
Technologies, Inc., the Company, COMFORCE Corporation, ARTRA
Group Incorporated, Peter R. Harvey, Marc L. Werner, James L.
Paterek, Michael Ferrentino and Christopher P. Franco (included
as an exhibit to the Company's Current Report on Form 8-K dated
September 11, 1995 and incorporated herein by reference).
10.4 Purchase Agreement among COMFORCE Global, Inc., Williams
Communications Services, Inc. and Bruce Anderson (included as an
exhibit to the Company's Current Report on Form 8-K dated March
1, 1996 and incorporated herein by reference).
10.5 Loan Agreement between COMFORCE Global, Inc. and Chase Manhattan
Bank (included as an exhibit to the Company's Current Report on
Form 8-K dated March 1, 1996 and incorporated herein by
reference).
EXHIBIT 3.4
Certificate of Ownership
of
COMFORCE Corporation (Subsidiary)
(a Delaware corporation)
into
The Lori Corporation (Parent)
(a Delaware corporation)
Pursuant to Section 253 of General Corporation Law of the State of Delaware, The
Lori Corporation (the "Parent"), a Delaware corporation and the parent
corporation to its wholly-owned subsidiary, COMFORCE Corporation (the
"Subsidiary"), a Delaware corporation, hereby certifies that:
1. Attached hereto as Exhibit A are resolutions (the "Resolutions
of Merger") duly adopted on November 28, 1995 by the Board of
Directors of the Parent, pursuant to which the Subsidiary shall
be merged into the Parent, and the name of the surviving parent
corporation shall be changed from "The Lori Corporation" to
"COMFORCE Corporation," which Resolutions of Merger have been
approved and adopted by the Board of Directors of the Parent in
accordance with the requirements of the General Corporation Law
of the State of Delaware.
2. The Certificate of Incorporation of the surviving corporation
shall be the Certificate of Incorporation of the Parent as in
effect immediately prior to the merger (except the name shall be
changed as provided in the Resolutions of Merger and as noted in
paragraph 1 of this Certificate).
3. The Resolutions of Merger are on file at 2001 Marcus Avenue,
Lake Success, New York 11042, the principal place of business of
the surviving corporation.
IN WITNESS WHEREOF, this Certificate is executed and attested by the undersigned
duly authorized officers on behalf of the Lori Corporation, a Delaware
corporation, this 30th day of November, 1995.
The Lori Corporation
(a Delaware corporation)
Attest:
By:________________________ By:________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
<PAGE>
Exhibit A
---------
Resolutions of the Board of Directors of The Lori Corporation
Adopted by Unanimous Consent in Lieu of a Meeting on November 28, 1995
RESOLVED, that the merger of COMFORCE Corporation, the wholly-owned
subsidiary, into The Lori Corporation, the parent corporation, shall be and
hereby is approved in all respects; and be it further
RESOLVED, that the Certificate of Incorporation of the surviving
corporation shall be the Certificate of Incorporation of The Lori Corporation as
in effect immediately prior to the merger, except that the name of the surviving
corporation shall be changed from The Lori Corporation to COMFORCE Corporation
effective upon the filing of the Certificate of Merger with the Secretary of
State of Delaware; and be it further
RESOLVED, that any officer of The Lori Corporation is hereby authorized
and directed to execute the Certificate of Merger and such other documents and
perform such other actions as may be required to effectuate such merger in the
State of Delaware.
EXHIBIT 10.6
Mr. James L. Paterek Mr. Christopher P. Franco
86 South Drive 37 Lockwood Lane
Plandome, NY 11030 Riverside, CT 06878
Mr. Michael Ferrentino
956 Cedar Swamp Road
Glen Head, NY 11545
Re: Amendment and Restatement of June 29, 1995 Letter Agreement
Gentlemen:
This letter shall serve to clarify certain provisions appearing in that
certain Letter Agreement dated June 29, 1995 by and between The Lori Corporation
("Lori"), Mr. Paterek, Mr. Ferrentino, Mr. Franco and guaranteed by ARTRA GROUP
Incorporated ("ARTRA") (the "Letter Agreement").
By this letter, Paragraph 2 of Attachment A to the Letter Agreement
shall be deleted in its entirety and replaced by the following:
The Managers shall be issued a number of common shares equal to
thirty-five percent (35%) on the total outstanding shares of Lori
through December 1, 1995, on a fully-diluted basis, exclusive of
options or warrants outstanding prior to the date hereof. Lori shall
issue such shares immediately. The shares are issuable in consideration
for the Managers agreeing to be employed or contractually bound to Lori
for the Staff Business. Further, Lori shall create a reserve for the
issuance of a number of shares of common equity equal to ten percent
(10%) of all outstanding common equity, on a fully-diluted basis,
exclusive of options or warrants outstanding prior to the date hereof
for issuance to management and employees of Lori, over a period of
time, in the form of stock options. Issuance of such options shall be
at the discretion of the Board of Directors of Lori. The shares
issuable hereunder are the legal and binding obligation of Lori,
whether or not Lori purchases the business of YIELD GLOBAL (as defined
below).
Paragraph 6 of Attachment A to the letter agreement shall be deleted in
its entirety and replaced by the following:
ARTRA and Lori agree to the divestiture of most of the Jewelry
Business. The divestiture shall occur through a sale, liquidation or
distribution to Lori shareholders. Such divestiture shall occur by
December 31, 1995. Lori acknowledges that its Board of Directors has
resolved to "discontinue" the operations of the Jewelry Business for
financial reporting purposes.
Paragraph 8 of Attachment A to the letter agreement shall be deleted in
its entirety and replaced by the following:
ARTRA agrees that upon commencement of employment of the Managers,
ARTRA will direct its wholly-owned subsidiary, Fill-Mor Holdings, Inc.,
the owners of all of the Lori common stock and preferred stock, to vote
in favor of the Managers' nominees for the Board of Directors of Lori.
<PAGE>
In addition, ARTRA will direct Fill-Mor to execute a limited proxy to
Lori providing that ARTRA and/or Fill-Mor shall vote its shares in all
manners in favor of the conditions of the Letter Agreement. The
agreement for proxy shall terminate at such times as the Lori shares
held by ARTRA or Fill-Mor are "spun off" or otherwise disposed of to
ARTRA shareholders, provided that no single ARTRA shareholder, or any
other group of related shareholders holds directly, indirectly or
beneficially more than fifteen percent (15%) of Lori's outstanding
capital stock following such spinoff. Furthermore, the proxy shall
terminate and the owner of such shares shall be entitled to vote its
shares in the event any manager exhibits gross or reckless disregard of
Lori's business, engages in intentional wrongful conduct with regard to
Lori's business, including but not limited to, embezzlement or
intentional wrongdoing which shall have caused material damage to
Lori's assets.
The remainder of the Letter Agreement is reaffirmed in its entirety,
and shall remain in full force and effect as stated.
It is the express intent and understanding of all of the parties to the
Letter Agreement that there exists no direct or implied correlation or
relationship between (i) the issuance of any share of Lori common stock to
Messrs. Paterek, Ferrentino or Franco and (ii) the acquisition of Spectrum
Global Services, Inc. d/b/a Yield Global pursuant to that certain Stock Purchase
Agreement dated September 11, 1995 by and between Spectrum Information
Technologies, Inc., Lori, Comforce Corp., ARTRA, Peter R. Harvey, Marc L. Werner
and Messrs. Paterek, Ferrentino and Franco.
If the foregoing accurately reflects the terms under which you executed
the Letter Agreement, please execute where indicated below and return the signed
copy at your earliest convenience.
Sincerely,
THE LORI CORPORATION
------------------------------------
Peter R. Harvey, Vice President
ARTRA GROUP Incorporated
By: ______________________________
Peter R. Harvey, President
Agreed to and accepted as of the 6th day of October, 1995.
- ----------------------------
James L. Paterek
- ----------------------------
Christopher P. Franco
- ----------------------------
Michael Ferrentino
EXHIBIT 10.7
(Rev. 12/9/95)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of December , 1995, is
made by and between COMFORCE Corporation, a Delaware corporation ("Employer"),
and Michael Ferrentino, residing at 956 Cedar Swamp Road, Glen Head, NY 11545
("Employee").
RECITAL:
A. WHEREAS, Employer acquired Spectrum Global Services, Inc.
and SUMTEC Corp., which are technical staffing and consulting services
businesses; and
B. WHEREAS, Employer wishes to employ Employee on the terms and
conditions hereof;
C. WHEREAS, Employee agreed to terminate his employment with
Spectrum Global Services, Inc. and has given notice to that effect based upon
COMFORCE Corporation's offer of employment;
D. WHEREAS, Employee is willing to accept employment from
Employer on the terms and conditions hereof.
NOW, THEREFORE, in consideration of the promises and mutual obligations
of the parties contained herein, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Employment of Employee. Employer employs Employee, and the Employee
accepts employment by Employer, during the "Term of Employment", as defined in
Section 2 hereof, for the consideration and on the terms and conditions provided
herein. Employee shall be employed during the term in such capacity or
capacities, and perform such duties as may be determined from time to time by
Employer's Board of Directors. Subject to this power of Employer's Board of
Directors to designate the position in which Employee shall serve Employer,
Employee shall initially maintain the title and position of President of
Employer or its successors, and shall report directly to the Board of Directors
of Employer. Employee shall have full authority and responsibility to undertake
and carry out the functions and activities of such positions in all respects,
subject only to the directions of, and policies established and communicated to
Employee from time to time by Board of Directors of Employer. Employer shall
mean the named Employer and at the option of Employer any named subsidiary,
parent or affiliate company or companies.
2. Effective Date: Term of Employment: This Agreement commenced and was
effective for all purposes as of December 8, 1995, and shall remain in effect
until the second anniversary hereof (the "Termination Date"), unless earlier
terminated as provided in Section 7 hereof. The period during which Employee is
employed by Employer pursuant to this Agreement is called the "Term of
Employment".
3. Employee's Duties. During the Term of Employment, Employee shall (i)
devote his entire working time and attention to the business affairs of Employer
and to the performance of his duties hereunder; (ii) serve Employer faithfully
and to the best of his ability, and use his best efforts to promote the
interests of Employer; and (iii) follow and implement the policies and
directions of the Board of Directors (and President) of Employer. Employee shall
not be relocated from the Greater New York Metropolitan Area without his prior
consent.
<PAGE>
4. Employee's Compensation.
(a) Base Salary. During the Term of Employment, as Employee's base
compensation for all services to be performed hereunder, Employer shall pay
Employee an annual salary at the rate of $150,000.00 (the "Base Salary"),
payable weekly in accordance with Employer's usual pay periods.
(b) Reimbursement of Expenses.It is recognized that during the Term of
Employment Employee will be required to incur ordinary and necessary business
expenses in connection with the performance of his duties hereunder. Employer
shall pay or reimburse Employee promptly in the amount of such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with IRS regulations Employer's policies and procedures.
(c) Benefits Plans.
(i) Medical, dental and vision benefits. Employer agrees to reimburse Employee
for all medical, dental, vision and hospital expenses incurred by Employee for
himself and for his wife and dependent children during their Term of Employment.
These benefits may be provided by an insurance plan; provided that the Employer
will reimburse Employee for and expenditures (A) in payment of any co-payment
amount required to be paid by Employee by an insurance plan and (B) for any
deductible amounts paid by Employee.
(ii) Continuation of salary during disability. If Employee becomes disabled
during the Term of Employment because of sickness, physical or mental
disability, or any other reason so that he is unable to perform his duties
hereunder, Employer agrees to continue Employee's salary during such disability
for a period of one hundred and eighty (180) days. These benefits may be
provided in whole or in part by a policy of disability insurance.
(iii) Benefit to Heirs Upon Death of Employee. During the Term of Employment,
Employer agrees to provide, at no cost to Employee, life insurance benefits in
the amount of five hundred thousand dollars ($500,000) for the benefit of
beneficiaries designated by Employee.
(d) Bonus. In addition to Employee's compensation as provided herein,
Employer agrees to pay Employee a bonus, in cash or in the common stock of
Employer, during the Term of Employment, in a sum to be determined by Employer's
Board of Directors.
(e) Fringe Benefits. Employee shall be entitled to participate in all
fringe benefits offered by Employer during the Term of Employment including, but
not limited to, those listed above in Section 4.
5. Employee's Vacation. Employee shall be entitled to three (3) weeks
of paid vacation per
year during the Term of Employment in accordance with the Employer's policy.
6. Confidentiality; Business Opportunities
(a) Confidentiality of Information. Employee recognizes and
acknowledges that the business interests of Employer require a confidential
relationship between Employee and Employer and the fullest protection and
confidential treatment of suppliers, market information, marketing and/or
promotional techniques and methods, pricing information, purchasing information,
sales policies, staff and billable employee lists and databases, policy and
procedure manuals, books and publications, records, advertising methods, or
schemes, computer records, trade secrets, know-how, plans and programs, sources
of supply, correspondence, resumes, letters, call reports, price or bid lists,
client lists and contact information, resume codification and retrieval systems,
and other knowledge of the business of employer (all of which are hereinafter
jointly termed "Confidential Information") which may in whole
<PAGE>
or in part be conceived, learned or obtained by Employee in the course of
Employee's employment with Employer. Accordingly, Employee agrees to keep secret
and treat confidential all confidential information whether or not copyrightable
or patentable, and agrees not to use or aid others in learning of or using any
Confidential Information except when in the ordinary course of business and in
furtherance of Employer's interest. During the Term of Employment and at all
times thereafter, except insofar as is expressly authorized in writing by
Employer as necessary disclosure consistent with its business interests:
(i) Employee will not, directly or indirectly, disclose any Confidential
Information to others either within or outside of the business of Employer;
(ii) Employee will not make copies of or otherwise disclose the contents of
documents containing disclosures of Confidential Information;
(iii) As to documents which are delivered to Employee or which are made
available to him as a necessary part of the working relationships and duties of
Employee within the business of Employer, Employee will treat such documents
confidentially and will treat such documents as proprietary and confidential,
not to be reproduced, disclosed or used without appropriate authority of
Employer; and
(iv) Employee will not advise others that the information and/or know how
included in Confidential Information is known to or used by Employer or
Employee.
