As filed with the Securities and Exchange Commission on May 10, 1996
Registration No. 33-60403
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
COMFORCE Corporation
(formerly The Lori Corporation)
(Exact name of registrant as specified in its charter)
Delaware 7361 36 - 2262248
- ------------------------------ ---------------- --------------
(State or other jurisdiction (Primary Standard (I.R.S Employer
of Industrial Identification No.)
incorporation or organization) Classification
Code Number)
--------------------
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
(516) 352-3200
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------
Christopher P. Franco
Executive Vice President
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
(516) 352-3200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copy to:
David G. Edwards, Esquire
Doepken Keevican & Weiss Professional Corporation
37th Floor, USX Tower
600 Grant Street
Pittsburgh, Pennsylvania 15219-2703
(412) 355-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
<PAGE>
(Cover page continued)
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
to be Registered Registered Price Per Share Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 6,735,108 (1) $2.375/ $ 2,734,266 / $942.85
$13.375 (2) $74,182,270 (2) $25,579.92 (2)
==================================== ================= ============================ ============================ ===================
<FN>
(1) Includes certain shares of common stock (the "Common Stock") of COMFORCE
Corporation ("COMFORCE" or the "Company") issuable upon the exercise of the
Company's warrants to purchase Common Stock or upon the conversion of the
Company's convertible preferred stock or notes.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the
Company's shares of Common Stock traded on the American Stock Exchange
within five business days prior to the filing of this Registration
Statement. The per share price of $2.375 represents such average on June
16, 1995, a date within five business days prior to the filing of the
original Registration Statement under which 1,151,270 shares were included
for registration (the fee as to which ($942.85) was previously paid). The
per share price of $13.375 represents such average on May 6, 1995, a date
within five business days prior to the filing of this Amendment No. 1 under
which 5,546,338 shares are included for registration (the fee as to which
($25,579.92) is paid herewith).
</FN>
</TABLE>
The Company hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form S-1
Item No.
-------- Registration Item and Heading Location in Prospectus
----------------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus Forepart; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Outside Front Cover Page; Prospectus Summary; Plan
of Distribution
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered Description of the Company's Securities
10. Interests of Named Experts and Counsel Not applicable
11. Information with Respect to the Company:
11.(a) Description of Business Description of Business;
Index to Financial Statements
11.(b) Description of Property Description of Business
11.(c) Legal Proceedings Legal Proceedings; Description of Business
11.(d) Market Price of and Dividends on the Company's Common Equity
and Related Stockholder Matters Market Price of the Company's Common Stock;
Dividends
11.(e) Financial Statements Index to Financial Statements
11.(f) Selected Financial Data Selected Historical and Pro Forma Financial
Information
11.(g) Supplementary Financial Information Selected Historical and Pro Forma Financial
Information
11.(h) Management's Discussion and Analysis of Financial Condition
and Results of Operations Management's Discussion and Analysis of Financial
Condition and Results of Operations
11.(i) Disagreements with Accountants on Accounting and Financial
Disclosure Not applicable
11.(j) Directors and Executive Officers Management
11.(k) Executive Compensation Executive Compensation
11.(l) Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
11.(m) Certain Relationships and Related Transactions Transactions with Management and Others;
Executive Compensation
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities Indemnification of Officers and Directors
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED MAY 10, 1996
PROSPECTUS
6,735,108 Shares
COMFORCE Corporation
COMMON STOCK
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. See "Risk Factors," page _.
COMFORCE Corporation, a Delaware corporation (the "Company" or
"COMFORCE"), is engaged, through its subsidiaries, in the business of providing
telecommunications and computer specialists and expertise on a project
outsourcing basis, primarily to Fortune 500 companies worldwide.
All of the 6,735,108 shares of common stock of the Company (the "Common
Stock") offered hereby are being offered for sale, from time to time by or for
the account of certain existing security holders of the Company ("Selling
Stockholders"). See "Selling Stockholders." The Common Stock is listed on the
American Stock Exchange. The Selling Stockholders have indicated that they
propose from time to time to offer their shares, if any, for sale in regular way
brokerage transactions on the American Stock Exchange or in privately negotiated
transactions; and that sales on or through the facilities of the American Stock
Exchange will be effected at such prices as may be obtainable and are
satisfactory to the respective Selling Stockholders.
In certain cases the Selling Stockholders, brokers executing sales
orders on their behalf and dealers purchasing shares from the Selling
Stockholders for resale, may be deemed to be "underwriters," as that term is
defined in Section 2(11) of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of Common Stock purchased by them may be deemed underwriting commissions
or discounts under the Securities Act.
The Company will not receive any proceeds from sales of shares to which
this Prospectus relates. However, insofar as the holders of warrants to purchase
shares of the Common Stock are expected to exercise their warrants in order to
sell the underlying shares (which are registered hereby), the Company will
receive the amount of the exercise prices of any warrants so exercised. See
"Risk Factors - Dilution and Depression of Market Price of Common Stock." As of
the date hereof, the aggregate amount of the exercise prices of all shares
issuable by the Company upon the exercise of warrants outstanding as of the date
hereof and subject to registration hereby is $5,655,558.60. The Company cannot
predict when or if it will receive proceeds from the exercise of warrants, or
the amount of any such proceeds. None of the holders of warrants can reasonably
be expected to exercise their warrants unless the market price on the American
Stock Exchange of the Common Stock is in excess of the exercise price therefor.
The Company intends to use the proceeds, if any, received from the exercise of
warrants for working capital purposes. See "Plan of Distribution."
On ______________, 1996, the closing price of the Common Stock on the
American Stock Exchange was $[ ] per share. The Company will bear certain of the
expenses of this offering, estimated to be $ .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain information contained in said
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and financial
statements, notes, and schedules filed as part thereof, which may be inspected
and copied at the public reference facilities of the Commission referred to
below. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the full text of such contract or other document filed with the Commission as an
exhibit to the Registration Statement, or otherwise, each such statement being
qualified and amplified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Commission.
Certain information as of specified dates concerning directors and officers,
their remuneration, options granted to them, the principal holders of securities
of the Company, and any material interest of such persons in transactions with
the Company, is disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information may be inspected at the Commission's public reference
facilities maintained at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following SEC Regional Offices: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, Room 204, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Common Stock of the Company is listed on the American Stock
Exchange and such reports, proxy material and other information are also
available for inspection at the American Stock Exchange, 86 Trinity Place, New
York, New York 10006.
Until , 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain of the information contained in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere herein. Prospective
investors should carefully consider the information set forth under the caption
"Risk Factors."
The Company
COMFORCE Corporation, a Delaware corporation (the "Company" or
"COMFORCE"), is engaged, through its subsidiaries, in the business of providing
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.
See "Description of Business."
The Offering
The Company is required under certain agreements it has entered into with
stockholders and warrantholders to register the shares of Common Stock held by
such stockholders or issuable upon the exercise of warrants or conversion of
convertible Preferred Stock held by such warrantholders.
Existing securityholders of the Company are offering 6,735,108 shares of
Common Stock held by them or issuable to them.
Common Stock Offered by the Selling Stockholders 6,735,108 shares*
Common Stock Outstanding 9,343,198 shares
Common Stock Issuable Under Warrants 1,211,248 shares
Common Stock Issuable Upon Conversion of
Convertible Preferred Stock 887,100 shares
Total Common Stock (including Warrants and
Convertible Preferred Stock) 11,441,546 shares
American Stock Exchange Symbol CFS
- -----------------
*Includes Common Stock issuable under Warrants or upon conversion of convertible
Preferred Stock.
See "Selling Stockholders" and "Plan of Distribution."
Use of Proceeds
The Company will not receive any proceeds from the sale of the Common
Stock offered hereby by the Selling Stockholders. However, if the holders of
warrants to purchase shares of Common Stock exercise their warrants in order to
sell the underlying shares (which are registered hereby), the Company will
receive the amount of the exercise prices of any warrants so exercised. The
Company cannot predict when or if it will receive proceeds from the exercise of
warrants, or the amount of any such proceeds. The Company intends to use the
proceeds, if any, received from the exercise of warrants for working capital
purposes. See "Plan of Distribution."
<PAGE>
Risk Factors
Prospective investors should carefully review the risk factors and other
information set forth herein, including under the heading "Risk Factors" which
discusses, among other things, significant risks associated with an investment
in the Company.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors relating to the Company and the Offering should be considered in
evaluating an investment in the shares of Common Stock offered hereby.
Dilution and Depression of Market Price of Common Stock
During the period from January 1, 1996 through April 30, 1996, the
daily average number of shares of Common Stock traded on the American Stock
Exchange was approximately 11,072 shares. If such trading levels continue, it
may be difficult for Selling Stockholders to effect sales of their shares on the
American Stock Exchange and, the placement of a substantially larger number of
sell orders could materially and adversely impact the market price of the Common
Stock.
As of April 30, 1996, there were 9,343,198 shares of Common Stock
outstanding, of which approximately 1,200,000 were in the public float. Assuming
that all shares registered hereby (including shares issuable upon the exercise
of warrants and the conversion into Common Stock of convertible Preferred Stock
and convertible notes) will be sold into the market, an additional 6,735,108
previously restricted shares will enter the public float. However, the members
of a management group who are collectively registering 3,091,302 shares of
Common Stock hereby in accordance with an agreement entered into with the
Company have advised the Company that they have no present intention of selling
any such shares. Nonetheless, even excluding such management shares, this
significant increase in the number of shares in the public float could depress
the market price of the Company's Common Stock.
In addition, the exercise of warrants and the conversion into Common
Stock of convertible Preferred Stock and convertible notes at prices below the
market price will result in substantial dilution to existing stockholders.
See also "----Issuance of Additional Stock."
Limited Operating History
Although the Company and its predecessors have conducted operations for
in excess of 50 years, the Company discontinued all of its prior operations and
only entered the technical staffing business in October 1995. Consequently, the
Company has a limited operating history upon which prospective investors may
judge the Company's performance. Future operating results will depend upon many
factors, including fluctuation in the economy, the degree and nature of
competition, demand for the Company's services, and the Company's ability to
integrate the operations of acquired businesses, to recruit and place temporary
professionals, to expand into new markets, and to maintain margins in the face
of pricing pressures.
Prior to entering the technical staffing business, the Company was
engaged in the business of designing and investor seekfashion costume jewelry
(the "Jewelry Business") under the name The Lori Corporation ("Lori"). Lori
discontinued the Jewelry Business in September 1995 and the Company's
consolidated financial statements for prior years have been restated to reflect
that such operations have been discontinued. Accordingly, the Company's
consolidated statements of operations will be of limited value to a prospective
investor seeking to judge the Company's performance.
<PAGE>
Competition
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 temporary
services industry is highly competitive with limited barriers to entry. The
Company expects that the level of competition will remain high in the future.
Risks Associated with Expansion of Operations
The Company intends to seek to expand its operations through internal
growth and acquisitions. The ability of the Company to expand will depend on a
number of factors, including 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 will be difficult for the Company to finance its expansion through
acquisitions. The Company must also manage costs in changing regulatory
environments, adapt its infrastructure and systems to accommodate growth, and
recruit and train additional qualified personnel.
Furthermore, 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. In addition, 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.
Adverse Economic Conditions
Demand for temporary staffing services is significantly affected by the
general level of economic activity. When economic activity increases, temporary
employees are often added before full-time employees are hired. Similarly, as
economic activity slows, many companies reduce their usage of temporary
employees before undertaking layoffs of full-time employees. Furthermore,
unfavorable economic conditions in the telecommunications, computing or
technical services business sectors could cause potential users of such 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 addition, in an economic downturn, the Company may face pricing pressure from
its customers and increased competition from other staffing companies which
could have a material adverse effect on the Company's business.
ARTRA's Inability to Satisfy Obligations
Under an Assumption Agreement (the "Assumption Agreement") dated as of
October 17, 1995 between the Company and ARTRA GROUP Incorporated ("ARTRA"),
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. As of December 31,
1995, these liabilities were carried on the Company's balance sheet for $4.24
million. ARTRA's auditors have expressed in their audit report on ARTRA's fiscal
1995 financial statements that significant doubt exists as to ARTRA's ability to
continue as a going concern. Accordingly, no
<PAGE>
assurance can be given that ARTRA will be financially capable of satisfying its
obligations under the Assumption Agreement, in which case the Company may be
required to satisfy such obligations.
Liabilities for Client and Employee Actions
Staffing service providers are in the business of employing people and
placing them in the workplace of other businesses. An attendant risk of such
activity includes possible claims of discrimination and harassment, employment
of illegal aliens and other similar claims. The Company has policies and
guidelines in place to reduce its exposure to these risks. However, a failure to
follow these policies and guidelines may result in negative publicity and the
payment by the Company of money damages or fines. Although the Company
historically has not had any significant problems in this area, there can be no
assurance that the Company will not experience such problems in the future.
The Company is also exposed to liability with respect to actions taken by
its employees while on assignment, such as damages caused by employee errors,
misuse of client proprietary information or theft of client property. To reduce
such exposures, the Company maintains insurance policies covering general
liability, workers' compensation claims, errors and omissions, and employee
theft. Due to the nature of the Company's assignments, in particular its access
to client information systems and confidential information, and the potential
liability with respect thereto, there can be no assurance that insurance
coverage will continue to be available or that it will be adequate to cover any
such liability.
Control of the Company
Management of the Company controls approximately 35% of the Company's
outstanding shares of Common Stock. As a result, such persons are expected to
have the ability to decide all issues submitted to the Company's stockholders.
Such concentration of ownership could limit the price that certain investors
might be willing to pay in the future for shares of Common Stock, and could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Risks Associated with Loss of Key Personnel
The Company is highly dependent on its management. The Company believes
that its continued success will depend to a significant extent upon the efforts
and abilities of its President, Michael Ferrentino, its Executive Vice
President, Christopher P. Franco, and its principal consultant, James Paterek.
The loss of services of any of these key persons could have a material adverse
effect upon the Company.
Increases in Unemployment Insurance Premiums and Workers' Compensation Rates
The Company is required to pay unemployment insurance premiums and
workers' compensation benefits for its temporary employees. Unemployment
insurance premiums are set annually by the states in which employees perform
services and could increase. Workers' compensation costs have increased as
various states in which the Company conducts operations have raised benefit
levels and liberalized allowable claims. The Company maintains workers'
compensation insurance for its employees under [an insured program]. The Company
may incur costs related to workers' compensation claims at rates higher than
anticipated due to higher than anticipated losses from known claims or an
increase in the number or the severity of new claims. There can be no assurance
that the Company will be able to increase the fees charged to its clients in a
sufficient amount to cover increased costs related to workers' compensation and
unemployment insurance. Further, there can be no assurance that the Company will
be able to obtain or renew workers' compensation insurance coverage in amounts
and types desired at reasonable premium rates.
Anti-Takeover Measures
In certain circumstances described under "Description of the Company's
Securities--Delaware General Corporation Law," certain provisions of Delaware
law applicable to the Company may encourage companies interested in acquiring
the Company to negotiate in advance with the Company's Board of Directors
<PAGE>
because stockholder approval of the acquisition, which would otherwise be
required, could be avoided if a majority of the directors then in office approve
the transaction. Such provisions also may have the effect of preventing changes
in the management of the Company. It is possible that such provisions could make
it more difficult to accomplish transactions which stockholders may otherwise
deem to be in their best interest. See also "--Issuance of Additional Stock,"
for the effect of the issuance of additional stock as a deterrent to a hostile
takeover.
Issuance of Additional Stock
At the 1996 Annual Meeting, the Company will ask its stockholders to
approve an amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of capital stock from 10,000,000 shares to
40,000,000 shares of Common Stock and from 1,000,000 shares to 10,000,000 shares
of Preferred Stock.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management, which issuance could render
more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of the Company's management and possibly deprive the stockholders
of opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company pursuant
to the operation of a stockholders' rights plan or otherwise.
