As filed with the Securities and Exchange Commission on December 24,1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under The Securities Act of 1933
ISSUER OF SENIOR DEBENTURES REGISTERED HEREBY
COMFORCE Corporation
(Exact name of registrant as specified in its charter)
Delaware 7361 36 - 2262248
(State or other (Primary Standard (I.R.S Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
--------------------
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
(516) 328-7300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------
Christopher P. Franco
Chief Executive Officer
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
(516) 328-7300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
David G. Edwards, Esquire
Doepken Keevican & Weiss Professional Corporation
58th 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 of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price (1) (2)
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<S> <C> <C> <C> <C>
15% Senior PIK $20,000,000 100% $20,000,000 $5,900
Debentures due 2009,
Series B
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</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2).
(2) Calculated pursuant to Rule 457(f)(2).
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER __, 1997
PRELIMINARY PROSPECTUS
COMFORCE CORPORATION
OFFER TO EXCHANGE
15% SENIOR SECURED PIK DEBENTURES DUE 2009, SERIES B
FOR 15% SENIOR SECURED PIK DEBENTURES DUE 2009, SERIES A.
-----------------------
The Exchange Offer will expire at 5:00 P.M., New York City time, on
____________, 1998, unless extended.
-----------------------
COMFORCE Corporation, a Delaware corporation ("COMFORCE"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, to exchange (the "Debentures Exchange
Offer") its 15% Senior Secured PIK Debentures, Series B (the "New Senior
Debentures" or the "Exchange Senior Debentures") for an equal principal amount
of its outstanding 15% Senior Secured PIK Debentures, Series A (the "Old Senior
Debentures" or the "Unregistered Senior Debentures") (the Old Senior Debentures
and the New Senior Debentures are collectively referred to as the "Senior
Debentures"), of which an aggregate principal amount of $20,000,000 is
outstanding as of the date hereof. The form and the terms of the New Senior
Debentures will be the same in all material respects as the form and terms of
the Old Senior Debentures, except that (i) the New Senior Debentures will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and hence will not bear legends restricting the transfer thereof and (ii)
holders of the New Senior Debentures will not be entitled to certain rights of
holders of Old Senior Debentures under the Exchange Offer and Registration
Rights Agreement dated as of November 26, 1997 relating to the Old Senior
Debentures (the "Debentures Registration Rights Agreement"), which will
terminate upon consummation of the Debentures Exchange Offer. See "The
Debentures Exchange Offer--Purpose and Effect of the Debentures Exchange Offer."
The New Senior Debentures will be initially issued as a single, permanent global
certificate. See "Book-Entry; Delivery and Form" and "Description of Senior
Debentures."
(continued on next page)
-----------------------
See "Risk Factors" on Page 31 for a Description of Certain Risks to Be
Considered by Holders Who Tender Their Old Senior Debentures for New Senior
Debentures.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The date of this Prospectus is ______________.
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(continued from previous page)
The Old Senior Debentures were issued on November 26, 1997 as part of a
series of transactions (the "Transactions"), consisting of (i) the offer and
sale (the "Units Offering") by COMFORCE of 20,000 Units (the "Units"), each Unit
consisting of $1,000 in principal amount of Old Senior Debentures and 8.45
Warrants (the "Warrants"), each to purchase one share of the common stock of
COMFORCE, (ii) the offer and sale (the "Notes Offering") by COMFORCE Operating,
Inc. ("COI"), a wholly owned subsidiary of COMFORCE, of $110,000,000 in
principal amount of 12% Senior Notes due 2007, Series A (the "Old Notes" or the
"Unregistered Notes"), (iii) COMFORCE's acquisition (the "Uniforce Acquisition")
of Uniforce Services, Inc. ("Uniforce") through a tender offer and a merger of a
wholly-owned subsidiary of COI with and into Uniforce, the cash portion of which
was funded using a portion of the proceeds of the Notes Offering and (iv) the
refinancing (the "Refinancing") of certain existing indebtedness of COMFORCE and
Uniforce using the remainder of the net proceeds of the Notes Offering, the net
proceeds of the Units Offering and the net proceeds of a new bank credit
facility (the "New Credit Facility"). Simultaneously with the Debentures
Exchange Offer, COI is conducting an offer (the "Notes Exchange Offer") to
exchange the Old Notes for 12% Senior Notes due 2007, Series B (the "New Notes"
or the "Exchange Notes," and, collectively with the Old Notes, the "Notes"), as
required by the Exchange Offer and Registration Rights Agreement dated as of
November 26, 1997 relating to the Old Notes (the "Notes Registration Rights
Agreement"). The Debentures Exchange Offer and the Notes Exchange Offer are
collectively referred to herein as the "Exchange Offers", and the Debentures
Registration Rights Agreement and the Notes Registration Rights Agreement are
collectively referred to herein as the "Registration Rights Agreements." The Old
Notes and the Old Senior Debentures are sometimes referred to herein
collectively as the "Unregistered Securities." The New Notes and the New Senior
Debentures are sometimes referred to herein collectively as the "Exchange
Securities." Unless otherwise defined in this Prospectus, the "Company" means
COMFORCE and its subsidiaries after giving effect to the Uniforce Acquisition.
The Old Senior Debentures were issued and sold in a transaction exempt from
the registration requirements of the Securities Act and may not be offered or
sold in the United States unless so registered or pursuant to an applicable
exemption under the Securities Act. The New Senior Debentures are being offered
herewith in order to satisfy certain obligations of the Company contained in the
Debentures Registration Rights Agreement. Based on no-action letters issued by
the staff of the Securities and Exchange Commission (the "Commission") to third
parties, the Company believes that the New Senior Debentures to be issued
pursuant to the Debentures Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such Exchange Senior Debentures from COMFORCE to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, or (ii) a
person that is an "affiliate" of COMFORCE within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Senior
Debentures are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such Exchange Senior Debentures. However, COMFORCE has not
sought a no-action letter with respect to the Debentures Exchange Offer, and
there can be no assurance the staff of the Commission would make a similar
determination with respect to the Debentures Exchange Offer. Eligible holders
wishing to accept the Debentures Exchange Offer must represent to COMFORCE that
such conditions have been met. Each broker-dealer that receives Exchange Senior
Debentures for its own account pursuant to the Debentures Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Senior Debentures. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act. A
broker-dealer may nonetheless be deemed to be an "underwriter" under the
Securities Act notwithstanding such disclaimer. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Senior Debentures received in exchange for
Unregistered Senior Debentures where such Unregistered Senior Debentures were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. COMFORCE has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Old Senior Debentures whose Old Senior Debentures are not
tendered and accepted in the Debentures Exchange Offer will continue to hold
such Old Senior Debentures and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto under the
indenture governing the Senior Debentures. Following consummation of the
Debentures Exchange Offer, the holders of Old Senior Debentures will continue to
be subject to the existing restrictions upon transfer thereof, and COMFORCE will
have no further
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obligation to such holders to provide for the registration under the Securities
Act of the Old Senior Debentures held by them. The New Senior Debentures will
evidence the same debt as the Old Senior Debentures and will be entitled to the
benefits of the indenture (the "Senior Indenture"), dated as of November 26,
1997, governing the Senior Debentures.
Interest on the Senior Debentures is payable semi-annually on June 1 and
December 1 of each year, commencing June 1, 1998. Interest on the Senior
Debentures is payable either in cash or in additional Senior Debentures, at the
option of the Company, until December 1, 2002, and thereafter is payable in
cash. The Senior Debentures will mature on December 1, 2009. The Company may
redeem the Senior Debentures, in whole or in part, at any time, at the
redemption prices set forth herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, at any time and from time to
time, the Company may, subject to certain requirements, redeem up to 100% of the
aggregate principal amount of the Senior Debentures, with the cash proceeds of
one or more Equity Offerings (as defined) at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the date of
redemption. The Senior Debentures are not subject to any sinking fund
requirement. Upon the occurrence of a Change of Control (as defined), the
Company will be required to make an offer to repurchase the Senior Debentures at
a price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase. See "Description of Senior
Debentures-Optional Redemption" and "-Change of Control."
The Senior Debentures are direct and unconditional senior secured
obligations of COMFORCE and are secured by a pledge by COMFORCE of all of the
issued and outstanding common stock of COI. The payment obligations of COMFORCE
under the Senior Debentures will at all times rank at least equal in priority of
payment with all existing and future Indebtedness (as defined) of COMFORCE. The
Senior Indenture permits COMFORCE to incur additional Indebtedness (including
secured indebtedness and other additional senior indebtedness) subject to
certain limitations. As of September 30, 1997, on a pro forma basis after giving
effect to the Transactions, the aggregate principal amount of COMFORCE's
outstanding senior indebtedness would have been approximately $20.0 million. The
Senior Debentures are structurally subordinated to all indebtedness of
COMFORCE's direct and indirect subsidiaries and effectively subordinated to all
future secured indebtedness of COMFORCE. As of September 30, 1997, on a pro
forma basis, after giving effect to the Transactions, (i) COMFORCE had no
outstanding secured indebtedness (other than indebtedness under the Senior
Debentures) and (ii) the aggregate amount of the outstanding liabilities of
subsidiaries of COMFORCE to which holders of Senior Debentures would be
structurally subordinated would have been $169.6 million (including $147.8
million of indebtedness). See "Description of Senior Debentures" and
"Description of Other Indebtedness."
The Debentures Exchange Offer is not conditioned on any minimum aggregate
amount of Old Senior Debentures being tendered for exchange. The Company will
accept for exchange any and all validly tendered Unregistered Senior Debentures
not withdrawn prior to 5:00 p.m., New York City time, on ____________, 1998
unless extended by the Company, (the "Expiration Date"). Tenders of Unregistered
Senior Debentures may be withdrawn at any time prior to the Expiration Date. The
Debentures Exchange Offer is subject to certain customary conditions. See "The
Debentures Exchange Offer--Conditions." The Company has agreed to pay all
expenses incident to the Debentures Exchange Offer. The Company will not receive
any proceeds from the Debentures Exchange Offer.
The Unregistered Senior Debentures constitute securities for which there is
no established trading market. Any Unregistered Senior Debentures not tendered
and accepted in the Debentures Exchange Offer will remain outstanding. The
Company does not currently intend to list the Exchange Senior Debentures on any
securities exchange. To the extent that any Unregistered Senior Debentures are
tendered and accepted in the Debentures Exchange Offer, a holder's ability to
sell untendered Unregistered Senior Debentures could be adversely affected. No
assurances can be given as to the liquidity of the trading market for either the
Unregistered Senior Debentures or the Exchange Senior Debentures.
THE DEBENTURES EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY
ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD SENIOR DEBENTURES IN ANY
JURISDICTION IN WHICH THE DEBENTURES EXCHANGE OFFER OR THE ACCEPTANCE THEREOF
WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Senior Debentures (the
"Debentures Registration Statement") offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Debentures Registration Statement.
For further information with respect to the Company and the Exchange Senior
Debentures offered hereby, reference is made to the Debentures Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto), as well as the periodic reports and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such information can also be reviewed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System which is publicly available through the
Commission's Web Site (http:www.sec.gov). Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified by such reference.
Pursuant to the Senior Indenture, the Company has agreed to furnish to The
Bank of New York, as trustee for the Senior Debentures (the "Debentures
Trustee") and to registered holders of the Senior Debentures, without cost to
the Debentures Trustee or such registered holders, copies of all reports and
other information that would be required to be filed by the Company with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not the Company is then required to file reports with the
Commission.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business" and
elsewhere constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company, or industry results, to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: potential inability of the Company to integrate acquired businesses;
uncertainties inherent in executing the Company's acquisition strategy; the
effect of existing and emerging competition; limited experience of the Company's
officers in managing rapid growth; the loss of any significant customers;
general economic and business conditions; competition for qualified staffing
personnel; and the possible adverse effects on earnings resulting from
amortization of goodwill relating to acquisitions. See "Risk Factors."
IMPORTANT
To properly tender Unregistered Senior Debentures, the following procedures
must be followed:
o Each beneficial owner owning interests in Unregistered Senior Debentures
("Beneficial Owner") through a DTC Participant (as defined) must instruct
such DTC Participant to cause Unregistered Senior Debentures to be tendered
in accordance with the procedures set forth in this Prospectus and in the
applicable Letter of Transmittal.
o Each participant (a "DTC Participant") in the Depository Trust Company
("DTC") holding Unregistered Senior Debentures through DTC must (i)
electronically transmit its acceptance to DTC through the DTC
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Automated Tender Offer Program ("ATOP"), for which the transaction will be
eligible, and DTC will then edit and verify the acceptance, execute a
book-entry delivery to the account of The Bank of New York (the "Debentures
Exchange Agent") at DTC and send an Agent's Message (as defined) to the
Debentures Exchange Agent for its acceptance, or (ii) comply with the
guaranteed delivery procedures set forth under "Debentures Exchange
Offer--Guaranteed Delivery Procedures." By tendering through ATOP, DTC
Participants will expressly acknowledge receipt of the accompanying Letter
of Transmittal and agree to be bound by its terms and the Company will be
able to enforce such agreement against such DTC participants.
o Each registered owner of certificated Unregistered Senior Debentures (a
"Holder") must (i) complete and sign the accompanying Letter of
Transmittal, and mail or deliver such Letter of Transmittal, and all other
documents required by the Letter of Transmittal, together with
certificate(s) representing all tendered Unregistered Senior Debentures, to
the Debentures Exchange Agent at its address set forth under "Debentures
Exchange Offer-- Debentures Exchange Agent," or (ii) comply with the
guaranteed delivery procedures set forth under "Debentures Exchange
Offer--Guaranteed Delivery Procedures."
For purposes of this Prospectus, "Tendering Holder" shall mean (i) each DTC
Participant that has properly transmitted (and not properly withdrawn) its
acceptance through ATOP and in respect of which DTC has sent an Agent's Message,
(ii) each Holder that has timely delivered to the Debentures Exchange Agent (and
not properly withdrawn) a properly completed and duly executed Letter of
Transmittal, and any other documents required by the Letter of Transmittal,
together with certificate(s) representing all tendered Unregistered Senior
Debentures, or (iii) each DTC Participant or Holder that has complied with the
guaranteed delivery procedures set forth herein.
The information in this Prospectus concerning DTC and their book-entry
systems has been obtained by the Company from sources that the Company believes
to be reliable, and the Company takes no responsibility for the accuracy
thereof.
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements and the related notes thereto appearing
elsewhere in this Prospectus. Prospective investors are urged to read this
Prospectus in its entirety before investing in the New Notes or the New Senior
Debentures. Unless the context otherwise requires, (i) "COMFORCE" means COMFORCE
Corporation or, where the context requires, COMFORCE Corporation and its
subsidiaries prior to the Uniforce Acquisition, (ii) "Uniforce" means Uniforce
Services, Inc. and its subsidiaries prior to the Uniforce Acquisition, (iii)
"COI" means COMFORCE Operating, Inc., a Delaware corporation which is
wholly-owned by COMFORCE, and its subsidiaries following the Uniforce
Acquisition, and (iv) the "Company" means COMFORCE Corporation, a Delaware
corporation, and its subsidiaries following the Uniforce Acquisition. As a
consequence of the formation of COI and the effective transfer of the assets of
the Subsidiaries thereto, for financial reporting purposes, COI is deemed to
have become a new reporting entity. On a pro forma basis, the Senior Debentures
of the Company have been "pushed down" to the financial statements of COI, and
the PIK Preferred Stock (as defined) of COI has been eliminated. Accordingly, on
a pro forma basis, the financial statements of the Company and COI are the same.