During the Term of Employment and at all times thereafter, Employee
will not in any manner disclose or use Confidential Information for their
account or benefit, or for the account or benefit of any person or entity other
than Employer. Employee shall have no obligations with respect to Confidential
Information which at the time of disclosure is generally available to the
public, or in respect to which disclosure is required by law.
(b) Confidentiality of Customers. Employee agrees that during the Term
of Employment and for a period ending two (2) years after termination of
Employee's employment with Employer, whether such termination is voluntary or
involuntary and irrespective of which party terminates and whether such
termination is for cause or not:
(i) Employee will not, directly or indirectly, make known or divulge names,
addresses or any information concerning the customers of Employer existing at
the time Employee entered the employ of Employer or of whom Employee learned or
with whom Employee became acquainted after entering the employ of Employer, to
any person, partnership, firm, company, corporation or other entity; and
(ii) Employee will not, either directly or indirectly, either for himself or for
any other person, partnership, firm, company, corporation or other entity,
contact, solicit, purchase from, divert, or take away any of the customers of
Employer who were contacted, dealt with or solicited by Employee or with whom
Employee became acquainted, or of whom Employee learned or obtained information
about during the Term of Employment or during the previous employment of
Employee by Employer or any predecessor in interest.
(c) Non-Interference with Contractual Relationships. Employee agrees
that during the Term of Employment and for a period ending two (2) years after
termination of Employee's employment with Employer, whether such termination is
voluntary or involuntary and irrespective of which party terminates and whether
such termination is for cause or not, Employee will not: solicit, entice or
otherwise induce any employee of Employer to leave the employ of Employer for
any reason whatsoever, directly or indirectly aid, assist or abet any other
person or entity in soliciting or hiring any employee of Employer, otherwise
interfere with any contractual or their business relationship between Employer
and its employees; or engage in a business similar to that of the Employer
within the any geographic area where the Employer does business for which the
Employee is directly or indirectly responsible.
<PAGE>
For the purposes of this Agreement the "Business" of Employer shall
be defined to mean the business of the Company, as it is presently conducted
and/or as conducted by Employer during the Term of Employment, of providing, on
a temporary, project or peak period basis personnel who are qualified designers,
drafters, engineers, computer programmers, systems analysts, technicians and/or
other skilled personnel who provide technical and consulting services to
industrial, commercial, communications and governmental customers and clients in
the areas of computer programming, information technology, design, drafting,
engineering, telecommunications, wireless, transmission, switching, CATV
systems, OSP and construction, premises network and data services, support
services, systems analysis, technical publications, and in addition to said
services providing consulting, and technical and other staff augmentation and
staffing services.
(d) Disclosure of Business Opportunities. Employee agrees to promptly
and fully disclose to Employer, and not to divert to Employee's own use or
benefit or the use or benefit of others, any business opportunities involving
any existing or prospective lien of business, supplier, product or activity of
Employer or any business opportunities which otherwise should rightfully be
afforded to Employer.
(e) Should a court of competent jurisdiction determine that Paragraph 6
or any subparagraph are otherwise unenforceable because one or all of them are
vague or over broad, the parties agree that these paragraphs may and shall be
enforced to the maximum extent permitted by law. It is the intent of the parties
that each of these paragraphs be a separate and distinct promise and that
unenforceability of any one paragraph shall have no effect on the enforceability
of another.
(f) Employee agrees that should either party seek to enforce or
determine its rights through legal or judicial proceedings because of an act of
the Employee which the Employer believes to be in contravention of paragraph 6
("Covenant"), the Covenant period shall be extended for a time period equal to
the period necessary to obtain judicial enforcement of the Employer's rights
hereunder.
(g) Employee agrees to give Employer prompt written notice in the event
any third party engaged in or planning to be engaged in the Business, solicits
or attempts to solicit or offers the Employee employment which would be in
violation of this paragraph 6.
(h) The parties agree that in the event of Employee's violation of this
paragraph 6 or any subparagraph thereunder that the damage to the Employer will
be irreparable and that money damages will be difficult or impossible to
ascertain. Accordingly, in addition to whatever other remedies the Employer may
have in law or in equity the Employee recognizes and agrees that the Employer
shall be entitled to a temporary restraining order and a temporary and permanent
injunction enjoining and prohibiting any acts not permissible pursuant to this
paragraph 6.
7. Termination of Agreement.
(a) Employer agrees not to terminate this Agreement except for "just
cause" and agrees to give Employee written notice of its belief that acts or
events constituting "just cause" exist. Employee has the right to cure, within
thirty (30) days of Employer's giving of such notice, the acts, events or
conditions which led to Employer's notice, but only is such acts are capable of
being cured. For purposes of this Agreement, events constituting "just cause"
shall include: (i) the consistent willful failure or refusal of Employee to
implement or follow the reasonable written policies or directions of Employer's
Board of Directors, or President provided that Employee's failure or refusal is
not based upon Employee's belief, in good faith, as expressed to Employer in
writing, that the implementation thereof would be unlawful; (ii) intentional
wrongful conduct which results, or the Board of Directors reasonably concludes
could result, in material adverse effect (financial or otherwise) to the
business of Employer; (iii) embezzlement; (iv) the intentional causing of
material damage to Employer's physical or intangible properly or property
rights; (v) material violation of any of Employee's covenants or agreements set
<PAGE>
forth in this Agreement; (vi) any act involving felonious criminal conduct
related to or involving the Corporation or its business; (vii) consistent
willful insubordination; and (viii) consistent willful disruption of a
harmonious work environment.
(b) Employer retains the right to discharge Employee for any reason not
specified above. Employer agrees, however, that if it discharges Employee for
any reason other than "just cause", or, if following a Change of Control (as
defined below) of Employer, for any reason other than "just cause" as defined in
Subsections (iii), (iv) or (vi) of the definition of "just cause" in subsection
(a) of this Section 7 above, Employee will be entitled to full compensation,
including participation in all benefit programs set forth in Section 4 hereof,
subject to the provisions of such Section 4, for one (1) year or the remainder
of the original Term of Employment, whichever is greater. All stock options for
stock of Employer therefore granted to Employee will be subject to the terms and
conditions of the stock option agreement issued in respect of such stock option
or any other stock option plan of Employer pursuant to which such stock option
may have been granted and any Shareholders Agreement, Voting Trust or similar
agreement. All compensation received by Employee pursuant to this Subsection (b)
is collectively referred to herein as the "Termination Payment". All amounts
payable by Employer to Employee under this Agreement after Employee has become
entitled to receive a Termination Payment shall be payable immediately upon
discharge of Employee.
(c) Notwithstanding the provisions of this paragraph 7 the Employer
shall have the ability to terminate this agreement in the event the Employer is
disabled for a period of ninety (90) days within any one hundred and twenty
consecutive day period. In the event of termination in accordance with this
provision the Employer's obligation shall be limited to the payment of salary as
required by paragraph 4(c)(ii) above.
(d) For purposes of this Agreement, a "Change in Control" of Employee
shall be deemed to have occurred if (i) any "person", or persons acting as a
"group" (as such terms are used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended, but excluding any Employer employee stock
ownership plan and any person that was a stockholder of employer as of the date
of this Agreement), (a) becomes the beneficial owner, directly or indirectly, of
securities of Employer representing 50% or more of the combined voting power of
Employer's then outstanding securities, or (b) acquires or obtains the power,
whether through share ownership, contract, proxy, voting agreement or otherwise,
to manage or direct the operations of Employer, (ii) Employer or its
stockholders enter into an agreement to dispose of all or substantially all of
their assets of Employer, or (iii) the Board of Directors of Employer ceases to
consist of majority of "Continuing Directors". For purposes hereof, "Continuing
Director" shall mean as member of the Board of Directors of Employer who either
(i) was a member of the Board of Directors as of the date of this Agreement;
(ii) was nominated or appointed (before initial election as a director) to serve
as a director by a majority of the then Continuing Directors; (iii) was elected
as a member of the Board of Directors first elected after the acquisition of
Spectrum Global Services, Inc. stock by The Lori Corporation; or is on the list
of persons nominated annexed hereto as Exhibit "B". Notwithstanding the
foregoing the issuance of Stock to the Shareholders; or to others as a result of
or incident to the financing or purchase from Spectrum Information Technologies,
Inc. shall not constitute a Change in Control.
(d) If Employee shall voluntarily cease his employment with Employer
for any reason, all compensation and benefits payable to Employee hereunder
shall thereupon, without further writing or acting, cease, lapse and be
terminated; provided, however, that Employee may continue to receive benefits
under any group health care insurance plan, at Employee's expense, to the extent
required by the Consolidated Omnibus Budget Reconciliation At of 1985. This
paragraph (d) does not affect any rights of Employee under any stock option
agreements with Employer.
(e) In the event of the Bankruptcy (as defined below) of employer,
Employee may at his option cease his employment hereunder whereupon all of the
obligations of the parties with the exception of the confidentiality and
covenant provisions of paragraph 6 hereto shall be terminated. For purposes of
the Agreement, "Bankruptcy" shall mean with respect to Employer, (i) the entry
of a decree or order for relief of Employer by a court of
<PAGE>
competent jurisdiction in any involuntary case involving Employer under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrate
or other similar agent for Employer or for any substantial part of Employer's
assets or property; (iii) the filing with respect to Employer of any petition in
any such involuntary bankruptcy case, which petition remains undismissed for a
period of ninety (90) days or which is dismissed or suspended pursuant to
Section 305 of the Federal Bankruptcy Code (or any corresponding provision of
any future United States bankruptcy law); (iv) the commencement by Employer of a
voluntary case under any bankruptcy, insolvency or other similar law now or
hereafter in effect; (v) the consent of Employer to the entry of an order for
relief in an involuntary case under such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrate
or other similar agent for Employer for Employer or for any substantial part of
Employer's assets or property; or (vi) the making by Employer of any general
assignment for the benefit of creditors.
(f) In the event that Employee terminates his employment with Employer
as a result of a material breach by Employer of its obligations under this
Agreement, which breach has not been cured within 30 days following receipt of
written notice of such breach for Employee to Employer (such notice and
opportunity to cure to apply only if such breach is capable of being cured),
such termination shall be deemed for all purposes of this Agreement as a
termination of Employee's employment by Employer without "just cause".
8. Indemnification. In the event that during or after the Term of
Employment, Employee 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 ("proceeding"), by reason of the fact that he is
or was a director or 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 servicing as a director, officer, employee or
agent, Employee shall be indemnified and held harmless by Employer to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent such amendment permits Employer to provide broader indemnification
rights than said law permitted Employer to provide prior to such amendment)
against all expenses, liabilities and losses (including attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by Employee in connection
therewith. Such right shall be a contract right and shall include the right to
be paid by Employer expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in his capacity as a director or officer (and not
in any other capacity in which service was or is rendered by employee while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to Employer of an undertaking, by or on behalf of
Employee, to repay all amounts so advanced if it should be determined ultimately
that Employee is not entitled to be indemnified under this section or otherwise.
9. Miscellaneous.
(a) All notice hereunder to the parties hereto shall be in writing and
sent by certified or registered mail, return receipt requested, postage prepaid,
or by telegram, telex or telecopy, addressed to the respective parties at the
following addressee:
Employer: COMFORCE Corporation
2001 Marcus Avenue
Lake Success, NY 11042
Telecopy No.: (516) 352-3362
Employee: At the permanent address contained
in Employer's personnel records.
<PAGE>
Any party may, by written notice complying with the requirements of
this section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
(b) This Agreement contains the entire and only agreement of the
parties respecting the matters herein set forth, supersedes all prior agreements
of understanding between the parties hereto regarding the matters contemplated,
and may not be changed or terminated orally, nor shall a termination or
attempted waiver of any of the provisions contained in this Agreement be binding
unless in writing and signed by the party against whom the same is sought to be
enforced, nor shall this section itself be waived verbally. This Agreement may
be amended only by a written instrument duly executed by or on behalf of the
parties hereto.
(c) This Agreement and all of its provisions, rights and obligations
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors. This Agreement may be assigned by Employer to any person,
firm or corporation which shall become the owner of substantially of the assets
of Employer or which shall succeed to the business of Employer; provided,
however, that in the event of any such assignment Employer shall obtain an
instrument in writing form the assignee in which such assignee assumes the
obligations of Employer hereunder and shall deliver an executed copy thereof to
Employee.
(d) This Agreement is made and intended to be performed principally in
the State of New York and shall take effect under, be construed and enforced
according to, and the rights and obligations of the parties shall be awarded
costs and reasonable attorney's fees.
(e) The headings of the sections of this Agreement have been inserted
for convenience of reference only and shall in no way affect the interpretation
of any of the terms or conditions of this Agreement.
(f) If any provision or part thereof of this Agreement for any reason
shall be validly held by an official body to be invalid or unenforceable, the
valid and enforceable provisions or parts thereof shall continue to be given
effect and bind Employer and Employee.
(g) Employee covenants and agrees that at any time during the Term of
Employment, and as long as the provisions of section 6 hereof are in effect,
promptly upon Employer's written and reasonable request, Employee shall render
to Employer a full and complete accounting of all Employee's conduct and
activities, both during and after the term of Employment, which are subject to
and governed by the provisions set forth and contained in section 6 of this
Agreement.
(h) The provisions of paragraph 6, 7, 8 and 9 shall not expire at the
termination of this Agreement but shall continue to remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above mentioned.
COMFORCE Corporation
By:_________________________
____________________________
Michael Ferrentino
EXHIBIT 10.8
(Rev. 12/9/95)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of December , 1995, is
made by and between COMFORCE Corporation, a Delaware corporation ("Employer"),
and Christopher P. Franco, residing at 37 Lockwood Lane, Riverside, Connecticut
06875 ("Employee").