In particular, by authorizing and issuing preferred stock with particular
rights, the issuance of Preferred Stock could have an adverse effect on holders
of Common Stock by delaying or preventing a change in control of the Company,
making removal of the present management of the Company more difficult or
resulting in restrictions upon the payment of dividends and other distributions
to the holders of Common Stock. For example, the Company could issue shares of
Preferred Stock with extraordinary voting rights or liquidation preferences to
make it more difficult for a hostile acquirer to gain control of the Company. In
addition to the anti-takeover effect of the issuance of preferred stock, holders
of preferred stock have a preferred position over holders of common stock on
liquidation, the right to a fixed or minimum dividend before any dividend is
paid (or accrued) on common stock, and the right to approve certain
extraordinary corporate matters.
See "Description of the Company's Securities."
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Selected Financial Information
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 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>
- ------------------------------------------------------------------------------
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 Jewelry Business for the nine months
<PAGE>
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 Jewelry Business effective June 30, 1995 and a
provision of $1,600,000 for loss on disposal of the Company's Jewelry Business.
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 markdown 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 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 makes
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>
Pro Forma Financial Information
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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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, designed and distributed fashion jewelry. Due to continuing losses
in the Jewelry Business and the erosion of the markets for its products, Lori
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, 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," effective September 30, 1995, the Company adopted a plan to
discontinue the Jewelry Business.
The price paid by the Company for the COMFORCE Global stock and related
acquisition costs was approximately $6.4 million, net of cash acquired. This
consideration consisted of cash to the seller of approximately $5.1 million,
fees of approximately $700,000, including a fee of $500,000 to a related party,
and 500,000 shares of the Company's Common Stock issued as consideration for
various fees and guarantees associated with the transaction. The 500,000 shares
issued by the Company consisted of (i) 100,000 shares issued to an unrelated
party for guaranteeing the purchase price to the seller, (ii) 100,000 shares
issued to ARTRA, then the majority stockholder of the Company, in consideration
of its guaranteeing the purchase price to the seller and agreeing to enter into
the Assumption Agreement, (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 the payment of the purchase price to the seller and other
guarantees to facilitate the transaction. The shares issued to Peter R. Harvey
and ARTRA are subject to ratification by the Company's stockholders. These
transactions have been approved by current management personnel and ARTRA, which
together own a majority of the outstanding shares of the Company's Common Stock
and, therefore, such ratification is expected.
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 effective as of October 17, 1995. Under the Assumption Agreement,
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
the effective date of the Assumption Agreement, and is entitled to receive the
net proceeds, if any, from the sale thereof. On April 12, 1996, ARTRA sold the
business and certain of the assets related to the Company's discontinued Jewelry
Business, and, accordingly, will be entitled to the net proceeds, if any, from
this disposition after the satisfaction of its creditors.
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).
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.
<PAGE>
In March 1996, the Company acquired all of the assets of 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 agreements to purchase the assets
of RRA, including certain affiliated entities. 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 certain conditions. See "--1996 Plan of Operations."
In April 1996, the Company also entered into a letter of intent to acquire
the business of Overall Distribution, Inc. ("ODI"), a privately held provider of
telecommunications and technical staffing services.
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, avionics, telecommunications and
information technology business sectors.
The Company has identified the area of skilled technical contract labor and
consulting for the telecommunications and information technology sectors as a
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.
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
<PAGE>
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 Proxy Statement 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,
computing or technical services business sectors could cause potential users of
such 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.
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 will be difficult for the
Company 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, whichcurrently 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
receipt of consents to the assignment of contracts from certain significant
customers of RRA and other customary contingencies, and no assurance can be
given that such conditions and contingencies.
Under the Assumption Agreement entered into between the parties in October
1995, 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. No assurance can,
however, be given that ARTRA will be
<PAGE>
financially capable of satisfying its obligations under the Assumption
Agreement, in which case the Company may be required to satisfy such
obligations.
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" 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 under "Selected
Historical and Pro Forma Financial Information" 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 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.
<PAGE>
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 of $943,000 from the exercise of
certain warrants 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."
Cash and cash equivalents provided by 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 flow used in financing 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
May 1993 reorganization of the former New Dimensions subsidiary. Cash flows from
financing activities were attributable to short-term loans used to fund the
$750,000 payment due the Company's former bank lender under terms of the debt
settlement agreement, the COMFORCE Global acquisition down payment and increases
in short-term borrowings 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
Inconjunction with the COMFORCE Global acquisition, the Company and ARTRA
entered into the Assumption Agreement as of October 17, 1995. Under the
Assumption Agreement, 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
<PAGE>
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 of the 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.
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 ever deposited hazardous
substances at the site and intends to vigorously defend itself in this matter.
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.
Since the Company has no records indicating that it deposited hazardous
substances at this site, and since ARTRA has agreed to reimburse the Company for
any liabilities that may arise concerning this and other environmental matters,
the Company does not believe that any liabilities related thereto will have a
material impact on the Company's future results of operation's financial
condition or liquidity.
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 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
<PAGE>
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.
<PAGE>
DESCRIPTION OF BUSINESS
General
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 Inc. ("COMFORCE Global"). The Company has entered into purchase
agreements 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, avionics,
telecommunications and information technology business sectors. In addition,
COMFORCE Technical Services will provide 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.
History
The Company was incorporated in Delaware in 1969. From 1985 until September
1995, the Company, under the name The Lori Corporation, was engaged in 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. See "--Discontinued Jewelry 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, then the
majority stockholder of the Company, approved these transactions. At the time of
the acquisition, COMFORCE Global was one of several wholly-owned subsidiaries of
Spectrum Information Technologies, Inc., a Delaware corporation ("Spectrum"),
which had a Chapter 11 petition pending. The sale of COMFORCE Global, which was
not a party to the Chapter 11 proceeding, was approved by the bankruptcy court
in which Spectrum's bankruptcy was pending. Originally founded in 1987, Spectrum
had acquired COMFORCE Global in 1993.
The purchase price paid by the Company for the COMFORCE Global stock was
approximately $6.4 million, net of cash acquired. This consideration consisted
of cash of to the seller of approximately $5.1 million, fees of approximately
$700,000, including a fee of $500,000 to a related party, and 500,000 shares of
the Company's Common Stock issued as consideration for various fees and
guarantees associated with the transaction. The 500,000 shares issued by the
Company consisted of (i) 100,000 shares issued to an unrelated party for
guaranteeing the purchase price to the seller, (ii) 100,000 shares issued to
ARTRA, then the majority stockholder of the Company, in consideration of its
guaranteeing the purchase price to the seller and agreeing to enter into the
Assumption Agreement, (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 the payment of the purchase price to the seller and other
<PAGE>
guarantees to facilitate the transaction. The shares issued to Peter R. Harvey
and ARTRA are subject to ratification by the Company's stockholders. These
transactions have been approved by current management personnel and ARTRA, which
together own a majority of the outstanding shares of the Company's Common Stock
and, therefore, such ratification is expected. See "Discontinued Jewelry
Business."
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 ("Williams"). 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 agreements 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 certain conditions.
In April 1996, the Company also entered into a letter of intent to acquire
the business of Overall Distribution, Inc. ("ODI"), a privately held provider of
telecommunications and technical staffing services.
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 of the assets
related to the Company's discontinued Jewelry Business.
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. In April 1996, the Company entered into a
letter of intent to acquire the business of ODI, a privately held provider of
telecommunications and technical staffing services.
<PAGE>
The Company has identified the area of skilled technical contract labor and
consulting for the telecommunications and information technology sectors as a
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 business sectors 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 business sector. The Company has currently
targeted the telecommunications, information technology and technical services
business sector for establishment of platform operating businesses. 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.
COMFORCE Global serves as the Company's telecommunications platform, with
the Williams and the proposed ODI acquisitions representing "tuck-under"
acquisitions within that platform. The proposed acquisition of RRA will
establish a technical services platform. The Company is actively seeking an
acquisition of a platform company servicing the information technology sector.
The Company currently conducts its information technology staffing business
through its COMFORCE Global subsidiary.
Internal Growth
The Company believes it can increase revenues through internal growth due
to its well-developed presence in the telecommunications and information
technology 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 has implemented 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 include a
vendor-on-premises program, provide an attractive opportunity to grow its
operating revenues and profits. 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
<PAGE>
a more stable source of revenue while providing clients with a dedicated,
on-site account 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 labor costs fixed.
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, and the recent enactment of the telecommunications bill, which
deregulates substantial portions of the telecommunications industry, as well as
the recent auction by the U.S. Government of radio frequency spectrum to be
utilized for personal communication services ("PCS") wireless communications,
are expected to further increase the demand for such services. 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, referrals from clients,
telephone marketing 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.
<PAGE>
Customers
The significant customers of the Company vary from time to time and the
Company 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 COMFORCE Global (for the period prior to
its acquisition by the Company). In addition, other major customers that
accounted for less than 10% of the business the Company (and COMFORCE Global
prior to its acquisition by the Company) 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's COMFORCE Global subsidiary maintains one of the largest and
most comprehensive databases of telecommunications personnel in the
telecommunications staffing industry. The Company recruits its contract
employees through an on-going program that primarily utilizes its existing
database of personnel, as well as local and national advertisements, job fairs
and recruiting on the World Wide Web. 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 offers these employees orientation
courses that are tailored to the practices and policies of specific clients.
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 and information technology market sectors. 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 database of
personnel to be proprietary.
<PAGE>
Employees
As of March 31, 1996, the Company employed approximately 22 full-time staff
employees and 350 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 offers health insurance benefits to its temporary employees at their
cost through a national trade association to which the Company belongs.
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 has plans to open offices in Texas, Chicago, California and Georgia
over the next twelve months. If the RRA and ODI acquisitions are completed, the
Company will have additional offices in the states of Arizona, New Mexico,
California, Washington, 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 the Assumption Agreement effective as of October 17, 1995, 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 of the
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.
Environmental Matters
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.
Prior to its entry into the Jewelry Business in 1985, the Company operated
in excess of 20 manufacturing facilities for the production of, inter alia,
photocopy machines, photographic chemical and paper coating. 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
<PAGE>
("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 deposited hazardous substances
at the site and intends to vigorously defend itself in this matter.
Since the Company has no records indicating that it deposited hazardous
substances at this site, and since ARTRA has agreed to reimburse the Company for
any liabilities that may arise concerning this and other environmental matters,
the Company does not believe that any liabilities related thereto will have a
material impact on the Company's future results of operations, financial
condition or liquidity.
Properties
Technical Staffing Business
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 its present and reasonably
anticipated future business requirements.
Discontinued Jewelry Business
ARTRA has assumed the remaining obligations under a lease which expires in
October 1996 for an 86,000 square foot distribution facility in Woonsocket,
Rhode Island formerly used by the Company's discontinued Lawrence Jewelry
Corporation subsidiary.
LEGAL PROCEEDINGS
See "Description of Business--Environmental Matters" for a description of
the notification received by the Company from the Federal Environmental
Protection Agency.
The Company is a party to routine contract 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.
<PAGE>
MARKET PRICE OF THE COMPANY'S COMMON STOCK
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
As of March 31, 1996, there were approximately 5,600 shareholders of record.
DIVIDENDS
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.
DESCRIPTION OF THE COMPANY'S SECURITIES
Generally
As of April 18, 1996, the authorized capital stock of the Company
consisted of (i) 10,000,000 shares of Common Stock having a par value of $.01
per share, of which 9,343,198 shares have been issued and are outstanding, and
(ii) 1,000,000 shares of Preferred Stock, par value $0.01 per share, which may
be issued in one or more series with such rights and preferences as determined
by the Board of Directors, none of which were issued and outstanding as of such
date. At the 1996 Annual Meeting, the Company will ask its stockholders to
approve an amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of capital stock from 10,000,000 shares to
40,000,000 shares of Common Stock and from 1,000,000 shares to 10,000,000 shares
of Preferred Stock. The Company's Common Stock is listed on the American Stock
Exchange.
The Common Stock of the Company is not subject to any conversion or
redemption provisions and the holders thereof are not provided any pre-emptive
rights. All outstanding shares of the Common Stock of the Company are fully-paid
and non-assessable. Each share of Common Stock has equal voting rights and each
share shall be entitled to one vote in all matters in which stockholders shall
be entitled to vote.
<PAGE>
Increase in Number of Authorized Shares
Based on the number of shares currently issued and outstanding and the
shares reserved for issuance upon exercise of outstanding warrants and options,
the Company currently has an insufficient number of authorized shares to finance
its planned expansion. The Board of Directors believes that additional shares of
stock should be available for issuance by the Board of Directors from time to
time for proper corporate purposes.
The newly authorized shares of Common Stock and Preferred Stock will be
issuable from time to time by action of the Board of Directors for any proper
corporate purpose, without stockholder approval unless required by applicable
law or rules of the American Stock Exchange. These purposes could include
financings, payment of stock dividends, subdivision of outstanding shares
through stock splits, employee stock options and bonuses, and corporate
acquisitions. The additional shares also could be issued in a private placement
transaction to a third party favored by the Board of Directors in the event of a
takeover attempt directed at the Company, which could give the favored party an
advantage over a competing party in a contest to acquire control of the Company.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which issuance could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management and possibly deprive the stockholders of
opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company pursuant
to the operation of a stockholders' rights plan or otherwise.
Stockholder Voting
Each share of common stock has equal voting rights and each share shall be
entitled to one vote in all matters in which stockholders shall be entitled to
vote. The Certificate of Incorporation provides for cumulative voting in the
election of directors. Therefore, every stockholder entitled to vote for
directors shall have the right, in person or by proxy, to multiply the number of
votes to which he or she may be entitled by the total number of directors to be
elected in the same election, and he or she may cast the whole number of such
votes for one candidate or may distribute them among any two or more candidates.
At the 1996 Annual Meeting, the Company will ask its stockholders to approve an
amendment to the Company's Certificate of Incorporation to eliminate cumulative
voting. Without cumulative voting, the holders of a majority of the shares
present or represented at an annual meeting would be able to elect all the
directors to be elected at that meeting, and no person could be elected without
the support of such majority.
Preferred Stock
The Certificate of Incorporation of the Company authorizes its Board of
Directors to establish series or classes of preferred stock and fix the rights,
preferences, privileges and restrictions thereof. The Board is authorized to
issue up to 1,000,000 shares of Preferred Stock (proposed to be increased to
10,000,000 shares). Delaware law provides that if any proposed amendment to the
certificate of incorporation of a corporation adversely affects the preferences,
limitations or special rights of any class of shares, then the holders of shares
of such class are entitled to vote as a class as to such amendment. However,
since the holders of Common Stock approved an amendment to the Certificate of
Incorporation of the Company which permits the Board of Directors to authorize
the issuance of new series of preferred stock with such rights (including voting
rights) and preferences as fixed by the Board of Directors, the holders of
Common Stock will not have the right to vote, whether as class or otherwise, to
authorize the issuance of new series of Preferred Stock with preferences as to
dividends and distributions on liquidation.
By authorizing and issuing preferred stock with particular rights, the
issuance of Preferred Stock could have an adverse effect on holders of Common
Stock by delaying or preventing a change in control of the Company, making
removal of the present management of the Company more difficult or resulting in
restrictions upon the payment of
<PAGE>
dividends and other distributions to the holders of Common Stock. For example,
the Company could issue shares of Preferred Stock with extraordinary voting
rights or liquidation preferences to make it more difficult for a hostile
acquirer to gain control of the Company. In addition to the anti-takeover effect
of the issuance of preferred stock, holders of preferred stock have a preferred
position over holders of common stock on liquidation, the right to a fixed or
minimum dividend before any dividend is paid (or accrued) on common stock, and
the right to approve certain extraordinary corporate matters.