The Company
The Company is a leading provider of specialty staffing, consulting and
outsourcing solutions primarily to Fortune 500 companies for their information
technology ("IT"), telecommunications, scientific and engineering-related needs.
Through its network of 86 offices (55 Company-owned and 31 licensed) located
throughout the United States, the Company recruits and places highly skilled
contingent personnel and outsources payrolling and other financial services for
a broad customer base of over 2,300 companies. The Company's labor force
includes approximately 7,800 billable employees, consisting primarily of
computer programmers, systems consultants and analysts, telecommunications and
other engineers and technicians, scientists and researchers, as well as skilled
office support personnel. The Company also maintains a database of over 160,000
highly skilled employees. The Company had pro forma net sales and Adjusted
EBITDA (as defined) of $379.3 million and $22.4 million, respectively, for the
twelve-month period ended September 30, 1997.
The Company's senior management team of Christopher P. Franco, James L.
Paterek and Michael Ferrentino established COMFORCE in 1995 to capitalize on the
consolidation opportunities in the specialty staffing and consulting industry.
Since the initial acquisition of COMFORCE Telecom Inc. in October 1995 until
prior to the acquisition of Uniforce in November 1997, this management team has
successfully acquired and integrated seven specialty staffing companies with
1995 annual sales of approximately $175.2 million. These companies had histories
of profitable growth, and COMFORCE has continued this growth during 1996 and
1997 after completing the acquisitions. COMFORCE's net sales and EBITDA (as
defined) increased by 16.7% and 30.9%, respectively, for the nine months ended
September 30, 1997 on a pro forma basis.
On November 26, 1997, COMFORCE completed a tender offer pursuant to which
it acquired, through an indirect wholly-owned subsidiary, approximately 96.5%
the issued and outstanding common stock of Uniforce. On December 3, 1997, as the
result of a merger, Uniforce became an indirect wholly-owned subsidiary of
COMFORCE. Uniforce is a leading provider of staffing and consulting solutions
for the IT, professional and office support markets and funding services to
independent staffing and consulting firms, with pro forma net sales for the
twelve months ended September 30, 1997 of $171.7 million. Uniforce's net sales
and EBITDA increased by 25.6% and 19.3%, respectively, for the nine months ended
September 30, 1997 on a pro forma basis. The Company's net sales and EBITDA
increased by 20.6% and 24.1%, respectively, for the nine months ended September
30, 1997 on a pro forma combined basis. The Uniforce Acquisition positions the
Company with the critical mass, breadth of services and geographic penetration
to continue to increase sales through internal and external growth and improve
profitability through economies of scale and integration efficiencies.
COI was incorporated in Delaware in October 1997. The Company was
incorporated in Illinois in 1954 and became a Delaware corporation through its
merger with a Delaware subsidiary in 1969. It maintains its headquarters
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at 2001 Marcus Avenue, Lake Success, New York 11042. The Company's telephone
number is (516) 328-7300 and its address on the World Wide Web is
www.comforce.com.
The Company operates through four divisions, as described below:
COMFORCE Information Technologies. The Company's IT division provides
highly skilled programmers, help desk personnel, systems consultants and
analysts, software engineers and project managers for a wide range of technical
assignments, including client server, mainframe, Year 2000, desktop services,
internet/intranet and MIS. The IT division also provides payrolling services in
addition to these staffing solutions to certain of its IT customers. The
Company's principal IT customers include Microsoft, BellSouth, Boeing
Information Services, Kodak, Tyson Foods, First Union Corporation, NationsBanc
and MCI. Through Uniforce's Brannon & Tully(R) and Montare International(TM)
divisions, the Uniforce Acquisition significantly enhances the Company's
presence in this high-growth sector of the staffing industry which the Company
believes will increase 20% to 25% per year. The Company expects this division to
grow principally through increased sales to existing IT customers and through
opportunities to cross-sell the Company's IT staffing solutions to its Telecom
and other division customers. For the twelve-month period ended September 30,
1997, the IT division had pro forma net sales of $117.9 million.
COMFORCE Telecom. The Company's Telecom division provides skilled personnel
to plan, design, engineer, install and maintain wireless and wireline
telecommunications systems, including cellular, PCS, microwave, radio, satellite
and other networks. The Company's staffing and consulting business originated
with this specialty sector, and the Company and several of the companies it has
acquired have long-standing relationships with leading telecommunications
companies. The Telecom division's principal customers include AT&T Wireless,
NORTEL, Harris, Lucent Technologies, Reltec, ALCATEL, Motorola, Sprint PCS and
Omnipoint. The Company expects this division to continue to grow significantly
through increased sales to existing Telecom customers as well as through
cross-selling opportunities with the telecommunications customers served by the
Company's IT division. For the twelve-month period ended September 30, 1997, the
Telecom division had pro forma net sales of $31.2 million.
COMFORCE Staffing Services. The Company's Staffing Services division
operates in two areas, Technical Services and Professional Services. The Company
provides Technical staffing solutions and, in some cases, payrolling services to
a group of technology-intensive clients working in the areas of aerospace,
avionics, electronics, laser and weapons technology, environmental safety and
alternative energy source development. The Company's Technical Services business
is generally conducted through long-term, high-volume contracts that are not
subject to fixed prices and require low administrative overhead. The Company
offers Professional staffing services through 10 Company-owned and 31 licensed
locations that provide services including medical office staffing solutions,
office automation personnel, customer service/call center personnel and
laboratory professionals. The Staffing Services division's principal Technical
Services customers include Boeing, Westinghouse, McDonnell Douglas and the
National Research Laboratories at Los Alamos, Sandia and Lawrence Livermore. The
Staffing Services division's Professional Services customers include R.R.
Donnelley, Estee Lauder and Dial, as well as many smaller companies such as
independent medical providers and accounting firms. The Company believes it has
a significant opportunity to cross-sell its Professional Services to its
Technical Services customers as well as to its IT and Telecom customers. For the
twelve-month period ended September 30, 1997, the Staffing Services division had
pro forma net sales of $168.3 million, of which $47.5 million related to sales
by licensees.
COMFORCE Financial Services. The Company's Financial Services division
provides payroll funding services and back office support to approximately 100
independent consulting and staffing companies and provides consulting and
related payrolling services to clients in connection with their use of
independent contractors. The Financial Services division significantly benefits
from Uniforce's sophisticated back office operations, as well as Uniforce's
substantial investment in the PeopleSoft(R) software package, which the Company
believes will become the industry standard. For the twelve-month period ended
September 30, 1997, the Financial Services division had pro forma net sales of
$61.9 million.
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The Contingent Staffing and Consulting Industry
The contingent staffing and consulting industry has evolved into a
permanent and significant component of the staffing plans of many corporations.
Corporate restructuring, downsizing, increased government regulations governing
employee relations, advances in technology and the desire by many companies to
shift employee costs from a fixed to a variable expense and to reduce
administrative overhead have resulted in the use of a wide range of staffing and
outsourcing alternatives by businesses. The number of temporary workers as a
percentage of total employment in the United States has increased from 0.2% in
1972 to more than 2% in 1996, based on statistics published by the U.S. Bureau
of Labor Statistics. The contingent staffing and consulting industry has grown
rapidly in the 1990s, and industry analysts expect this growth to continue. The
U. S. market for staffing services grew at a compound annual rate of
approximately 16.3% from approximately $20.5 billion in 1991 to approximately
$43.6 billion in 1996, according to statistics published by the National
Association of Temporary and Staffing Services ("NATSS"), a staffing industry
trade association.
Staffing firms that recruit contingent employees generally fall into two
major categories: (i) "specialty" staffing and consulting firms, which
specialize in one or a few specialty fields, such as the Company's IT and
Telecom sectors and portions of its Technical services sector, and (ii)
"traditional" staffing firms, which tend to supply primarily clerical or light
industrial personnel. The specialty staffing and consulting sector of the
industry has represented an area of more rapid growth that has tended to
generate higher margins than more traditional staffing services. Taxable
revenues attributable to supplying personnel in the specialty staffing and
consulting sector have increased from $5.1 billion in 1990 to $7.4 billion in
1993 and $10.0 billion in 1994, an annual growth rate of 35.1% between 1993 and
1994 and 18.3% over the four-year period, based on information published by the
Census Bureau. The Company believes that the IT portion of the specialty
staffing and consulting sector will grow at a rate of 20%to 25% annually over
the next few years. In addition, the Company believes that, although the
contingent staffing industry as a whole has tended to be cyclical, the specialty
staffing and consulting sector may continue to grow during economic downturns
because technological changes will continue to necessitate spending for both
infrastructure and to retain employees skilled in new technologies. In recent
years, there has been intense competition to attract the limited number of
qualified personnel with the skills and experience necessary to meet the
specialty staffing and consulting requirements of clients. The Company believes
that it is increasingly important for a staffing firm to be able to provide
interesting assignments with high-profile clients that offer employees the
opportunity to enhance their skills and marketability, as well as to offer
competitive wages and benefits packages.
Larger users of staffing services are increasingly demanding centralized
staffing services through national contracts with a few preferred providers. In
part as a result of this trend toward national contracts, the highly fragmented
industry is also currently experiencing a trend toward consolidation. These
trends have increased the need for staffing firms to be able to provide highly
qualified contingent staffers offering a broad range of services on a
nation-wide or international basis and also to provide value-added services such
as training capabilities, management services and the ability to effectively
utilize technology in the recruiting, training and hiring of contingent
staffers.
Business Strengths
o Emphasis on Specialty Staffing and Consulting Sectors. The Company
provides high-quality, creative staffing and consulting solutions to companies
with dynamic needs in specialty high technology areas. Through its focused
acquisition program, the Company has increased its presence in the high-growth
IT, telecommunications, scientific and engineering-related sectors. The Company
adopted this strategy to capitalize on these areas, which generally produce
higher profit margins and experience lower turnover rates and less cyclicality
than more traditional staffing industry sectors. The Uniforce Acquisition
enhances and expands the Company's presence in these specialty areas, which
represented a majority of the Company's net sales on a pro forma basis for the
twelve-month period ended September 30, 1997.
o High-Quality Customer Base. The Company benefits from established,
long-standing relationships with a broad customer base which includes many
Fortune 500 clients. The Company provides staffing services to over
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2,300 companies in diverse industries throughout the United States and
internationally and has an excellent customer retention record. The Company's
principal customers include many dynamic businesses in growing industries that
have an increasing need for contingent employees. The Company's key customers
include Boeing, Microsoft, Sun Microsystems, BellSouth and Los Alamos National
Laboratory. None of the Company's customers accounts for more than 10% of sales
on a pro forma combined basis.
o Critical Mass. Through its history of successful acquisitions, the
Company has broadened and added to its line of services, expanded its geographic
presence and increased annual net sales to $379.3 million for the twelve-month
period ended September 30, 1997 on a pro forma combined basis. The Company now
provides staffing and consulting services to over 2,300 customers through its
network of 86 offices in 27 states. The Company believes it has achieved a
critical mass necessary to compete successfully for national vendor accounts as
well as further expand its presence in regional markets.
o Highly Skilled Labor Force. The Company believes its labor force of
approximately 7,800 highly skilled billable employees provides a competitive
advantage in servicing the specialty staffing and consulting needs of its
customers. The Company believes it experiences low employee turnover and is able
to attract and recruit high-quality staffing personnel by providing attractive
assignments with high-profile customers, highly competitive compensation
packages, tailored benefit plans and value-added training opportunities. The
Company draws personnel for assignments from its extensive proprietary database
of over 160,000 prospective employees.
o Highly Efficient Back Office Operations. The Uniforce Acquisition brings
to the Company Uniforce's back office operation, which the Company believes is
one of the most advanced and efficient in the industry. Based in Woodbury, New
York, the sophisticated operation is the centerpiece of the Company's back
office structure. Currently servicing approximately $680 million of annual
"system-wide" revenues on a pro forma combined basis (including approximately
$300 million generated by other staffing firms and processed by the Company),
the back office system has the capacity to enable the Company to grow
significantly. The Company believes that this back office processing capability
also will enable the Company to continue to effectively integrate acquisitions
and realize significant operating efficiencies.
o Broad Offering of Services. The Company believes its ability to provide a
wide range of high-quality staffing and consulting solutions gives it a
competitive advantage as larger customers consolidate their purchasing of
staffing and consulting services. The Company is able to provide a wide variety
of contingent employees including highly specialized IT and telecommunications
professionals, scientists and researchers, skilled medical office support staff,
legal and accounting personnel and other support staff and light industrial
employees. The Company also provides a variety of value added services,
including (i) training for the Company's billable workforce; (ii) outsourcing
management services such as the Company's RightSourcing(sm), Needs Analysis and
Vendor-on-Premises programs; (iii) consulting services to assist clients in
connection with their use of independent contractors; and (iv) innovative uses
of the Internet and other technology, including the Company's Homework(sm)
program. The Company also provides smaller, independent staffing companies with
funding and back office support services. The Company believes its range of
services also provides significant cross-selling opportunities.
o Reputation as Successful Consolidator. The Company has established a
strong reputation as a successful consolidator in the contingent staffing and
consulting industry through its acquisition of eight specialty staffing and
consulting companies since 1995. The Uniforce Acquisition, the most recent of
these acquisitions, enhances this reputation. The Company's management has
integrated its prior acquisitions with minimal staff turnover and an excellent
customer retention record and expects that the integration of Uniforce's
operations will follow this pattern. The Company is positioned for further
growth through acquisitions with additional borrowing capacity under the New
Credit Facility and the ability to use its publicly traded common stock to fund
all or part of acquisition costs. The Company believes its advanced back office
capabilities will assist it in integrating future acquisitions quickly and
efficiently.
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Business Strategy
Management's growth strategy includes the following principal elements:
o Emphasize Internal Growth. The Company intends to continue to expand its
existing businesses by pursuing the following objectives:
Emphasize Specialty Sectors. Since the Company entered the contingent
staffing and consulting business, specialty, high technology-related sectors
have provided a significant portion of the Company's growth. These sectors of
the specialty staffing and consulting industry as a whole have also grown
substantially in recent years. As a result, management is pursuing a focused
sales and marketing effort in these areas to capitalize on their higher growth
in demand for services and resulting profit potential.
Capitalize on Cross-selling Opportunities. The Company provides a wide
variety of contingent employees, as well as a variety of value-added services,
to a broad, high-quality and geographically diverse customer base. Management
believes significant opportunities exist to cross-sell services of each of its
divisions to clients of its other divisions. In particular, the Company intends
to market its IT division's services to its Telecom division's customers and
vice versa.