RECITAL:
A. WHEREAS, Employer acquired Spectrum Global Services, Inc. and
SUMTEC Corp., which are technical staffing and consulting services businesses;
and
B. WHEREAS, Employer wishes to employ Employee on the terms and
conditions hereof;
C. WHEREAS, Employee agreed to terminate his employment with
Spectrum Information Technologies, Inc. and has given notice to that effect
based upon COMFORCE Corporation's offer of employment;
D. WHEREAS, Employee is willing to accept employment from
Employer on the terms and conditions hereof.
NOW, THEREFORE, in consideration of the promises and mutual obligations
of the parties contained herein, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Employment of Employee. Employer employs Employee, and the Employee
accepts employment by Employer, during the "Term of Employment", as defined in
Section 2 hereof, for the consideration and on the terms and conditions provided
herein. Employee shall be employed during the term in such capacity or
capacities, and perform such duties as may be determined from time to time by
Employer's Board of Directors (and President). Subject to this power of
Employer's Board of Directors (and President) to designate the position in which
Employee shall serve Employer, Employee shall initially maintain the title and
position of Executive Vice President of Employer or its successors, and shall
report directly to (the President) of Employer. Employee shall have full
authority and responsibility to undertake and carry out the functions and
activities of such positions in all respects, subject only to the directions of,
and policies established and communicated to Employee from time to time by Board
of Directors (and the President) of Employer. Employer shall mean the named
Employer and at the option of Employer any named subsidiary, parent or affiliate
company or companies.
2. Effective Date: Term of Employment: This Agreement commenced and was
effective for all purposes as of December 8, 1995, and shall remain in effect
until the second anniversary hereof (the "Termination Date"), unless earlier
terminated as provided in Section 7 hereof. The period during which Employee is
employed by Employer pursuant to this Agreement is called the "Term of
Employment".
3. Employee's Duties. During the Term of Employment, Employee shall (i)
devote his entire working time and attention to the business affairs of Employer
and to the performance of his duties hereunder; (ii) serve Employer faithfully
and to the best of his ability, and use his best efforts to promote the
interests of Employer; and (iii) follow and implement the policies and
directions of the Board of Directors (and President) of Employer. Employee shall
not be relocated from the Greater New York Metropolitan Area without his prior
consent.
<PAGE>
4. Employee's Compensation.
(a) Base Salary. During the Term of Employment, as Employee's base
compensation for all services to be performed hereunder, Employer shall pay
Employee an annual salary at the rate of $150,000.00 (the "Base Salary"),
payable weekly in accordance with Employer's usual pay periods.
(b) Reimbursement of Expenses.It is recognized that during the Term of
Employment Employee will be required to incur ordinary and necessary business
expenses in connection with the performance of his duties hereunder. Employer
shall pay or reimburse Employee promptly in the amount of such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with IRS regulations Employer's policies and procedures.
(c) Benefits Plans.
(i) Medical, dental and vision benefits. Employer agrees to reimburse Employee
for all medical, dental, vision and hospital expenses incurred by Employee for
himself and for his wife and dependent children during their Term of Employment.
These benefits may be provided by an insurance plan; provided that the Employer
will reimburse Employee for and expenditures (A) in payment of any co-payment
amount required to be paid by Employee by an insurance plan and (B) for any
deductible amounts paid by Employee.
(ii) Continuation of salary during disability. If Employee becomes disabled
during the Term of Employment because of sickness, physical or mental
disability, or any other reason so that he is unable to perform his duties
hereunder, Employer agrees to continue Employee's salary during such disability
for a period of one hundred and eighty (180) days. These benefits may be
provided in whole or in part by a policy of disability insurance.
(iii) Benefit to Heirs Upon Death of Employee. During the Term of Employment,
Employer agrees to provide, at no cost to Employee, life insurance benefits in
the amount of five hundred thousand dollars ($500,000) for the benefit of
beneficiaries designated by Employee.
(d) Bonus. In addition to Employee's compensation as provided herein,
Employer agrees to pay Employee a bonus, in cash or in the common stock of
Employer, during the Term of Employment, in a sum to be determined by Employer's
Board of Directors.
(e) Fringe Benefits. Employee shall be entitled to participate in all
fringe benefits offered by Employer during the Term of Employment including, but
not limited to, those listed above in Section 4.
5. Employee's Vacation. Employee shall be entitled to three (3) weeks
of paid vacation per year during the Term of Employment in accordance with the
Employer's policy.
6. Confidentiality; Business Opportunities
(a) Confidentiality of Information. Employee recognizes and
acknowledges that the business interests of Employer require a confidential
relationship between Employee and Employer and the fullest protection and
confidential treatment of suppliers, market information, marketing and/or
promotional techniques and methods, pricing information, purchasing information,
sales policies, staff and billable employee lists and databases, policy and
procedure manuals, books and publications, records, advertising methods, or
schemes, computer records, trade secrets, know-how, plans and programs, sources
of supply, correspondence, resumes, letters, call reports, price or bid lists,
client lists and contact information, resume codification and retrieval systems,
and other knowledge of the business of employer (all of which are hereinafter
jointly termed "Confidential Information") which may in whole or in part be
conceived, learned or obtained by Employee in the course of Employee's
employment with Employer.
<PAGE>
Accordingly, Employee agrees to keep secret and treat confidential all
confidential information whether or not copyrightable or patentable, and agrees
not to use or aid others in learning of or using any Confidential Information
except when in the ordinary course of business and in furtherance of Employer's
interest. During the Term of Employment and at all times thereafter, except
insofar as is expressly authorized in writing by Employer as necessary
disclosure consistent with its business interests:
(i) Employee will not, directly or indirectly, disclose any Confidential
Information to others either within or outside of the business of Employer;
(ii) Employee will not make copies of or otherwise disclose the contents of
documents containing disclosures of Confidential Information;
(iii) As to documents which are delivered to Employee or which are made
available to him as a necessary part of the working relationships and duties of
Employee within the business of Employer, Employee will treat such documents
confidentially and will treat such documents as proprietary and confidential,
not to be reproduced, disclosed or used without appropriate authority of
Employer; and
(iv) Employee will not advise others that the information and/or know how
included in Confidential Information is known to or used by Employer or
Employee.
During the Term of Employment and at all times thereafter, Employee
will not in any manner disclose or use Confidential Information for their
account or benefit, or for the account or benefit of any person or entity other
than Employer. Employee shall have no obligations with respect to Confidential
Information which at the time of disclosure is generally available to the
public, or in respect to which disclosure is required by law.
(b) Confidentiality of Customers. Employee agrees that during the Term
of Employment and for a period ending two (2) years after termination of
Employee's employment with Employer, whether such termination is voluntary or
involuntary and irrespective of which party terminates and whether such
termination is for cause or not:
(i) Employee will not, directly or indirectly, make known or divulge names,
addresses or any information concerning the customers of Employer existing at
the time Employee entered the employ of Employer or of whom Employee learned or
with whom Employee became acquainted after entering the employ of Employer, to
any person, partnership, firm, company, corporation or other entity; and
(ii) Employee will not, either directly or indirectly, either for himself or for
any other person, partnership, firm, company, corporation or other entity,
contact, solicit, purchase from, divert, or take away any of the customers of
Employer who were contacted, dealt with or solicited by Employee or with whom
Employee became acquainted, or of whom Employee learned or obtained information
about during the Term of Employment or during the previous employment of
Employee by Employer or any predecessor in interest.
(c) Non-Interference with Contractual Relationships. Employee agrees
that during the Term of Employment and for a period ending two (2) years after
termination of Employee's employment with Employer, whether such termination is
voluntary or involuntary and irrespective of which party terminates and whether
such termination is for cause or not, Employee will not: solicit, entice or
otherwise induce any employee of Employer to leave the employ of Employer for
any reason whatsoever, directly or indirectly aid, assist or abet any other
person or entity in soliciting or hiring any employee of Employer, otherwise
interfere with any contractual or their business relationship between Employer
and its employees; or engage in a business similar to that of the Employer
within the any geographic area where the Employer does business for which the
Employee is directly or indirectly responsible.
<PAGE>
For the purposes of this Agreement the "Business" of Employer
shall be defined to mean the business of the Company, as it is presently
conducted and/or as conducted by Employer during the Term of Employment, of
providing, on a temporary, project or peak period basis personnel who are
qualified designers, drafters, engineers, computer programmers, systems
analysts, technicians and/or other skilled personnel who provide technical and
consulting services to industrial, commercial, communications and governmental
customers and clients in the areas of computer programming, information
technology, design, drafting, engineering, telecommunications, wireless,
transmission, switching, CATV systems, OSP and construction, premises network
and data services, support services, systems analysis, technical publications,
and in addition to said services providing consulting, and technical and other
staff augmentation and staffing services.
(d) Disclosure of Business Opportunities. Employee agrees to promptly
and fully disclose to Employer, and not to divert to Employee's own use or
benefit or the use or benefit of others, any business opportunities involving
any existing or prospective lien of business, supplier, product or activity of
Employer or any business opportunities which otherwise should rightfully be
afforded to Employer.
(e) Should a court of competent jurisdiction determine that Paragraph 6
or any subparagraph are otherwise unenforceable because one or all of them are
vague or over broad, the parties agree that these paragraphs may and shall be
enforced to the maximum extent permitted by law. It is the intent of the parties
that each of these paragraphs be a separate and distinct promise and that
unenforceability of any one paragraph shall have no effect on the enforceability
of another.
(f) Employee agrees that should either party seek to enforce or
determine its rights through legal or judicial proceedings because of an act of
the Employee which the Employer believes to be in contravention of paragraph 6
("Covenant"), the Covenant period shall be extended for a time period equal to
the period necessary to obtain judicial enforcement of the Employer's rights
hereunder.
(g) Employee agrees to give Employer prompt written notice in the event
any third party engaged in or planning to be engaged in the Business, solicits
or attempts to solicit or offers the Employee employment which would be in
violation of this paragraph 6.
(h) The parties agree that in the event of Employee's violation of this
paragraph 6 or any subparagraph thereunder that the damage to the Employer will
be irreparable and that money damages will be difficult or impossible to
ascertain. Accordingly, in addition to whatever other remedies the Employer may
have in law or in equity the Employee recognizes and agrees that the Employer
shall be entitled to a temporary restraining order and a temporary and permanent
injunction enjoining and prohibiting any acts not permissible pursuant to this
paragraph 6.
7. Termination of Agreement.
(a) Employer agrees not to terminate this Agreement except for "just
cause" and agrees to give Employee written notice of its belief that acts or
events constituting "just cause" exist. Employee has the right to cure, within
thirty (30) days of Employer's giving of such notice, the acts, events or
conditions which led to Employer's notice, but only is such acts are capable of
being cured. For purposes of this Agreement, events constituting "just cause"
shall include: (i) the consistent willful failure or refusal of Employee to
implement or follow the reasonable written policies or directions of Employer's
Board of Directors, or President provided that Employee's failure or refusal is
not based upon Employee's belief, in good faith, as expressed to Employer in
writing, that the implementation thereof would be unlawful; (ii) intentional
wrongful conduct which results, or the Board of Directors reasonably concludes
could result, in material adverse effect (financial or otherwise) to the
business of Employer; (iii) embezzlement; (iv) the intentional causing of
material damage to Employer's physical or intangible properly or property
rights; (v) material violation of any of Employee's covenants or agreements set
<PAGE>
forth in this Agreement; (vi) any act involving felonious criminal conduct
related to or involving the Corporation or its business; (vii) consistent
willful insubordination; and (viii) consistent willful disruption of a
harmonious work environment.
(b) Employer retains the right to discharge Employee for any reason not
specified above. Employer agrees, however, that if it discharges Employee for
any reason other than "just cause", or, if following a Change of Control (as
defined below) of Employer, for any reason other than "just cause" as defined in
Subsections (iii), (iv) or (vi) of the definition of "just cause" in subsection
(a) of this Section 7 above, Employee will be entitled to full compensation,
including participation in all benefit programs set forth in Section 4 hereof,
subject to the provisions of such Section 4, for one (1) year or the remainder
of the original Term of Employment, whichever is greater. All stock options for
stock of Employer therefore granted to Employee will be subject to the terms and
conditions of the stock option agreement issued in respect of such stock option
or any other stock option plan of Employer pursuant to which such stock option
may have been granted and any Shareholders Agreement, Voting Trust or similar
agreement. All compensation received by Employee pursuant to this Subsection (b)
is collectively referred to herein as the "Termination Payment". All amounts
payable by Employer to Employee under this Agreement after Employee has become
entitled to receive a Termination Payment shall be payable immediately upon
discharge of Employee.
(c) Notwithstanding the provisions of this paragraph 7 the Employer
shall have the ability to terminate this agreement in the event the Employer is
disabled for a period of ninety (90) days within any one hundred and twenty
consecutive day period. In the event of termination in accordance with this
provision the Employer's obligation shall be limited to the payment of salary as
required by paragraph 4(c)(ii) above.
(d) For purposes of this Agreement, a "Change in Control" of Employee
shall be deemed to have occurred if (i) any "person", or persons acting as a
"group" (as such terms are used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended, but excluding any Employer employee stock
ownership plan and any person that was a stockholder of employer as of the date
of this Agreement), (a) becomes the beneficial owner, directly or indirectly, of
securities of Employer representing 50% or more of the combined voting power of
Employer's then outstanding securities, or (b) acquires or obtains the power,
whether through share ownership, contract, proxy, voting agreement or otherwise,
to manage or direct the operations of Employer, (ii) Employer or its
stockholders enter into an agreement to dispose of all or substantially all of
their assets of Employer, or (iii) the Board of Directors of Employer ceases to
consist of majority of "Continuing Directors". For purposes hereof, "Continuing
Director" shall mean as member of the Board of Directors of Employer who either
(i) was a member of the Board of Directors as of the date of this Agreement;
(ii) was nominated or appointed (before initial election as a director) to serve
as a director by a majority of the then Continuing Directors; (iii) was elected
as a member of the Board of Directors first elected after the acquisition of
Spectrum Global Services, Inc. stock by The Lori Corporation; or is on the list
of persons nominated annexed hereto as Exhibit "B". Notwithstanding the
foregoing the issuance of Stock to the Shareholders; or to others as a result of
or incident to the financing or purchase from Spectrum Information Technologies,
Inc. shall not constitute a Change in Control.