On April 26, 1996, the Board authorized the issuance of up to 10,000 shares
of a new series of Preferred Stock, par value $0.01 per share, designated the
Series E Convertible Preferred Stock ("Series E Preferred Stock"). Each share of
Series E Preferred Stock will be automatically converted into 100 shares of
Common Stock on the date the Company's Certificate of Incorporation is amended
so that the Corporation has a sufficient number of authorized and unissued
shares of Common Stock to effect the conversion, and any accrued and unpaid
dividends have been paid in full (as has been proposed for consideration of the
stockholders at the June 27, 1996 annual meeting). Holders of shares of Series E
Preferred Stock are entitled to dividends equal to those declared on the Common
Stock, or, if no dividends are declared on the Common Stock, nominal cumulative
dividends payable only if the Series E Stock fails to be converted into Common
Stock by September 1, 1996. Except as otherwise provided by law, holders of
Series E Preferred Stock are entitled to vote, on the basis of 100 votes per
share, together with the holders of the Common Stock, as one class on all
matters submitted to a vote of stockholders. As of May 6, 1996, there were 8,871
shares of Series E Preferred Stock outstanding.
On May 6, 1996, the Board authorized the issuance of up to 15,000 shares of
a new series of Preferred Stock, par value $0.01 per share, designated the
Series D Senior Convertible Preferred Stock ("Series D Preferred Stock"). The
holder of each share of Series D Preferred Stock will have the right to convert
such share into 83.33 fully paid and nonassessable shares of Common Stock at $12
per share at any time subsequent to the date the Company's Certificate of
Incorporation is amended so that the Corporation has a sufficient number of
authorized and unissued shares of Common Stock to effect the conversion. If at
any time after the first anniversary of the date of first issuance of the Series
D Stock, the Common Stock of the Company has a closing sale price of at least
$20 per share for a period of twenty consecutive trading days, the Company may
convert all shares of the Series D Preferred Stock then outstanding into shares
of Common Stock at $12 per share, without prior notice to the Stockholder. All
shares of Series D outstanding on the fifth anniversary of the date of first
issuance of the Series D Stock will automatically be converted into shares of
Common Stock based on the conversion price of $12 per share. Holders of shares
of Series D Preferred Stock are entitled to cumulative dividends of 6% per
annum, payable quarterly in cash on the first day of February, May, August and
November in each year. For the purposes of conversion, to the extent that the
Company does not pay any accrued and unpaid dividends within fifteen days of the
conversion with respect to those shares, such amount shall be added to the
conversion value for those shares. Except as otherwise provided by law, the
holders of Series D Preferred Stock will not be entitled to vote. As of May 6,
1996, there were no shares of Series D Preferred Stock outstanding.
Except for the Series D and Series E Preferred Stock, there are no other
series or classes of Preferred Stock currently authorized. All of the shares of
all other series or classes of Preferred Stock previously authorized by the
Company's Board to date have been repurchased by the Company or converted to
Common Stock and are not subject to reissue.
Delaware General Corporation Law
Pursuant to Section 203 of the Delaware General Corporation Law ("Section
203"), with certain exceptions, a Delaware corporation may not engage in any of
the broad range of business combinations, such as mergers, consolidations and
sales of assets, with an "interested stockholder" for a period of three years
from the date that such person became an interested stockholder unless (a) the
transaction that results in the person's becoming an interested stockholder, or
the business combination, is approved by the board of directors of the
corporation before the person becomes an interested stockholder; (b) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder the interested stockholder owns 85% or more of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and officers, and shares
owned by employee stock plans or (c) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by holders of at least two-thirds of the
corporations' outstanding voting stock, excluding shares owned by the interested
stockholder, at a meeting of stockholders. Under Section 203, an "interested
stockholder" is defined as any person, other than the corporation and any direct
or indirect majority-owned subsidiaries, that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder or (c) an affiliate or associate of such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Company's Certificate of Incorporation does not exclude the
Company from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors, because the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the stockholder becoming an interested stockholder. Such provisions
also may have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best interest.
<PAGE>
Section 203 excludes from the definition of "interested stockholder" any
stockholder of the Company that owned over 15% of the Company's stock on
December 23, 1987, so long as such holder continues to own over 15% of the
Company. Accordingly, ARTRA is not subject to the restrictions of Section 203.
MANAGEMENT
Set forth below is information concerning each director and executive
officer of the Company.
Name Age Position
--------------------- --- -------------------------------------
Michael Ferrentino 33 President and Director
Christopher P. Franco 37 Executive Vice President and Secretary
Dr. Glen Miller 59 Director
Keith Goldberg 34 Director
Richard Barber 36 Director
Michael Ferrentino has served as the President and Director of the Company
since December 1995. Mr. Ferrentino was a founder of COMFORCE Global
(telecommunications and computer staffing), and he served as COMFORCE Global's
Executive Vice President from 1987 to 1995. From 1984 through 1987, he worked
for Dunn & Bradstreet as a Senior Auditor. Mr. Ferrentino received a B.S. Degree
in Accounting from St. John's University.
Christopher P. Franco has served as the Executive Vice President and
Secretary of the Company since December 1995. From November 1993 to September
1995, Mr. Franco served as Vice President and General Counsel of Spectrum
Information Technologies, Inc. ("Spectrum") (wireless transmissions,
telecommunications and franchiser of computer stores). From 1985 to 1993, Mr.
Franco practiced law, principally in the field of corporate securities, with the
law firms of Fulbright & Jaworski (Houston), Cummings & Lockwood (Hartford) and
Kelley Drye & Warren (New York). Mr. Franco received his B.S.B.A. in business
administration from Georgetown University and his J.D. from Southern Methodist
University School of Law.
Dr. Glen Miller has served as a Director since December 1995. Vice
President - Business Development of TeleData International, a telecommunications
service company. From 1990 to 1994, Dr. Miller was responsible for strategic
planning for the Harris Corporation. From 1984 to 1990, he was responsible for
the direction and arrangement of business activities in various markets
nationwide for GTE Telecom, a telecommunications company. Dr. Miller is a
retired Colonel, U.S. Air Force, and earned a Ph.D. from Columbia Pacific
University.
Keith Goldberg has served as a Director since December 1995. Partner at J.
Walter Thompson Advertising. Previously, he worked for BBDO Advertising as an
Associate Creative Director from 1994 to 1995. From 1989 through 1994, he served
as a Vice President at Young & Rubicam. Mr. Goldberg is the recipient of several
Clio and Effie awards. He received a B.A. Degree in Communications from St.
John's University.
<PAGE>
Richard Barber has served as a Director since December 1995. Partner at
L.H. Friskoff & Company, a certified public accounting firm. Mr. Barber is a
member of the American Institute of Certified Public Accountants, the New York
State Society of Certified Public Accountants and served as a committee member
of the New York State Real Estate Accounting Committee. Mr. Barber received a
B.A. Degree from Sheffield Polytechnic in the United Kingdom. Mr. Barber is not
standing for reelection at the Compny's 1996 Annual Meeting.
Directors are elected annually and hold office until the next annual
meeting of the stockholders or until his successor shall have been duly elected
and qualified. Executive officers are appointed by the Board of Directors and
serve at the pleasure of the Board. There are no family relationships among the
executive officers and/or directors, nor are there any arrangements or
understandings between any officer and another person pursuant to which he was
appointed to office except as may be hereinafter described.
Committees
The Board of Directors has three standing committees, the Audit Committee,
the Compensation Committee and the Stock Option Committee. The Audit Committee
has responsibility for reviewing matters with respect to the accounting,
auditing and financial reporting practices and procedures of the Company. Dr.
Miller and Mr. Barber are members of this Committee. Mr. Goldberg is expected to
replace Mr. Barber (who is not standing for reelection) on this Committee
following the annual meeting of stockholders. The Compensation Committee has
responsibility for reviewing executive salaries, administering the bonus and
incentive compensation of the Company, and approving the salaries and other
benefits of the executive officers of the Company. Mr. Ferrentino and Mr.
Goldberg are members of the Compensation Committee. The Stock Option Committee
has responsibility for administering the Company's Long-Term Investment Plan.
Mr. Goldberg and Dr. Miller are members of the Stock Option Committee.
EXECUTIVE COMPENSATION
Directors' Compensation
Non-employee directors are entitled to receive fees of $1,000 per
quarter and $500 per meeting. In addition, the Company has proposed adopting
certain amendments to the Long-Term Stock Incentive Plan, which, if approved by
the stockholders at the 1996 Annual Meeting, will entitle each non-employee
director to receive as of the date such director is elected or re-elected to
office (commencing as of January 10, 1996) options to purchase 10,000 shares of
the Company s common stock at the market price as of each such date, unless the
plan is subsequently amended as permitted therein.
Executive Officer Compensation
The following table shows all compensation paid by the Company and its
subsidiaries for the fiscal years ended December 31, 1995, 1994 and 1993, to
each person who has served as the chief executive officer of the Company at any
time during any such year and the Company's most highly compensated executive
officers, other than the chief executive officer, whose income exceeded $100,000
(the "Named Executive Officers"). No other executive officers of the Company
received compensation in excess of $100,000 in 1995.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------- ---------------------
Salary Bonus Options/SAR's
Name and Position Year ($) ($) (#)
- ---------------------------------------------------------------------------------------------
Related to Current Operations:
<S> <C> <C> <C> <C>
Michael Ferrentino, 1995 $79,703 $174,879(2) -
President 1994 - - -
1993 - - -
Christopher P. Franco 1995 28,846 174,879(2)
Executive Vice 1994 - - -
President and Secretary 1993 - - -
Related to Discontinued Jewelry Business:
Austin A. Iodice, 1995 260,000 - -
formerly Vice Chairman, 1994 260,000 - -
Chief Executive Officer 1993 260,000 - $370,419(1)
and President
</TABLE>
(1) See the notes under "Principal Stockholder--Securities Ownership of
Certain Beneficial Owners and Management" and "Transactions with Management and
Others--Transactions with Austin A. Iodice Related to Discontinued Jewelry
Business" for a description of the options granted to Mr. Iodice.
(2) This amount represents the value of shares of Common Stock of the
Company issued to Messrs. Ferrentino and Franco in accordance with employment
agreements and as inducement for agreeing to be employed and contractually bound
by the Company for the purpose of developing a technical staffing business. The
amount was calculated at $.22 per share and was based upon an appraisal received
by the Company. This was the value used for tax-computing purposes. However, for
financial reporting purposes, these shares are valued at $.93 per share.
<PAGE>
Option Values. The following table sets forth information concerning the
aggregate number and values of options held by Named Executives as of December
31, 1995. None of the Named Executives hold stock appreciation rights ("SARs")
and none of the Named Executives exercised any options in 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs In-the-Money
at Fiscal Year Options/SARs at
End (#) Fiscal Year End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) (#) Unexercisable(1) Unexercisable(2)
- ---------------------------------------------------------------------------------------------------------------
Current Management:
<S> <C> <C> <C> <C>
Michael Ferrentino 0 0 0/0 0/0
Christopher P. Franco 0 0 0/0 0/0
Former Management (Discontinued Jewelry Business):
Austin A. Iodice 0 0 370,419/0 $3,009,654/0
</TABLE>
(1) See the notes under "Principal Stockholders-- Securities Ownership of
Management" for a description of the terms of the options granted to Mr. Iodice,
as well as other options granted to other executive officers of the Company.
(2) The listed options were issued at per share exercise price of $1.125
per share. The market price of the Company's Common Stock as of the close of
trading on December 31, 1995 on the American Stock Exchange was $9.25. The value
shown in this column for in-the-money options is the amount by which the market
price at December 31, 1995 for all of the shares issuable upon Mr. Iodice's
exercise of his option exceeded the exercise price thereof.
Employment Agreements
The Company entered into employment agreements in December 1995 with
Michael Ferrentino, the President of the Company, and Christopher P. Franco, the
Executive Vice President and Secretary of the Company. Each agreement is for a
term of two years and is terminable by the Company only for "just cause." "Just
cause" includes the employee's consistent failure to follow written policies or
directions, wrongful conduct which has or is expected to have a material adverse
effect on the Company, material violations of the employment agreement and
disruption of a harmonious work environment, except that, following a change in
control of the Company, the term "just cause" is generally limited in
application to criminal acts. Under these agreements, each of Messrs. Ferrentino
and Franco are entitled to compensation of $150,000 annually plus such bonuses
as are awarded by the Board, and each are entitled to participate in the
Company's normal benefit programs. If the Company terminates either agreement,
the employee shall be entitled to receive full compensation and to continue to
participate in the Company's benefit programs for the greater of one year or the
balance of the term of the agreement, payable in full at the time of
termination. Each agreement contains customary confidentiality, non-disclosure
and employee non-solicitation provisions. See "Transactions with Management and
Others--Transactions with New Management"for a description of the consulting
agreement entered into by the Company with a company controlled by James L.
Paterek, and see "Executive Compensation--Compensation Committee Interlocks and
Insider Participation--Tranactions with Austin A. Iodice Related to Discontinued
<PAGE>
Jewelry Business" for a description of the management agreement entered into by
the Company with a company controlled by Austin A. Iodice.
Compensation Committee Interlocks and Insider Participation
Current Operations
The 1995 compensation of Michael Ferrentino, the President of the
Company, and Christopher P. Franco, the Executive Vice President and Secretary
of the Company, was fixed pursuant to employment agreements negotiated with
Peter R. Harvey, formerly a Vice President of the Company.
Discontinued Jewelry Business
The decisions concerning the 1995 compensation of all of the executive
officers of the Company involved in the Company's discontinued Jewelry Business
were made by Austin A. Iodice, the Vice Chairman, President and Chief Executive
Officer of the Company until his resignation in December 1995, except with
respect to Mr. Iodice (whose compensation was fixed pursuant to a management
agreement approved by the Board of Directors in 1992). Although the Company had
a Committee on Compensation and Options, this Committee did not meet in 1995.
Relationships
There are no interlocking relationships, as defined in the regulations
of the Securities and Exchange Commission, involving any of these individuals.
Transactions with New Management
On June 29, 1995, the Company entered into a letter agreement with
Michael Ferrentino, the President and a Director of the Company, Christopher P.
Franco, an Executive Vice President of the Company, and James L. Paterek, the
holder of a significant amount of the Company's issued and outstanding Common
Stock, subsequently amended as of October 6, 1995 (as amended, the "Letter
Agreement"), pursuant to which Messrs. Ferrentino and Franco agreed to serve as
employees of, and Mr. Paterek agreed to serve as a business consultant to, the
Company to enable the Company to enter into the telecommunications and computer
staffing business. As consideration for agreeing to provide such services to the
Company, the Company agreed to (i) issue to Messrs. Ferrentino, Franco and
Paterek and one other individual who agreed to serve as a Vice President of the
Company, Kevin W. Kiernan (collectively, the "Designated Individuals"), such
number of shares of Common Stock equal to 35% of the Company's then issued and
outstanding Common Stock together with additional shares issued and warrants or
options to purchase additional shares granted between October 6, 1995 and
December 1, 1995; (ii) sell or otherwise dispose of all or substantially all of
the Company's interest in the Jewelry Business; (iii) nominate four individuals
selected by the Designated Individuals to serve on the Company's Board of
Directors; (iv) enter into two-year employment agreements with Messrs.
Ferrentino and Franco and a three-year business consulting agreement with Mr.
Paterek; and (v) reserve for issuance to the Designated Individuals and other
employees of the Company options or warrants to purchase 10% of the Company's
then issued and outstanding Common Stock together with additional shares issued
and warrants or options to purchase additional shares granted between October 6,
1995 and December 1, 1995.
On October 6, 1995, 3,091,302 shares of the Company's Common Stock in
the aggregate were issued to the Designated Individuals and 796,782 additional
shares are to be issued under the anti-dilution provisions of the Letter
Agreement, all as follows:
<PAGE>
Shares to Total
Shares Issued be Issued Shares
------------- --------- ------
Michael Ferrentino 794,907 204,887 999,794
Christopher P. Franco 794,907 204,887 999,794
James L. Paterek 1,324,844 341,478 1,666,322
Kevin W. Kiernan 176,644 45,530 222,174
------- ------ -------
Total 3,091,302 796,782 3,888,084
ARTRA, then the majority stockholder of the Company, previously
approved the issuance of such shares. The Company has made a loan of $345,000 in
the aggregate to the Designated Individuals to cover their tax liabilities
resulting from these transactions. The obligations are evidenced by notes which
bear interest at the rate of 6% per annum and mature on December 10, 1997.