Expand Employee Recruiting and Training. In order to meet the increasing
demand for a limited supply of high-quality contingent personnel, the Company
intends to continue to expand its recruiting and training efforts. The Company
will continue to augment and update its proprietary database to add new
contingent personnel and to reflect changes in the skills and availability of
its billable employees in order to ensure a proper fit between personnel and the
assignment being staffed. The Company currently uses the Internet and other
technology in its recruiting and training efforts and intends to further develop
its use of such technology-based recruiting and training capabilities.
o Pursue External Growth through Strategic Acquisitions. The Company
intends to continue to make acquisitions of established, profitable businesses
in new and existing markets that provide the Company with opportunities to
expand its geographic service base and diversify and strengthen its service mix,
particularly in the specialty staffing and consulting sectors. The Company
evaluates acquisition opportunities using an acquisition profile that includes
such factors as market location, market share, services complementary to the
Company's existing service offerings, strength of management and cultural fit of
management with the Company's decentralized, entrepreneurial environment. The
Company is positioned to build on its solid reputation as a successful
consolidator in the industry with the improved, more permanent capitalization
resulting from the completion in November 1997 of the Units Offering and the
Notes Offering, additional borrowing capacity under the New Credit Facility and
the ability to use the Company's publicly traded common stock to fund all or
part of acquisition costs. Management believes that, as the Company grows
through acquisitions, it improves its ability to secure larger contracts.
o Increase Operating Efficiency. In connection with its strategies for
internal and external growth, the Company believes that its efficient back
office operations will allow it to increase its profitability by adding offices,
employees and acquired businesses without proportionately increasing its
overhead expenses, enabling it to spread fixed costs over an increasingly larger
revenue base. In addition, the Company believes that centralization of its back
office functions will result in additional operating efficiencies through the
elimination of redundancies and through the development of economies of scale in
administering the Company's payrolling services.
The Uniforce Acquisition
On August 13, 1997, COMFORCE, COMFORCE Columbus, Inc., an indirect
wholly-owned subsidiary of COMFORCE (the "Subsidiary"), and Uniforce executed an
Agreement and Plan of Merger (the "Merger Agreement") which provided for the
acquisition of Uniforce by the Company. Pursuant to the Merger Agreement,
COMFORCE caused the Subsidiary to commence a tender offer on October 27, 1997
(the "Tender Offer") to acquire all of the
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outstanding Uniforce Common Stock for a per share price of $28.00 in cash and
0.5217 shares of COMFORCE's Common Stock (collectively the "Per Share
Consideration").
On November 26, 1997, following the expiration of the Tender Offer at
midnight on November 25, 1997, COMFORCE accepted all shares of Uniforce Common
Stock (representing approximately 96.5% of the issued and outstanding shares of
Uniforce Common Stock) that had been tendered in the Tender Offer. On December
3, 1997, COMFORCE completed the merger of Uniforce and the Subsidiary (the
"Merger"), and made available for payment to the holders of the remaining shares
of Uniforce Common Stock (who did not tender their stock) cash and stock equal
in amount to the Per Share Consideration. In addition, as required under the
Merger Agreement, COMFORCE made available for payment to the holders of options
to purchase an additional 370,010 shares of Uniforce Common Stock cash in an
amount equal to the difference between (i) $32.00 per share and (ii) the per
share exercise price of each such option.
The Company currently expects that it will incur a restructuring charge in
the fourth quarter of 1997, in connection with certain potential severance and
other costs related to the integration of COMFORCE and Uniforce. Management
currently believes that such restructuring charge will be approximately $2.0
million; however, no assurance can be given that any such charge, if incurred,
will not exceed such amount.
The Transactions
The Company financed the Uniforce Acquisition with $93.6 million of the
proceeds of the Notes Offering and with approximately 1.6 million shares of
COMFORCE Common Stock. In the Refinancing, the Company repaid COMFORCE's
outstanding credit facility (the "Prior Credit Facility") and Uniforce's
outstanding term loan and credit facility (the "Uniforce Credit Facility") with
the remaining net proceeds of the Notes Offering and the net proceeds of the
Units Offering, together with approximately $37.0 million of borrowings under
the New Credit Facility. The Uniforce Acquisition, the Notes Offering, the Units
Offering and the Refinancing are collectively referred to as the "Transactions."
The Prior Acquisitions and Refinancings
From October 1995 until the completion of the Uniforce Acquisition in
November 1997, COMFORCE completed acquisitions (the "Prior Acquisitions") of
seven staffing and consulting companies: (i) COMFORCE Telecom, Inc. ("COMFORCE
Telecom"), which provides Telecom staffing and consulting services and was
acquired in October 1995; (ii) Williams Communications Services, Inc.
("Williams"), which provides Telecom staffing and consulting services and was
acquired in March 1996; (iii) RRA, Inc., Project Staffing Support Team, Inc. and
DataTech Technical Services, Inc. (collectively, "RRA"), which provides
Technical staffing services and was acquired in May 1996; (iv) Force Five, Inc.
("Force Five"), which provides IT staffing and consulting services and was
acquired in August 1996; (v) AZATAR Computer Systems, Inc. ("AZATAR"), which
provides IT staffing and consulting services and was acquired in November 1996;
(vi) Continental Field Services Corporation and Progressive Telecom, Inc.
(collectively, "Continental"), which provides Telecom staffing and consulting
services and was acquired in November 1996; and (vii) RHO Company, Incorporated
("Rhotech"), which provides Technical staffing services and IT staffing and
consulting services and was acquired in February 1997. In addition, Uniforce
acquired Montare International (the "Montare Acquisition"), which provides IT
staffing and consulting services, in May 1996.
On June 25, 1997, COMFORCE entered into the Prior Credit Facility, a
portion of the proceeds of which were used to repay $5.4 million in borrowings
under a short-term credit facility and to redeem $25.2 million in principal
amount of COMFORCE's Subordinated Convertible Debentures (the "Old Subordinated
Debentures"). The Old Subordinated Debentures had been issued in February and
March 1997 in part in exchange for a portion of COMFORCE's Series F Preferred
Stock. Such transactions are hereinafter referred to as the "Prior
Refinancings."
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The Notes Exchange Offer
Old Notes....................... The Old Notes were sold by COI on November 26,
1997, to NatWest Capital Markets Limited
("NatWest" or the "Initial Purchaser")
pursuant to a Notes Purchase Agreement, dated
November 19, 1997 (the "Note Purchase
Agreement"). The Initial Purchaser
subsequently resold the Notes to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act or institutional
"accredited investors" (as defined in Rule 501
(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act).
Notes Registration Rights
Agreement..................... Pursuant to the Note Purchase Agreement, COI
and the Initial Purchaser entered into the
Notes Registration Rights Agreement, which
grants the holders of the Old Notes certain
exchange and registration rights. The Notes
Exchange Offer is intended to satisfy such
exchange and registration rights which
terminate upon the consummation of the Notes
Exchange Offer.
Securities Offered.............. $110,000,000 aggregate principal amount of 12%
Senior Notes due 2007, Series B.
The Notes Exchange
Offer......................... COI is offering to exchange (i) $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that are
properly tendered and accepted. COI will issue
Exchange Notes on or promptly after the
Expiration Date. As of the date hereof, there
is $110,000,000 aggregate principal amount of
Old Notes outstanding. The terms of the
Exchange Notes are identical in all material
respects to the terms of the Unregistered
Notes for which they may be exchanged pursuant
to the Notes Exchange Offer, except that the
Exchange Notes are freely transferable by
holders thereof (other than as provided
herein), and are not subject to any covenant
restricting transfer absent registration under
the Securities Act. See "The Notes Exchange
Offer." The Notes Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Old Notes being tendered
for exchange.
Based on no-action letters issued by the staff
of the Commission to third parties with
respect to similar transactions, COI believes
that the Exchange Notes issued pursuant to the
Notes Exchange Offer in exchange for
Unregistered Notes may be offered for resale,
resold and otherwise transferred by holders
thereof (other than (i) a broker-dealer who
purchases such Exchange Notes from COI to
resell pursuant to Rule 144A or any other
available exemption under the Securities Act,
or (ii) a person that is an "affiliate" of COI
within the meaning of Rule 405 of the
Securities Act) without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and
such holders are not engaged in, have no
arrangement or understanding with any person
to participate in, and do not intend to engage
in, any distribution of the Exchange Notes.
However, COI has not sought a no-action letter
with respect to the Notes Exchange Offer, and
there can be no assurance that the staff of
the Commission would make a similar
determination with respect to the Notes
Exchange Offer.
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Each holder of Exchange Notes, other than a
broker-dealer, must represent that such
conditions have been met. In addition, each
broker-dealer that receives Exchange Notes for
its own account pursuant to the Notes Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal
accompanying this Prospectus states that by so
acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning
of the Securities Act. A broker-dealer may
nonetheless be deemed to be an "underwriter"
under the Securities Act notwithstanding such
disclaimer. This Prospectus, as it may be
amended or supplemented from time to time, may
be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange
for Unregistered Notes where such Unregistered
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities. Pursuant to the Notes
Registration Rights Agreement, COI has agreed
that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "The
Notes Exchange Offer-- Purpose and Effect of
the Notes Exchange Offer" and "Plan of
Distribution."
Any holder who tenders in the Notes Exchange
Offer with the intention to participate, or
for the purpose of participating, in a
distribution of the Exchange Notes could not
rely on the position of the staff of the
Commission enunciated in no-action letters
and, in the absence of an applicable
exemption, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. Failure to comply with such
requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by COI.
Expiration Date................. 5:00 p.m., New York City time, on ________,
1998, unless the Notes Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which
the Notes Exchange Offer is extended. See "The
Notes Exchange Offer--Expiration Date;
Extensions; Amendments."
Accrued Interest
on the Exchange
Notes......................... Each Exchange Note will bear interest from the
most recent date to which interest has been
paid on the Unregistered Notes or, if no
interest has been paid on such Unregistered
Notes, from November 26, 1997.
Notes Exchange Date............. As soon as practicable after the close of the
Notes Exchange Offer, COI will accept for
exchange all Unregistered Notes properly
tendered and not validly withdrawn prior to
5:00 p.m., New York City time, on the
Expiration Date. See "The Notes Exchange
Offer--Withdrawal of Tenders."
Conditions to the
Notes Exchange
Offer......................... The Notes Exchange Offer is subject to
customary conditions, certain of which may be
waived by COI. COI reserves the right to
terminate or amend the Notes Exchange Offer at
any time prior to the Expiration Date upon the
occurrence of any such condition. The Notes
Exchange Offer is not conditioned on any
minimum aggregate principal amount of Old
Notes being tendered for exchange. See "The
Notes Exchange Offer--Conditions."
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Consequences of Failure
to Exchange................... Any Unregistered Notes not tendered pursuant
to the Notes Exchange Offer will remain
outstanding and continue to accrue interest.
Such Unregistered Notes will remain
"restricted securities" under the Securities
Act, subject to the transfer restrictions
described herein. As a result, the liquidity
of the market for such Unregistered Notes
could be adversely affected upon completion of
the Notes Exchange Offer. See "Risk
Factors--Consequences of Failure to Exchange"
and "The Notes Exchange Offer--Consequences of
Failure to Exchange."
Certain Federal Income
Tax Considerations............ The exchange pursuant to the Notes Exchange
Offer should not be a taxable event for
federal income tax purposes. See "Certain U.S.
Federal Income Tax Considerations."
Use of Proceeds................. There will be no cash proceeds to COI from the
Notes Exchange Offer. See "Use of Proceeds."
Procedures for Tendering Unregistered Notes
Tendering Unregistered
Notes......................... Each beneficial owner owning interests in
Unregistered Notes ("Beneficial Owner")
through a DTC Participant (as defined) must
instruct such DTC Participant to cause
Unregistered Notes to be tendered in
accordance with the procedures set forth in
this Prospectus and in the GREEN Letter of
Transmittal. See "The Notes Exchange
Offer--Procedures for Tendering--Unregistered
Notes held by DTC." Each participant (a "DTC
Participant") in the Depository Trust Company
("DTC") holding Unregistered Notes through DTC
must (i) electronically transmit its
acceptance to DTC through the DTC Automated
Tender Offer Program ("ATOP"), for which the
transaction will be eligible, and DTC will
then edit and verify the acceptance, execute a
book-entry delivery to the Notes Exchange
Agent's account at DTC and send an Agent's
Message (as defined herein) to the Notes
Exchange Agent for its acceptance, or (ii)
comply with the guaranteed delivery procedures
set forth in this Prospectus and in the GREEN
Letter of Transmittal. By tendering through
ATOP, DTC Participants will expressly
acknowledge receipt of the accompanying Letter
of Transmittal and agree to be bound by its
terms and COI will be able to enforce such
agreement against such DTC participants. See
"The Notes Exchange Offer--Procedures for
Tendering--Unregistered Notes held by DTC,"
and "--Guaranteed Delivery Procedures--
Unregistered Notes held by DTC."
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Each Holder must (i) complete and sign a GREEN
Letter of Transmittal, and mail or deliver
such Letter of Transmittal, and all other
documents required by such Letter of
Transmittal, together with certificate(s)
representing all tendered Unregistered Notes,
to the Notes Exchange Agent at its address set
forth in this Prospectus and in such Letter of
Transmittal, or (ii) comply with the
guaranteed delivery procedures set forth in
this Prospectus. See "The Notes Exchange
Offer--Procedures for Tendering," "--Notes
Exchange Agent," and "--Guaranteed Delivery
Procedures--Unregistered Notes held by
Holders." By tendering, each holder will
represent to the COI that, among other things,
(i) it is not an affiliate of COI, (ii) it is
not a broker-dealer tendering Unregistered
Notes acquired directly from COI for its own
account, (iii) the Exchange Notes acquired
pursuant to the Notes Exchange Offer are being
obtained in the ordinary course of business of
such holder and (iv) it has no arrangements or
understandings with any person to participate
in the Notes Exchange Offer for the purpose of
distributing the Exchange Notes. See "The
Notes Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures.................... DTC Participants holding Unregistered Notes
through DTC who wish to cause their
Unregistered Notes to be tendered, but who
cannot transmit their acceptances through ATOP
prior to the Expiration Date, may effect a
tender in accordance with the procedures set
forth in this Prospectus and in the GREEN
Letter of Transmittal. See "Notes Exchange
Offer--Guaranteed Delivery Procedures."
Holders who wish to tender their Unregistered
Notes but (i) whose Unregistered Notes are not
immediately available and will not be
available for tendering prior to the
Expiration Date, or (ii) who cannot deliver
their Unregistered Notes, the GREEN Letter of
Transmittal, or any other required documents
to the Notes Exchange Agent prior to the
Expiration Date, may effect a tender in
accordance with the procedures set forth in
this Prospectus. See "The Notes Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights............... The tender of Unregistered Notes pursuant to
the Notes Exchange Offer may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date, in accordance
with the procedures set forth in this
Prospectus. See "The Notes Exchange
Offer--Withdrawal of Tenders."
Notes Exchange Agent............ The Wilmington Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer for the Notes. See "The Notes Exchange
Offer--Exchange Agent."
Notes Shelf Registration
Statement..................... Under certain circumstances described in the
Notes Registration Rights Agreement, certain
holders of Unregistered Notes (including
holders who are not permitted to participate
in the Notes Exchange Offer) may require the
Company to file and use best efforts to cause
to become effective, a shelf registration
statement under the Securities Act, which
would cover resales of Unregistered Notes by
such holders. See "Notes Exchange
Offer--Purpose and Effect of the Notes
Exchange Offer."