(d) If Employee shall voluntarily cease his employment with Employer
for any reason, all compensation and benefits payable to Employee hereunder
shall thereupon, without further writing or acting, cease, lapse and be
terminated; provided, however, that Employee may continue to receive benefits
under any group health care insurance plan, at Employee's expense, to the extent
required by the Consolidated Omnibus Budget Reconciliation At of 1985. This
paragraph (d) does not affect any rights of Employee under any stock option
agreements with Employer.
(e) In the event of the Bankruptcy (as defined below) of employer,
Employee may at his option cease his employment hereunder whereupon all of the
obligations of the parties with the exception of the confidentiality and
covenant provisions of paragraph 6 hereto shall be terminated. For purposes of
the Agreement, "Bankruptcy" shall mean with respect to Employer, (i) the entry
of a decree or order for relief of Employer by a court of
<PAGE>
competent jurisdiction in any involuntary case involving Employer under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrate
or other similar agent for Employer or for any substantial part of Employer's
assets or property; (iii) the filing with respect to Employer of any petition in
any such involuntary bankruptcy case, which petition remains undismissed for a
period of ninety (90) days or which is dismissed or suspended pursuant to
Section 305 of the Federal Bankruptcy Code (or any corresponding provision of
any future United States bankruptcy law); (iv) the commencement by Employer of a
voluntary case under any bankruptcy, insolvency or other similar law now or
hereafter in effect; (v) the consent of Employer to the entry of an order for
relief in an involuntary case under such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrate
or other similar agent for Employer for Employer or for any substantial part of
Employer's assets or property; or (vi) the making by Employer of any general
assignment for the benefit of creditors.
(f) In the event that Employee terminates his employment with Employer
as a result of a material breach by Employer of its obligations under this
Agreement, which breach has not been cured within 30 days following receipt of
written notice of such breach for Employee to Employer (such notice and
opportunity to cure to apply only if such breach is capable of being cured),
such termination shall be deemed for all purposes of this Agreement as a
termination of Employee's employment by Employer without "just cause".
8. Indemnification. In the event that during or after the Term of
Employment, Employee 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 ("proceeding"), by reason of the fact that he is
or was a director or 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 servicing as a director, officer, employee or
agent, Employee shall be indemnified and held harmless by Employer to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent such amendment permits Employer to provide broader indemnification
rights than said law permitted Employer to provide prior to such amendment)
against all expenses, liabilities and losses (including attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by Employee in connection
therewith. Such right shall be a contract right and shall include the right to
be paid by Employer expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in his capacity as a director or officer (and not
in any other capacity in which service was or is rendered by employee while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to Employer of an undertaking, by or on behalf of
Employee, to repay all amounts so advanced if it should be determined ultimately
that Employee is not entitled to be indemnified under this section or otherwise.
9. Miscellaneous.
(a) All notice hereunder to the parties hereto shall be in writing and
sent by certified or registered mail, return receipt requested, postage prepaid,
or by telegram, telex or telecopy, addressed to the respective parties at the
following addressee:
Employer: COMFORCE Corporation
2001 Marcus Avenue
Lake Success, NY 11042
Telecopy No.: (516) 352-3362
Employee: At the permanent address contained
in Employer's personnel records.
<PAGE>
Any party may, by written notice complying with the requirements of
this section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
(b) This Agreement contains the entire and only agreement of the
parties respecting the matters herein set forth, supersedes all prior agreements
of understanding between the parties hereto regarding the matters contemplated,
and may not be changed or terminated orally, nor shall a termination or
attempted waiver of any of the provisions contained in this Agreement be binding
unless in writing and signed by the party against whom the same is sought to be
enforced, nor shall this section itself be waived verbally. This Agreement may
be amended only by a written instrument duly executed by or on behalf of the
parties hereto.
(c) This Agreement and all of its provisions, rights and obligations
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors. This Agreement may be assigned by Employer to any person,
firm or corporation which shall become the owner of substantially of the assets
of Employer or which shall succeed to the business of Employer; provided,
however, that in the event of any such assignment Employer shall obtain an
instrument in writing form the assignee in which such assignee assumes the
obligations of Employer hereunder and shall deliver an executed copy thereof to
Employee.
(d) This Agreement is made and intended to be performed principally in
the State of New York and shall take effect under, be construed and enforced
according to, and the rights and obligations of the parties shall be awarded
costs and reasonable attorney's fees.
(e) The headings of the sections of this Agreement have been inserted
for convenience of reference only and shall in no way affect the interpretation
of any of the terms or conditions of this Agreement.
(f) If any provision or part thereof of this Agreement for any reason
shall be validly held by an official body to be invalid or unenforceable, the
valid and enforceable provisions or parts thereof shall continue to be given
effect and bind Employer and Employee.
(g) Employee covenants and agrees that at any time during the Term of
Employment, and as long as the provisions of section 6 hereof are in effect,
promptly upon Employer's written and reasonable request, Employee shall render
to Employer a full and complete accounting of all Employee's conduct and
activities, both during and after the term of Employment, which are subject to
and governed by the provisions set forth and contained in section 6 of this
Agreement.
(h) The provisions of paragraph 6,7,8 and 9 shall not expire at the
termination of this Agreement but shall continue to remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above mentioned.
COMFORCE Corporation
By:_________________________
____________________________
Christopher P. Franco
EXHIBIT 10.9
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (the "Agreement") is made as of this 17th day
of October, 1995 by and between ARTRA GROUP Incorporated, a Pennsylvania
corporation ("ARTRA") and The Lori Corporation, a Delaware corporation ("Lori").
WHEREAS, the parties hereto have executed a Letter of Intent dated June
29, 1995 (the "Letter Agreement") pursuant to which Messrs. James L. Paterek,
Michael Ferrentino and Christopher P. Franco (Messrs. Paterek, Ferrentino and
Franco are sometimes referred to herein collectively as the "Managers") agreed
to accept employment with Lori for the purpose of establishing a Staffing
Business;
WHEREAS, pursuant to the Letter Agreement, Lori agreed to take certain
steps to divest itself of the Jewelry Business;
WHEREAS, within the Letter Agreement, ARTRA provided its Guarantee of
the agreements, indemnities and representations of Lori under the Letter
Agreement (the "ARTRA Guarantee"); and
WHEREAS, the parties hereto desire to expand the ARTRA Guarantee to
include a general assumption by ARTRA of any and all of the liabilities and
obligations of Lori accrued prior to the date first above written.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
1. Assumption of Liabilities and Obligations of Lori.
ARTRA, for itself, its successors and assigns, hereby assumes and
agrees to pay and discharge or to perform in accordance with their terms, any
and all liabilities and obligations of Lori in every respect, including but not
limited to any outstanding loan agreements, corporate guarantees, employment
contracts, accounts payable and environmental liabilities, all as accrued in the
ordinary course of business or otherwise prior to the date first above written.
ARTRA further assumes all of the assets of the Jewelry Business, as well as any
and all proceeds from the sale of such assets.
2. Further Assurance.
ARTRA, for itself and its successors and assigns, also warrants that
ARTRA will execute and deliver or will cause to be executed or delivered, all
such further instruments, documents, agreements and assurances as may reasonably
be requested by Lori or the Managers, their successors and assigns in order to
evidence and provide for the specific assumption by ARTRA of the obligations and
liabilities of Lori assumed by ARTRA hereunder.
3. Indemnification.
ARTRA, for itself, its successors and assigns, further warrants that
ARTRA will indemnify and hold Lori harmless in accordance with the terms and
procedures set forth in the Letter Agreement, and as to any and all consequences
of the assumption set forth in Paragraph 1 of this Agreement.
4. Conversion of Preferred Stock.
ARTRA shall direct its wholly-owned subsidiary Fill-Mor Holding, Inc.,
a Delaware corporation ("Fill-Mor"), to convert any and all of the preferred
stock of Lori which Fill-Mor currently owns into the aggregate amount of 100,000
shares of the $0.01 par value common stock of Lori (the "Common Shares").
<PAGE>
5. Limited Proxy.
ARTRA shall direct Fill-Mor to grant to Lori a limited proxy for the
Common Shares for the limited purpose of voting for any items contained or set
forth in the Letter Agreement.
6. Miscellaneous.
This Assumption Agreement is in no way intended to modify or supersede
the terms of the Letter Agreement or related documents. All capitalized terms
used herein and not specifically defined shall have the meaning given them in
the Letter Agreement and related documents. This agreement shall be construed
and governed in accordance with the laws of the State of Illinois without regard
to its choice of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed this 17th day of October, 1995.
ARTRA GROUP Incorporated
_____________________________________
By: Peter R. Harvey, President
THE LORI CORPORATION
_____________________________________
By: Peter R. Harvey, Vice President
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") made as of the 11th day
of April, 1996, by and among LAWRENCE JEWELRY CORPORATION, a Delaware
corporation ("LJC" or "Seller"), ARTRA GROUP INCORPORATED, ("Artra"), a
Pennsylvania corporation and COMFORCE CORPORATION ("Comforce") a Delaware
corporation, the parent of LJC, and Hanover Advisors, Inc., a Delaware
corporation( ("Buyer").
WHEREAS, LJC wishes to sell, and Buyer wishes to purchase, the
Purchased Assets (as hereinafter defined), subject to the assumption by Buyer of
certain liabilities of Seller comprising the Assumed Liabilities (as hereinafter
defined) upon the terms and conditions hereinafter set forth;
WHEREAS, capitalized terms used herein which are otherwise not defined
shall have the meaning set forth in Section 10.8 hereof;
In consideration of the mutual promises and covenants herein contained,
the parties hereto, intending to be legally bound, agree as follows:
1. Purchase and Sale of Assets.
1.1 Sale of Assets to Buyer. On the terms and subject to the
conditions set forth in this Agreement, at the closing referred to in Section
3.1, Seller shall sell, transfer, convey, assign and deliver to Buyer, and Buyer
shall purchase and acquire from Seller, all of Seller's right, title and
interest in and to all of the Purchased Assets (as defined below) and the
business of Seller, as such Purchased Assets exist on the Closing Date (as
defined hereinafter). As used herein, the term "Purchased Assets" means all of
the assets, properties and rights owned by Seller, or used or usable by Seller,
of every type and description, including without limitation those items (not
otherwise excluded) identified in 1.1(a) through (k), wherever located and
whether or not reflected on the Books and Records of Seller, other than those
assets, properties and rights which are specifically excluded pursuant to
Section 1.2. Except as specifically excluded pursuant to Section 1.2, the
Purchased Assets include, without limitation, all of the right, title and
interest of Seller in or to the following:
(a) Inventory. All Distressed Inventories as listed on
Schedule 1.1; demonstration equipment, office and
other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are
in transit from or to, the locations at which the
Seller's Business is conducted, or located at
suppliers' premises or customers' premises on
consignment, including any of the foregoing purchased
subject to any conditional sales or title retention
agreement in favor of any other Person, together with
all rights of Seller against suppliers of such
inventories;
(b) Tangible Personal Property. In addition to the
Inventory separately described above, all furniture,
fixtures, equipment, machinery and other tangible
personal property at the locations at which the
Seller's Business is conducted or at suppliers'
premises or customers' premises on consignment, or
otherwise used or held for use by Seller in the
conduct of the Seller's Business, including any of
the foregoing purchased subject to any conditional
sales or title retention agreement in favor of any
other Person;
(c) Personal Property Leases. Seller's rights to: (i)
tangible personal property set forth on Schedule 4.17
hereto as to which Seller is the lessor or sublessor;
and, (ii) all leases or subleases of tangible
personal property set forth on Schedule 4.17 hereto
as to which Seller is the lessee or sublessee,
together with any options to purchase or sell the
underlying property and the security deposits as set
forth on Schedule 4.17 hereto (the leases and
subleases described in subclauses (i) and (ii), the
"Personal Property Leases");
(d) Business Contracts. Seller's rights under all
Material Agreements (as such term is defined in
Section 4.7) set forth on Schedule 1.1(d), and all
purchase orders from customers of Seller which Seller
has accepted in the ordinary course of business prior
to the Closing Date (the "Business Contracts");
(e) Intangible Property. All intellectual property rights
(including Seller's goodwill therein) and all rights,
privileges, claims, causes of action and options
relating or pertaining to its Business or its assets
or properties, including but not limited to customers
lists, patents and applications therefor, know-how,
trade secrets, secret formulas, business and
marketing plans, computer software (including source
codes) and related documentation, copyrights and
applications therefor, trademarks, including "L.J.
Kids & Co." and applications therefore, trade names,
service marks and all names, including without
limitation, "Rosecraft", "Camro", "J & L Sales" and
"Lawrence Service Co.", and slogans used by Seller;
(f) Licenses. All transferable licenses, permits,
franchises, approvals and authorizations (including
applications therefor) (the "Business Licenses");
(g) Vehicles All motor vehicles owned or leased by
Seller;
(h) Books and Records. All Books and Records used or held
for use in the conduct of the Seller Business or
otherwise relating to Seller or its assets or
properties;
(i) Warranties. All rights of Seller under or pursuant to
all warranties, representations and guarantees made
by suppliers, manufacturers and contractors in
connection with products sold to or services provided
to Seller or affecting the property, machinery or
equipment owned or used by Seller or relating to any
property leased pursuant to the Personal Property
Leases or the Purchased Assets;
(j) Telephone Numbers. All transferable telephone
exchange numbers; and
(k) Security DepositsAll security deposits under real
property and personal property leases, except as
excluded in 1.2 below.
1.2 Excluded Assets. Any provision of this Agreement to
the contrary notwithstanding, Buyer shall not acquire and there shall be
excluded from the Purchased Assets the following (the "Excluded Assets"):
(a) Cash. All cash and cash equivalents held by LJC;
(b) Bank Accounts. Any rights of LJC with respect to bank
accounts of LJC;
(c) Accounts Receivable. All Accounts Receivable and all
collection rights thereto as set forth on Schedule
1.2 (c), adjusted however for inventory sold by
Seller to its customers prior to the Closing Date
that is subsequently returned for which an
appropriate adjustment to the Accounts Receivable
shall be made. All such returned inventory shall be
deemed to be "Current Inventory", shall be the
property of Seller, and shall be retained by Buyer
and disposed of pursuant to the terms of the Consent
Agreement.