Yield Industries, Inc., a corporation wholly-owned by Messrs. Paterek
and Ferrentino earned a delivery fee of $500,000 in connection with the Company
s acquisition of COMFORCE Global, $250,000 of which was paid in 1995 and the
balance of which was paid in January 1996.
See "Executive Compensation--Employment Agreements" for a description
of the employment agreements entered into between the Company and each of
Messrs. Ferrentino and Franco, which description is incorporated herein by
reference.
Transactions with Peter R. Harvey Related to Current Operations
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 500,000 shares issued by the Company included 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.
Peter R. Harvey, age 61, served the Company as its Director from 1982
to December 1995 and Vice President from July 1995 to December 1995. He has also
served as the President, Chief Operating Officer and as a Director of ARTRA
since 1968 and a Director of Pure Tech International, Inc. (textiles, hose and
tubing) since 1995.
Transactions with Austin A. Iodice Related to Discontinued Jewelry Business
In April 1993, the Company entered into a management agreement with
Nitsua, Ltd. ("Nitsua"), a corporation wholly-owned by Austin A. Iodice, then
the Vice Chairman, President and Chief Executive Officer of the Company. This
management agreement was approved and accepted by the Company's New Dimensions,
Rosecraft and Lawrence subsidiaries (the "Jewelry Subsidiaries"). Pursuant to
the terms of this agreement, Mr. Iodice had all of the responsibilities of a
chief executive officer of the Company and the Jewelry Subsidiaries (subject to
the supervision of the boards of directors of the Company and the Jewelry
Subsidiaries). This agreement, which was scheduled to terminate on March 31,
1996, was earlier terminated upon Mr. Iodice's resignation as an officer and
director of the Company in December 1995. As compensation for its services under
the agreement, Nitsua received (i) a management fee of $260,000 per annum, (ii)
reimbursement of all documented expenses reasonably incurred by Nitsua in
connection with the performance of its duties, and (iii) options to purchase
370,419 shares of the Company's Common Stock at an exercise price of $1.125 per
share.
<PAGE>
Austin A. Iodice, age 54, served the Company as its Director from 1990
to December 1995, and as its Vice Chairman, President and Chief Executive
Officer from 1992 to December 1995. He has also served as President of Ansa
Company, Inc. (baby bottles and accessories) from 1990 to present. Prior
thereto, Mr. Iodice was associated with Technical Tape Incorporated (pressure
sensitive tape) from 1964 to 1989 in various capacities, including as a director
and most recently as president and chief executive officer from 1980 until 1989.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Transactions with New Management
See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" for a description of certain transactions entered into
between the Company and Michael Ferrentino, the President and a Director of the
Company, Christopher P. Franco, an Executive Vice President of the Company, and
James L. Paterek, the holder of a significant amount of the Company's issued and
outstanding Common Stock.
In addition, in October 1995, the Company entered into a consulting
agreement with Tarek Corporation ("Tarek"), which is a corporation wholly-owned
by Mr. Paterek. Mr. Paterek, age 34, was a founder of COMFORCE Global and served
as its President from 1985 to September 1995. Tarek has agreed to engage Mr.
Paterek to perform the services required under the agreement. Under the terms of
the agreement, Tarek has agreed to devote at least 50 hours per month performing
services for the Company. The agreement is for a term of three years and is
terminable by the Company only for "good cause." "Good cause" includes Paterek's
fraud, misappropriation of Company assets, or the commission of a felony during
the term of the agreement which is directly related to the Company and causes it
material harm. Tarek has the right to terminate the agreement upon 30 days
notice or immediately in the event of a change in control. Under this agreement,
the consultant is entitled to compensation of $157,000 annually plus
reimbursement for expenses incurred in performing his duties under the
agreement. In addition, Mr. Paterek is entitled to participate in the Company's
normal benefit programs. If the Company terminates the agreement without good
cause, Tarek shall be entitled to receive full compensation for the balance of
the term of the agreement. The agreement requires Tarek to enter into an
agreement with Mr. Paterek under which he agrees not to compete with the Company
during the term of the agreement and not to disclose confidential information.
Transactions with Peter R. Harvey Related to Current Operations
See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" for a description of certain transactions entered into
between the Company and Peter R. Harvey, formerly a Director and Vice President
of the Company.
Transactions with ARTRA Related to Current Operations
ARTRA owns approximately 19.2% of the Company's currently issued and
outstanding Common Stock.
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) 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 as of
the effective date of the exchange, December 15, 1995.
In addition, to facilitate this acquisition, on October 17, 1995, in
conjunction with the COMFORCE Global acquisition, the Company and ARTRA entered
into 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 of the assets of the Company's
Lawrence Jewelry
<PAGE>
Corporation subsidiary, and, accordingly, will be entitled to the net proceeds,
if any, from this disposition after the satisfaction of its creditors. In
addition, in the first quarter of 1996, ARTRA paid $647,000 of the liabilities
assumed under the Assumption Agreement. Liabilities assumed by ARTRA in the
amount of approximately $4.24 million are shown on the Company's balance sheet
at December 31, 1995.
Transactions with ARTRA Related to Discontinued Jewelry Business
ARTRA first acquired an interest in the Company in August 1982. As of
October 6, 1995 (immediately prior to the issuance of stock to the Designated
Individuals), ARTRA held an approximately 63% interest in the Company, and held
9,701 shares of Series C Preferred Stock (representing all of the then issued
and outstanding Preferred Stock of the Company).
The Company made advances to ARTRA of $399,000 in 1995 and $54,000 in
1996. In the first quarter of 1996, ARTRA repaid these advances.
In August 1994, ARTRA entered into a $1,850,000 short-term loan
agreement with a non-affiliated corporation, the proceeds of which were advanced
to the Company and used to fund amounts due the Company's bank. The loan, due
June 30, 1995, was collateralized by 100,000 shares of the Company's common
stock. In August 1995, these shares were transferred to the lender in
consideration of extending the loan, and the carrying value of these 100,000
shares ($700,000) was transferred to ARTRA as reduction of amounts then due to
ARTRA by the Company.
In 1995, ARTRA provided certain financial, accounting and
administrative services for the Company's corporate entity. During 1995, the
fees for these services amounted to $91,000.
Transactions with Austin A. Iodice Related to Discontinued Jewelry Business
See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" for a description of certain transactions entered into
between the Company and Austin A. Iodice, formerly the Company's Vice Chairman,
President and Chief Executive Officer.
Transactions with Alex Verde Related to Discontinued Jewelry Business
In 1994, ARTRA and Fill-Mor, entered into a settlement agreement with
its bank lender, IBJ Schroder Bank & Trust Company ("Schroder") to discharge the
indebtedness of the Company, its operating subsidiaries and Fill-Mor aggregating
approximately $25,000,000. Upon payment of certain sums and satisfaction of
certain conditions, this indebtedness was reduced to $10,500,000. Under the
terms of the amended settlement agreement with Schroder, this remaining
indebtedness was to be discharged upon payment to Schroder of $750,000 by March
31, 1995 and upon ARTRA's registration of certain shares of its common stock.
The Company did not have sufficient funds available to repay this
indebtedness. Accordingly, on March 31, 1995, Alex Verde, then a director of the
Company, entered into an assignment agreement with Schroder to purchase this
indebtedness for $750,000, and advanced an additional $100,000 to the Company.
In this connection, Mr. Verde and the Company also entered into an agreement
whereby he reduced this indebtedness to $850,000 in consideration of the
Company's issuance to him of 150,000 shares of its common stock valued at
$337,500 ($2.25 per share) based upon closing market value of the shares on
March 30, 1995. This loan, which was originally due July 31, 1995 (subsequently
extended to September 15, 1995), was repaid in February 1996 by ARTRA, which had
assumed the obligation to repay the loan under the terms of the Assumption
Agreement. As compensation for agreeing to extend the maturity date of the loan,
Mr. Verde received an additional 100,000 shares of the Company's Common Stock.
Alexander Verde, age 62, served as Director from 1990 to December 1995.
He has served as the President of AVS Marketing Specialists Incorporated (sales
and marketing) from 1974 to present.
<PAGE>
PRINCIPAL STOCKHOLDERS
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares and percentage of
Common Stock beneficially owned as of April 18, 1996 by (i) the only
stockholders known by management of COMFORCE to own 5% or more of COMFORCE's
Common Stock, (ii) all directors and executive officers of COMFORCE, (iii)
Austin A. Iodice, who served as chief executive officer of the Company during
1995 until his resignation in December and (iv) all directors, executive
officers and other key employees of COMFORCE as a group (5 persons). Unless
stated otherwise, each person so named exercises sole voting and investment
power as to the shares of Common Stock so indicated. As of such date, there were
9,343,198 shares of common stock issued and outstanding.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Shares
Beneficial Owner Beneficially Owned(1) Beneficially Owned(8)
- -----------------------------------------------------------------------------------------------
Current Management:
<S> <C> <C>
Michael Ferrentino(2) 999,794 9.0%
2001 Marcus Avenue
Lake Success, New York 11042
Christopher P. Franco(2) 999,794 9.0%
2001 Marcus Avenue
Lake Success, New York 11042
Dr. Glen Miller -- --
Richard Barber -- --
Keith Goldberg -- --
Directors and officers as a group
((5) persons)(3) 1,999,588 18.0%
Other Significant Stockholders:
James L. Paterek(4) 1,666,322 15.0%
86 South Drive
Plandome, New York 11030
ARTRA GROUP Incorporated 1,970,536 19.2%
500 Central Avenue(5)(6)
Northfield, Illinois 60093
Former Management (Discontinued Jewelry Business):
Austin A. Iodice(7) 370,491 3.5%
- -----------------------
<PAGE>
<FN>
(1) For purposes of this table, shares are considered "beneficially
owned" if the person directly or indirectly has the sole or shared power to vote
or direct the voting of the securities or the sole or shared power to dispose of
or direct the disposition of the securities. A person is also considered to
beneficially own shares that such person has the right to acquire within 60
days, and options exercisable within such period are referred to herein as
"currently exercisable."
(2) The shares beneficially owned by Mr. Ferrentino, the President and
a Director of the Company and Mr. Franco, the Executive Vice President of the
Company, include 794,907 shares currently held of record by each individual and
204,887 additional shares to be issued to each under the anti-dilution
provisions of the Letter Agreement. Their ownership percentages have been
calculated as if all 796,782 shares issuable to the Designated Individuals under
the anti-dilution provisions of the Letter Agreement had been issued. Messrs.
Ferrentino, Franco and one other individual who agreed to serve as a Vice
President of the Company, Kevin W. Kiernan, have entered into a voting trust
agreement to ensure that all of the shares owned by such individuals are voted
in a manner directed by Mr. Ferrentino. Messrs. Ferrentino, Franco and Kiernan
disclaim beneficial ownership of the shares owned by the other parties to the
voting trust agreement.
(3) The shares shown to be beneficially owned by the directors and
officers as a group include 1,589,814 shares held of record by them and 409,774
shares to be issued to them under the anti-dilution provisions of the Letter
Agreement. The ownership percentage has been calculated as if all 796,782 shares
issuable to the Designated Individuals under the anti-dilution provisions of the
Letter Agreement had been issued.
(4) The shares beneficially owned by Mr. Paterek, a consultant to the
Company, include 1,324,844 shares currently held of record by him and 341,478
additional shares to be issued to him under the anti-dilution provisions of the
Letter Agreement. His ownership percentage has been calculated as if all 796,782
shares issuable to the Designated Individuals under the anti-dilution provisions
of the Letter Agreement had been issued.
(5) John Harvey and Peter R. Harvey, each of whom formerly served as an
officer and director of the Company, control the management and operations of
ARTRA, which owns 19.2% of the Company's common stock. Insofar as they are
deemed beneficial owners of the Company's shares owned of record by ARTRA, Peter
R. Harvey owns 2,165,369 shares (21%) of the Company's Common Stock and John
Harvey owns 2,045,869 shares (19.9%) of the Company's Common Stock. Each such
person maintains a business address at 500 Central Avenue, Northfield, Illinois
60093.
(6) ARTRA, through a wholly-owned subsidiary, Fill-Mor Holding, Inc.
("Fill-Mor"), a Delaware corporation (hereinafter all holdings of Fill-Mor are
referred to as ARTRA's), presently owns 1,970,536 shares of record (19.2% of the
outstanding Common Stock of COMFORCE). ARTRA agreed in the Letter Agreement to
direct Fill-Mor to vote in favor of current management's nominees for the Board
of Directors. Additionally, ARTRA directed Fill-Mor to execute a limited proxy
to current management of the Company providing that ARTRA and/or Fill-Mor shall
vote its shares in all manners in favor of the conditions of the Letter
Agreement.
(7) The shares beneficially owned by Mr. Iodice consist of 370,419
shares issuable upon the exercise of an option held by Nitsua, Ltd., a
corporation wholly-owned by Mr. Iodice (granted under the Option Plan), which
expires March 15, 2003 at an exercise price of $1.125 per share. See "Executive
Compensation--Compensation Committee Interlocks and Insider
Participation--Tranactions with Austin A. Iodice Related to Discontinued Jewelry
Business." Mr. Iodice was chief executive officer of the Company when the
Company was engaged in its discontinued Jewelry Business and known as The Lori
Corporation.
(8) The Company has issued a Series E Convertible Preferred Stock which
shall vote as a single class with the Common Stock. For this reason, the Series
E Preferred Stock is included for purposes of calculating percentages of
beneficial ownership.
</FN>
</TABLE>
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the shares
of Common Stock held by ,or issuable upon the exercise of warrants or the
conversion of Preferred Stock of the Company, to the persons offering shares
pursuant to this Prospectus ("Selling Stockholders"). In cases where the Selling
Stockholder serves or has served within the past three years as an officer,
director or employee of the Company or any of its subsidiaries, this
relationship is noted. Because the Selling Stockholders may offer all or some
part of the Common Stock that they hold pursuant to the offering contemplated by
this Prospectus, and because this offering is not being underwritten (on a firm
commitment or any other basis), no estimate can be given as to the amount of
Common Stock that will be held by Selling Stockholders upon termination of this
offering.
Michael Ferrentino, the President and a Director of the Company,
Christopher P. Franco, an Executive Vice President of the Company, Kevin W.
Kiernan, an employee of the Company, and James L. Paterek, a consultant to the
Company, collectively are registering 3,091,302 shares hereby. Such individuals
have registered such shares in accordance with an agreement entered into with
the Company to do so, but have advised the Company that they have no present
intention of selling any such shares.