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The Notes
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
The New Notes will bear interest from the most recent date to which interest has
been paid on the Old Notes or, if no interest has been paid on the Old Notes,
from November 26, 1997. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from November 26, 1997. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the Notes
Exchange Offer. Holders whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes otherwise payable
on any interest payment date the record date for which occurs on or after
consummation of the Notes Exchange Offer.
Maturity........................ December 1, 2007.
Interest Payment Dates.......... June 1 and December 1 of each year, commencing
on June 1, 1998.
Sinking Fund.................... None.
Ranking......................... The Notes are senior unsecured obligations of
COI and will rank pari passu in right of
payment with all existing and future senior
indebtedness of COI and senior in right of
payment to all existing and future
subordinated indebtedness of COI. The Notes
are effectively subordinated to any secured
debt of COI, to the extent of the of assets
serving as security therefor, and structurally
subordinated to all liabilities COI's direct
and indirect subsidiaries. As of September 30,
1997, on a pro forma basis after giving effect
to the Transactions, the aggregate principal
amount of outstanding secured indebtedness to
which the Notes are effectively subordinated,
to the extent of the assets serving as
security therefor, would have been
approximately $37.8 million, and the aggregate
amount of outstanding liabilities of
subsidiaries of COI to which holders of Notes
are structurally subordinated would have been
approximately $59.6 million (including $37.8
million of Indebtedness). See "Description of
Notes - Ranking."
Optional Redemption............. Except as described below and under "Change of
Control", COI may not redeem the Notes prior
to December 1, 2002. On or after such date,
COI may redeem the Notes, in whole or in part,
at any time at the redemption prices set forth
herein, together with accrued and unpaid
interest, if any, to the date of redemption.
In addition, at any time and from time to time
on or prior to December 1, 2000, COI may,
subject to certain requirements, redeem up to
35% of the aggregate principal amount of the
Notes with the cash proceeds received from one
or more Equity Offerings at a redemption price
equal to 112.000% of the principal amount to
be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least 65% of the aggregate
principal amount of the Notes issued through
the date of such redemption under the Notes
Indenture remains outstanding immediately
after each such redemption. See "Description
of Notes - Optional Redemption."
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Change of Control............... Upon the occurrence of a Change of Control,
COI will be required to make an offer to
repurchase the Notes at a price equal to 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of repurchase. See "Description of Notes
- Optional Redemption" and "Change of
Control."
Restrictive Covenants........... The Notes Indenture limits (i) the incurrence
of additional indebtedness by COI and its
subsidiaries, (ii) the payment of dividends
on, and redemption of, capital stock of COI
and the redemption of certain subordinated
obligations of COI, (iii) tes investments,
(iv) sales of assets and subsidiary stock, (v)
transactions with affilia of and (vi)
consolidations, mergers and transfers of all
or substantially all the assets COI. The Notes
Indenture also prohibits certain restrictions
on distributions from subsidiaries. However,
all of these limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of Notes-Certain Covenants."
Exchange Offer and
Registration................. Pursuant to the Notes Registration Rights
Agreement, COI agreed to use its best efforts
to (i) file, within 30 days after the date of
original issuance of the Notes (the "Issue
Date"), a registration statement (the "Notes
Exchange Offer Registration Statement") with
respect to the Notes Exchange Offer, (ii)
cause such Notes Exchange Offer Registration
Statement to be declared effective within 90
days after the Issue Date and (iii) consummate
the Notes Exchange Offer within 130 days after
the Issue Date. In the event that COI does not
comply with certain covenants set forth in the
Notes Registration Rights Agreement, COI is to
pay certain liquidated damages to the holders
of the Old Notes. See "The Notes Exchange
Offer."
For a more complete description of the Notes, see "Description of the Notes."
The Debentures Exchange Offer
Old Senior Debentures.......... Units, which were comprised in part of the Old
Senior Debentures, were sold by the Company on
November 26, 1997, to NatWest pursuant to a
Units Purchase Agreement dated November 19,
1997 (the "Units Purchase Agreement"). NatWest
subsequently resold the Units to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act or institutional
"accredited investors" (as defined in the Rule
501 (a)(1), (2), (3) or (7) of Regulation D
under the Securities Act).
Debentures
Registration Rights
Agreement.................... Pursuant to the Units Purchase Agreement, the
Company and NatWest entered into the
Debentures Registration Rights Agreement,
which grants the holders of the Old Senior
Debentures certain exchange and registration
rights. The Debentures Exchange Offer is
intended to satisfy such exchange and
registration rights which terminate upon the
consummation of the Debentures Exchange Offer.
Securities Offered............. $20,000,000 aggregate principal amount of 15%
Senior Secured PIK Debentures due 2009, Series
B.
17
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<PAGE>
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The Debentures
Exchange Offer................. The Company is offering to exchange $1,000
principal amount of New Senior Debentures for
each $1,000 principal amount of Old Senior
Debentures that are properly tendered and
accepted. The Company will issue Exchange
Senior Debentures on or promptly after the
Expiration Date. As of the date hereof, there
is $20,000,000 aggregate principal amount of
Old Senior Debentures outstanding. The terms
of the Exchange Senior Debentures are
identical in all material respects to the
terms of the Unregistered Senior Debentures
for which they may be exchanged pursuant to
the Debentures Exchange Offer, except that the
Exchange Senior Debentures are freely
transferable by holders thereof (other than as
provided herein), and are not subject to any
covenant restricting transfer absent
registration under the Securities Act. See
"The Debentures Exchange Offer." The
Debentures Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Old Senior Debentures or any minimum aggregate
principal amount of Old Senior Debentures
being tendered for exchange.
Based on no-action letters issued by the staff
of the Commission to third parties with
respect to similar transactions, the Company
believes that the Exchange Senior Debentures
issued pursuant to the Debentures Exchange
Offer in exchange for Unregistered Senior
Debentures may be offered for resale, resold
and otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchases
such Exchange Senior Debentures from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities
Act, or (ii) a person that is an "affiliate"
of the Company within the meaning of Rule 405
of the Securities Act) without compliance with
the registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Senior Debentures are
acquired in the ordinary course of such
holders' business and such holders are not
engaged in, have no arrangement or
understanding with any person to participate
in, and do not intend to engage in, any
distribution of the Exchange Senior
Debentures. However, the Company has not
sought a no-action letter with respect to the
Debentures Exchange Offer, and there can be no
assurance that the staff of the Commission
would make a similar determination with
respect to the Debentures Exchange Offer. Each
holder of Exchange Senior Debentures, other
than a broker-dealer, must represent that such
conditions have been met. In addition, each
broker-dealer that receives Exchange Senior
Debentures for its own account pursuant to the
Debentures Exchange Offer must acknowledge
that it will deliver a prospectus in
connection with any resale of such Exchange
Senior Debentures. The Letter of Transmittal
accompanying this Prospectus states that by so
acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning
of the Securities Act. A broker-dealer may
nonetheless be deemed to be an "underwriter"
under the Securities Act notwithstanding such
disclaimer. This Prospectus, as it may be
amended or supplemented from time to time, may
be used by a broker-dealer in connection with
resales of Exchange Senior Debentures received
in exchange for Unregistered Senior Debentures
where such Unregistered Senior Debentures were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities. Pursuant to the Debentures
Registration Rights Agreement, the Company has
agreed that, for a period of 180 days after
the Expiration Date, it will make this
Prospectus available to any broker-dealer for
use in connection with any such resale. See
"The Debentures Exchange Offer-- Purpose and
Effect of the Debentures Exchange Offer" and
"Plan of Distribution."
18
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Any holder who tenders in the Debentures
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the
Exchange Senior Debentures could not rely on
the position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an applicable exemption, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Expiration Date................ 5:00 p.m., New York City time, on ______,
1998, unless the Debentures Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which
the Debentures Exchange Offer is extended. See
"The Debentures Exchange Offer--Expiration
Date; Extensions; Amendments."
Accrued Interest
on the Exchange
Senior Debentures.............. Each Exchange Senior Debenture will bear
interest from the most recent date to which
interest has been paid on the Unregistered
Senior Debentures or, if no interest has been
paid on such Unregistered Senior Debentures,
from November 26, 1997.
Exchange Date.................. As soon as practicable after the close of the
Debentures Exchange Offer, the Company will
accept for exchange all Unregistered Senior
Debentures properly tendered and not validly
withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The
Debentures Exchange Offer--Withdrawal of
Tenders."
Conditions to the
Debentures
Exchange Offer................. The Debentures Exchange Offer is subject to
customary conditions, certain of which may be
waived by the Company. The Company reserves
the right to terminate or amend the Debentures
Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any
such condition. The Debentures Exchange Offer
is not conditioned on any minimum aggregate
principal amount of Old Senior Debentures
being tendered for exchange. See "The
Debentures Exchange Offer--Conditions."
Consequences of Failure
to Exchange................. Any Unregistered Senior Debentures not
tendered pursuant to the Debentures Exchange
Offer will remain outstanding and continue to
accrue interest. Such Unregistered Senior
Debentures will remain "restricted securities"
under the Securities Act, subject to the
transfer restrictions described herein. As a
result, the liquidity of the market for such
Unregistered Senior Debentures could be
adversely affected upon completion of the
Debentures Exchange Offer. See "Risk Factors--
Consequences of Failure to Exchange" and "The
Debentures Exchange Offer--Consequences of
Failure to Exchange."
Certain Federal Income
Tax Considerations.......... The exchange pursuant to the Debentures
Exchange Offer should not be a taxable event
for federal income tax purposes. See "Certain
U.S. Federal Income Tax Considerations."
19
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<PAGE>
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Use of Proceeds................ There will be no cash proceeds to the Company
from the Debentures Exchange Offer. See "Use
of Proceeds."
Procedures for Tendering Unregistered Senior Debentures
Tendering Unregistered
Senior Debentures............. Each beneficial owner owning interests in
Unregistered Senior Debentures ("Beneficial
Owner") through a DTC Participant must
instruct such DTC Participant to cause
Unregistered Senior Debentures to be tendered
in accordance with the procedures set forth in
this Prospectus and in the BLUE Letter of
Transmittal. See "The Debentures Exchange
Offer--Procedures for Tendering--Unregistered
Senior Debentures held by DTC." Each DTC
Participant holding Unregistered Senior
Debentures through DTC must (i) electronically
transmit its acceptance to DTC through ATOP,
for which the transaction will be eligible,
and DTC will then edit and verify the
acceptance, execute a book-entry delivery to
the Debentures Exchange Agent's account at DTC
and send an Agent's Message (as defined
herein) to the Debenture Exchange Agent for
its acceptance, or (ii) comply with the
guaranteed delivery procedures set forth in
this Prospectus and in BLUE Letter of
Transmittal. By tendering through ATOP, DTC
Participants will expressly acknowledge
receipt of the accompanying Letter of
Transmittal and agree to be bound by its terms
and the Company will be able to enforce such
agreement against such DTC participants. See
"The Debentures Exchange Offer--Procedures for
Tendering--Unregistered Senior Debentures held
by DTC," and "--Guaranteed Delivery
Procedures--Unregistered Senior Debentures
held by DTC."
Each Holder must (i) complete and sign a BLUE
Letter of Transmittal, and mail or deliver
such Letter of Transmittal, and all other
documents required by such Letter of
Transmittal, together with certificate(s)
representing all tendered Unregistered Senior
Debentures, to the Debentures Exchange Agent
at its address set forth in this Prospectus
and in such Letter of Transmittal, or (ii)
comply with the guaranteed delivery procedures
set forth in this Prospectus. See "The
Debentures Exchange Offer--Procedures for
Tendering," "--Debentures Exchange Agent," and
"--Guaranteed Delivery Procedures--
Unregistered Senior Debentures held by
Holders." By tendering, each holder will
represent to the Company that, among other
things, (i) it is not an affiliate of the
Company, (ii) it is not a broker-dealer
tendering Unregistered Senior Debentures
acquired directly from the Company for its own
account, (iii) the Exchange Senior Debentures
acquired pursuant to the Debentures Exchange
Offer are being obtained in the ordinary
course of business of such holder and (iv) it
has no arrangements or understandings with any
person to participate in the Debentures
Exchange Offer for the purpose of distributing
the Exchange Senior Debentures. See "The
Debentures Exchange Offer--Procedures for
Tendering."
20
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<PAGE>
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Guaranteed Delivery
Procedures.................... DTC Participants holding Unregistered Senior
Debentures through DTC who wish to cause their
Unregistered Senior Debentures to be tendered,
but who cannot transmit their acceptances
through ATOP prior to the Expiration Date, may
effect a tender in accordance with the
procedures set forth in this Prospectus and in
the BLUE Letter of Transmittal. See
"Debentures Exchange Offer--Guaranteed
Delivery Procedures." Holders who wish to
tender their Unregistered Senior Debentures
but (i) whose Unregistered Senior Debentures
are not immediately available and will not be
available for tendering prior to the
Expiration Date, or (ii) who cannot deliver
their Unregistered Senior Debentures, the BLUE
Letter of Transmittal, or any other required
documents to the Debentures Exchange Agent
prior to the Expiration Date, may effect a
tender in accordance with the procedures set
forth in this Prospectus. See "The Debentures
Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............... The tender of Unregistered Senior Debentures
pursuant to the Debentures Exchange Offer may
be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date, in
accordance with the procedures set forth in
this Prospectus. See "The Debentures Exchange
Offer--Withdrawal of Tenders."
Debentures Exchange
Agent......................... The Bank of New York is serving as Exchange
Agent in connection with the Exchange Offer
for the Senior Debentures. See "The Debentures
Exchange Offer--Debentures Exchange Agent."
Debentures Shelf
Registration Statement........ Under certain circumstances described in the
Debentures Registration Rights Agreement,
certain holders of Unregistered Senior
Debentures (including holders who are not
permitted to participate in the Debentures
Exchange Offer) may require the Company to
file and use best efforts to cause to become
effective, a shelf registration statement
under the Securities Act, which would cover
resales of Unregistered Senior Debentures by
such holders. See "Debentures Exchange
Offer--Purpose and Effect of the Debentures
Exchange Offer."
The Senior Debentures
The terms of the New Senior Debentures and the Old Senior Debentures are
identical in all material respects, except for certain transfer restrictions
relating to the Old Senior Debentures. The New Senior Debentures will bear
interest from the most recent date to which interest has been paid on the Old
Senior Debentures or, if no interest has been paid on the Old Senior Debentures,
from November 26, 1997. Accordingly, registered holders of New Senior Debentures
on the relevant record date for the first interest payment date following the
consummation of the Debentures Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid on the Old Senior
Debentures or, if no interest has been paid, from November 26, 1997. Old Senior
Debentures accepted for exchange will cease to accrue interest from and after
the date of consummation of the Debentures Exchange Offer. Holders whose Old
Senior Debentures are accepted for exchange will not receive any payment in
respect of interest on such Senior Debentures otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Debentures Exchange Offer.
Mandatory Redemption........... December 1, 2009.
21
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<PAGE>
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Interest Payment Dates......... June 1 and December 1 of each year, commencing
on June 1, 1998.
Sinking Fund................... None.
Ranking and Security........... The Senior Debentures constitute direct and
unconditional senior secured obligations of
COMFORCE and are secured by a pledge by
COMFORCE of all of the issued and outstanding
common stock of COI, a wholly-owned subsidiary
of COMFORCE. The payment obligations of
COMFORCE under the Senior Debentures will at
all times as rank at least equal in priority
of payment with all existing and future
Indebtedness ( defined) of COMFORCE. The
Senior Indenture permits COMFORCE to incur
additional Indebtedness (including secured
indebtedness and other additional senior
indebtedness) subject to certain limitations.