(d) Marketable Securities. All marketable securities
owned by Seller.
(e) Fine Art All items of personal property classified as
fine art and as listed on Schedule 1.2(e).
(f) Intercompany Accounts. Any rights of Seller with
respect to any obligations or liabilities of
Comforce, any Affiliate of Comforce, or any director
or officer of any of the foregoing or of Seller,
except for any rights of Seller with respect to those
Business Contracts listed on Schedule 1.2(f) hereto;
(g) Insurance Policies. Any rights of Seller with respect
to all insurance policies owned by Seller or for
which Seller is the named insured, covering,
including without limitation, automobiles, workman's
employee benefits such as medical, dental, disability
income, life insurance and accidental death and
dismemberment;
(h) Minute Books. The minute books, stock transfer books
and corporate seal of Seller;
(i) Security Deposit.Security deposit in the sum of
$7,000. with Eastern Utilities Blackstone Valley
Electric for leased property located at 685 Social
Street, Woonsocket, Rhode Island;
(j) Current Inventory. All Current Inventory, as referred
to in the Consent Agreement defined below, as set
forth on Schedule 6 thereto, purchased by Seller
which will be transferred to Buyer and disposed of by
Buyer in accordance with the terms and conditions of
a certain agreement referred to as the Consent and
Agency Agreement ("Consent AGREEMENT") to be executed
and delivered by the Buyer and Seller hereof at the
Closing, a copy of which is attached hereto as
Exhibit 1.2(j).
(k) Escrow Deposit. The escrow deposit of $40,000 lodged
in a certificate of deposit at First Bank; and
(l) Other Matters. All rights of Seller under this
Agreement and the documents and other papers
delivered to Buyer by Seller pursuant to this
Agreement.
2. Purchase Price.
2.1 Amount of Consideration. Subject to adjustment as provided
in Section 2.2, the purchase price (the "Purchase Price") for the Purchased
Assets to be purchased by Buyer, shall be:
a) (i) A payment for all of the Distressed Inventory and
calculated based on 136,292 dozen inventory items as
itemized on Schedule 1.1 at the rate of $1.25 per
dozen for a total price of $170, 365.
(ii) A payment of $17,000. for the cards as may exist in
Seller's possession and utilized by Seller for the
sales and marketing of the inventory;
(iii) Execution and delivery at the Closing of this
transaction of the Consent Agreement a copy of which
is attached to this Agreement as Exhibit 1.2 (j).
(iv) A payment of $65,000. for all other items of tangible
or intangible property or assets owned by Seller
(including part of a security deposit) and being sold
hereunder as described in Section 1.1 of this
Agreement; and
(v) the performance of the covenants, the continuing
accuracy of the representations and warranties of the
Buyer contained in this Agreement
for a payment at Closing of the sums
described in 2.1 (i), (ii) and (iv) as set forth on Schedule 2.1 (a); all of
which monetary consideration shall be paid to Seller by Buyer and which
initially shall be paid by the Buyer to an escrow agent of Seller to pay or
provide for the expenses of the Closing and certain other Seller expenses by the
escrow agent from the Closing proceeds. Thereafter, the escrow agent shall pay
any remaining Closing proceeds to Bankers Capital, a division of Bankers Leasing
Association, Inc., the ("Lender"). Buyer shall pay to Lender the balance due on
Seller's debt to Lender pursuant to the Consent Agreement, and thereafter, the
balance of the Purchase Price, if any, and the payments represented by the net
collection by the Buyer of the Seller's accounts receivable and sale of Current
Inventory shall be paid to an agent to be identified by Seller to Buyer within
10 days after the Closing for purposes of settling Seller's liabilities post
Closing. Any funds remaining after the above payments and settlement of Seller's
liabilities and expenses shall be wire transferred in immediately available
funds to Seller's account at First Bank of Eden Prairie, account number
173100140065, ABA #091000022(the "Cash Payment"); and
b) the assumption by Buyer of the Assumed Liabilities
(as defined hereinafter) at the Closing.
2.2 Assumption of Liabilities. Except as specifically provided below,
Buyer shall not assume or be liable to pay, perform or discharge, as the case
may be, any liabilities or obligations of Seller, except for the following
liabilities and obligations, to the extent existing on the Closing Date (the
"Assumed Liabilities"):
(a) Personal Property Lease Obligations. All obligations
of Seller under the Personal Property Leases arising
and to be performed on or after the Closing Date as
set forth on Schedule 2.2;
(b) Obligations Under Contracts and Licenses. All
obligations of Seller under the Business Contracts,
Purchase orders and Business Licenses arising and to
be performed on or after the Closing Date; and
(c) All expenses incurred on the Closing Date and
thereafter in the ordinary course of business of the
fashion jewelry activities of the Seller.
In the event of any claim against Buyer with respect to any of the
Assumed Liabilities hereunder, Buyer shall have, and Seller hereby assigns to
Buyer, any defense, counterclaim, or right of setoff which would have been
available to Seller if such claim had been asserted against Seller.
2.3 Excluded Liabilities Not Assumed. Any provision of this
Agreement to the contrary notwithstanding, Buyer shall not assume, or in any way
become liable for, any of the following liabilities or obligations of Seller of
any kind or nature, whether accrued, absolute, contingent or otherwise, or
whether due or to become due, or otherwise on the Closing Date (the "Excluded
Liabilities"):
a) Undisclosed Liabilities. Debts,
obligations or liabilities of any kind or nature, whether
absolute, accrued, contingent or otherwise including without
limitation, trade payables;
b) Violation of Representations, etc. Debts,
obligations or liabilities which arise or exist in violation
of any of the representations, warranties, covenants or
agreements of Seller contained in this Agreement, or in any
documents or other papers delivered to Buyer by or on behalf
of Seller on or before the Closing Date pursuant to this
Agreement or in connection with the transactions contemplated
hereby.
c) Taxes. Debts, obligations or liabilities
for Taxes of any kind whatsoever for periods through and
including the Closing Date, including, without limitation,
Taxes which are (i) due and payable as of the Closing Date,
(ii) all income taxes arising from the operations of Seller,
the liquidation of Seller or the transactions contemplated by
this Agreement, and (iii) all real estate taxes or personal
use taxes with respect to the Leased Property (as hereinafter
defined) or the Purchased Assets accrued through the Closing
Date (whether or not then due and payable).
d) Taxes Due on Sale. Debts, obligations or
liabilities for Taxes of any kind whatsoever arising from,
based upon, or related to, the sale, transfer or delivery of
the Purchased Assets or assignment and assumption of the
Assumed Liabilities pursuant to this Agreement.
e) Infringements. Any liability or
obligation arising out of any infringement or misappropriation
by or conflict with, any proprietary rights of any Person.
f) Indebtedness for Borrowed Money. Debts,
liabilities or obligations of any kind or nature representing
indebtedness for borrowed money (whether short-term or
long-term), including accrued interest and/or from penalties
owing thereon., however the Accounts Receivable are pledged to
the Lender and other assets being conveyed or bailed to the
Buyer hereby are subject to the liability to the Lender and
shall be satisfied from the proceeds due Seller hereby.
g) Environmental Liabilities. Any liability
or obligation (a) relating to or arising out of any
Environmental Claim, (b) relating to or arising out of the
presence, Release, emission, use, generation, discharge,
treatment, storage, or disposal of any Hazardous Substances
on, under, in, from or about, or any transportation of any
such Hazardous Substances to or from, any premises or waste
treatment or disposal facilities owned, leased or used by
Seller on or prior to the Closing Date, (c) relating to or
arising out of the violation or alleged violation of, or
imposed by, any Environmental Laws or Release, transportation,
treatment, storage or disposal of Hazardous Substances on or
prior to the Closing Date.
h) Litigation. Any liability or obligation
relating to Actions or Proceedings involving Seller as a
defendant (including a defendant in any cross-claim or
counterclaim) or a respondent (other than as a respondent in
an appeal in an Action or a Proceeding in which Seller
initially was a plaintiff) which is pending on or threatened
on or prior to, the Closing Date or is initiated after the
Closing Date and relates to any occurrences or circumstances
existing prior to the Closing Date.
(i) Affiliates. Any liabilities of Seller to
Comforce (formerly Lori), any Affiliate of Seller or any
director of officer of any of the foregoing or of Seller;
(j) Breach. Any liabilities (whether
asserted before or after Closing Date) for any breach of a
representation, warranty, or covenant, or for any claim for
indemnification, contained in any Personal Property Lease,
Business Contract or Business License agreed to be performed
pursuant hereto by Buyer, to the extent that such breach or
claim arises out of or by virtue of Seller's performance or
non-performance thereunder prior to the Closing Date, it being
understood that, as between the parties hereto, this
subsection shall not apply if any provision which may be
contained in any form of consent to the assignment of any such
Personal Property Lease, Business Contract or Business License
which by its terms, imposes such liabilities upon Buyer and
which assignment is specifically approved in writing by Buyer
notwithstanding the presence of such a provision, and that
Seller's failure to discharge any such liability shall entitle
Buyer to indemnification in accordance with the provisions of
Section 9;
(k) Product Warranty. Any product warranty
liabilities of Seller with respect to any products or
merchandise sold by it on or prior to the Closing Date; it
being understood and agreed that any such claim or liability
asserted after the Closing Date arising out of the sale of any
product sold by Seller on or prior to the Closing Date shall
be considered to be a claim against or a liability of Seller
and therefore not assumed hereunder by Buyer;
(l) Other Liabilities, Worker's
Compensation. Any liabilities of Seller for injury to or death
of persons or damage to or destruction of property (including,
without limitation, any worker's compensation claim) occurring
prior to the Closing Date regardless of when said claim or
liability is asserted, including, without limitation, any
claim for consequential damages in connection with the
foregoing; it being understood and agreed that any such claim
or liability asserted after the Closing Date, but arising from
acts or omissions by Seller which occur before the Closing
Date shall be considered to be a claim against or a liability
of Seller for injury to or death of persons or damages to or
destruction of property and therefore not assumed hereunder by
Buyer;
(m) Benefits. Any liabilities to, for or in
connection with any present or former employee of Seller or
any of its Affiliates, including without limitation, for (i)
medical, dental, disability income, life insurance or
accidental death benefits, whether insured or self insured,
for claims incurred or for disabilities commencing prior to
the Closing Date, (ii) workers' compensation (both long term
and short term) benefits, whether insured or self-insured, to
the extent accruing or based upon exposure to conditions prior
to the Closing Date or for claims incurred or for disabilities
commencing prior to the Closing Date, or (iii) severance
liabilities or benefits for employees of Seller, or (iv)
accrued vacation or other benefits;
(n) Excluded Assets. Any liabilities
relating to the Excluded Assets;
(o) Stockholders. Any liabilities relating
to the capital stock of Seller or any shareholders' agreements
to which Seller is party;
(p) Agreements. Any Liabilities of Seller
under this Agreement and any document or other papers
delivered to Buyer by Seller pursuant to this Agreement;
(q) Material Agreements. Any liabilities
under any contract, agreement, lease, commitment, instrument,
permit or license which is not a, Personal Property Lease,
Business Contract or Business License; and
(r) Other Matters. Without limitation by the
specific enumeration of the foregoing, any liabilities not
expressly assumed by Buyer pursuant to the provisions of
Section 2.2.
The assumption by Buyer of the Assumed Liabilities, and the transfer thereof by
Seller shall in no way expand the rights or remedies of any third party against
Buyer or Seller or their respective officers, directors, employees, shareholders
and advisors as compared to the rights and remedies which such third party would
have had against such parties had Buyer not assumed such liabilities. Without
limiting the generality of the preceding sentence, the assumption by Buyer of
said liabilities shall not create any third party beneficiary rights. Seller
shall pay and discharge when due, or contest in good faith, all of those
liabilities of Seller which Buyer has not specifically agreed to assume pursuant
to the provisions of Section 2.2.
2.4 Allocation of Purchase Price. After the Closing, Buyer
shall allocate the purchase price among the various Purchased Assets as set
forth hereinabove. The parties further agree to file any reports required
(including, without limitation, Form 8594) under Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder,
consistent with such allocation.
2.5. Proration of Lease Payments, Utility Charges and Other
Payments. If the Closing Date shall fall on a date other than the date on which
payments are due with respect to (i) a Personal Property Lease, or (ii) utility
or similar regular periodic charges with respect to the Purchased Assets, and
for which a final billing has not been received by Seller, any installment of
rental payments and any such utility or similar charge payable with respect to
the current period in which the Closing Date occurs.
2.6. Proration of Taxes. Intentionally Deleted
3. Closing and Due Diligence.
3.1 Time and Place. The closing of the purchase and sale of
the Purchased Assets (the "Closing") shall take place at 10:00 a.m. on April 13,
1996, at Chicago, Illinois, or at such other place or time as the parties may
agree upon in writing. The date on which the Closing is held is referred to as
the "Closing Date".
3.2 Conveyance. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Seller shall sell, assign and deliver
(or cause the sale, assignment and delivery of) the Purchased Assets to Buyer,
and Buyer shall purchase and take delivery of the Purchased Assets. Seller shall
execute and deliver (or cause to be executed and delivered) such documents of
conveyance and take such other action as may be necessary or reasonably
desirable to transfer all interests therein to Buyer and put Buyer in actual
possession and operating control of the Purchased Assets. Seller agrees that
such sale, assignment and delivery shall be effected by such bills of sale,
endorsements, assignments and such other instruments of transfer and conveyance
as Buyer shall reasonably request and as shall be sufficient to convey all the
right, title and interest of Seller in and to the Purchased Assets free and
clear of all Liens other than the Lien of the Lender which will be released as
of the Closing Date pursuant to the Consent Agreement..