Number of
Shares Shares
Name of Beneficial Owner Beneficially Offered
Owned Hereby
------------------------------- --------------- --------------
Argosy Securities Group, Ltd. 25,000 25,000
(1)
Avalon/David J. Doerge Trust 121,998 121,998
(2)(28)
Reed Berkey (2)(28) 11,250 11,250
Belmad Enterprises (2)(28) 112,500 112,500
Boeckman Investments (3) 22,549 22,549
John Bramsen (2)(28) 45,000 45,000
Elliott Broidy (4)(29) 30,000 30,000
Kenneth Buchanan (2)(28) 22,500 22,500
Robert A. Calabrese (5) 5,000 5,000
Woodrow Chamberlain (2)(28) 56,250 56,250
Charles J. Christian (2)(28) 13,500 13,500
Howard Conant (6)(30) 80,000 80,000
Cypress Int'l Partners Ltd. 110,000 110,000
(4)(29)
Cypress Partners L.P. (4)(29) 620,000 620,000
<PAGE>
David J. Doerge Trust 45,000 45,000
(2)(28)
Dobbins Partners, L.P. (7) 230,882 230,882
Mark Dorian (2)(28) 45,000 45,000
Steven Engberg Assoc. (8) 16,667 16,667
Steven Engberg Trust (2)(28) 45,000 45,000
Michael Ferrentino(9) 999,794 794,907
794,907
Christopher P. Franco(9) 999,794 4,000
12,548
David Furth (4)(29) 4,000 13,400
Matthew A. Gohd (10) 12,548
Matthew A. Gohd & Frann 13,400
Setzer-Gohd (4)(29)
Howard Grafman (2)(28) 22,500 22,500
Thomas Gries (2)(28) 11,250 11,250
Clark Gunderson (11)(30) 35,000 35,000
Robert Jones (12)(30) 52,500 52,500
Kevin Kiernan(9) 222,174 176,644
Thomas Kigin (2)(28) 22,500 22,500
Patrick Koo (13)(30) 70,000 70,000
Michael Laundrie (14)(30) 35,000 35,000
S. D. Levy Partnership 35,000 35,000
(15)(30)
Ross Llewelyn, Inc. (16) 5,532 5,532
Maynard Louis (17) 5,000 5,000
C.G.E. Manolovici (4)(29) 20,000 20,000
Manufacturers Indemnity and 581,765 581,765
Insurance Company of America
(Marc Werner) (18)
James McGill (2)(28) 22,500 22,500
Johanna McGill (2)(28) 22,500 22,500
Morsly Inc. PSP (19)(30) 17,500 17,500
MSAM Partners (20)(30) 10,000 10,000
John and Else Muehlstein 13,500 13,500
(2)(28)
James L. Paterek(9) 1,666,322 1,324,844
<PAGE>
Porpoise Fund (21) 26,666 26,666
Porpoise Investors I, 26,700 26,700
L.P.(4)(29)
Charles Reeder (2)(28) 90,000 90,000
Julia L. Reynolds 22,500 22,500
Trust #2 (2)(28)
Evan D. Ritchie Living 22,500 22,500
Trust (2)(28)
Michael Dain Searle (2)(28) 13,500 13,500
Martha Seelbach (22)(28) 18,500 18,500
Norman F. Siegel (23) 33,334 33,334
Paul Smeets (2)(28) 45,000 45,000
A. E. Staley III Trust 45,000 45,000
(2)(28)
Henry M. Staley Trust (2)(28) 51,300 51,300
Henry Staley (24) 6,500 6,500
Robert C. Staley Trust 22,500 22,500
(2)(28)
Avery Stone (25) 10,000 10,000
Avery Stone Trust (2)(28) 27,000 27,000
Shephard C. Swift Trust 45,000 45,000
(2)(28)
Michael Targoff (16) 11,765 11,765
E. B. Tarson (2)(28) 45,000 45,000
Ronald Tarson (2)(28) 45,000 45,000
Steve Tarson (2)(28) 45,000 45,000
Christiane L. Turner (4)(29) 3,000 3,000
Alex Verde (27) 200,000 200,000
Michael Werner (4)(29) 30,000 30,000
Ronald Werner (4)(29) 30,000 30,000
Westminster Capital (2)(28) 45,000 45,000
Diane Wilson (26)(28) 12,950 12,950
------ ------
Total 7,531,890 6,735,108
- --------------------------
<PAGE>
(1) The shares offered by Argosy Securities Group, Ltd. are (i) 16,250
shares issuable to it upon its exercise of a warrant at an exercise price of
$4.00 per share, which warrant expires 90 days after the date hereof, and (ii)
8,750 shares owned of record by it.
(2) Of the shares offered by the named stockholder, 2/3 of the amount
listed are shares owned of record by the stockholder, and 1/3 of the amount
listed are shares issuable to the stockholder upon the stockholder's exercise of
a warrant at an exercise price of $3.375, which warrant expires June 1, 2001.
(3) The shares offered by Boeckman Investments are (i) 16,667 shares
issuable to it upon its exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires October 17, 2000, and (ii) 5,882 shares owned of
record by it.
(4) The shares offered by the named stockholder are shares issuable to
the stockholder upon conversion of Preferred Stock held by the stockholder, such
Preferred Stock convertible at a ratio of one hundred shares of Common Stock for
each share of Convertible Preferred Stock.
(5) The shares offered by Robert A. Calabrese are 5,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.50 per share,
which warrant expires March 10, 2000.
(6) The shares offered by Howard Conant are (i) 30,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 11, 2000, (ii) 50,000 shares issuable to him
upon his exercise of a warrant at an exercise price of $3.375 per share, which
warrant expires October 17, 2000, and 50,000 shares owned of record by him.
(7) The shares offered by Dobbins Partners, L.P. are (i) 225,000 shares
issuable to it upon its exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires October 17, 2000, and (ii) 5,882 shares owned of
record by it.
(8) The shares offered by Steven Enberg Associates are 16,667 shares
issuable to it upon its exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires December 5, 2000.
(9) The shares offered by the named stockholder are shares owned of
record by the stockholder. The shares were issued to the named stockholder in
consideration for entering into an employment or consulting contract with the
Company to direct its entry into the technical staffing business. Michael
Ferrentino is President and a Director of the Company, Christopher Franco is
Executive Vice President, Kevin Kiernan is Vice President, and James L. Paterek
serves as a business consultant to the Company.
(10) The shares offered by Matthew Gohd are (i) 6,666 shares issuable
to him upon his exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires October 17, 2000, and (ii) 5,882 shares owned of record by
him.
(11) The shares offered by Clark Gunderson are (i) 10,000 shares
issuable to him upon his exercise of a warrant at an exercise price of $2.00 per
share, which warrant expires August 30, 2000 and (ii) 25,000 shares to be issued
to him for conversion of a note in the amount of $50,000 at a price per share of
$2.00.
(12) The shares offered by Robert Jones are (i) 15,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires August 30, 2000, and (ii) 37,500 shares to be issued to
him for conversion of a note in the amount of $75,000 at a price per share of
$2.00.
(13) The shares offered by Patrick Koo are (i) 20,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires October 3, 2000, and (ii) 50,000 shares to be issued to
him for conversion of a note in the amount of $100,000 at a price per share of
$2.00.
(14) The shares offered by Michael Laundrie are (i) 10,000 shares
issuable to him upon his exercise of a warrant at an exercise price of $2.00 per
share, which warrant expires September 8, 2000, and (ii) 25,000 shares issuable
to him for conversion of a note in the amount of $50,000 at a price per share of
$2.00.
(15) The shares offered by S.D. Levy Partnership are (i) 10,000 shares
issuable to it upon its exercise of a warrant at an exercise price of $2.00 per
share, which warrant expires September 12, 2000, and (ii) 25,000 shares issuable
to it for conversion of a note in the amount of $50,000 at a price per share of
$2.00.
(16) The shares offered by the named stockholder are shares held of
record by the stockholder.
<PAGE>
(17) The shares offered by Maynard Louis are 5,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 11, 2000.
(18) The shares offered by Manufacturers Indemnity and Insurance
Company of America are (i) 285,000 shares issuable to it upon its exercise of a
supplemental warrant at an exercise price of $9.00 per share, and (ii) 296,765
shares held of record by it.
(19) The shares offered by Morsly Inc. PSP are (i) 5,000 shares
issuable to it upon its exercise of a warrant at an exercise price of $2.00 per
share, which warrant expires September 12, 2000, and (ii) 12,500 shares issuable
to it for conversion of a note in the amount of $50,000 at a price per share of
$2.00.
(20) The shares offered by MSAM Partners are 10,000 shares issuable to
it upon its exercise of a warrant at an exercise price of $2.062 per share,
which warrant expires July 16, 2000.
(21) The shares offered by Porpoise Fund are 26,666 shares issuable to
it upon its exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires October 17, 2000.
(22) The shares offered by Martha Seelbach are (i) 5,000 shares
issuable to her upon her exercise of a warrant at an exercise price of $3.375
per share, which warrant expires November 30, 2000, (ii) 4,500 shares issuable
to her upon her exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires June 1, 2001, and (iii) 9,000 shares owned of record by
her.
(23) The shares offered by Norman F. Siegel are (i) 16,667 shares held
of record by him and (ii) 16,667 shares issuable to him upon his exercise of a
supplemental warrant at an exercise price of $9.00 per share.
(24) The shares offered by Henry Staley are 6,500 shares issuable to
him upon his exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires November 30, 2000.
(25) The shares offered by Avery Stone are 10,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires November 30, 2000.
(26) The shares offered by Diane Wilson are (i) 3,500 shares issuable
to her upon her exercise of a warrant at an exercise price of $3.375 per share,
which warrant expires November 30, 2000, (ii) 3,150 shares issuable to her upon
her exercise of a warrant at an exercise price of $3.375 per share, which
warrant expires June 1, 2001, and (iii) 6,300 shares owned of record by her.
(27) The shares offered by Alex Verde are shares owned of record by
him. Mr. Verde was a director of the Company when it was in the jewelry business
and was The Lori Corporation.
(28) These shares were offered pursuant to a private placement during
October and November 1995.
(29) These shares were offered in connection with the sale of
Convertible Preferred Stock pursuant to an offering under Regulation D in April
and May 1996.
(30) The warrant or convertible note, as applicable, was issued in
connection with extension of credit to the Company during the period from July
through October 1995.
PLAN OF DISTRIBUTION
The manner in which the Common Stock covered by this Prospectus is to
be distributed is set forth on the cover page hereof. Any sales effected through
securities brokers or dealers will be on an "agency" basis, unless as a result
of a privately negotiated transaction a broker or dealer enters into an
agreement with a Selling Stockholder to purchase shares for its own account. At
the date of this Prospectus, none of the Selling Stockholders contemplate
entering into such a contractual relationship with a broker or dealer, although
one or more of them may decide to do so in the future.
To comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such states only through brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless they have
<PAGE>
been registered or qualify for sale in such states or an exemption from
registration or qualification is available and is complied with. From time to
time, to the extent required by the rules of the Securities and Exchange
Commission, the Company will distribute Prospectus Supplements.
The Selling Stockholders and any broker-dealers who participate in a
sale of their shares of Common Stock may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them, and proceeds of any such sales as principal, may be deemed to be
underwriting discounts and commissions under the Securities Act.
All expenses of the registration of Common Stock offered hereby,
estimated to be approximately $211,370, will be borne by the Company. As and
when the Company is required to update this Prospectus, it may incur additional
expenses in excess of this estimated amount. Normal commission expenses and
brokerage fees, as well as any applicable transfer taxes, are payable
individually by the Selling Stockholders.
Since the Selling Stockholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and 10b-7,
in connection with transactions in the Common Stock during the effectiveness of
the Registration Statement of which this Prospectus is a part, the Company
advised the Selling Stockholders to consult competent securities counsel prior
to initiating any such transaction. The Company will notify each Selling
Stockholder of the Commission's rules and, as a condition to agreeing to
register the shares of a Selling Stockholder, will require that such Selling
Stockholder agree to comply with such rules.
The Company will not receive any proceeds from the sale of the Common
Shares offered hereby by the Selling Stockholders. However, insofar as the
holders of warrants to purchase shares of the Common Stock are expected to
exercise their warrants in order to sell the underlying shares (which are
registered hereby), the Company will receive the amount of the exercise prices
of any warrants so exercised. The Company cannot predict when or if it will
receive proceeds from the exercise of warrants, or the amount of any such
proceeds. The Company intends to use the proceeds, if any, received from the
exercise of warrants for working capital purposes.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law permits a corporation to indemnify its directors,
officers, employees and agents, including in connection with a proceeding that
is settled. Under Delaware law, a director may be indemnified only if a
determination is made that the director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
except that a director cannot be indemnified in respect of any matter in which
he is adjudged to be liable to the corporation unless the court determines that
the director is fairly and reasonably entitled to indemnification in light of
the circumstances of the case. Under Delaware law, the determination is to be
made (i) by majority vote of a quorum of directors who are not parties to the
action, (ii) if a quorum is not obtainable or if otherwise directed by the
disinterested directors, by legal counsel or (iii) by the stockholders.
Officers, employees and agents are entitled to be indemnified on the same basis
as directors under Delaware law.
The indemnity provisions in the Bylaws of the Company provide that (i)
the Company is required to indemnify its directors, officers and employees to
the full extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the Company is required
to advance expenses to its directors, officers and employees as incurred,
including expenses relating to obtaining a determination that such directors,
officers and employees are entitled to indemnification, provided that they
undertake to repay the amount advanced if it is ultimately determined that they
are not entitled to indemnification; (iii) directors, officers and employees may
bring suit against the Company if a claim for indemnification is not timely
paid; (iv) the Company is authorized to enter into indemnification agreements
with its officers and directors; and (v) the Company may not retroactively amend
the Bylaw provision in a way which is adverse to its officers or directors or
former officers or directors. Amounts paid to directors, officers and employees
under the Indemnity Provision will come from Company funds to the extent not
provided by directors' and officers' liability insurance coverages. The
indemnity provisions in the Bylaws of the Company are expressly stated to be
contractual in nature.
The Bylaws of the Company provide for a different procedure for
determining entitlement to indemnification than is provided under the Delaware
General Corporation Law. Under the Bylaws, the determination is to be made by
(i) a majority of the disinterested directors, (ii) by independent legal
counsel, if a change in control of the Company has
<PAGE>
occurred and the director, officer or employee seeking indemnity so requests or
if a majority of disinterested directors so directs (or there are no
disinterested directors), or (iii) by the stockholders, if a majority of the
disinterested directors determines to submit the matter to the stockholders. In
addition, a director, officer or employee will be deemed to be entitled to
indemnification if the persons charged with responsibility for making the
determination fail to do so within 90 days of a request, and a director, officer
or employee may appeal an adverse determination to a court or arbitrator.
Subject to certain exceptions, a director, officer or employee is also entitled
to indemnification, notwithstanding an adverse determination, if successful on
the merits in any proceeding or if the proceeding is terminated without a
determination of liability or without any payments in settlement being made by
the director, officer or employee.
The Company has no present intention of entering into separate
indemnification agreements with its current directors, officers, or employees
but may do so in the future. It may also enter into contracts with anyone else
it is permitted to indemnify under Delaware law, but has no present intention of
doing so.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
EXPERTS
The consolidated balance sheets of COMFORCE Corporation and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1995, and the balance sheets
of COMFORCE Global, Inc. as of September 30, 1995 and December 31, 1994 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the nine month period ended September 30, 1995 and the year
ended December 31, 1994, included in this Prospectus, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
<PAGE>
No dealer, salesman or any other person has been
authorized to give any information or to make any
representations other than those contained in this
Prospectus, and, if given or made, such
information or representations must not be relied
upon as having been authorized by the Company.
This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy any
securities in any jurisdiction in which such an
offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any
implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
Heading Page
Additional Information
Prospectus Summary
Risk Factors
Selected Historical and Pro Forma
Financial Information
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Description of Business
Legal Proceedings
Market Price of the Company's Common Stock
Dividends
Description of the Company's Securities COMFORCE Corporation
Management PROSPECTUS
Executive Compensation May 10, 1996
Transactions with Management and Others
Principal Stockholders
Selling Stockholders
Plan of Distribution
Indemnification of Officers
and Directors
Experts
Index to Financial Statements
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses estimated to be incurred (other than the fees of the
Commission which are actual) in connection with the offering, all of which are
payable by the Registrant, are as follows:
Description Amount
- ----------------------------------------------- ------------------
SEC Registration Fee $ 26,523
Printing Costs 10,000 *
Legal Fees 40,000 *
Accounting Fees 20,000 *
Blue Sky Fees and Expenses 5,000 *
Miscellaneous 8,477 *
--------------
Total $ 110,000 *
=============
-----------
* Estimate
Item 14. Indemnification of Directors and Officers.
Reference is made to the discussion in Part I of this Registration
Statement under "Indemnification of Officers and Directors," which discussion is
incorporated herein by reference.
Item 15. Recent Sales of Unregistered Securities.
1. On December 28, 1993, 5,532 shares of the common stock of the
Registrant were issued to Ross Llewelyn, Inc. in consideration of its discharge
of $32,500 owed by the Registrant to it. This stock was issued in reliance on
the exemption under Section 4(2) of the Securities Act of 1933.