As of September 30, 1997, on a pro forma basis
after giving effect to the Transactions, the
aggregate principal amount of COMFORCE's
outstanding senior indebtedness would have
been approximately $20.0 million. The Senior
Debentures are structurally subordinated to
all indebtedness of COMFORCE's direct and
indirect subsidiaries and effectively
subordinated to all future secured
indebtedness of COMFORCE. As of September 30,
1997, on a pro forma basis, after giving
effect to the Transactions, (i) COMFORCE had
no outstanding secured indebtedness (other
than the Senior Debentures) and (ii) the
aggregate amount of outstanding liabilities of
subsidiaries of COMFORCE to which holders of
Senior Debentures are structurally
subordinated would have been $169.6 million
(including $147.8 million of indebtedness).
See "Description of Senior Debentures -
Ranking."
Optional Redemption............ The Company may redeem the Senior Debentures,
in whole or in part, at any time at the
redemption prices set forth herein, together
with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any
time and from time to time the Company may,
subject to certain requirements, redeem up to
100% of the aggregate principal amount of the
Senior Debentures with the cash proceeds
received from one or more Equity Offerings at
the redemption prices set forth herein,
together with accrued and unpaid interest, if
any, to the date of redemption. See
"Description of Senior Debentures - Optional
Redemption."
Change of Control.............. Upon the occurrence of a Change of Control,
the Company will be required to make an offer
to repurchase the Senior Debentures at a price
equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of Senior Debentures - Optional
Redemption" and "Change of Control."
Restrictive Covenants.......... The Senior Indenture limits (i) the incurrence
of additional indebtedness by the Company and
its Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock
of the Company and the redemption of certain
subordinated obligations of the Company, (iii)
investments, (iv) sales of assets and
subsidiary stock, (v) transactions with
affiliates and (vi) consolidations, mergers
and transfers of all or substantially all the
assets of the Company. The Senior Indenture
also prohibits certain restrictions on
distributions from Subsidiaries. However, all
of these limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of Senior Debentures - Certain
Covenants."
22
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<PAGE>
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Exchange Offer and
Registration................ Pursuant to the Debentures Registration Rights
Agreement, the Company agreed to f the use its
best efforts to (i) file, within 30 days after
the date of original issuance o Senior
Debentures (the "Issue Date"), a registration
statement (the "Debentures Exchange Offer
Registration Statement") with respect to the
Debentures Exchange Offer, (ii) cause such
Debentures Exchange Offer Registration
Statement to be declared effective within 90
days after the Issue Date and (iii) consummate
the Debentures Exchange Offer within 130 days
after the Issue Date. In the event that the
Company does not comply with certain covenants
set forth in the Debentures Registration
Rights Agreement, the Company is obligated to
pay certain liquidated damages to the holders
of the Senior Debentures. See "Debentures
Exchange Offer."
Original Issue Discount........ The Senior Debentures were issued at an
original issue discount for United States
federal income tax purposes. Thus, although
cash interest will not be payable on the
Senior Debentures prior to December 1, 2002
original issue discount (i.e., the difference
between the sum of all principal and interest
payable on the Senior Debentures and the
portion of the issue price of the Units
allocable to the Senior Debentures) will
accrue from the issue date of the Senior
Debentures and will be included as interest
income periodically (including periods ending
prior to December 1, 2002) in a U.S. Holder's
(defined in "Certain United States Federal
Income Tax Consequences") gross income for
United States federal income tax purposes in
advance of receipt of the cash payments to
which the income is attributable. See "Certain
United States Federal Income Tax
Consequences."
For a more complete description of the Senior Debentures, see "Description of
Senior Debentures."
The Units
Issuance of Units............... The Old Senior Debentures were issued by
COMFORCE as part of 20,000 Units each
consisting of $1,000 principal amount of 15%
Senior Secured PIK Debentures and 8.45
Warrants, each to purchase one share of
COMFORCE's Common Stock (the "Common Stock"),
representing, in the aggregate, approximately
one percent of COMFORCE's Common Stock on a
fully diluted basis.
Separability.................... The Senior Debentures and the Warrants will be
separately transferable, subject to compliance
with applicable securities laws, on the
earliest to occur of (i) February 24, 1998,
(ii) such earlier date as may be determined by
the Initial Purchaser with the consent of the
Company, (iii) in the event of a Change of
Control, the date the Company mails notice
thereof to holders of the Units, and (iv) the
effective date of a registration statement for
a registered exchange offer for the Senior
Debentures (the "Separability Date").
The Warrants
Warrants........................ On November 26, 1997, as part of the Units,
the Company issued 169,000 Warrants, which
when exercised entitle the holders thereof to
acquire an aggregate of 169,000 shares of
Common Stock, representing approximately one
percent of the Company's Common Stock
outstanding on a fully-diluted basis.
Expiration Date................. The Warrants expire on December 1, 2009.
23
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<PAGE>
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Exercise........................ Each Warrant entitles the holder to acquire,
on or after the Exercise Date and prior to
December 1, 2009, one share of Common Stock at
a price per share equal to $7.55 (based on a
10% premium above the average closing price
for the five trading days ended November 18,
1997), subject to adjustment from time to time
upon the occurrence of certain changes in
Common Stock, certain Common Stock
distributions, certain issuances of options or
convertible securities, certain dividends and
distributions and certain other increases in
the number of shares of Common Stock.
"Exercise Date" means November 28, 1997.
Rights as Stockholders.......... Holders of Warrants do not, by virtue of being
such holders, have any rights of stockholders
of the Company.
Registration Rights............. Pursuant to a Warrant Registration Rights
Agreement dated as of November 26, 1997 (the
"Warrant Registration Rights Agreement,") the
Company has agreed to file a registration
statement under the Securities Act covering
the resale of the shares of Common Stock
issuable upon exercise of the Warrants (the
"Warrant Shares") by the holders thereof and
to use its reasonable efforts to cause the
registration statement to be declared
effective on or before 130 days after the
Issue Date and to remain effective, subject to
certain exceptions, until the second
anniversary of the Issue Date. See
"Description of Warrants - Registration
Rights."
Antidilution.................... The number of shares of Common Stock for
which, and the price per share at which, a
Warrant is exercisable are subject to
adjustment upon the occurrence of certain
events described in the warrant agreement (the
"Warrant Agreement"), dated November 26, 1997,
by and between the Company and The Bank of New
York, as warrant agent (the "Warrant Agent").
Risk Factors
Investors should consider all of the information in this Prospectus before
tendering their Old Notes or Old Senior Debentures in an Exchange Offer and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
for risks involved with an investment in the New Notes and the New Senior
Debentures.
24
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Summary Unaudited Pro Forma Combined Financial Data of the Company
The following table sets forth certain summary unaudited pro forma combined
financial data of the Company for the periods ended and as of the dates
indicated and are derived from and described in the Unaudited Pro Forma Combined
Financial Statements beginning on page F-2. The summary unaudited pro forma
combined statement of operations data give effect to the Transactions, the Prior
Acquisitions and the Montare Acquisition as if they had occurred at the
beginning of the periods indicated. The summary unaudited pro forma combined
balance sheet data give effect to the Transactions as if they had occurred on
September 30, 1997. The summary unaudited pro forma combined financial data do
not purport to represent what the Company's results of operations or financial
condition would have actually been had the Transactions and the Prior
Acquisitions been consummated as of such dates or to project the Company's
results of operations or financial condition for any future period.
<TABLE>
<CAPTION>
Twelve Months
Ended Nine Months Ended Year Ended
September 30, September 30, December 31,
1997 1997 1996 1996
---- ---- ---- ----
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .......................................................... $ 379,269 $ 294,355 $ 244,149 $ 329,063
Gross profit ....................................................... 59,688 45,268 39,295 53,715
Selling, general and administrative expense (1) .................... 40,991 30,691 27,384 37,684
Depreciation and amortization ...................................... 4,925 3,714 3,639 4,850
Operating income ................................................... 13,772 10,863 8,272 11,181
Interest expense, net .............................................. 20,370 15,278 15,278 20,370
Net loss attributable to common shareholders ....................... $ (8,758) $ (7,045) $ (5,122) $ (6,835)
========= ========= ========= =========
Net loss per share ................................................. $ (0.57) $ (0.45) $ (0.40) $ (0.51)
========= ========= ========= =========
Weighted average shares outstanding ('000s) ........................ 15,343 15,512 12,980 13,527
Net loss per share as adjusted (8) ................................. $ (0.34) $ (0.23) $ (0.40) $ (0.51)
========= ========= ========= =========
Other Data:
EBITDA (2) ......................................................... $ 19,526 $ 15,046 $ 12,120 $ 16,600
Adjusted EBITDA (3) ................................................ 22,443 17,088 14,745 20,100
Capital expenditures ............................................... 2,933 1,633 958 2,258
Ratio of adjusted EBITDA to total interest expense (3)(4) .......... 1.1x 1.2x 1.0x 1.0x
Ratio of adjusted EBITDA to cash interest expense (3)(5) ........... 1.4 1.4 1.2 1.2
Ratio of total debt to adjusted EBITDA (3)(6) ...................... 7.5 -- -- --
Ratio of cash-pay debt to adjusted
EBITDA (3)(7) ...................................................... 6.6 -- -- --
Adjusted EBITDA margin (2) ......................................... 5.9% 5.8% 6.0% 6.1%
<CAPTION>
September 30,
1997
----
<S> <C>
Balance Sheet Data:
Working capital .................................................... $ 58,208
Accounts receivable ................................................ 73,069
Intangible assets, net ............................................. 131,387
Total assets ....................................................... 229,042
Total debt, including current maturities ........................... 167,781
Series F convertible preferred stock ............................... 1
Stockholders' equity ............................................... 39,475
</TABLE>
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25
<PAGE>
(1) Selling, general and administrative expense includes legal settlement costs
and merger-related costs of $829,000, $469,000, $209,000 and $569,000 for
the twelve-month period ended September 30, 1997, the nine-month period
ended September 30, 1997, the nine-month period ended September 30, 1996
and the year ended December 31, 1996, respectively. See the Unaudited Pro
Forma Combined Financial Statements beginning on page F-2.
(2) EBITDA represents operating income plus depreciation and amortization plus
the adjustment for the legal settlement and merger-related costs described
in note (1) above. Management believes that EBITDA is a measure commonly
used by analysts and investors to determine a company's ability to incur
and service its debt. EBITDA should not be considered as an alternative to,
or more meaningful than, net income (as determined in accordance with
Generally Accepted Accounting Principles ("GAAP")), as a measure of a
company's operating results or cash flows (as determined in accordance with
GAAP), or as a measure of a company's liquidity.
(3) Adjusted to include management's estimate of $1 million and $2.5 million of
identified annual cost savings from the acquisition of Rhotech and
Uniforce, respectively, related to (i) personnel-related and other cost
savings at Rhotech and Uniforce, (ii) elimination of public company
expenses at Uniforce and (iii) integration of back office operations.
Rhotech was acquired on February 28, 1997 and the effects of cost savings
for the twelve-month period ended September 30, 1997 and the nine-month
period ended September 30, 1997 are prorated accordingly. Adjusted EBITDA
margin is calculated as Adjusted EBITDA as a percentage of net sales.
(4) For purposes of calculating this ratio, total interest expense excludes the
estimated amortization of deferred financing costs of $525,000 and $700,000
for the nine-month and twelve-month periods presented, respectively.
(5) For purposes of calculating this ratio, cash interest expense excludes
pay-in-kind interest on the Senior Debentures and amortization of deferred
financing costs described in note (4) above.
(6) For the purposes of calculating this ratio, total debt includes long-term
debt, current maturities and capital lease obligations.
(7) For the purposes of calculating this ratio, cash-pay debt represents total
debt less outstanding principal amounts under the Senior Debentures.
(8) Adjusted to exclude $5.8 million of bridge financing costs related to the
Prior Refinancings in the twelve-month and the nine-month periods ended
September 30, 1997.
26
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Management's Discussion of Summary Pro Forma Results
Since October 1995, COMFORCE has acquired eight contingent staffing
companies (including the acquisition of Uniforce in November 1997) and the
operations of COMFORCE conducted prior to October 1995 were discontinued in
September 1995. Consequently, the discussion and comparison of COMFORCE's
historical results of operations under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" does not address the results of
all of the acquired businesses for the periods presented. Accordingly, set forth
below is a discussion of certain unaudited pro forma financial data for
COMFORCE, Uniforce and the Company as if certain acquired businesses were
acquired by the respective company as of January 1, 1995. However, since the
unaudited pro forma financial data discussed below and elsewhere in this
Prospectus reflects the combined operating results of the recently acquired
businesses during periods when they were not under common control or management,
such data may not be indicative of the Company's future results or of the
results that such businesses might have achieved if operated as a combined
entity during such periods.
Summary Unaudited Pro Forma Combined Financial Data of COMFORCE, Uniforce and
the Company
<TABLE>
<CAPTION>
Twelve Months Nine Months Ended Years Ended
Ended September 30, September 30, December 31,
------------- ------------
1997 1997 1996 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Pro Forma-COMFORCE(1):
Net sales ..................................... $207,558 $161,402 $138,282 $184,438 $175,202
Gross profit .................................. 26,042 19,764 17,146 23,424 21,709
EBITDA (2) .................................... 8,498 6,642 5,073 6,929 7,248
Gross margin (3) .............................. 12.5% 12.2% 12.4% 12.7% 12.4%
EBITDA margin (2) ............................. 4.1 4.1 3.7 3.8 4.1
Pro Forma-Uniforce(4):
Net sales ..................................... $171,711 $132,953 $105,867 $144,625 $139,999
Gross profit .................................. 33,646 25,504 22,149 30,291 28,617
EBITDA (2) .................................... 11,028 8,404 7,047 9,671 7,716
Gross margin (3) .............................. 19.6% 19.2% 20.9% 20.9% 20.4%
EBITDA margin (2) ............................. 6.4 6.3 6.7 6.7 5.5
Pro Forma-The Company (5):
Net sales ..................................... $379,269 $294,355 $244,149 $329,063 $315,201
Gross profit .................................. 59,688 45,268 39,295 53,715 50,326
EBITDA (2) .................................... 19,526 15,046 12,120 16,600 14,964
Gross margin (3) .............................. 15.7% 15.4% 16.1% 16.3% 16.0%
EBITDA margin (2) ............................. 5.2 5.1 5.0 5.0 4.7
</TABLE>
- ----------
(1) Unaudited pro forma financial data for COMFORCE includes the Prior
Acquisitions as if such acquisitions had occurred at the beginning of the
respective periods. The pro forma EBITDA of COMFORCE excludes (i) legal
settlement costs included in selling, general and administrative expense of
$244,000, $244,000, $209,000 and $209,000 for the twelve-month period ended
September 30, 1997, the nine-month period ended September 30, 1997, the
nine-month period ended September 30, 1996 and the year ended December 31,
1996, respectively, and (ii) non-recurring charges for the year ended
December 31, 1995 of (x) a compensation charge of $3,425,000 related to the
issuance of a 35% common stock interest in COMFORCE to certain individuals
to manage COMFORCE's entry into, and development of, the telecommunications
and computer staffing business and (y) a management fee of $1,140,000 paid
by COMFORCE Telecom to its former parent company prior to its acquisition
by COMFORCE.