4. Representations and Warranties of Seller. Seller, and Comforce with
respect to 4.1, 4.2, 4.3 and 4.4 hereafter, severally, represent and warrant to
Buyer as follows:
4.1 Organization. Each of Comforce and Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and has all requisite corporate power and authority
to own, lease and operate the properties and assets utilized in, and to carry on
its business as it is presently being conducted. Seller is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
nature of the Seller Business or the property owned, leased or operated in the
Seller Business makes such qualification necessary and where a failure to be so
qualified or licensed might have a Material Adverse Effect and each such
jurisdiction is listed on Schedule 4.1.
4.2 Power and Authority. Each of Comforce and Seller has full
corporate power and authority to execute and deliver this Agreement and all
other documents and instruments to be executed and delivered by it pursuant
hereto and to consummate the transactions contemplated hereunder, and the
execution, delivery and performance of this Agreement by Seller and all other
documents and instruments to be executed, delivered or performed by it pursuant
hereto, have been duly and validly authorized by all necessary corporate action
of it.
4.3 Legality and Validity. Assuming due authorization,
execution and delivery by Buyer, this Agreement and all other documents and
instruments to be executed and delivered by each of Comforce and Seller pursuant
hereto, constitute the legal, valid and binding obligations of it, enforceable
against it, in accordance with their respective terms.
4.4 No Conflicts, Consents. The execution, delivery and
performance of this Agreement by each of Comforce and Seller will not (a)
conflict with its certificate of incorporation or by-laws and will not conflict
with or result in the breach or termination of or constitute a default under any
permit, lease, agreement, commitment or other instrument, or any order, judgment
or decree, to which it is a party, by which it is bound or to which any of the
Purchased Assets is subject; (b) constitute a violation by it of any law or
regulation applicable to it, the Purchased Assets or the Assumed Liabilities; or
(c) result in the creation of any Lien upon any of the Purchased Assets. Except
as set forth on Schedule 4.4, no consent, approval or authorization of, or
declaration or filing with, any person, including any governmental authority, is
required on the part of Seller in connection with the execution, delivery and
performance of this Agreement, or the transfer of the Purchased Assets to Buyer.
4.5 Litigation, Compliance with Laws. Except as set forth on
Schedule 4.5 hereto, there is no Action or Proceeding pending or threatened, or
any Order outstanding, against Seller or the Purchased Assets. Seller is not in
violation of any Law or Order, except for violations that in the aggregate would
not have a Material Adverse Effect, and no notice has been received by Seller
alleging any such violation.
4.6 Title to Assets. Seller has good and marketable title to
(or valid, binding and enforceable leasehold, license or similar interests in
and right of quiet enjoyment of), and the right to transfer to Buyer, all of the
Purchased Assets, subject to no Liens, except the Lien of the Lender, and no
licenses or rights of other parties exist with respect thereto. The Purchased
Assets constitute all of the assets and property owned and used in the Seller
Business (except for the accounts receivable, Current Inventory and other
Excluded Assets) and are of merchantable quality, except with respect to the
Distressed Inventory, fit for their intended purpose, and ready for normal use.
The documents of transfer to be executed by Seller and delivered to Buyer at the
Closing will be sufficient to convey good and marketable title to (or valid and
enforceable leasehold, license or similar interests in) the Purchased Assets,
free and clear of all Liens other than as stated herein and possible liens
pursuant to applicable bulk sales laws.
4.7 Contracts. Schedule 4.7 describes all of the following
contracts, agreements, leases, commitments, instruments, plans, permits or
licenses (written or oral) to which Seller is a party or is otherwise bound or
which relate to the Purchased Assets, the Assumed Liabilities or the Seller
Business (the "Material Agreements"):
(a) contracts and other agreements with any current
officer, director, employee, consultant, agent, other
representative of Seller or with any Affiliate of
Seller;
(b) contracts and other agreements with any labor union
or association representing any employee;
(c) contracts and other agreements for the sale of any of
its assets or properties or for the grant to any
Person of any preferential rights to purchase any of
its assets or properties, in each case in an amount
exceeding $10,000 (other than purchase orders entered
into with customers in the ordinary course of
business);
(d) joint venture and partnership agreements;
(e) any take or pay or requirements contracts or
agreements or any other contracts or agreements
requiring Seller to pay regardless of whether
products or services are received;
(f) contracts and other agreements not cancelable without
penalty by Seller on sixty (60) or fewer days' notice
calling for an aggregate purchase price or payments
to or from Seller in any one year of more than
$10,000 in any one case (or in the aggregate, in the
case of any related series of contracts and other
agreements);
(g) contracts and other agreements containing covenants
of Seller or any officer or employee of Seller
pertaining to the right to compete or not compete in
any line of business or similarly restricting its
ability to conduct business with any Person or in any
geographical area or covenants of any other Person
not to compete with Seller in any line of business or
restricting its ability to conduct business or in any
geographical area;
(h) contracts and other agreements relating to the
acquisition by Seller of any operating business or
the capital stock of any other Person;
(i) contracts and other agreements not cancelable without
penalty by Seller on sixty (60) or fewer days' notice
relating to the sale or marketing of any products
sold, distributed or marketed by Seller and involving
an amount in excess of $10,000;
(j) contracts and other agreements relating to data
processing or the provision of other services which
are not cancelable without penalty in sixty (60) or
fewer days' notice; and
True and complete copies of all of the Material Agreements
have been delivered to Buyer. All of the Material Agreements are valid,
subsisting, in full force and effect and binding upon Seller and, to the best
knowledge of Seller, the other parties thereto in accordance with their terms,
subject to the qualifications that enforcement of the rights and remedies
created thereby is subject to: (A) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and (B) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law) and
excluding those matters listed on Schedule 4.7 (Good Faith Disputed Issues).
Seller has satisfied in full or provided for all of its liabilities and
obligations under the Material Agreements requiring performance prior to the
date hereof in all material respects, is not in material default under any of
them, nor does any condition exist that with notice or lapse of time or both
would constitute such a material default. To the best knowledge of Seller, no
other party to any such Material Agreement is in default thereunder, nor does
any condition exist that with notice or lapse of time or both would constitute
such a default. Except as separately identified on Schedule 4.7, no approval or
consent of any Person is needed for all of the Business Contracts to continue to
be in full force and effect after the Closing, and all of Seller's rights under
the Business Contracts will be conveyed to Buyer, upon consummation of the
transactions contemplated by this Agreement.
4.8 Inventory. The value of the Distressed Inventory has been
determined based on arms length negotiations, and, notwithstanding any other
statement in this Agreement to the contrary, Buyer has conducted its due
diligence with respect thereto.
4.9 Intangible Property. To the best knowledge of Seller
without investigation, Seller is the owner of all right, title and interest in
and to the Intangible Property. Schedule 4.9 sets forth a list of all Intangible
Property of Seller (other than trade secrets, know-how and goodwill attendant to
the Intangible Property and other intellectual property rights not reducible to
schedule form), true and complete copies of which have been delivered or made
available to Buyer, and the Intangible Property constitutes all of the
Intangible Property owned or used by Seller in connection with the Seller
Business. Seller has not received any notice of, nor has it become aware of any
facts which indicate a likelihood of, any challenge to such rights,
misappropriation or infringement by or any conflict with, any third party with
respect to the Intangible Property. Except as separately identified on Schedule
4.9, no approval or consent of any Person is needed so that the interest of
Seller in the Intangible Property shall continue to be in full force and effect
and enforceable by Buyer following the transactions contemplated by this
Agreement.
4.10 Intentionally Deleted
4.11 Taxes. All Tax Returns of Seller where failure to file or
pay any tax due would create a lien on or materially and adversely affect the
title to the Asset being conveyed and are required to be filed within the United
States of America, all state and local government authorities and all foreign
jurisdictions have been timely filed or extended and the taxes, if any are due
have been paid or provided for.
4.12 Environmental. Except as disclosed in Schedule 4.12, the
lease, use and operation by Seller of the leased premises, (the "Seller
Facilities"), is in compliance with all applicable Environmental Laws, and to
the knowledge of Seller, without due inquiry except for its review of its
internal operations and personnel, there is no liability which may be imposed
upon Seller. No Order has been issued, no Environmental Claim has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
knowledge of Seller, threatened by any Governmental or Regulatory Body with
respect to any alleged failure by Seller to have or comply with any license or
permit required under applicable Environmental Laws in connection with the
conduct of its business or with respect to any generation, treatment, storage,
recycling, transportation, discharge, disposal or Release of any Hazardous
Substance in connection with its business and, to the knowledge of Seller, there
are no facts or circumstances in existence which could reasonably be expected to
form the basis for any of the foregoing.
4.13 Personnel and Labor. Intentionally Deleted.
4.14 Insurance. Intentionally Deleted.
4.15. Compensation Arrangements: Officers, Directors and
Employees Intentionally Deleted
4.16. Operations.
Except as disclosed on Schedule 4.16 or expressly authorized by this
Agreement, from March 17, 1996 through the date hereof, Seller has not, and from
the date hereof through the Closing Date, Seller shall not have, without the
prior written consent of Buyer:
(a) knowingly waived any right of material
value to its business;
(b) (i) made any disposition of any of its
assets or properties other than sale of Inventory in
the ordinary course of business consistent with past
practice; (ii) granted or suffered any Lien on any of
its assets or properties; or (iii) entered into or
amended any contract or other agreement to which it
is a party, or by or to which it or its assets or
properties are bound or subject, or pursuant to which
it agrees to indemnify any Person or to refrain from
competing with any Person;
(c) except in the ordinary course of
business, terminated, failed to renew, amended or
entered into any contract or other agreement of a
type required to be disclosed pursuant to Section
4.7.
4.17. Tangible Property. Schedule 4.17 sets forth a true,
complete and correct list of all categories of tangible personal property (other
than Inventory), including, without limitation, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by Seller
(collectively, the "Tangible Property") together with a description of all
leases or subleases of Tangible Property to which Seller is the lessor,
sublessor, lessee or sublessee. Except as separately identified on Schedule
4.17, no approval or consent of any Person is needed so that the interest of
Seller in the Tangible Property shall continue to be in full force and effect
following the transactions contemplated by this Agreement.
4.18. Disclosure. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement, contains an untrue statement of a material fact
or omits a material fact necessary to make the statements contained herein or
therein not misleading.
4.19 Closing Date. The foregoing representations and
warranties will also be true and correct in all material respects in accordance
with their respective terms on and as of the Closing Date and with the same
force and effect as though such representations and warranties had been made on
and as of such time.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
5.1 Organization. Buyer is duly organized, validly existing
and in good standing under the laws of the state of their incorporation and is
duly authorized to carry on its business where and as now conducted and to own,
lease and operate properties as they now do.
5.2 Corporate Authority. Buyer has full power and authority to
enter into and perform this Agreement in accordance with its terms; the
execution, delivery and performance of this Agreement by Buyer has been duly
authorized by all necessary corporate action of Buyer; and this Agreement is a
valid and binding obligation of Buyer enforceable in accordance with its terms.
5.3 No Conflicts, Consents. The execution, delivery and
performance of this Agreement by Buyer will not (a) conflict with its
certificate of incorporation or by-laws and will not conflict with or result in
the breach or termination of or constitute a default under, any lease,
agreement, commitment or other instrument, or any order, judgment or decree, to
which it is a party or by it bound; or (b) to Buyer's knowledge, constitute a
violation by it of any law or regulation applicable to it. No consent, approval
or authorization of, or declaration or filing with, any governmental authority
is required on the part of Buyer in connection with the execution, delivery and
performance of this Agreement.
5.4 Litigation. There are no actions, suits, proceedings,
claims or investigations pending or to the best of Buyer's knowledge,
threatened, concerning Buyer or with respect to the transactions contemplated
hereby or which would prevent Buyer from consummating the transactions
contemplated hereby.
6. Particular Covenants. In addition to the various
othercovenants set forth in this Agreement, Seller covenants and agrees with
Buyer and Buyer covenants and agrees with Seller as follows:
6.1 Conduct of Business. During the period from the date
hereof to the Closing Date, except as otherwise contemplated by this Agreement:
(i) Operation of Business. Except with the written consent of
Buyer, Seller shall not take any action or omit to take any action
which would result in a material breach, violation or inaccuracy of any
representation, warranty or covenant of Seller made in this Agreement;
provided, however, that Seller shall not be required to secure the
consent of Buyer with respect to acts undertaken in the ordinary course
of business, which do not, individually or in the aggregate, have an
adverse effect on the Seller Business.
(ii) Full Access. Seller shall grant Buyer and representatives
of Buyer and its lenders reasonable access during normal business hours
to all employees, premises, properties, books, records, contracts,
accounting records and other documents of or pertaining to Seller and
the Seller Business, shall provide copies to Buyer and its lenders of
all Seller documentation reasonably requested by Buyer, and Seller will
furnish to Buyer and its lenders any information in respect of Seller
and the Seller Business as Buyer and its lenders may from time to time
reasonably request.
(iii) Notice. Seller shall promptly (no later than two (2)
business days) give Buyer written notice of Seller's becoming aware of
the existence or occurrence of any event or condition which would make
any representation or warranty of Seller contained herein untrue or
incomplete in any material respect or which constitutes a breach or
violation of this Agreement or might prevent the consummation of the
transactions herein contemplated.
6.2 Expenses.
(i) All costs and expenses and disbursements incurred in
connection with this Agreement and the transactions contemplated
hereby, shall be paid by the party incurring such costs and expenses.
(ii) The parties hereto hereby represent to each other and
hold each other harmless that no broker, finder, investment banker, or
financial adviser is entitled to any fees due to the transaction
contemplated hereby, and will hold each other harmless from any claims
asserted by such person or entity as a result of the transaction.
6.3 Action. From the date hereof until the Closing, the
parties shall use their reasonable best efforts to take, or cause to be taken,
all action, and use their reasonable best efforts to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby.