2. The Registrant has granted (i) to Nitsua, Ltd., a corporation
wholly-owned by Austin A. Iodice, Chairman, President and Chief Executive
Officer and a Director of the Registrant, an option to purchase 370,419 shares
of the Registrant's common stock, and (ii) to Anthony Giglio, a consultant to
the Registrant, an option to purchase 185,209 shares of the Registrant's common
stock, in each case at an exercise price of $1.125 per share, with such options
expiring March 15, 2003. These options were granted in consideration of the
agreements of Messrs. Iodice and Giglio to provide management services to the
Registrant and its subsidiaries. Although the Registrant entered into written
agreements with Messrs. Iodice and Giglio to grant these options to them in
March 1993, the granting of these options was subject to approval of the
Registrant's Long-Term Incentive Plan by the stockholders of the Registrant,
which approval was obtained in December 1993. Accordingly, following the
approval of the Long-Term Incentive Plan by the stockholders, the options were
delivered in February 1994. These securities were issued in reliance on the
exemption under Section 4(2) of the Securities Act of 1933.
3. Lori did not have sufficient funds available to repay $750,000 due
to a bank lender on March 31, 1995. Accordingly, on March 31, 1995, Alex Verde,
a director of the Company, entered into an assignment agreement with the bank
lender to purchase this indebtedness for $750,000, and advanced an additional
$100,000 to the Company.
<PAGE>
In this connection, Mr. Verde and the Company also
entered into an agreement whereby he reduced this indebtedness to $850,000 in
consideration of the Company's issuance to him of 150,000 shares of its common
stock valued at $337,500 ($2.25 per share) based upon closing market value of
the shares on March 30, 1995. This loan, which was originally due July 31, 1995
(subsequently extended to September 15, 1995), was repaid in February 1996 by
ARTRA, which had assumed the obligation to repay the loan under the terms of the
Assumption Agreement. As compensation for agreeing to extend the maturity date
of the loan, Mr. Verde received an additional 100,000 shares of the Company's
Common Stock. The Company issued all 250,000 shares of this stock to Mr. Verde
in reliance on the exemption under Section 4(2) of the Securities Act of 1933.
4. On June 7, 1995, the Registrant issued 11,765 shares of its common
stock to Manufacturers Indemnity and Insurance Co. of America and 5,882 shares
of its common stock to each of Boeckman Investments, Matthew A. Gohd and Dobbins
Partners, L.P., in each case as additional consideration for such persons
agreeing to extend short-term loans to the Registrant. This stock was issued in
reliance on the exemption under Section 4(2) of the Securities Act of 1933.
5. On October 17, 1995, the Company issued 500,000 shares of the
Company's Common Stock as partial consideration for various fees and guarantees
associated with its acquisition of all of the capital stock of COMFORCE Global.
The 500,000 shares issued by the Company consisted of (i) 100,000 shares issued
to an unrelated party for guaranteeing the payment of the purchase price to the
seller, (ii) 100,000 shares issued to ARTRA, then the majority stockholder of
the Company, in consideration of its guaranteeing the payment of the purchase
price to theseller and agreeing to enter into the Assumption Agreement, (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 the payment of the
purchase price to the seller and other guarantees to facilitate the transaction.
In addition, the Company issued 100,000 shares of the Company's Common Stock to
ARTRA in exchange for all of the Series C Preferred Stock of the Company then
held by it (9,701 shares) in order to facilitate the COMFORCE Global
acquisition. In each case this stock was issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933.
6. On June 29, 1995, the Company entered into a letter agreement with
Michael Ferrentino, the President and a Director of the Company, Christopher P.
Franco, an Executive Vice President of the Company, and James L. Paterek, a
consultant to the Company, subsequently amended as of October 6, 1995 (as
amended, the "Letter Agreement"), pursuant to which Messrs. Ferrentino and
Franco agreed to serve as employees of, and Mr. Paterek agreed to serve as a
business consultant to, the Company to enable the Company to enter into the
telecommunications and computer staffing business. As consideration for agreeing
to provide such services to the Company, the Company agreed to issue to Messrs.
Ferrentino, Franco and Paterek and one other individual who agreed to serve as a
Vice President of the Company, Kevin W. Kiernan (collectively, the "Designated
Individuals"), such number of shares of Common Stock equal to 35% of the
Company's then issued and outstanding Common Stock together with additional
shares issued and warrants or options to purchase additional shares granted
between October 6, 1995 and December 1, 1995 and reserve for issuance to the
Designated Individuals and other employees of the Company options or warrants to
purchase 10% of the Company's then issued and outstanding Common Stock together
with additional shares issued and warrants or options to purchase additional
shares granted between October 6, 1995 and December 1, 1995.
On October 6, 1995, 3,091,302 shares of the Company's Common Stock in
the aggregate were issued to the Designated Individuals and 796,782 additional
shares are to be issued under the anti-dilution provisions of the Letter
Agreement, all as follows:
Shares Issued Shares to be Issued Total Shares
Michael Ferrentino 794,907 204,887 999,794
Christopher P. Franco 794,907 204,887 999,794
James L. Paterek 1,324,844 341,478 1,666,322
Kevin W. Kiernan 176,644 45,530 222,174
------- ------ -------
Total 3,091,302 796,782 3,888,084
<PAGE>
In each case, these securities were issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933.
7. From July 1995 to October 1995, the Company issued to various
creditors of the Company identified in the table under "Selling Stockholders" in
the Prospectus (i) warrants to purchase 130,000 shares of the Company at
exercise prices ranging from $2.00 to $2.062 per share and (ii) notes evidencing
indebtedness aggregating $350,000 in original principal amount convertible into
Common Stock of the Company based on a price of $2.00 per share. In each case,
these securities were issued in reliance on the exemption under Section 4(2) of
the Securities Act of 1933.
8. In October and November 1995, the Company sold 1,946,667 shares of
its Common Stock in a private placement to certain individuals identified in the
table under "Selling Stockholders" in the Prospectus. The shares were offered in
units consisting of one share of Common Stock and 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 in Item 9, below). This stock was issued in
reliance on the exemption under Section 4(2) of the Securities Act of 1933.
9. In April 1996, the Company amended the warrants held by
Manufacturers Indemnity and Insurance Company of America and Norman F. Siegel,
both unaffiliated stockholders, to purchase 285,000 shares and 16,667 shares,
respectively, 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. This stock was issued in reliance on the exemption under Section 4(2)
of the Securities Act of 1933.
10. In April and May 1996, the Company sold 8871 shares of its Series E
Convertible Preferred Stock in a private placement to certain individuals
identified in the table under "Selling Stockholders" inthe Prospectus. Of the
shares offered, 8470 were sold for $550.00 per share and 401 shares were sold
for $750.00. The gross proceeds of the offering were $4,959,250. This stock was
issued in reliance on the limited offering exemption of Regulation D under the
Securities Act of 1933. Under certain circumstances, each share of Series E
Convertible Preferred Stock is convertible into 100 shares of Common Stock.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Company, as amended by
Certificates of Amendment filed with the Delaware Secretary of State on
June 14, 1987 and February 12, 1991.
3.2 Certificate of Ownership (Merger) of COMFORCE Corporation into the
Company (included as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by
reference).
3.3 Bylaws of the Company, as amended and restated effective as of May 9,
1996.
5.1* Opinion of Doepken Keevican & Weiss.
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
<PAGE>
the Company's Annual Report on Form 10-K for the year ended December
31, 1992 and incorporated herein by reference).
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).
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 (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.7 Employment Agreement dated December 9, 1995 between the Company and
Michael Ferrentino (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.8 Employment Agreement dated December 9, 1995 between the Company and
Christopher Franco (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
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 (included as an exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
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 (included as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
11.1 Computation of earnings per share and equivalent share of Common Stock
for the three years ended December 31, 1995 (included as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
21.1 List of Subsidiaries (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
23.1* Consent of Doepken Keevican & Weiss.
23.2 Consent of Coopers & Lybrand L.L.P.
<PAGE>
24.1 Powers of Attorney (included on page II-5 of this Registration
Statement).
99.1** Consent of Kwiatt, Silverman & Ruben, Ltd.
- ----------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules. Set forth below is a list of the Financial
Statement Schedules included as a part of the Registration Statement. Schedules
not listed have been omitted because they are not applicable or the required
information has been included in the financial statements or notes thereto.
II. Valuation and Qualifying Accounts
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be filed on its behalf
by the undersigned, thereupon duly authorized, in the City of Lake Success,
State of New York, on May 9, 1996.
COMFORCE Corporation
(Registrant)
By: /s/ Michael Ferrentino
-----------------------
Michael Ferrentino,
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Ferrentino and Christopher P.
Franco, and each of them, with full power to act without the other, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this Registration Statement,
including post-effective amendments, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents of any of them, or any
substitute or substitutes, lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
President (Principal
/s/ Michael Ferrentino Executive Officer) and
Michael Ferrentino Director May 9, 1996
/s/ Andrew Reiben Chief Financial Officer
Andrew Reiben (Principal Financial
and Accounting Officer) May 9, 1996
/s/ Richard Barber Director May 9, 1996
Richard Barber
/s/ Keith Goldberg Director May 9, 1996
Keith Goldberg
/s/ Glen Miller Director May 9, 1996
Glen Miller
<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- 9
Schedules:
II. Valuation and Qualifying Accounts F-27
COMFORCE GLOBAL, INC.
Report of Independent Accountants F-28
Financial Statements:
Balance Sheets as of September 30, 1995 and December 31, 1994 F-29
Statements of Operations and Retained Earnings
(accumulated deficit) for the nine month period
ended September 30, 1995 and the year ended December 31, 1994 F-30
Statements of Cash Flows for the nine month period ended
September 30, 1995 and the year ended December 31, 1994 F-31
Notes to Financial Statements F-32
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 of this Form S-1. 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 $56 of amounts
due from related parties and $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. This consideration consisted of cash to the seller of approximately
$5.1 million, fees of approximately $700,000, including a fee of $500,000 to a
related party, and 500,000 shares of the Company's Common Stock issued as
consideration for various fees and guarantees associated with the transaction.
The 500,000 shares issued by the Company consisted of (i) 100,000 shares issued
to an unrelated party for guaranteeing the purchase price to the seller, (ii)
100,000 shares issued to ARTRA, then the majority stockholder of the Company, in
consideration of its guaranteeing the purchase price to the seller and agreeing
to enter into the Assumption Agreement, (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 the payment of the purchase price to the seller
and other guarantees to facilitate the transaction. The shares issued to Peter
R. Harvey and ARTRA are subject to ratification by the Company's stockholders.
These transactions have been approved by current management personnel and ARTRA,
which together own a majority of the outstanding shares of the Company's Common
Stock and, therefore, such ratification is expected. Additionally, in
conjunction with the COMFORCE Global acquisition, ARTRA has agreed to pay and
discharge 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
---------- ---------- ----------
Operating costs and expenses:
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 its 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 December 1995 the Company made loans totaling $56,000 to the above named
individuals to cover income tax liabilities relating to the issuances of shares
of the Company's common stock. Subsequent to December 31, 1995, the Company made
additional loans to these individuals totaling $289,000. All loans are evidenced
by notes which bear interest at 6% per annum and mature December 10, 1997.
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.
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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 privately owned company engaged in the technical staffing,
consulting and outsourcing business 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
======== ========= ======= ========
</TABLE>
(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.
<PAGE>
Report of Independent Accountants
To the Board of Directors of Comforce Global, Inc.:
We have audited the accompanying balance sheets of Comforce Global, Inc.
(formerly Spectrum Global Services, Inc., the "Company") as of September 30,
1995 and December 31, 1994, and the related statements of operations and
retained earnings (accumulated deficit) and cash flows for the nine month period
ended September 30, 1995 and the year ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Comforce Global, Inc. as of
September 30, 1995 and December 31, 1994, and the results of its operations and
its cash flows for the nine month period ended September 30, 1995 and the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Melville, New York
December 1, 1995
<PAGE>
Comforce Global, Inc.
Balance Sheets
as of September 30, 1995 and December 31, 1994
September 30, December 31,
ASSETS: 1995 1994
------------ ------------
Current assets:
Cash and cash equivalents $ 1,186,868 $ 426,334
Accounts receivable 1,602,659 1,456,583
Unbilled accounts receivable 279,626 158,793
Prepaid expenses and other assets 23,173 32,664
------------ ------------
Total current assets 3,092,326 2,074,374
Property and equipment, net 93,708 55,877
Intangible assets 2,149,661 2,272,890
Other assets 14,491 25,477
------------ ------------
Total assets $ 5,350,186 $ 4,428,618
============ ============
LIABILITIES AND STOCKHOLDERS'EQUITY(DEFICIENCY):
Current liabilities (deficiency):
Accounts payable $ 42,792 $ 27,714
Accrued liabilities 423,580 229,703
Income taxes payable 24,453
Accounts payable - parent 978,855 178,106
Accounts payable - affiliates 30,980 30,086
------------ ------------
Total current liabilities 1,476,207 490,062
------------ ------------
Stockholders' equity (deficiency):
Capital stock 1 1
Additional paid-in capital 3,919,999 3,919,999
Retained earnings (accumulated deficit (46,021) 18,556
------------ ------------
Total stockholders' equity 3,873,979 3,938,556
------------ ------------
Total liabilities and
stockholders' equity (deficiency) $ 5,350,186 $ 4,428,618
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
Comforce Global, Inc.
Statements of Operations and Retained Earnings (Accumulated Deficit)
Nine month
period ended Year ended
September 30, December 31,
1995 1994
------------ ------------
Sales $ 9,007,461 $ 8,244,721
------------ ------------
Direct costs and expenses:
Cost of sales 6,764,942 6,417,395
Operating expenses 1,159,168 1,133,298
------------ ------------
Total direct costs and expenses 7,924,110 7,550,693
------------ ------------
1,083,351 694,028
------------ ------------
Other income (expense):
Interest income 6,632 8,975
Overhead charges from parent (Note 9) (1,139,560) (803,280)
------------ ------------
Other income (expense) (1,132,928) (794,305)
------------ ------------
Loss before provision for income taxes (49,577) (100,277)
Income tax provision 15,000 14,740
------------ ------------
Net loss (64,577) (115,017)
Retained earnings, beginning of year 18,556 133,573
------------ ------------
Retained earnings(accumulated deficit),
end of period $ (46,021) $ 18,556
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
Comforce Global, Inc.
Statements of Cash Flows
Nine month
period ended Year ended
September 30, December 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net (loss) income $ (64,577) $ (115,017)
Adjustments to reconcile net income to cash
flows provided by operating activities:
Depreciation 18,836 10,173
Amortization 123,229 164,305
Changes in operating assets and liabilities:
Accounts receivable (146,076) (256,348)
Unbilled accounts receivable (120,833) (158,793)
Prepaid expenses 9,491 (9,186)
Deposits 10,986 (24,360)
Accounts payable 15,078 22,645
Accrued liabilities 193,877 139,216
Accounts payable - parent 800,749 178,106
Income taxes payable (24,453) (18,657)
Accounts payable - affiliate 894 30,086
------------ ------------
Net cash provided by (used in)
operating activities 817,201 (37,830)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (56,667) (54,318)
------------ ------------
Net cash used in investing activities (56,667) (54,318)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 760,534 (92,148)
------------ ------------
Cash and cash equivalents, beginning of year 426,334 518,482
------------ ------------
Cash and cash equivalents, end of period $ 1,186,868 $ 426,334
============ ============
Cash paid for:
Income taxes $ 35,371 $ 51,884
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
Comforce Global, Inc.
Notes to Combined Financial Statements
1. Description of Business:
Comforce Global, Inc. (formerly Spectrum Global Services, Inc., the "Company"),
a Delaware Corporation, became a wholly owned subsidiary of Spectrum Information
Technologies, Inc. through an acquisition of the Company's assets on October 31,
1993. On October 17, 1995, 100% of the stock of Spectrum Global Services, Inc.
was sold to Lori Corporation, at which time the Company changed its name to
Comforce Global, Inc.. The Company provides telecommunications and computing
staffing and consulting services worldwide.