27
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(2) EBITDA represents operating income plus depreciation and amortization plus
the adjustment for the non-recurring charges and legal settlement costs
described in notes (1) and (4). Management believes that EBITDA is a
measure commonly used by analysts and investors to determine a company's
ability to service its debt. EBITDA should not be considered as an
alternative to, or more meaningful than, net income, as determined in
accordance with GAAP, as a measure of the Company's operating results or
cash flows (as determined in accordance with GAAP) or as a measure of the
Company's liquidity. EBITDA margin is calculated as EBITDA as a percentage
of net sales.
(3) Gross margin is calculated as gross profit as a percentage of net sales.
(4) Unaudited pro forma financial data for Uniforce includes the Montare
Acquisition as if such acquisition had occurred at the beginning of the
respective periods. EBITDA of Uniforce excludes legal settlement and
merger-related costs aggregating $585,000 for the twelve-month period ended
September 30, 1997, $360,000 of legal settlement costs for the year ended
December 31, 1996, and $225,000 of merger-related costs for the nine-month
period ended September 30, 1997.
(5) Unaudited pro forma combined financial data includes the results of pro
forma COMFORCE and Uniforce combined.
28
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<PAGE>
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Comparison of Pro Forma Results for the Nine Months Ended September 30, 1997 as
Compared to the Nine Months Ended September 30, 1996
The 16.7% increase in COMFORCE's pro forma net sales for the nine months
ended September 30, 1997 as compared to the same period in 1996 was principally
attributable to increased sales of technical and IT services to an existing
customer of Rhotech, as well as growth throughout all of the sectors served by
COMFORCE. The 25.6% increase in Uniforce's pro forma net sales for the nine
months ended September 30, 1997 as compared to the same period in 1996 was
principally attributable to growth in recruited and non-recruited IT work
performed by Uniforce, increased sales of financial services and growth in
Uniforce's other operations. Pro forma net sales for the Company increased 20.6%
for the nine months ended September 30, 1997 as compared to the same period in
1996 for the reasons noted above.
COMFORCE's pro forma gross profit for the nine months ended September 30,
1997 increased 15.3% from the same period in 1996, principally due to increased
1997 sales as noted above. COMFORCE's gross margin decline from 12.4% for the
nine months ended September 30, 1996 to 12.2% for the nine months ended
September 30, 1997 was principally due to additional fringe benefits and related
expenses required at Rhotech prior to its acquisition by COMFORCE. Uniforce's
pro forma gross profit for the nine months ended September 30, 1997 increased
15.1% from the same period in 1996 due to increased 1997 sales as noted above.
Uniforce's gross margin decline from 20.9% for the nine months ended September
30, 1996 to 19.2% for the nine months ended September 30, 1997 was principally
due to growth in Uniforce's non-recruited IT contracts and its independent
contractor consulting services which historically generate lower margins than
its contracts in other sectors. Uniforce's gross margins for these periods were
higher than COMFORCE's gross margins, principally as a result of the financial
and back office administrative services performed by Uniforce, which generate
significantly higher gross margins than other contingent staffing services
performed by either company. The Company's pro forma gross profit increased
15.2% for the nine months ended September 30, 1997 as compared to the same
period in 1996, principally due to the increased 1997 sales for each of COMFORCE
and Uniforce noted above. The Company's gross margin declined from 16.1% to
15.4% for the nine months ended September 30, 1997 as compared to the same
period in 1996, principally due to the decline in Uniforce's gross margins noted
above.
COMFORCE's pro forma EBITDA increased 30.9% for the nine months ended
September 30, 1997 as compared to the same period in 1996, and its pro forma
EBITDA margin increased from 3.7% for the 1996 period to 4.1% for the 1997
period, principally due to lower incremental selling, general and administrative
costs related to the increase in net sales noted above. Uniforce's pro forma
EBITDA increased 19.3% for the nine months ended September 30, 1997 as compared
to the same period in 1996, principally due to the increase in net sales noted
above. Uniforce's pro forma EBITDA margin decreased from 6.7% for the 1996
period to 6.3% for the 1997 period, principally as a result of the reduced gross
profit margins noted above, partially offset by lower incremental selling,
general and administrative expenses. Although Uniforce's EBITDA margins for
these periods were higher than those of COMFORCE, this difference is
substantially less than the difference in gross margins between the two
companies due to higher administrative expenses relative to net sales at
Uniforce's businesses. The Company's pro forma EBITDA increased 24.1% for the
nine months ended September 30, 1997 as compared to the same period in 1996, and
its pro forma EBITDA margin increased from 5.0% to 5.1% for these periods, for
the reasons noted above.
29
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<PAGE>
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Comparison of Pro Forma Results for the Year Ended December 31, 1996 as Compared
to the Year Ended December 31, 1995
The 5.3% increase in COMFORCE's pro forma net sales for the year ended
December 31, 1996 as compared to 1995 was principally attributable to growth
throughout all of the sectors served by COMFORCE, partially offset by a
reduction in revenues of approximately $7.7 million at Rhotech resulting from
the decision by Rhotech's prior management to eliminate certain non-technical
service contracts which did not meet minimum gross margin requirements.
Excluding Rhotech, pro forma net sales would have increased 7.8% in 1996 as
compared to 1995. The 3.3% increase in Uniforce's pro forma net sales for 1996
as compared to 1995 was principally attributable to growth in recruited IT work
and increased sales of financial services, partially offset by reduced sales in
licensed offices of $15.5 million, principally due to the reduction in the
number of licensed offices resulting from licensee contract buyouts in late
1995. Excluding the impact of reduced sales in licensed offices, pro forma net
sales would have increased 16.2% in 1996 as compared to 1995. Pro forma net
sales for the Company increased 4.4% for 1996 as compared to 1995 for the
reasons noted above. Excluding Rhotech and the impact from the licensee buyouts
of Uniforce noted above, pro forma net sales for the Company would have
increased 12.6% in 1996 as compared to 1995.
COMFORCE's pro forma gross profit for the year ended December 31, 1996
increased 7.9% from 1995, principally due to the increase in net sales noted
above. COMFORCE's gross margin increase from 12.4% in 1995 to 12.7% in 1996 was
principally attributable to continued growth in COMFORCE's higher margin IT and
telecommunications businesses. Uniforce's pro forma gross profit for the year
ended December 31, 1996 increased 5.9% from 1995, principally due to increased
1996 sales as noted above. Uniforce's gross margin increase from 20.4% in 1995
to 20.9% in 1996 was principally due to increased sales in higher margin IT and
financial services work. Uniforce's gross margins in 1995 and 1996 were higher
than COMFORCE's gross margins, principally as a result of the financial and back
office administrative services performed by Uniforce, which generate
significantly higher gross margins than other contingent staffing services
performed by either company. The Company's pro forma gross profit increased 6.7%
in 1996 as compared to 1995, principally due to increased 1996 sales for each of
COMFORCE and Uniforce as noted above. The Company's gross margin increase from
16.0% in 1995 to 16.3% in 1996 was principally due to the change in the
Company's overall sales mix noted above.
COMFORCE's pro forma EBITDA decreased 4.4% for the year ended December 31,
1996 as compared to 1995, and its pro forma EBITDA margin decreased from 4.1% in
1995 to 3.8% in 1996, principally due to increased expenses related to opening
new offices, including facility costs, the cost of hiring additional branch
personnel at Rhotech prior to its acquisition by COMFORCE and costs related to
the development of COMFORCE's corporate headquarters. Uniforce's pro forma
EBITDA increased 25.3% for the year ended December 31, 1996 as compared to 1995,
principally due to the increased gross profit and gross profit margin noted
above combined with lower incremental selling, general and administrative costs
related to an increase in net sales. Uniforce's pro forma EBITDA margin
increased from 5.5% in 1995 to 6.7% in 1996, principally as a result of such
lower incremental selling, general and administrative expenses. Although
Uniforce's EBITDA margins for 1995 and 1996 were higher than those of COMFORCE,
this difference is substantially less than the difference in gross margins
between the two companies due to higher administrative expenses related to
Uniforce's businesses. The Company's pro forma EBITDA increased 10.9% in 1996 as
compared to 1995, and its pro forma EBITDA margin increased from 4.7% in 1995 to
5.0% in 1996, principally due to the combined impact of the factors noted above.
30
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<PAGE>
RISK FACTORS
Prospective investors should carefully review the information set forth
below, together with the information and financial data set forth elsewhere in
this Prospectus, before making an investment decision.
Substantial Leverage and Ability to Service Debt
The Company is highly leveraged. After giving pro forma effect to the
Transactions, the Company would have had total indebtedness at September 30,
1997 of approximately $167.8 million (81% of total capitalization), including
$147.8 million of senior indebtedness. See "Selected Historical Financial
Data-COMFORCE Corporation" "Selected Historical Financial Data-Uniforce
Services, Inc.," "Capitalization" and the Unaudited Pro Forma Combined Financial
Statements beginning on page F-2.
This degree of leverage could have important consequences, including the
following: (i) the ability of the Company to obtain additional financing for
working capital, capital expenditures, debt service requirements or other
purposes may be impaired (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources"); (ii) a
substantial portion of the Company's cash flow from operations will be required
to pay the Company's debt service; (iii) the Company may be more highly
leveraged than companies with which it competes, which may place it at a
competitive disadvantage; (iv) the Company may be particularly vulnerable in the
event of a downturn in its business or in the economy generally; and (v) the
Company will be vulnerable to increases in interest rates to the extent of its
borrowings under the New Credit Facility.
A significant portion of the Company's cash flow is required to service
indebtedness and will not be available for other purposes. After giving pro
forma effect to the Transactions as if they had been consummated on January 1,
1996, the Company's fixed charges exceeded its earnings as a result of the pro
forma loss before income taxes of $9.3 million for the year ended December 31,
1996 and $10.3 million for the nine month period ended September 30, 1997. In
the absence of adequate operating results and cash flows, the Company may be
required to dispose of material assets or operations or refinance its
indebtedness to meet its debt service obligations. There can be no assurance
that the Company will be successful in this regard should such actions become
necessary.
Restrictions Imposed by Terms of the Indebtedness
The terms and conditions of the Notes Indenture, the Senior Indenture and
the New Credit Facility impose restrictions that affect the ability of the
Company and COI to incur debt, make distributions, make acquisitions, create
liens and make capital expenditures. See "The Transactions," "Description of
Notes," "Description of Senior Debentures" and "Description of Other
Indebtedness." Each of the Company and COI is also required to maintain
specified financial ratios and tests and limit its capital expenditures,
affiliate payments and dividends. The restrictive covenants contained in the
Notes Indenture, the Senior Indenture and the New Credit Facility, as well as
the highly leveraged position of each of the Company and COI, could
significantly limit its ability to respond to changing business or economic
conditions or to substantial declines in operating results. The ability of the
Company or COI to comply with the provisions applicable to it in the Senior
Indenture, the Notes Indenture or the New Credit Facility can be affected by
events beyond its control, and there can be no assurance that either the Company
or COI will achieve operating results that will comply with such provisions.
The breach of any such covenants under the New Credit Facility could result
in a default thereunder. In the event of any such default, the Lender could
elect to declare all amounts borrowed or owed under the New Credit Facility,
together with accrued interest and other fees, to be due and payable or to apply
all the available cash to repay such amounts or to collateralize letters of
credit (in which event cash would not be available to fund the Company's
operations or for other purposes). If the amounts borrowed under the New Credit
Facility are not repaid when due, the Lender could proceed against all the
collateral securing such debt. If the indebtedness under the New Credit
Facility, the Notes or the Senior Debentures were to be accelerated, there can
be no assurance that the assets of the
31
<PAGE>
Company or COI would be sufficient to repay such other indebtedness, the Notes
and the Senior Debentures in full. See "Description of Notes," "Description of
Senior Debentures" and "Description of Other Indebtedness."
Ranking of the Notes; Ability to Incur Additional Secured Debt
The Notes are not subordinated to any indebtedness of COI and rank pari
passu with all other unsecured, unsubordinated indebtedness of COI. The Notes
are unsecured and thus, in effect, would rank junior to any secured indebtedness
of COI, including the New Credit Facility, to the extent of the security. COI
has approximately $37.8 million in aggregate principal amount of secured
indebtedness outstanding. In addition, the Notes Indenture permits COI and its
subsidiaries to incur additional secured debt under certain circumstances. Some
or all of such additional indebtedness may rank pari passu with the Notes, and
the holders of such indebtedness may have a claim to assets of COI superior to
that of the holders of the Notes because such additional indebtedness is secured
by liens on assets of COI. Although there are certain limitations on the ability
of COI to incur such secured debt, the incurrence of such additional debt might
adversely affect COI's ability to meet its obligations under the Notes. See
"Description of the Notes-Certain Covenants" and "Description of Other
Indebtedness." In the event of dissolution, liquidation or reorganization of, or
similar proceeding relating to, COI, the secured lenders of COI would be
entitled to receive payment to the extent of the value of their collateral or in
full, whichever is less, prior to any payment in respect of the Notes.
Additionally, the lenders under the New Credit Facility have the benefit of
first priority pledges of the capital stock of each subsidiary of COI. In the
event that such lenders were to foreclose on such assets, assets available to
satisfy the claims of the holders of the Notes would be concommitantly reduced
or eliminated.
Ranking of the Senior Debentures; Ability to Incur Additional Secured Debt
The Senior Debentures are not subordinated to any indebtedness of COMFORCE
and rank pari passu with all other unsubordinated indebtedness of COMFORCE.
COMFORCE has $20.0 million in aggregate principal amount of Senior Debentures
outstanding which constitutes all of COMFORCE's currently outstanding secured
indebtedness. In addition, the Senior Indenture permits COMFORCE and its
subsidiaries to incur additional secured debt under certain circumstances. Some
or all of such additional indebtedness may rank pari passu with the Senior
Debentures. Although there are certain limitations on the ability of COMFORCE to
incur such secured debt, the incurrence of such additional debt might adversely
affect COMFORCE's ability to meet its obligations under the Senior Debentures.
See "Description of the Senior Debentures - Certain Covenants."
Holding Company Structure
Neither the Company nor COI has any business operations or source of income
of its own, and each conducts substantially all of its operations through its
Subsidiaries. The Company will have no material assets other than its investment
in the common stock of COI, its wholly-owned subsidiary, and COI will have no
material assets other than its investment in the common stock of its
Subsidiaries. Each of the Company and COI will be dependent on the cash flow of
its Subsidiaries and distributions thereof from its Subsidiaries in order to
meet its debt service obligations. As a result, the Senior Debentures are
structurally subordinated to the debt of COI and its Subsidiaries, including
without limitation, indebtedness under the New Credit Facility and the Notes and
all other indebtedness of COI and its Subsidiaries (including, without
limitation, trade payables and lease obligations). The Notes are structurally
subordinated to any indebtedness of the Subsidiaries of COI (including, without
limitation, trade payables and lease obligations). As of September 30, 1997,
after giving pro forma effect to the Transactions, the aggregate amount of
liabilities of COI and its Subsidiaries to which holders of Senior Debentures
are structurally subordinated would have been $169.6 million (including $147.8
million of Indebtedness), and the aggregate amount of liabilities of the
Subsidiaries of COI to which holders of the Notes are structurally subordinated
would have been $59.6 million (including $37.8 million of Indebtedness).