6.4 Consents. Prior to the Closing, Seller will obtain all
consents listed on Schedules 4.4, 4.7, 4.9, and 4.17 and all other necessary
consents in order to transfer the Purchased Assets to Buyer to conclude the
transactions contemplated by this Agreement. Where it is found to be impossible
to transfer the benefits under any Business Contract, Business License or
Personal Property Lease to Buyer, Seller will act as Buyer's agent to the extent
it can lawfully and effectively do so in order to help assure to Buyer the full
benefits thereof; and Seller will work with Buyer to obtain for it the benefits
thereunder, and will cooperate, to the extent permitted by applicable law, with
Buyer in any other reasonable arrangement requested by Buyer designed to provide
such benefits for Buyer, including, if permitted by applicable law and the
Business Contract, Business License or Personal Property Lease, subcontracting
to Buyer the work to be performed or the services to be provided under any
Business Contract, Business License or Personal Property Lease on the same basis
that Seller would be required to perform under such Business Contract, Business
License Lease or Personal Property Lease. In the event after a good faith
effort, Seller is unable to cause a consent to be delivered to Buyer, and Buyer
deems such a consent to be material to the conduct of the Seller Business, Buyer
may terminate this Agreement without any liability arising pursuant hereto.
6.5. Transfer Taxes. Seller agrees to pay all sales, use,
transfer, recording, gains and other similar taxes and fees ("Transfer Taxes")
arising out of or in connection with the transactions effected pursuant to this
Agreement except those imposed by law upon the Buyer, and shall indemnify,
defend and hold harmless Buyer with respect to such Transfer Taxes. Seller and
Buyer shall file or cooperate with respect to the filing of all necessary
documentation and Tax Returns with respect to such Transfer Taxes.
6.6 Hart Scott Rodino Act Filings Intentionally Deleted.
6.7. Public Announcements. On and after the date hereof,
Seller and Buyer shall consult with each other before issuing any press release
or making any public statements with respect to this Agreement and the
transactions contemplated hereby and neither of them shall issue any such press
release or make any such public statement prior to obtaining the other party's
approval, which approval shall not be unreasonably withheld, except that no such
approval shall be necessary to the extent disclosure may be required by law or
any stock exchange listing agreement of a party or an affiliate. Any party
intending to make disclosure of this Agreement required by law shall notify and
consult with the other party in advance.
6.8. Further Assurances. From time to time prior to and after
the Closing, without further consideration, each party at its own expense shall
execute and deliver such documents to the other party as such other party may
reasonably request in order more effectively to consummate the transactions
contemplated hereby. At any time and from time to time after the Closing Date at
the request of Buyer, and without further consideration, Seller will execute and
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such other action as Buyer may reasonably deem necessary
or desirable in order to transfer, convey and assign more effectively to Buyer,
the Purchased Assets and to put Buyer in actual possession and operating control
of the Seller Business and to assist Buyer in exercising all rights with respect
thereto.
6.9. Tax Elections. Intentionally Deleted
6.10. Nonforeign Affidavit. Intentionally Deleted.
6.11. Insurance. Intentionally Deleted.
6.12. Environmental Matters. With respect to and to the extent
existing on or prior to the Closing Date, Seller hereby covenants and agrees to
indemnify, defend and hold Buyer and each of its Affiliates and their respective
directors, officers, employees, successors and assigns harmless from and against
any claim, action, suit, proceeding, loss, cost, damage, liability, deficiency,
fine, punitive damage or expense (including, without limitation, attorneys' and
consultants' fees), resulting from, arising out of, or based upon (i) any
Environmental Claim, (ii) the presence, Release, use, generation, discharge,
storage, or disposal of any Hazardous Substances on, under, in or about, or the
transportation of any such materials to or from, any Seller Facility, including
any facilities previously owned, used or otherwise operated by Seller or any
predecessor of Seller; (iii) any Environmental Law or permit, judgment or
license (including but not limited to any violation or alleged violation
thereof) relating to the use, generation, Release, discharge, handling,
treatment, storage, or disposal of Hazardous Substances on, about, to or from
any Seller Facility (defined as those offices, manufacturing, warehouse and
other facilities used by Seller in the Seller Business), including any
facilities previously owned, used or otherwise operated by Seller or any
predecessor of Seller; and (iv) any actions, suits, proceedings, investigations,
assessments, and judgments incident to any of the foregoing. This indemnity
shall include, without limitation, any damage, liability, fine, penalty,
punitive damage, cost or expense arising from or out of any claim, action, suit
or proceeding for personal injury (including sickness, disease or death),
tangible or intangible property damage, compensation for lost wages, business
income, profits or other economic loss, damage to natural resources or the
environment, nuisance, pollution, contamination, leak, spill, release or other
potential adverse effect on the environment.
7. Conditions Precedent to Closing.
7.1. Conditions to Obligations of Buyer. The obligations of
Buyer under this Agreement to enter into and complete the Closing are subject to
the satisfaction at or prior to the Closing of the following conditions,
provided that compliance with any such conditions or parts thereof may be waived
by Buyer:
(i) The representations and warranties of Seller contained in
this Agreement shall be true and correct, in all respects, on and as of
the Closing Date as if made on such date, except for representations
and warranties relating to specified dates and except as otherwise
provided herein; each and all of the covenants and agreements of Seller
to be performed on or before the Closing pursuant to the terms hereof
shall have been duly performed; since the date hereof there shall not
have been any material adverse change in, and there shall have occurred
no event which has resulted or could result in a material adverse
change in, the business and financial condition of the Seller Business
or in its properties or assets; and Seller shall have delivered to
Buyer a certificate, in such form as Buyer shall reasonably require,
dated the Closing Date and signed by an officer of Seller, to each such
effect.
(ii) Seller shall have delivered all documents reasonably
necessary in order to complete any and all transfers and assignments
provided for in this Agreement and to convey to Buyer such title to the
Purchased Assets as Seller is required hereunder to convey in form and
substance reasonably satisfactory to Buyer.
(iii) Seller shall have obtained all permits, authorizations,
consents and approvals listed on Schedules 4.4, 4.7, 4.9, and 4.17 and
shall have made all filings and declarations required to be made by it.
(iv) Intentionally Deleted.
(v) No action, claim or proceeding shall be pending or
threatened before or by any Federal, state or municipal or other
domestic or foreign governmental department, commission, court, board,
bureau, agency or instrumentality seeking to restrain, prohibit or
invalidate this Agreement or any of the transactions contemplated
hereby and no preliminary or permanent injunction or other order,
decree or ruling shall be issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission
and no statute, rule, regulation or executive order shall be issued or
proposed which, if effective, would prevent the consummation of the
transactions contemplated under this Agreement.
(vi) Intentionally Deleted.
(vii) Except as otherwise waived by Buyer, all consents,
permits and approvals from third parties to contracts or other
agreements with Seller, and any other material consent, permit or
approval that may be required in connection with the performance by
Seller of its obligations under this Agreement or the consummation of
the transactions contemplated by this Agreement or the continuance of
Seller's contracts or other agreements with Buyer after the Closing
shall have been obtained.
(viii) Buyer shall have received such other documents,
certificates or instruments as it may reasonably request.
7.2. Conditions to Obligations of Seller. The obligations of Seller
under this Agreement are subject to the satisfaction at or prior to the Closing
Date of the following conditions, provided that compliance with any such
conditions or parts thereof may be waived by Seller:
(i) The representations and warranties of Buyer contained in
this Agreement shall be true and correct, in all material respects, on
and as of the Closing Date as if made on such date, except for
representations and warranties relating to specified dates and except
as otherwise provided herein; each and all of the covenants and
agreements of Buyer to be performed on or before the Closing pursuant
to the terms hereof shall have been duly performed;
(ii) Buyer shall have obtained all material permits,
authorizations, consents and approvals and shall have made all material
filings and declarations required by it for the consummation of the
transactions contemplated hereby.
(iii) Intentionally Deleted.
(iv) No action, claim or proceeding shall be pending or
threatened before or by any Federal, state or municipal or other
domestic or foreign governmental department, commission, court, board,
bureau, agency or instrumentality seeking to restrain, prohibit or
invalidate this Agreement or any of the transactions contemplated
hereby and no preliminary or permanent injunction or other order,
decree or ruling shall be issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission
and no statute, rule, regulation or executive order shall be in effect
which has a substantial likelihood of preventing the consummation of
the transactions contemplated under this Agreement.
(v) Buyer shall have agreed to collect the accounts receivable
and sell the Current Inventory of Seller upon the terms and conditions
as set forth in Exhibit 1.2(j) attached hereto.
(vi) Seller shall have received certified copies of the
resolutions of the Buyer's Board of Directors approving this
transaction including the Exhibits, and good standing certificate from
the state of incorporation.
(vii) Banker's Leasing Association, Inc. shall have executed,
delivered and performed the terms and conditions to be performed by it
of the Consent Agreement attached hereto as Exhibit 1.2 (j).
8. Termination.
8.1. Events and Methods of Termination. This Agreement may be
terminated prior to the Closing, and the purchase and sale and the other
transactions contemplated hereby may be abandoned:
(i) By Seller on the one hand or Buyer on the other hand (by
written notice to each other) if the Closing has not been consummated
or occurred by April 30, 1996 (unless such failure of the Closing to be
consummated or to occur has been caused by a breach of this Agreement
by the party seeking termination, in which case such party may not so
terminate this Agreement); or
(ii) by mutual consent of each of the parties hereto.
8.2. Disposition of Documents. If this Agreement is terminated
as provided herein, each party shall promptly redeliver to the other Party all
documents, workpapers and other material of the other party relating to the
transactions contemplated hereby, whether obtained before or after the execution
hereof. In the event this Agreement is terminated as provided herein (i) this
Agreement shall become null and void and of no further force and effect, except
for the provisions (the "Surviving Provisions") of Section 10.12 relating to
Buyer's obligation to keep confidential certain information, Section 6.2 and
Section 10.5 and (ii) except for the Surviving Provisions, there shall be no
liability on the part of any party hereto, their Affiliates or their respective
partners, officers, directors, employees or agents, provided, however, that if
such termination shall result from the breach by a party of the provisions
contained in this Agreement, such party shall be fully liable for any and all
damages, costs and expenses sustained or incurred as a result of such breach by
the other parties hereto.
9. Survival; Indemnification
9.1. Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements of the
parties contained in this Agreement will survive the Closing until sixty (60)
days after the expiration of all applicable statutes of limitation (including
all periods of extension, whether automatic or permissive) with respect to the
matters covered by the representations, warranties, covenants and agreements;
provided, however that any representation, warranty, covenant or agreement that
would otherwise terminate pursuant to the foregoing (x) will continue to survive
if the party making such representation, warranty, covenant or agreement
knowingly engages in fraud with respect thereto until the earlier of (i) one
year from the discovery thereof by the party in whose favor such representation,
warranty, covenant or agreement is made and (ii) the date 60 days after the
expiration of all applicable statute of limitation as aforesaid, and (y) will
continue to survive, if a notice of claim shall have been given under this
Section 9 on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in this
Section 9.
9.2. Indemnification of Buyer. Subject to the limitations
contained in this Section 9, Seller and Artra agree to indemnify, defend and
hold harmless Buyer and each of its Affiliates and their respective directors,
officers, employees, successors and assigns from and against any and all losses,
liabilities (including punitive or exemplary damages and fines or penalties and
any interest thereon), expenses (including fees and disbursements of counsel and
expenses of investigation and defense), claims, liens or other obligations of
any nature whatsoever (hereinafter individually, a "Loss" and collectively,
"Losses") which, directly or indirectly, arise out of, result from or relate to
(a) any inaccuracy in or any breach of any representation and warranty, or any
breach of any covenant or agreement, of Seller contained in this Agreement or in
any document or other papers delivered by it pursuant to this Agreement, (b) any
Excluded Liability, or (c) the failure of Seller to comply with any bulk sales
or similar Laws and Buyer's waiver of compliance with such Laws.
Buyer hereby agrees that Buyer shall not be entitled to recover from
Seller any indemnification under clause (a) of Section 9.2 as it relates to any
inaccuracy or breach of any representation, warranty, covenant or agreement
unless and until the total of all Losses with respect to the matters covered
thereby exceed $25,000.00 which sum shall be excluded from the calculation of
any losses or claims.
9.3. Indemnification of Seller. Buyer agree to indemnify,
defend and hold harmless Comforce, Artra and Seller, their Affiliates and their
respective directors, officers, employees, successors and assigns from and
against any and all Losses (including punitive or exemplary damages and fines or
penalties and any interest thereon), expenses (including fees and disbursements
of counsel and expenses of investigation and defense), claims, liens or other
obligations of any nature whatsoever which, directly or indirectly, arise out
of, result from or relate to (a) any inaccuracy in or any breach of any
representation and warranty, or any breach of any covenant or agreement, of
Buyer contained in this Agreement or in any document or other papers delivered
by Buyer pursuant to this Agreement, (b) any Assumed Liability assumed by Buyer
pursuant to this Agreement or (c) failure to perform any covenants of Buyer
contained in this Agreement.
9.4 Limitation of Indemnity. The indemnification of Artra and
Seller collectively extended hereby to Buyer and the indemnification of Buyer
extended collectively hereby to Artra, Seller and Comforce, in all cases against
the other, excluding the separate undertakings, agreements and covenants
contained in the Consent Agreement, are hereby respectively limited to the sum
of Two Hundred Fifty Two Thousand 00/100 ($252,000) for each and every type of
claim, expense, damage, fees or causes of action arising out this Agreement and
the provisions contained in 9.2 and 9.3 hereof.
10. General Provisions.
10.1. Representations and Warranties. Buyer acknowledges that
Seller has not made any representations or warranties of any kind, either
express or implied, except as expressly set forth or referred to in this
Agreement and the other documents, instruments, certificates, Exhibits and
Schedules delivered or to be delivered by Seller to Buyer pursuant to this
Agreement.
10.2 Employees. Buyer and Seller acknowledge that Seller's
employees will not, as a result of this Agreement, become employees of Buyer and
that Seller will be responsible for the termination of employment of such
employees.
10.3 No Successor. Buyer and Seller are separate entities and,
after the Closing, Buyer will not be a successor of Seller.