2. Summary of Significant Accounting Policies:
Revenue Recognition
Revenue for providing staffing services is recognized at the time such services
are rendered.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid short-term investments with an
original maturity of three months or less. Cash equivalents consists primarily
of money market funds.
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 dates.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred. Expenditures for betterments and
major renewals are capitalized. The cost of assets sold or retired and the
related amounts of accumulated depreciation are eliminated from the accounts in
the year of disposal, with any resulting profit or loss included in income.
Depreciation and amortization of assets are provided using the straight-line
method over the estimated useful life of the asset.
Intangibles
Goodwill is amortized over 15 years on a straight line basis.
<PAGE>
Notes to Combined Financial Statements, Continued
Income Taxes
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. A
valuation allowance is recorded to reduce deferred tax assets to their expected
realizable value. The cumulative effect of implementing SFAS No.
109 as of January 1, 1994 was not significant.
3. Purchase of Assets:
On October 31, 1993, Spectrum Information Technologies, Inc. purchased the
assets and assumed the liabilities of Yield Industries, Inc. ("Yield") and
Wintec Corporation ("Wintec"). Subsequent to this, the name was changed to
Spectrum Global Services, Inc. The acquisition has been accounted for as a
purchase. The fair value of the assets acquired, including goodwill, was
$4,120,000 and liabilities assumed totaled $199,000. Goodwill of approximately
$2,465,000 is being amortized over 15 years on a straight-line basis.
4. Property and Equipment:
Property and equipment are summarized as follows:
Life of
equipment 1995 1994
--------- --------- ---------
Office equipment 3-5 years $ 61,311 $ 37,211
Furniture and fixtures 5-years 65,144 32,577
--------- ---------
126,455 69,788
Less, accumulated depreciation 32,747 13,911
--------- ---------
$ 93,708 $ 55,877
========= =========
<PAGE>
Notes to Combined Financial Statements, Continued
5. Income Taxes:
The provision for income taxes of $15,000 for the nine months ended September
30, 1995 and $14,740 for the year ended December 31, 1994 reflects minimum state
and local income taxes as the Company has state net operating losses on separate
Company returns. The Company files its federal income tax return as part of its
parent's consolidated return. Due to significant losses of the parent, the
Company has provided a full valuation on the potential future benefit from its
federal net operating losses. Net losses for financial reporting purposes do not
differ significantly from net losses for income tax purposes.
6. Concentration of Credit Risk:
The Company's accounts receivable as of September 30, 1995 and December 31, 1994
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 September 30, 1995 and
December 31, 1994, the Company had four customers with accounts receivable
balances that aggregated 48% and 46%, respectively, of the Company's total
accounts receivable. Percentages of total revenues from significant customers
for the nine month period ended September 30, 1995 and the year ended December
31, 1994 are summarized as follows:
September 30, December 31,
1995 1994
------------ ------------
Customer 1 19.2% 19.9%
Customer 2 12.9% 12.8%
Customer 3 10.5% 9.9%
The Company maintains cash in bank accounts which at times may exceed federally
insured limits. The Company has not experienced any losses in such accounts and
believes they are not exposed to any significant credit risk on their cash
balances. The Company believes it mitigates such risk by investing its cash
through major financial institutions.
7. Accrued Expenses:
Accrued expenses consist of the following:
1995 1994
------------ ------------
Payroll and payroll taxes $ 274,864 $ 143,449
Workers' compensation 70,000 70,000
Professional fees 42,408 7,531
Vacation 27,595 8,723
Other 8,713
------------ ------------
$ 423,580 $ 229,703
============ ============
<PAGE>
Notes to Combined Financial Statements, Continued
8. Commitments and Contingencies:
Leases
At September 30, 1995, future minimum annual rental commitments under
noncancelable operating leases are as follows:
1996 $ 57,388
1997 58,583
1998 60,703
1999 62,913
2000 54,111
----------
$ 293,698
==========
Total rent expense for the nine month period ended September 30, 1995 and the
year ended December 31, 1994 was $25,627 and $46,498, respectively.
9. Charges From Parent:
For the nine months ended September 30, 1995 and the year ended December 31,
1994, approximately $1,139,560 and $803,280, respectively, was charged to the
Company by its parent, Spectrum Information Technologies, Inc. as a management
charge which reflects an allocation of corporate overhead. Management expects
that such charges will no longer continue as a result of the sale of the Company
to Lori Corporation. Such charges may not represent expenses that would have
been incurred had the Company operated as a stand-alone entity. In addition, the
Company is charged by its parent company for insurance, rent, payroll,
professional fees, and other miscellaneous office expenses. Such charges
amounted to $236,808 and $506,113 for the nine month period ended September 30,
1995 and for the year ended December 31, 1994, respectively, and are included in
general and administrative expenses. The Company purchased furniture and
equipment and was charged miscellaneous office expenses from its affiliates.
Such charges amount to $1,014 and $29,967 in 1995 and 1994, respectively.
10. Other Matters:
On January 26, 1995, Spectrum Information Technologies, Inc., filed petition for
relief under Chapter 11 of the Bankruptcy Code (Spectrum Global Services, Inc.,
was not included in such filing). The sale of the stock of Spectrum Global
Services, Inc. to Lori Corporation on October 17, 1995 was formally approved by
the bankruptcy court.
RESTATED
CERTIFICATE OF INCORPORATION
OF
APECO CORPORATION
APECO CORPORATION, originally incorporated as APY Corporation on
February 13, 1969, hereby amends and restates its Certificate of Incorporation.
The Board of Directors of the Corporation duly adopted a resolution amending and
restating the Certificate of Incorporation on June 25, 1985 in accordance with
the provisions of Section 245 and Section 242 of the General Corporation Law of
Delaware. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors and as to any amendments was duly adopted by a vote of the
stockholders and restates and integrates and does further amend the provisions
of the Corporation's Restated Certificate of Incorporation as heretofore amended
or supplemented, and that there is no discrepancy between those provisions and
the provisions of this Restated Certificate of Incorporation, except as amended.
FIRST. The name of the Corporation is:
THE LORI CORPORATION
SECOND. The registered office of the Corporation in the State of Delaware is to
be located at 1209 Orange Street, Wilmington, Delaware, County of New Castle,
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH. Pursuant to the stock split and the increase of the Authorized Common
Stock enumerated below, the total number of shares which the Corporation shall
have authority to issue is seven million (7,000,000) of which six million
(6,000,000) shall be Common Stock with par value of one cent ($0.01) per share
and one million (1,000,000) shall be Preferred Stock with par value of one cent
($0.01) per share.
On the effective date of this Restated Certificate of this Restated
Certificate of Incorporation, each issued and outstanding share of Common Stock,
$.01 par value, shall be reclassified and converted into one-thirtieth (1/30) of
a share of Common Stock, with a one cent ($0.01) par value.
On the effective date of this Restated Certificate of Incorporation,
each issued and outstanding share of Preferred Stock, $.01 par value, shall be
reclassified and converted into one-tenth (1/10) of a share of Preferred Stock,
with a one cent ($0.01) par value.
<PAGE>
That notwithstanding the reverse split in both the Common Stock and the
Preferred Stock, the par value of one cent ($0.01) shall remain constant.
On the effective date of this Restated Certificate of Incorporation,
the authorized shares of Common Stock, par value one cent ($0.01), shall
increase from one million eighty hundred thirty-three thousand three hundred
thirty-three (1,833,333) to six million (6,000,000) shares of Common Stock, with
par value of one cent ($0.01) per share.
The Preferred Stock shall issue from time to time in one or more series
of such number of shares (which number may be increased or decreased, but not
below the number of shares thereof then outstanding, from time to time by action
of the Board of Directors) and with such distinctive serial designations and (a)
may have voting powers, full or limited, or may be without voting powers; (b)
may be subject to redemption at such time or times and at such prices; (c) may
be entitled to receive dividends (which may be cumulative or non-cumulative) at
such rate or rates, on such conditions, and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes or series of stock; (d) may have such rights upon the dissolution of,
or upon any distribution of the assets of, the Corporation; (e) may be made
convertible into or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of the
Corporation, at such price or prices or at such rates of exchange, and with such
adjustments; and (f) may have such other relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof, all
as shall hereafter be stated and expressed in the resolution or resolutions
providing for the issue of each such series of Preferred Stock from time to time
adopted by the Board of Directors pursuant to authority so to do which is hereby
expressly vested in the Board of Directors.
The holder of each outstanding share of Common Stock shall have one
vote per share with respect to all matters submitted to a vote of shareholders.
In all elections for Directors of the Corporation, each shareholder
entitled to vote shall be entitled to as many votes as shall equal the number of
votes, which, except for this provision as to cumulative voting, he would be
entitled to cast for the election of Directors with respect to his shares of
stock, multiplied by the number of Directors to be elected, and he may cast all
of such votes for a single Director or may distribute them among the number to
be voted for or any two or more of them as he may see fit.
The number of authorized shares of any class of stock of the
Corporation may be increased or decreased by the affirmative vote of the holders
of the majority of the stock of the Corporation entitled to vote, without regard
to class.
FIFTH. In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized, without shareholder
approval, to make, amend, alter or repeal the By-Laws of the Corporation.
Wherever the term "Board of Directors" is used in this Certificate of
Incorporation, such term shall mean the Board of Directors of the Corporation;
provided, however, that, to the extent any
<PAGE>
committee of directors of the Corporation is lawfully entitled to exercise the
powers of the Board of Directors, such committee may exercise any right or
authority of the Board of Directors under this Certificate of Incorporation.
SIXTH. Whenever a compromise of arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
shareholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or shareholder thereof, or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the shareholders or class of
shareholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
shareholders or class of shareholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the shareholders or class of
shareholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH. Meetings of shareholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elections of directors
need not be by written ballot unless the By-Laws of the Corporation so shall
provide. Any corporate action upon which a vote of shareholders is required or
permitted may be taken without a meeting and vote of shareholders with the
written consent of shareholders having not less than a majority of the total
number of votes entitled to be cast upon the action, or such larger percentage
required by statute, if a meeting were held. Prompt notice shall be given to all
shareholders of the taking of corporate action without a meeting by less than
unanimous written consent.
EIGHTH. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon shareholders
herein are granted, subject to this reservation.
NINTH. The Corporation shall indemnify its directors, officers, employees and
agents to the extent and in the manner provided in the By-Laws of the
Corporation, as such By-Laws may be amended from time to time, or as may
otherwise be determined from time to time by the Board of Directors of the
Corporation.
<PAGE>
IN WITNESS WHEREOF, said APECO CORPORATION has caused its seal to be
hereunto affixed and this Restated Certificate of Incorporation to be signed by
RICHARD MANDRA, its Vice President, and attested by Edwin Rymek, its Secretary,
this th day of , 1985.
APECO CORPORATION
By:______________________________
Richard Mandra, Vice President
Attest:
______________________
Edwin Rymek, Secretary
(corporate seal)
State of Illinois )
County of Cook ) ss:
<PAGE>
Duplicate Original
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE LORI CORPORATION
The LORI CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Lori
Corporation resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and directing that the proposed amendment be submitted to the
stockholders of said corporation at a duly called meeting for consideration
thereof. The proposed amendment is as follows:
RESOLVED; that the Certificate of Incorporation of this corporation be
amended by changing Article "NINTH" to read in its entirety as follows:
NINTH: A. To the fullest extent that the General Corporation
Law of the State of Delaware as its exists on the date hereof or as it
may hereafter be amended permits the limitation or elimination of the
liability of directors, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. No amendment to
this Certificate of Incorporation, directly or indirectly by merger,
consolidation or otherwise, having the effect of amending, altering,
changing or repealing any of the provisions of this paragraph A shall
apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal,
unless such amendment shall have the effect of further limiting or
eliminating such liability.
B. 1. The Corporation shall, to the fullest extent permitted by
applicable law as then in effect, indemnify any person (the
"indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness) or was or is threatened to be made
so involved in any threatened, pending or completed investigation,
claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, including, without limitation, any
action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor (a "Proceeding") by reason of the fact
that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer
of another corporation, or of a partnership, joint venture, trust or
other enterprise (including, without limitation, service with respect
to any employee benefit plan) whether the basis of any such proceeding
is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, against
all expenses, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) actually and reasonably
incurred by him in connection with such Proceeding. Such
indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his heirs and
legal representatives. The right to indemnification conferred in this
Article NINTH shall include the right to receive payment in advance of
any expenses incurred by the indemnitee in connection with such
proceeding, consistent with applicable law as then in effect, and shall
be a contract right. The Corporation may, by action of its Board of
Directors, provide indemnification of employees, agents, attorneys and
representatives of the Corporation with up to the same scope and extent
as hereinabove provided for officers and directors. No amendment to
this Certificate of Incorporation having the effect of amending,
altering, changing or repealing any of the provisions of the sections
of this paragraph B shall remove, abridge or adversely affect any right
to indemnification or other benefits under the sections of this
paragraph B with respect to any acts or omissions occurring prior to
such amendment or repeal.
2. The right of indemnification, including the right to
receive payment in advance of expenses, conferred in this Article NINTH
shall not be exclusive of any other rights to which any person seeking
indemnification may otherwise be entitled under any provision of the
Certificate of Incorporation, By-Law or agreement or otherwise.
3. In any action or proceeding relating to the right to
indemnification conferred in this Article NINTH, the Corporation shall
have the burden of proof that the indemnitee has not met any standard
of conduct or belief which may be required by applicable law to be
applied in connection with a determination of whether the indemnitee is
entitled to indemnity, or otherwise is not entitled to indemnity, and
neither a failure to make such a determination nor an adverse
determination of entitlement to indemnity shall be a defense of the
Corporation in such an action or proceeding or create any presumption
that the indemnitee has not met any such standard of conduct or belief
or is otherwise not entitled to indemnity. If successful in whole or in
part in such an action or proceeding, the indemnitee shall be entitled
to be indemnified by the Corporation for the expenses actually and
reasonably incurred by him in connection with such action or preceding
C. No amendment to this Certificate of Incorporation,
directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of
this Article NINTH, unless the amendment effecting such
amendment, alteration, change or repeal shall receive the
affirmative vote of the holders of at least a majority.
SECOND: That thereafter, written notice of the annual meeting was given to each
stockholder not less than 10 nor more than 60 days before the date of the annual
meeting which was held on June 18, 1987.
<PAGE>
THIRD: That said written notice set forth the proposed amendment in full plus
the place, date and hour of the meeting in accordance with Section 222 and
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That said amendment was duly adopted by a majority of the outstanding
stock entitled to vote thereon and by a majority of the outstanding stock of
each class entitled to vote thereon in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names on behalf of The Lori Corporation
and affirm that the statements made herein are true under the penalties of
perjury, this 19th day of June, 1987.
The LORI CORPORATION
By:______________________
Harris N. Kruger, President
(SEAL)
Attest:
By:
Edwin G. Rymek, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE LORI CORPORATION
THE LORI CORPORATION, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of The Lori Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation to
consider the amendment for approval in accordance with the General Corporation
Law of Delaware. The resolution setting forth the proposed amendment is as
follows:
RESOLVED; that Article FOURTH of the Articles of Incorporation of the
Corporation be amended and restated in its entirety to read as follows:
FOURTH. The total number of shares which the Corporation shall have
authority to issue is Eleven Million (11,000,000) of which Ten Million
(10,000,000) shall be Common Stock with par value of one cent ($0.01) per
share and One Million (1,000,000) shall be Preferred Stock with par value
of one cent ($0.01) per share.
The Preferred Stock shall issue from time to time in one or more series of
such number of shares (which number may be increased or decreased, but not
below the number of shares thereof then outstanding, from time to time by
action of the Board of Directors) and with such distinctive serial
designations and (a) may have voting powers, full or limited, or may be
without voting powers; (b) may be subject to redemption at such time or
times and at such prices; (c) may be entitled to receive dividends (which
may be cumulative or non-cumulative) at such rate or rates, on such
conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series
of stock; (d) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; (e) may be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes
of stock of the Corporation, at such price or prices or at such rates of
exchange, and with such adjustments; and (f) may have such other relative,
participating, optional or other special rights, qualifications,
limitations or restrictions thereof, all as shall hereafter be stated and
expressed in the resolution or resolutions providing for the issue of each
such series of Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do which is hereby expressly vested
in the Board of Directors.