32
<PAGE>
Security for the Senior Debentures
COI's capital stock is the only significant asset of COMFORCE and the
dividends on COI's capital stock are the sole source of funds available to
COMFORCE to meet its obligations under the Senior Indenture. See "Description of
Senior Debentures-Ranking and Security." The payment of dividends on COI's
capital stock, however, is significantly restricted by certain covenants
contained in the Notes Indenture and the New Credit Agreement and may be
restricted by other agreements entered into by the Company in the future and by
applicable law. See "Description of Notes-Certain Covenants-Limitation on
Restricted Payments" and "Description of New Credit Agreement." The Senior
Debentures are secured by a pledge of all the issued and outstanding capital
stock of COI. See "Description of Senior Debentures-Security." As of September
30, 1997, on a pro forma basis after giving effect to the Notes Offering, the
New Credit Agreement and the Refinancing, COI would have had stockholder's
equity of $39.5 million. In addition, there is no existing public market for
COI's capital stock, and even if such capital stock could be sold, there can be
no assurance that the proceeds from the sale of such capital stock would be
sufficient to satisfy the amounts due on the Senior Debentures in the event of a
default. Furthermore, the ability of the holders of the Senior Debentures to
realize upon the collateral may be subject to certain bankruptcy law limitations
in the event of a bankruptcy. Absent an acceleration of the Senior Debentures,
COMFORCE will be able to vote, as it sees fit in its own discretion, the stock
of COI. In the event of a bankruptcy or liquidation of COI, the security
interest in COI's capital stock may be of no value to holders of Senior
Debentures because holders of COI's capital stock would be entitled only to the
assets which remained after all indebtedness of COI had been paid in full.
Effect of Fluctuations in the General Economy
Demand for staffing and consulting services is significantly affected by
the general level of economic activity in the country. Companies use staffing
and consulting services to manage personnel costs and changes in staffing needs,
in part due to business fluctuations. When economic activity increases,
employees from staffing and consulting companies are often added before
full-time employees are hired. During such times, there is intense competition
among staffing and consulting companies for qualified personnel for placement.
As economic activity slows, many companies reduce their usage of employees from
staffing and consulting companies before undertaking layoffs of their regular
employees, and the Company may experience more competitive pricing pressure
during such periods of economic downturn. As a result, any significant economic
downturn could have a material adverse effect on the Company's business,
financial condition and results of operations. Similarly, there can be no
assurance that during periods of increased economic activity and higher general
employment levels the Company will be able to recruit and retain sufficient
personnel to meet the needs of its clients. See "The Contingent Staffing and
Consulting Industry."
Absence of Combined Operating History; Potential Inability to Integrate Acquired
Businesses
The Company's contingent staffing and consulting business has been
developed principally through the acquisition of established staffing and
consulting businesses, all of which have been acquired since October 1995. Prior
to their acquisition by the Company, each of these acquired companies operated
as a separate independent entity. The Company has not experienced any
significant difficulties to date in integrating the operations of its acquired
companies. However, the acquisitions in February 1997 of Rhotech (which had 1996
net sales of $85.7 million) and in November 1997 of Uniforce (which had 1996 net
sales of $142.2 million) result in a significant increase in the size of
COMFORCE (which, on a historical basis, had 1996 net sales of $55.9 million).
The significant increase in size, on the basis of net sales, number and location
of offices and nature of operations, may result in more complex problems in
integrating the operations of these entities than the Company has faced with
previous acquisitions. The Company's officers have had limited experience in
managing companies as large and as rapidly growing as the Company. The Company's
strategy of continuing its growth and expansion will place additional demands
upon the Company's current management and will require additional information
systems and management, operational and other financial resources. There can be
no assurance that the Company's management group will be able to adequately
manage the combined entity and effectively implement the Company's strategy or
effectively integrate the businesses acquired. If the Company is unable to hire
and retain the management personnel needed to manage its existing and future
acquired businesses, if such personnel are unable to achieve anticipated
performance levels or if the Company
33
<PAGE>
is unable to implement effective controls, the Company's business, financial
condition and results of operations could be materially adversely affected. See
"Business" and "Management."
Risks Associated with Rationalization of Operations
The Company intends to improve its financial results through the
rationalization of operations. In connection with the Uniforce Acquisition, the
Company expects to reduce operating expenses through the consolidation of back
office activities, branch system rationalization, personnel-related cost savings
and elimination of costs relating to Uniforce's obligations as a public company.
Although the Company believes that its strategies are reasonable, there can be
no assurance that it will be able to implement its plans without delay or that
it will not encounter unanticipated problems in connection with the
rationalization of operations or that, when implemented, its efforts will result
in the reduction of operating expenses that is currently anticipated. The
Company's plans will require substantial attention from members of the Company's
management, which will limit the amount of time such members have available to
devote to the Company's day-to-day operations. See "Business" and Note 8 to
"Selected Unaudited Pro Forma Combined Financial Statements."
Future Capital Needs; Uncertainty of Financing
The Company will need to obtain additional financial resources to fund its
strategy of growth through acquisition, geographic expansion and market
development. The Company can give no assurance that (i) additional financing
will be available or, if available, that it will be available on terms
acceptable to the Company, or (ii) the Company's existing capital resources,
including the amounts available for borrowing under the Company's lines of
credit and the Company's cash flow from operations, will either individually or
collectively be sufficient to fund future acquisitions or satisfy the Company's
working capital requirements. There also can be no assurance that the Company or
any of the acquired businesses will generate positive cash flow or that adequate
financing or capital resources will be available as needed or on terms
acceptable to the Company. A lack of available funds may require the Company to
delay, scale back or eliminate all or some of its market development and
acquisition projects and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Financial Condition, Liquidity and Capital Resources."
Reliance on Acquisitions for Company Growth and Risks Associated with
Acquisitions
The ability of the Company to achieve growth through acquisition will
depend on a number of factors, including the availability of attractive
acquisition opportunities, the availability of funds needed to complete
acquisitions, the availability of working capital needed to fund the operations
of acquired businesses and the effect of existing and emerging competition on
operations. The Company has consummated eight acquisitions since October 1995.
These acquisitions may not achieve levels of revenue, profitability or
productivity comparable to those of the Company's existing operations or may not
otherwise perform as expected. Acquisitions also involve special risks,
including risks associated with unanticipated liabilities and contingencies,
diversion of management attention and possible adverse effects on earnings
resulting from increased goodwill amortization, increased interest costs, the
issuance of additional securities and difficulties related to the integration of
the acquired business. The Company is actively seeking additional acquisition
opportunities, although the Company has no agreements, understandings or plans
regarding any material acquisitions at this time. There can be no assurance that
the Company will be able to successfully identify additional suitable
acquisition candidates, complete additional acquisitions or integrate acquired
businesses into its operations. See "Business-Business Strategy-Pursue External
Growth through Strategic Acquisitions" and "-Acquisitions."
Impact of Pricing Pressure on Margins
Price competition in the contingent staffing and consulting industry is
intense. Pricing pressure from competitors and customers is increasing. The
trend toward larger customers demanding national contracts with a few
34
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preferred providers of staffing and consulting services has resulted, in many
cases, in competitive bidding and determinations based on price, so that margins
on these contracts may be less than the historical margins for providing these
staffers. In addition, the trend toward national contracts may limit the ability
of staffing and consulting firms to pass on all employee costs to customers.
Finally, large, traditional staffing firms have begun to enter the specialty
staffing and consulting sector, and, as a result, margins may decrease,
particularly for the less highly skilled personnel in this sector. There can be
no assurance that the Company will be able to maintain or increase its current
margins, the reduction of which could have a material adverse effect on the
Company's financial condition and results of operations, including cash flow.
See "The Contingent Staffing and Consulting Industry."
Liabilities for Customer and Employee Actions
Contingent staffing and consulting firms 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 by customers of employee misconduct or
negligence, including claims of discrimination and harassment, as well as claims
relating to 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 customer proprietary information or theft of customer
property. Although the Company maintains insurance, due to the nature of the
Company's assignments, in particular its access to customer 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. See "Business-Legal
Proceedings."
Increases in Unemployment Insurance Premiums and Workers' Compensation Rates
The Company is required to pay unemployment insurance premiums and workers'
compensation benefits for its billable employees. Unemployment insurance
premiums are set annually by the states in which employees perform services and
could increase as a result of, among other things, increased levels of
unemployment and the lengthening of periods for which unemployment benefits are
available. Workers' compensation costs have increased as various states in which
the Company conducts operations have raised levels of compensation and
liberalized allowable claims. The Company may incur costs related to workers'
compensation claims at rates higher than anticipated if higher than anticipated
losses or an increase in the number or the severity of claims is experienced. In
addition, the Company's costs could increase as the result of any future health
care reforms. Certain federal and state legislative proposals have included
provisions extending health insurance benefits to billable employees who do not
presently receive such benefits. There can be no assurance that the Company will
be able to increase the fees charged to its customers in a sufficient amount to
cover increased costs related to workers' compensation, unemployment insurance
and health care reforms or other employment-related regulatory changes. 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. See "Business-Regulations."
Potential Impairment of Intangible Assets
As of September 30, 1997, on a pro forma basis, approximately 57% of the
Company's total assets were intangible assets. These intangible assets
substantially represent amounts attributable to goodwill recorded in connection
with the Company's acquisitions and are generally amortized over a five to forty
year period, resulting in significant annual charges. Various factors could
impact the Company's ability to generate the earnings necessary to support this
amortization schedule, including fluctuations 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
staffing professionals, to expand into new markets and to maintain gross margins
in the face of pricing pressures. Although management does not believe any
impairment has occurred through the date of this
35
<PAGE>
Prospectus, the failure of the Company to generate earnings necessary to support
the amortization charge may result in an impairment of the asset. The resulting
write-off could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Financial Condition,
Liquidity and Capital Resources."
Dependence on Availability of Qualified Staffing Personnel
The Company depends on its ability to attract, train and retain personnel
who possess the skills and experience necessary to meet the staffing and
consulting requirements of its customers. Competition for individuals with
proven skills in certain areas, particularly information technology and
telecommunications, is intense. The Company competes for such individuals with
other contingent staffing and consulting firms, systems integrators, providers
of outsourcing services, computer systems consultants, customers and personnel
agencies. The Company must continually evaluate, train and upgrade its base of
available personnel to keep pace with changing customers' needs and emerging
technologies. There can be no assurance that qualified personnel will continue
to be available to the Company in sufficient numbers and on economic terms
acceptable to the Company. In addition, although the Company's employment
agreements contain non-compete covenants, there can be no assurance that the
Company can effectively enforce such agreements against its former employees.
See "The Contingent Staffing and Consulting Industry" and "Business-Recruiting
of Billable Employees."
Highly Competitive Market
The contingent staffing and consulting industry is highly competitive.
Heightened competition for customers as well as for contingent 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 the personnel costs of its billable employees.
Large, traditional staffing companies have begun to enter the specialty staffing
and consulting sector, and, as a result, margins may decrease, particularly for
the less highly skilled personnel in that sector. Conversely, barriers to entry
to certain types of contingent staffing businesses, particularly the more
traditional sector, are low, and the Company could experience competition from
additional competitors entering the business. Shortages of qualified personnel,
which currently exist in some specialty sectors and could occur in the future,
may result in the Company being unable to fulfill its customers' needs.
Moreover, customers could employ personnel directly (rather than using the
Company's services) to ensure the availability of such personnel. Many of the
Company's competitors have greater marketing, financial and personnel resources
than the Company does and could provide increased competition to the Company.
The Company expects that the level of competition will remain high in the
future, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, in certain markets
the Company has experienced significant pricing pressure from some of its
competitors. See "Business-Competition."
Dependence on Key Personnel
The Company is highly dependent on its management. The Company's success
depends upon the availability and performance of James L. Paterek, the Chairman
of the Company, Christopher P. Franco, the Chief Executive Officer of the
Company, and Michael Ferrentino, the President of the Company. The loss of
services of any of these key persons could have a material adverse effect upon
the Company. The Company has entered into employment agreements with all of such
individuals which include covenants not to engage in a sbusiness similar to that
of the Company for a period of two years after termination of employment for any
reason, as well as customary non-disclosure and employer non-solicitation
provisions. The Company does not maintain key man life insurance on any of these
individuals. See "Management."
Licensing Risks
The Company derives a portion of its net income from licensed operations in
the Professional Services portion of its Staffing Services division. Licensees
may terminate their agreements, resulting in a loss of revenues. While the
36
<PAGE>
Company's licensing agreements contain non-competition covenants, former
licensees may pay the Company an amount based on a predetermined formula and
thereafter continue the operation of the business independently of the Company
and compete with the Company. The licenses are franchises under federal and
state laws and regulations, and the Company must comply with such federal and
state laws and regulations governing the sale of franchises, and with state laws
concerning the ongoing relationship with licensees (including the termination
and non-renewal of such relationships). The Company is subject to the risk of
litigation with licensees pursuant to such laws or otherwise. See
"Business-Licensed Offices."
Fraudulent Conveyance Considerations
The incurrence by the Company of the indebtedness evidenced by the Notes
and the Senior Debentures is subject to review under relevant federal and state
fraudulent conveyance statutes in a bankruptcy or reorganization case or a
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that (a) obligations (such as the Notes or the Senior
Debentures) were incurred with the intent of hindering, delaying or defrauding
present or future creditors, and (b) the Company received less than a reasonably
equivalent value or fair consideration for those obligations and, at the time of
the occurrence of the obligations, the obligor either (i) was insolvent or
rendered insolvent by reason thereof, (ii) was engaged or was about to engage in
a business or transaction for which its remaining unencumbered assets
constituted unreasonably small capital or (iii) intended to or believed that it
would incur debts beyond its ability to pay such debts as they matured or became
due, such court could void the Company's obligations under the Notes and the
Senior Debentures, subordinate the Notes and the Senior Debentures to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes and the Senior Debentures.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair salable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. The Company believes that, after giving effect
to the Transactions, the Company will be (i) neither insolvent nor rendered
insolvent by the incurrence of indebtedness in connection with the Transactions,
(ii) in possession of sufficient capital to run its business effectively and
(iii) incurring debts within its ability to pay as the same mature or become
due.
There can be no assurance, however, as to what standard a court would apply
in order to evaluate the parties' intent or to determine whether the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transactions or the sale of the Notes or the Senior Debentures or that,
regardless of the method of valuation, a court would not determine that the
Company was insolvent at the time of, or rendered insolvent upon consummation
of, the Transactions.
Control by Insiders
Current management of the Company currently controls more than one-quarter
of the Company's outstanding shares of Common Stock. As a result, such persons
are expected to have the ability to significantly influence all issues submitted
to the Company's stockholders including with respect to its management and the
selection of its Board of Directors. 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. See "Principal Stockholders."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and Bylaws
authorize the issuance of "blank check" Preferred Stock and the establishment of
advance notice requirements for director nominations and actions to
37
<PAGE>
be taken at stockholder meetings. These provisions could discourage or impede a
tender offer, proxy contest or other similar transaction involving control of
the Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over then current market prices and other
transactions that they may deem to be in their best interests. In particular,
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 acquiror 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 Capital Stock."