10.4. Records. Following the Closing, each party will afford
to the other party, its counsel and its accountants, during normal business
hours, reasonable access to the Books and Records of Seller or relating to the
Seller Business, the Purchased Assets, the Excluded Assets, the Assumed
Liabilities of Seller in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the extent that
such access may be reasonably required by the requesting party (a) to facilitate
the investigation, litigation and final disposition of any claims which may have
been or may be made against any party or its Affiliates and (b) for any other
reasonable business purpose. Each party agrees that for a period of not less
than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Books and Records relating to the Seller
Business, the Purchased Assets, the Assumed Liabilities, the Excluded Assets or
Seller in its possession with respect to periods prior to the Closing. Each
party shall have the right to destroy all or part of such Books and Records
after the seventh anniversary of the Closing Date or, at an earlier time by
giving each other party hereto thirty (30) days prior written notice of such
intended disposition and by offering to deliver to the other parties, at the
other parties' expense, custody of such Books and Records as such party may
intend to destroy. Seller shall advise Buyer of the results of any tax audits
(whether federal, state or foreign), which pertain to Seller's conduct of the
Seller Business up to the Closing.
10.5. Assignability and Amendments. This Agreement shall not
be assignable by any of the parties hereto, except that Buyer may, without the
prior written consent of Seller, assign this Agreement and any or all of its
rights and/or its obligations hereunder (i) to any one or more of its Affiliates
prior to Closing or (ii) to one or more of its lenders as collateral for a loan
at any time. No assignment will relieve the assigning party of any of its
obligations hereunder, and the assignee shall assume and be directly liable for
all of the covenants, conditions and agreements contained herein and hereby in
all respects. This Agreement cannot be altered or otherwise amended except
pursuant to an instrument in writing signed by all parties.
10.6. Exclusivity. Until the earlier of the Closing or the
termination of this Agreement (the "Negotiating Period"), Seller shall not,
directly or indirectly through any officer, director, employee, agent, partner,
Affiliate or otherwise, enter into any agreement, agreement in principle or
other commitment (whether or not legally binding) relating to any business
combination with, recapitalization of, or acquisition or purchase of all or a
significant portion of the Assets of, or any material equity interest in, Seller
(a "Competing Transaction"), or solicit, initiate or encourage the submission of
any proposal or offer from any person or entity (including any of their
officers, directors, employees and agents) relating to any Competing
Transaction, nor participate in any negotiations with any other person or entity
with respect to a Competing Transaction. Seller shall notify Buyer promptly if
any proposal regarding a Competing Transaction (or any inquiry or contact with
any person or entity with respect thereto) is made, and shall advise Buyer of
the contents thereof (and, if in written form, provide Buyer with copies
thereof).
10.7. Notices. All notices, demands or other communications
required or desired to be given hereunder shall be in writing and shall be
deemed given when delivered personally by courier, overnight delivery service or
by telecopy transmission (with transmission confirmed) or five (5) business days
after it is deposited in the U.S. Mail, registered or certified mail, return
receipt requested, postage pre-paid, and addressed as set forth below:
If to Seller, addressed to:
Lawrence Jewelry Corporation
500 Central Avenue
% ARTRA GROUP Incorporated
Northfield, Il 60093
Attn: James Doering, Vice President
With copies addressed to:
Kwiatt, Silverman & Ruben, Ltd.
500 N. Central Avenue
Northfield, IL 60093
Attn: Kenneth L. Kwiatt, Esq.
847 441-7676
Telecopy Number: (847) 441-7696
If to Buyer, addressed to:
Hanover Advisors, Inc.
%White River Partners, Inc.
777 Westchester Ave., Suite 201
White Plains, N. Y.10604
With a copy addressed to:
LeBoeuf, Lamb, Green & MacRae, L.L.P.
125 W. 55th
New York, NY 10019
Attn: Alexander M. Dye
212 424 8000
Facsimile 212 424 8500
Any party may change such party's address or telecopy number for the
giving of notice specified above by giving notice as herein provided.
10.8. Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
"Action or Proceeding" means any action, suit, proceeding or
arbitration by any Person or any investigation or audit by any Governmental or
Regulatory Body.
"Affiliate" with respect to any Person, means any other Person
controlling, controlled by or under common control with such Person.
"Buyer" means Hanover Advisors, Inc., a Delaware corporation.
"Seller Business" means the sales and marketing of fashion
jewelry as conducted by Seller
"Associate" means, with respect to any Person, any corporation
or other business organization of which such Person is an officer or partner or
is the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or any child or
sibling of such Person or such Person's spouse.
"Business Day" means any day on which commercial banks are not
authorized or required by law to close in Chicago, Illinois, and New York, New
York.
"Code" means the Internal Revenue Code of 1986, as amended.
"document or other papers" means any document, agreement,
instrument, certificate, notice, consent, affidavit, letter, telegram, telex,
statement, schedule (including any Schedule to this Agreement) or exhibit
(including any Exhibit to this Agreement).
"Environmental Claim" means, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, Governmental or Regulatory Body response
costs, damages to natural resources or other property, personal injuries, fines
or penalties arising out of, based on or resulting from (a) the presence, or
Release into the environment, of any Hazardous Substance at any location,
whether or not owned by such Person, or (b) circumstances forming the basis of
any violation, of alleged violation, of any Environmental Law. The term
"Environmental Claim" shall include, without limitation, any claim by any
Governmental or Regulatory Body for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental
Law, and any claim by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence of Hazardous Substance or arising from alleged injury or threat of
injury to heath, safety or the environment.
"Environmental Law" means any Law or Order or guideline as
enacted, authorized, amended or proposed relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles.
"Governmental or Regulatory Body" means court, tribunal,
arbitrator or any government or political subdivision thereof, whether federal,
state, county, local or foreign, or any agency, authority, official or
instrumentality of any such government or political subdivision.
"Hazardous Substance" means (A) any petroleum or petroleum
products, flammable materials, explosives, radioactive materials, asbestos in
any form that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid containing levels
of polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter defined as or included in the definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants" or words of similar import under, or regulated by, any Environmental
Law; and (C) any other chemical or other material or substance, exposure to
which is now or hereafter prohibited, limited or regulated by any Governmental
or Regulatory Body under any Environmental Law.
"Law" means any law, statute, rule, regulation, ordinance and
other pronouncement having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Body.
"Lien" means any lien, pledge, hypothecation, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any stockholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Effect" means any change or changes or
effect or effects that individually or in the aggregate are materially adverse
to (i) the assets, properties, business, operations, income, prospects or
condition (financial or otherwise) of Seller or the transactions contemplated by
this Agreement or (ii) the ability of Seller to perform its obligations under
this Agreement.
"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Body, in each case whether
preliminary or final.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental or Regulatory Body or other entity.
"Release" means any release, spill, emission, leaking,
pulping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Substances through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"Tax Return" means any return, report, information return, or
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local, or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on Seller) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or
other assessments imposed by any federal, state, local or foreign taxing
authority, whether disputed or not, including, without limitation, income,
capital, estimated, excise, property, sales, transfer, withholding, employment,
payroll, and franchise taxes and such terms shall include any interest,
penalties or additions attributable to or imposed on or with respect to such
assessments.
10.9. Trademarks and Trade Names. At or prior to the Closing,
Seller shall either dissolve or change its name to a name not including the
names "Lawrence" or "Rosecraft". Except as otherwise contemplated hereby,
neither Seller nor any of its Affiliates shall use the names "Lawrence",
"Rosecraft", "Camro" or "J & L" after the Closing Date.
10.10 Intentionally Omitted
10.11. Entire Agreement. This Agreement and the Schedules and
Exhibits and the other documents and instruments referred to herein contain the
entire agreement between the Parties with respect to the transactions
contemplated hereby and supersede all previous oral or written negotiations,
commitments, understandings and agreements.
10.12. Confidentiality. Buyer hereby agrees, and shall cause
its Affiliates to agree, that Buyer and its Affiliates shall hold in confidence
and not disclose to any third Person, nor use any confidential or proprietary
information relating solely to Seller or its Affiliates that is disclosed to or
discovered by Buyer or its Affiliates in connection with the transactions
contemplated hereby, other than any such information relating to the Seller
Business, the Purchased Assets, and/or the Assumed Liabilities. Comforce and
Seller hereby agree, and shall cause their Affiliates to agree, that Comforce
and Seller and their Affiliates shall hold in confidence and not disclose to any
third Person any confidential or proprietary information, nor use any
confidential or proprietary information relating solely to Buyer or its
Affiliates that is disclosed to or discovered by Comforce and Seller or their
Affiliates in connection with the transactions contemplated hereby, nor use any
confidential or proprietary information comprising part or all of the Intangible
Property being sold hereunder to Buyer.
10.13. Cooperation in Litigation. In the event and for so long
as any party is contesting, pursuing or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim or demand or pursuing
any claim in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving the Seller Business
(the "Litigating Party"), the other party (the "Cooperating Party") shall use
its commercially reasonable efforts to cooperate fully with the Litigating Party
and its counsel in the contest, pursuit or defense, make available its
personnel, and provide such testimony, information and access to its books and
records as shall be necessary or reasonably desirable in connection with the
contest, pursuit or defense. The Litigating Party shall pay or reimburse the
Cooperating Party for reasonable travel and meal charges of the employees and
other reasonable out-of-pocket expenses of the Cooperating Party incurred in
connection therewith (unless the Litigating Party is entitled to indemnification
therefor, or is required to bear additional expenses, under Section 9).
10.14. Waivers. Any waiver must be explicitly in writing. A
waiver of any breach or failure to enforce any of the terms or conditions of
this Agreement shall not in any way affect, limit or waive a party's rights at
any time to enforce strict compliance thereafter with every term or condition of
this Agreement.
10.15. Third Party Rights. The provisions of this Agreement
are intended for the sole benefit of the parties and shall not inure to the
benefit of any other person (other than permitted assigns of the parties) either
as a third party beneficiary or otherwise.
10.16. Counterparts and Headings. This Agreement may be signed
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one and the same instrument. All headings, in
this Agreement are inserted for convenience of reference only and shall not
affect its meaning or interpretation.
10.17 Certain Limitations. Seller, Buyer and Artra
acknowledge, understand and agree that (i) the representations and warranties of
Comforce under Sections 4.1, 4.2, 4.3 and 4.4 hereof are limited solely to the
power, authority and authorization of or other matter relating to Comforce, (ii)
Comforce makes no representations or warranties respecting Seller, Artra or
their operations and assumes no liabilities or obligations related thereto, and
(iii), except for the breach by Comforce of its representations or warranties
under Sections 4.1, 4.2, 4.3 and 4.4 hereof, Comforce shall have no obligations
or liabilities to any party under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
signed by their respective duly authorized representatives, all as of the date
first above written.
LAWRENCE JEWELRY CORPORATION
By: ______________________________
Title: ______________________________
COMFORCE CORPORATION
By: _______________________________
Title: _______________________________
ARTRA GROUP INCORPORATED
By: _______________________________
Title: _______________________________
BUYER
HANOVER ADVISORS, INC.
By: ______________________________
Title: ______________________________
EXHIBIT 11.1
COMFORCE CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF
COMMON STOCK for the years ended
December 31, 1995, 1994 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
Line 1995 1994* 1993*
- --------- --------- --------- ---------
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C> <C>
1 Weighted average number of shares of common stock
outstanding during the period 4,596 3,195 3,149
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares - - 507
--------- --------- ---------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period 4,596 3,195 3,656
========= ========= =========
EARNINGS (LOSS)
4 Loss from continuing operations ($4,332) ($2,282) ($1,456)
========= ========= =========
5 Amount for per share computation ($4,332) ($2,282) ($1,456)
========= ========= =========
6 Loss before extraordinary credit (21,543) ($18,502) (1,672)
========= ========= =========
7 Amount for per share computation ($21,543) ($18,502) ($1,672)
========= ========= =========
8 Net earnings (loss) (14,886) ($9,537) (20,385)
========= ========= =========
9 Amount for per share computation ($14,886) ($9,537) ($20,385)
========= ========= =========
PER SHARE AMOUNTS
Loss before extraordinary credit
(line 5 / line 3) ($0.95) ($0.72) ($0.39)
========= ========= =========
Loss before extraordinary credit
(line 7 / line 3) ($4.69) ($5.80) ($0.45)
========= ========= =========
Net earnings (loss)
(line 9 / line 3) ($3.24) ($2.99) ($5.58)
========= ========= =========
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss),
less redeemable preferred stock dividends and redeemable common stock
accretion, by the weighted average number of shares of common stock and
common stock equivalents (redeemable common stock, stock options and
warrants), unless anti-dilutive, outstanding during the period. Fully
diluted earnings (loss) per share are not presented since the result is
equivalent to primary earnings (loss) per share.
_______________________________________________
* As reclassified for discontinued operations.
EXHIBIT 21.1
SUBSIDIARIES
(As of April 15, 1996)
COMFORCE Corporation (1)
|
|
|
|
________________________________________
| |
| |
COMFORCE Global, Inc.(1) COMFORCE Technical Services, Inc. (1)
100 % 100 %
(1) Delaware Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000006814
<NAME> COMFORCE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.000
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 1,754
<ALLOWANCES> 0
<INVENTORY> 1,754
<CURRENT-ASSETS> 3,510
<PP&E> 97
<DEPRECIATION> 7
<TOTAL-ASSETS> 8,536
<CURRENT-LIABILITIES> 5,207
<BONDS> 0
0
0
<COMMON> 92
<OTHER-SE> 2,146
<TOTAL-LIABILITY-AND-EQUITY> 8,536
<SALES> 2,387
<TOTAL-REVENUES> 2,387
<CGS> 1,818
<TOTAL-COSTS> 1,818
<OTHER-EXPENSES> 4,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 585
<INCOME-PRETAX> (4,297)
<INCOME-TAX> 35
<INCOME-CONTINUING> (4,332)
<DISCONTINUED> (17,211)
<EXTRAORDINARY> 6,657
<CHANGES> 0
<NET-INCOME> (14,886)
<EPS-PRIMARY> (3.24)
<EPS-DILUTED> 0.000
</TABLE>