The holder of each outstanding share of Common Stock shall have one vote
per share with respect to all matters submitted to a vote of shareholders.
In all elections for Directors of the Corporation, each shareholder
entitled to vote shall be entitled to as many votes as shall equal the
number of votes, which, except for this provision as to cumulative voting,
he would be entitled to cast for the election of Directors with respect to
his shares of stock, multiplied by the number of Directors to be elected,
and he may cast all of such votes for a single Director or may distribute
them among the number to be voted for or any two or more of them as he may
see fit.
The number of authorized shares of any class of stock of the Corporation
may be increased or decreased by the affirmative vote of the holders of
the majority of the stock of the Corporation entitled to vote, without
regard to class.
SECOND: That thereafter, pursuant to resolutions of its Board of Directors, the
annual meeting of the stockholders of said corporation was duly called and held
on December 19, 1990, upon written notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted by a majority of the outstanding
stock entitled to vote thereon in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said corporaiton has caused this certificate to be signed,
under penalties of perjury, by James D.Doering, its Vice President, and Edwin G.
Rymek, its Secretary, this 20th day of December, 1990.
The Lori Corporation
By:___________________________
James D.Doering, Vice President and
Chief Financial Officer
Attest:
Edwin Rymek, Secretary
COMFORCE Corporation
(a Delaware Corporation)
AMENDED AND RESTATED BY-LAWS
I. GENERAL
MEETINGS OF STOCKHOLDERS AND RECORD DATES
1. ANNUAL MEETING. An annual meeting of Stockholders for the election
of Directors and the transaction of such other business as may properly come
before the meeting shall be held on such day and at such hour as the Board of
Directors may designate. If the day fixed for the meeting is a legal holiday,
the meeting shall be held at the same hour on the next succeeding full business
day which is not a legal holiday.
2. SPECIAL MEETINGS. Special meetings of Stockholders may be called at
any time by the President or the Board of Directors. Upon written request of any
person or persons who shall have duly called a special meeting, it shall be the
duty of the Secretary to fix the date and hour of the meeting, to be held not
more than sixty days after the receipt of the request.
3. PLACE. Each annual or special meeting of Stockholders shall be held
at the principal office of the Corporation or at such other place as the Board
of Directors may designate.
4. NOTICE. Written notice stating the place, day, and hour of each
meeting of Stockholders and, in the case of special meetings, the general nature
of the business to be transacted, shall be mailed by the Secretary at least ten
days before the meeting to each Stockholder of record entitled to vote at the
meeting to his address appearing on the books of the Corporation or supplied by
him to the Corporation for the purpose of notice.
5. QUORUM. The presence, in person or by proxy, of Stockholders
entitled to cast at least a majority of the votes which all Stockholders are
entitled to cast on a particular matter shall constitute a quorum for the
purpose of considering such matter at a meeting of Stockholders. If a quorum is
not present in person or by proxy, those present may adjourn from time to time
to reconvene at such time and place as they may determine. In case of a meeting
called for the election of Directors, those present, in person or by proxy, at
the second of such adjourned meetings, although less than a quorum for any other
purpose, shall nevertheless constitute a quorum for the purpose of electing
Directors at such second adjourned meeting.
<PAGE>
6. VOTING. Every Stockholder entitled to vote at any Stockholders'
meeting shall be entitled, unless otherwise provided herein or by law, to one
vote for every share of capital stock standing in his name on the books of the
Corporation. Every Stockholder entitled to vote may authorize another person or
persons to act for him by proxy. All proxies shall be in writing and filed with
the Secretary. Unless otherwise provided by law, all questions shall be decided
by the vote of 51% of the outstanding common stock represented at any meeting.
7. RECORD DATES. The Board of Directors may fix a time not more than
fifty days prior to the date of any meeting of Stockholders, or the date fixed
for the payment of any dividend or distribution, or the date for the allotment
of rights, or the date when any change or conversion or exchange of shares will
be made or go into effect, as a record date for the determination of the
Stockholders entitled to notice of or to vote at any such meeting, or to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect to any such change, conversion
or exchange of shares. In such case, only such Stockholders as shall be
Stockholders of record at the close of business on the date so fixed shall be
entitled to notice of or to vote at such meeting, or to receive payment of such
dividend or distribution, or to receive such allotment of rights, or to exercise
such rights in respect to any change, conversion or exchange of shares, as the
case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date fixed as aforesaid.
II. DIRECTORS
1. NUMBER AND TERM. The Board of Directors shall consist of four
persons, unless the Board shall by resolution fix another number, which shall in
no event be less than three nor more than eight. Each Director shall be elected
at the annual meeting of the Stockholders following his election, and until his
successor is elected and qualified.
2. VACANCIES. Vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of Directors, may be filled by a
majority of the remaining Directors, though less than a quorum, by election of a
person to serve until the next annual meeting of Stockholders.
3. ANNUAL MEETING. An annual meeting of the Board of Directors shall be
held each year as soon as practicable after the annual meeting of Stockholders,
at the place where such meeting of Stockholders was held or at such other place
as the Board may determine, for the purposes of organization, election or
appointment of officers and the transaction of such other business as shall come
before the meeting. No notice of the meeting need be given.
4. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such times and at such places in Delaware or elsewhere as
the Board may determine.
5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the President or a majority of the Directors in office, to be held at
such time (as will permit the giving of notice as provided in this section) and
at such place as may be designated by the person or persons calling the meeting.
Notice of the place, day and hour of each special meeting shall be given to each
Director by the Secretary by written notice mailed on or before the third full
business day before the meeting or by notice received personally or by other
means at least 24 hours before the meeting.
<PAGE>
6. QUORUM. A majority of the Directors in office shall constitute a
quorum for the transaction of business but less than a quorum may adjourn from
time to time to reconvene at such time and place as they may determine.
7. COMPENSATION. Directors shall receive such compensation for their
services as shall be determined by the Board of Directors.
8. CONSENT ACTION. Any action which may be taken at a meeting of the
Board of Directors may be taken without a meeting, if a consent or consents in
writing, setting forth the action so taken, shall be signed by all of the
Directors, and shall be filed with the Secretary of the Corporation.
9. DUTIES OF DIRECTORS AND RELIANCE UPON THIRD PARTIES. Each Director
shall stand in a fiduciary relation to the Corporation and shall perform his or
her duties as a Director, including his or her duties as a member of any
committee of the Board upon which he or she may serve, in good faith, in a
manner he or she reasonably believes to be in the best interest of the
corporation, and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. In performing such duties, each Director shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following: (i) officers or employees of the Corporation
who the Director reasonably believes to be reliable and competent in the matters
presented; (ii) counsel, public accountants or other persons as to which matters
the Director reasonably believes to be within the professional or expert
competence of such person; and (iii) a committee of the Board of Directors upon
which he or she does not serve, duly designated in accordance with law, as to
matters within its designated authority, which committee the Director reasonably
believes to merit confidence. No Director of the Corporation shall be considered
to be acting in good faith if he or she has knowledge concerning the matter in
question that would cause such reliance to be unwarranted.
10. CONSIDERATION OF FACTS. In discharging the duties of their
respective positions, the Board of Directors, committees of the Board of
Directors and individual Directors may, in considering the best interest of the
Corporation, consider the effects of any such action upon employees, upon
suppliers and customers of the Corporation and upon communities in which offices
or other establishments of the Corporation are located, and all other pertinent
factors.
<PAGE>
11. LIMITATION OF LIABILITY. No Director of the Corporation shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, unless (i) the Director has breached or failed to
perform the duties of his office and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness; provided, however,
that the foregoing provisions of this Section 11 shall not apply to (i) the
responsibility or liability of a Director pursuant to any criminal statute; or
(ii) the liability of a Director for the payment of taxes pursuant to local,
state or federal law. Neither the amendment nor the repeal of this Section 11
shall eliminate or reduce the effect of this Section 11 with respect to any
matter occurring, or any cause of action, suit or claim that but for this
Section 11 would accrue or arise, prior to such amendment or repeal.
III. OFFICERS
1. OFFICERS. The Board of Directors at any time may elect a Chairman,
President, one or more Vice Presidents, a Treasurer and a Secretary, may
designate any one or more Vice Presidents, and may elect or appoint such
additional officers and agents as the Board may deem advisable. Any two or more
offices may be held by the same person.
2. TERM. Each officer and each agent shall hold office until his
successor is elected or appointed and qualified or until his death, resignation
or removal by the Board of Directors.
3. AUTHORITY, DUTIES AND COMPENSATION. All elected or appointed
officers and agents shall have such authority and perform such duties as may be
provided in the By-laws or as may be determined by the Board of Directors,
Chairman or the President. They shall receive such compensation for their
services as may be determined by the Board of Directors or in a manner approved
by it. Notwithstanding any other provisions of these By-laws, the Board shall
have power from time to time by resolution to prescribe by what officers or
agents particular documents or instruments or particular classes of documents or
instruments shall be signed, countersigned, endorsed or executed; provided,
however, that any person, firm or corporation shall be entitled to accept and to
act upon any document or instrument signed, countersigned, endorsed or executed
by officers or agents of the Corporation pursuant to the provisions of these
By-Laws unless prior to receipt of such document or instrument such person, firm
or corporation has been furnished with a certified copy of a resolution of the
Board prescribing a different signature, countersignature, endorsement or
execution.
4. CHAIRMAN. The Chairman shall preside at all meetings of the
Stockholders and of the Board of Directors. The Chairman shall perform such
duties as may be assigned to him by the Board of Directors.
5. PRESIDENT. The President shall sign all certificates of stock of the
Corporation or cause them to be signed in facsimile or otherwise as permitted by
law; and shall perform such other duties as from time to time may be assigned to
him by the Chairman or the Board of Directors.
<PAGE>
6. VICE PRESIDENTS. In the absence of the President or in the event of
his death, inability or refusal to act, the Vice President (or in the event that
there be more than one Vice President, the Vice Presidents, in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the Secretary
or Assistant Secretary, certificates for shares of the Corporation; and shall
perform such other duties as from time to time may be assigned to him by the
President or the Board of Directors.
7. SECRETARY. The Secretary shall give or cause to be given all
required notices of meetings of Stockholders and of the Board of Directors,
shall attend such meetings when practicable, shall record and keep the minutes
and all other proceedings thereof, shall attest such records after every meeting
by his signature, shall safely keep all documents and papers which shall come
into his possession, shall truly keep the books and accounts of the Corporation
appertaining to his office, shall countersign all certificates of stock of the
corporation or cause them to be countersigned in facsimile or otherwise as
permitted by law, may sign all bills, notes, checks and other negotiable
instruments of the Corporation or cause them to be signed in facsimile or
otherwise as the Board may determine, and shall present statements thereof when
required by the Board. In the absence or disability of the Secretary, an
Assistant Secretary shall have the authority and perform the duties of the
Secretary.
IV. REMOTE PARTICIPATION IN MEETINGS; WAIVER OF NOTICE
1. REMOTE PARTICIPATION ALLOWED. At any meeting of the Directors or
Stockholders, one or more Directors or Stockholders, as the case may be, may
participate in a meeting of the Board, of a committee of the Board or of the
Stockholders by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
2. WAIVER OF NOTICE. Whenever any written notice is required to be
given under the provisions of the Delaware Corporation Law or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein shall be deemed
equivalent to the giving of such notice.
V. INDEMNIFICATION
1. DIRECTORS, OFFICERS, EMPLOYEES AND REPRESENTATIVES. The Corporation
shall indemnify each Director and officer, and it may indemnify each employee
and representative, of the Corporation to the fullest extent permitted by Law,
against all liabilities and expenses, including without limitation, judgments,
fines, penalties, attorney's fees and amounts paid in settlement, imposed upon
or reasonably incurred by him in connection with or resulting from any
threatened, pending or completed claim, action, suit or proceeding, whether
<PAGE>
civil, criminal, administrative or investigative (whether brought by or in the
right of the Corporation or otherwise), in which he may become involved as a
party or otherwise by reason of his being or having been such Director, officer,
employee or representative or by reason of his serving or having served at the
request of the Corporation as a director, officer, employee or other
representative of another corporation, partnership, joint venture, trust or
other enterprise; provided, however, that the foregoing indemnification
provisions shall not apply to a threatened, pending or completed claim, action,
suit or proceeding which is initiated by him.
2. DETERMINATION OF RIGHT OF INDEMNIFICATION. The indemnification
provided or permitted by subsection (a) shall apply (i) whether or not the
Director, officer, employee or representative continues to be such at the time
such liabilities or expenses are imposed or incurred, whether the act or failure
to act which is the subject of such claim, action, suit or proceeding occurred
before or after the adoption of this by-law, and whether or not the indemnified
liability or expenses arose or arise from a threatened, pending or completed
claim, action, suit or proceeding by or in the right of the Corporation, and
(ii) both to acts or omissions in his official capacity and to acts or omissions
in another capacity while holding such office.
3. PAYMENT OF EXPENSES. Expenses incurred by a Director, officer,
employee or representative of the Corporation in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition thereof upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation.
4. BASIS OF RIGHTS, OTHER RIGHTS. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article V shall not be
exclusive of any other rights to which persons seeking indemnification or
advancement of expenses may be entitled under any provision of law, agreement,
vote of Stockholders or Directors or otherwise, both as to an act or omission in
his official capacity and as to an act or omission in another capacity while
holding such office, and shall inure to the benefits of their heirs, executors,
administrators and other legal representatives of such person.
5. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or
representative of the Corporation or who is or was serving at the request of the
Corporation as a Director, officer, employee or other representative of another
corporation, partnership, joint venture, trust or other enterprise, for any
liability asserted against such Director, officer, employee or representative
and incurred by him in any capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the laws of the State of Delaware.
<PAGE>
VI. MISCELLANEOUS
1. FISCAL YEAR. The fiscal year of the Corporation shall end each year
on December 31st.
2. SHARE TRANSFERS AND RECORDS. The Board of Directors may appoint a
transfer agent or transfer agents and a registrar or registrars to make and
record all transfers of shares of stock of the Corporation of any class. Each
transfer agent shall prepare transfer records showing transfers made through the
office of such agent. A share register shall be kept at the registered office of
the Corporation. Such share register shall constitute books of the Corporation
with respect to shares of stock of any class and the holders of record thereof,
provided that the Board of Directors may designate instead as the books of the
Corporation for this purpose a share register kept at the office of a transfer
agent or registrar. If the Board of Directors shall have appointed a transfer
agent or transfer agents and a registrar or registrars for stock of any class,
all transfers of stock of such class shall be made only by such transfer agent
or transfer agents at their offices and shall be recorded in their books and in
the books of the registrar or registrars. In case of loss, destruction or theft
of a certificate of stock, another may be issued in lieu thereof in such manner
and upon such terms as the Board of Directors shall authorize.
3. AMENDMENTS. The By-Laws of the Corporation may be altered, amended,
added to or repealed by action of the Board of Directors.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
COMFORCE CORPORATION.
(A DELAWARE CORPORATION)
ADOPTED: May ___, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to registration statement on
Form S-1 (File No. 33-60403) of our report, dated April 15, 1996 on our audits
of the consolidated financial statements and financial statement schedules of
COMFORCE Corporation and Subsidiaries as of December 31, 1995 and 1994, and for
each of the three fiscal years in the period ended December 31, 1995. We also
consent to the inclusion in this Amendment No. 1 to Form S-1 of our report,
dated December 1, 1995, on our audit of the balance sheets of Comforce Global,
Inc. (formerly Spectrum Global Services, Inc.) as of September 30, 1995 and
December 31, 1994, and the related statements of operations and retained
earnings (accumulated deficit) and cash flows for the nine month period ended
September 30, 1995 and the year ended December 31, 1994.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
May 10, 1996