No Cash Dividends
The Company anticipates that for the foreseeable future its earnings will
be retained for the operation and expansion of its business and that it will not
pay cash dividends on its Common Stock. In addition, the New Credit Facility
prohibits the payment of cash dividends on the Common Stock without the consent
of the lender, and the Senior Indenture restricts the payment of such dividends.
Limitation on Change of Control
Upon a Change of Control (as defined) the Company will be required to offer
to purchase all of the Senior Debentures, and COI will be required to offer to
purchase all of the Notes, at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase. The
Change of Control purchase feature of the Notes and the Senior Debentures may in
certain circumstances discourage or make more difficult a sale or takeover of
the Company. In particular, a Change of Control may cause an acceleration of
indebtedness under the New Credit Facility and certain other indebtedness, if
any, of the Company and its Subsidiaries, in which case such indebtedness would
be required to be repaid in full before repurchase of the Senior Debentures, and
the Notes would also be required to be paid in full before repurchase of the
Senior Debentures. See "Description of the Notes-Change of Control Offer,"
"Description of Senior Debentures-Change of Control Offer" and "Description of
Other Indebtedness." The inability to repay such indebtedness, if accelerated,
and to purchase all of the tendered Notes and Senior Debentures would constitute
an event of default under the Notes Indenture or the Senior Indenture, as the
case may be. Finally, there can be no assurance that the Company will have funds
available to repurchase the Notes and the Senior Debentures upon the occurrence
of a Change of Control.
Absence of Public Market
Prior to the Exchange Offers, there has been no public market for the
Unregistered Securities. The Unregistered Securities have not been registered
under the Securities Act and will be subject to restrictions on transferability
to the extent that they are not exchanged for Exchange Securities by holders who
are entitled to participate in the applicable Exchange Offer. Certain holders of
Unregistered Securities (other than any such holder that is an affiliate of the
Company or COI, as the case may be, within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the applicable Exchange
Offer are entitled to certain registration rights, and the Company or COI, as
the case may be, may be required to file a shelf registration statement with
respect to such Unregistered Securities. The New Notes and New Senior Debentures
will each constitute a new issue of securities with no established trading
market. The Company and COI do not intend to list the Exchange Securities on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The initial purchasers of the Unregistered
Securities currently make a market in the Unregistered Securities, but they are
not obligated to do so and may discontinue such market making at any time. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offers and the pendency of a shelf registration statement. Accordingly, no
assurance can be given that an active public
38
<PAGE>
or other market will develop for the Exchange Securities or as to the liquidity
of the trading market for the Exchange Securities. Consequently, holders of
Exchange Securities may experience difficulty in reselling the Exchange
Securities or may be unable to sell them at all. If a market for the Exchange
Securities develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Securities, future
trading prices of such securities will depend on many factors, including among
other things, prevailing interest rates, the Company's results of operations and
the market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Securities may trade at a discount from
their principal amount.
Consequences of Failure to Exchange
Holders of Unregistered Securities who do not exchange their Unregistered
Securities for Exchange Securities pursuant to the applicable Exchange Offer
will continue to be subject to the restrictions on transfer of such securities
as set forth in the legend thereon and in the Prospectus dated November 19, 1997
with respect to the Old Notes or the Prospectus dated November 19, 1997 with
respect to the Old Senior Debentures, as the case may be, because the
Unregistered Securities were issued pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Unregistered Securities
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom, or in a
transaction not subject to the Securities Act and applicable state securities
laws. The Company and COI do not intend to register the Unregistered Securities
under the Securities Act and, after consummation of the Exchange Offers, will
not be obligated to do so except under limited circumstances. See "The Notes
Exchange Offer--Purpose and Effect of the Notes Exchange Offer" and "The
Debentures Exchange Offer--Purpose and Effect of the Debentures Exchange Offer."
Based on an interpretation by the staff of the Commission set forth in no-action
letters issued to third parties, the Company and COI believe that the Exchange
Securities issued pursuant to the Exchange Offers in exchange for Unregistered
Securities may be offered for resale, resold or otherwise transferred by a
holder thereof (other than (i) a broker-dealer who purchases such Exchange
Securities from the Company or COI, as the case may be, to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, or (ii) a
person that is an "affiliate" of the Company or COI, as the case may be, within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such securities are acquired in the ordinary course of such holder's
business, such holder has no arrangement with any person to participate in the
distribution of such securities and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such securities.
Any holder of Unregistered Securities who tenders in the applicable Exchange
Offer for the purpose of participating in a distribution of the Exchange
Securities may be deemed to have received restricted securities and, if so, will
be required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each
broker-dealer that receives Exchange Securities for its own account in exchange
for Unregistered Securities, where such Unregistered Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution" and "The
Notes Exchange Offer--Procedures for Tendering" and "The Debentures Exchange
Offer--Procedures for Tendering." To the extent the Unregistered Securities are
tendered and accepted in an Exchange Offer, the trading market for untendered
and tendered but unaccepted Unregistered Securities could be adversely affected.
See "The Notes Exchange Offer--Purpose and Effect of the Notes Exchange Offer"
and "The Debentures Exchange Offer--Purpose and Effect of the Debentures
Exchange Offer."
Historical and Pro Forma Losses
COMFORCE had a net loss for the nine months ended September 30, 1997 of
$1.3 million. On a pro forma basis, the Company had net losses for the year
ended December 31, 1996 and the nine months ended September 30, 1997 of $6.7
million and $7.0 million, respectively. No assurance can be given that the
Company's operations will
39
<PAGE>
be profitable in the future. The net loss for the nine months ended September
30, 1997 included $5.8 million of bridge financing costs related to the Prior
Refinancings, which contributed to the loss. See "Unaudited Pro Forma Financial
Statements of COMFORCE Corporation and Subsidiaries."
Risks Related to the Loss of Key Customers
As is common in the staffing industry, the Company's engagements to provide
services to its customers are generally non-exclusive, of a short-term nature
and subject to termination by the customer with little or no notice. On a
historical basis, for 1996, sales to one customer accounted for more than 19% of
COMFORCE's revenues, and for 1995, sales to three customers accounted for 17.3%,
12.6% and 10.1% of COMFORCE's revenues. In addition, on a historical basis, in
each of 1995 and 1996, revenues of COMFORCE's 10 largest customers accounted for
more than 50% of COMFORCE's total revenues. On a pro forma basis (taking into
account the Rhotech and Uniforce acquisitions), in 1996, sales to one customer
accounted for 8% of the Company's revenues, and sales to the 10 largest
customers of the Company accounted for more than 30% of its revenues. The loss
of or a material reduction in the revenues from any of the Company's significant
customers could have an adverse effect on the Company's business, results of
operations and financial condition.
Original Issue Discount
There will be no federal income tax consequences as a result of an exchange
pursuant to either Exchange Offer. Therefore, the same federal tax consequences
apply to the New Senior Debentures as are applicable to the Old Senior
Debentures and to the New Notes as are applicable to the Old Notes.
The Old Senior Debentures were issued at a discount from their principal
amount at maturity. Original issue discount (the difference between the stated
redemption price at maturity of the Senior Debentures and the issue price of the
Senior Debentures) will accrue from the issue date of the Old Senior Debentures
and generally will be includable as interest income in the holder's gross income
for United States federal income tax purposes in advance of the cash payments to
which the income is attributable. For a more detailed discussion of the United
States federal income tax consequences to the holders of the Senior Debentures
of the purchase, ownership and disposition of the Senior Debentures, see
"Certain United States Federal Income Tax Consequences."
If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code (the "Bankruptcy Code") after the issuance of the
Senior Debentures, the claim of a holder of any of the Senior Debentures with
respect to the principal amount thereof may be limited to an amount equal to the
sum of (i) the initial offering price allocable to the Senior Debentures and
(ii) the portion of original issue discount which is not deemed to constitute
"unmatured interest" for purposes of the Bankruptcy Code. Any original issue
discount that was not amortized as of any such bankruptcy filing would
constitute "unmatured interest."
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<PAGE>
USE OF PROCEEDS
The Exchange Offers are intended to satisfy certain of the obligations of
the Company under the Debentures Registration Rights Agreement and COI under the
Notes Registration Rights Agreement. In consideration for issuing the Exchange
Securities contemplated in this Prospectus, the Company will exchange the Old
Senior Debentures for New Senior Debentures and COI will exchange the Old Notes
for New Notes (in each case, in a like principal amount), the form and terms of
which are the same as the form and terms of such Unregistered Securities, except
as otherwise described herein. The Old Senior Debentures surrendered in exchange
for New Senior Debentures and the Old Notes surrendered in exchange for New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the Exchange Securities will not result in any increase or decrease in the
indebtedness of the Company or COI. As such, no effect has been given to the
Exchange Offers in the pro forma financial statements or capitalization table.
Neither the Company nor COI will receive any proceeds from the Exchange Offers.
The Company used the $130.0 million of gross proceeds from the Notes
Offering and the Units Offering, together with approximately $37.0 million of
borrowings under the New Credit Facility and available cash balances to (i)
finance the $93.6 million cash purchase price for the outstanding equity of
Uniforce, net of proceeds from the exercise of outstanding stock options, (ii)
refinance outstanding COMFORCE indebtedness under the Prior Credit Facility of
$38.1 million, (iii) refinance outstanding Uniforce indebtedness under the
Uniforce Credit Facility of $36.1 million, and (iv) pay $8.0 million of the
estimated fees and expenses associated with the Transactions.
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CAPITALIZATION
The following table sets forth the capitalization as of September 30, 1997
of (i) COMFORCE, (ii) Uniforce and (iii) the Company on a pro forma basis to
reflect the Transactions as if the Transactions had occurred on September 30,
1997. This table should be read in conjunction with the historical consolidated
financial statements of COMFORCE and Uniforce and the related notes thereto and
the other information included elsewhere in this Prospectus. See the Unaudited
Pro Forma Combined Financial Statements beginning on page F-2, "Use of Proceeds"
and "The Transactions."
<TABLE>
<CAPTION>
September 30, 1997
------------------
The Company
COMFORCE Uniforce Pro Forma
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Total cash and equivalents ......................... $ 2,670 $ 6,555 $ 2,074
========= ========= =========
Debt:
Senior bank credit facilities ................ $ 36,488 $ 36,098 --
New Credit Facility (1) ...................... -- -- $ 37,000
12% Senior Notes due 2007 .................... -- -- 110,000
15% Senior Secured PIK Debentures due 2009 (2) -- -- 20,000
Capitalized lease obligations ................ -- 781 781
--------- --------- ---------
Total debt .............................. 36,488 36,879 167,781
Stockholders' equity:
Series F preferred stock (3) ................. 1 -- 1
Common stock (4) ............................. 137 51 153
Warrants (2) ................................. -- -- --
Additional paid-in capital ................... 30,485 9,028 42,626
Retained earnings (deficit) .................. (1,677) 30,304 (3,305)
Treasury stock ............................... -- (21,951) --
--------- --------- ---------
Total stockholders' equity .............. 28,946 17,432 39,475
--------- --------- ---------
Total capitalization ......................... $ 65,434 $ 54,311 $ 207,256
========= ========= =========
</TABLE>
- ----------
(1) Total credit facility of $75 million, of which approximately $59 million
would have been available as of September 30, 1997 on a pro forma basis.
(2) The amount outstanding under the Senior Debentures includes $507,000 of
original issue discount ascribed to the value of the Warrants, which value
is excluded from the amount outstanding under the Warrants.
(3) Stated at par value. The Series F preferred stock has a liquidation value
of $500,000.
(4) As of September 30, 1997, the Company had outstanding 13,744,039 shares of
Common Stock, 2,069,030 options at a weighted average exercise price of
$7.64 and 1,923,794 warrants to acquire Common Stock at a weighted average
exercise price of $7.64. The Company issued 1,585,000 additional shares of
Common Stock in the Uniforce Acquisition and 169,000 Warrants in connection
with the Units Offering. On a pro forma basis, after taking into account
the treasury stock method for accounting for warrants and stock options,
the Company will have approximately 16.9 million shares outstanding on a
fully diluted basis.
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HISTORICAL STOCK PRICES AND DIVIDEND POLICY
COMFORCE's Common Stock, $.01 par value, is traded on the American Stock
Exchange (AMEX:CFS). The high and low sales prices for COMFORCE's Common Stock,
as reported by the American Stock Exchange in the Monthly Market Statistics for
the periods indicated, were as follows:
Prior to Acquisition of COMFORCE Telecom, Inc.:(1)
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C>
Fiscal Year 1995
First Quarter............................................1-15/16 3-7/8
Second Quarter...........................................2 3-1/2
Third Quarter............................................1-9/16 4-3/4
Fourth Quarter (through October 16, 1995)................4-3/8 3-1/4
Following Acquisition of COMFORCE Telecom, Inc.:
Fourth Quarter (commencing October 17, 1995).............9-1/4 3-1/4
Fiscal Year 1996
First Quarter............................................6 10-3/8
Second Quarter...........................................9-3/8 34-1/8
Third Quarter............................................15-1/2 28-1/2
Fourth Quarter...........................................11-1/2 18-3/8
Fiscal Year 1997
First Quarter............................................6-1/8 14
Second Quarter...........................................4 7-1/2
Third Quarter............................................5-7/8 9-5/16
Fourth Quarter (through December 19, 1997)...............6-1/4 8-7/8
</TABLE>
- ----------
(1) In October 1995 COMFORCE entered the contingent staffing business through
the acquisition of COMFORCE Telecom, Inc. Prior to that time it had been
primarily engaged in the jewelry business under the name The Lori
Corporation.
The last reported sale price of the COMFORCE Common Stock on the American
Stock Exchange on December 19, 1997 was $7.375. The average closing price for
the five trading days ended December 19, 1997 was $7.0375. As of December 19,
1997, there were approximately 5,370 shareholders of record.
COMFORCE anticipates that it will not pay cash dividends on the COMFORCE
Common Stock for the foreseeable future and that it will retain its earnings to
finance future growth. The declaration and payment of dividends by COMFORCE are
subject to the discretion of its Board of Directors and compliance with
applicable law. Any determination as to the payment of dividends in the future
will depend upon, among other things, general business conditions, the effect of
such payment on COMFORCE's financial condition and other factors COMFORCE's
Board of Directors may in the future consider relevant. Under the New Credit
Facility, COMFORCE is prohibited from paying cash dividends on its Common Stock,
and Senior Indenture also restricts the payment of cash dividends. No dividends
have been declared or paid on the COMFORCE Common Stock during 1995, 1996 or
1997.
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SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following selected unaudited pro forma combined financial statements
include the unaudited pro forma statements of operations of COMFORCE and
Uniforce for the periods presented. The selected unaudited pro forma COMFORCE
financial information includes the statement of operations of COMFORCE for the
periods presented after giving effect to the Prior Acquisitions as if they had
occurred at the beginning of the periods indicated. The selected unaudited pro
forma Uniforce financial information for the 1996 periods includes the statement
of operations of Uniforce for the periods presented after giving pro forma
effect to the Montare Acquisition as if it was acquired at the beginning of the
periods indicated. The selected unaudited pro forma combined financial
statements presented below give effect to the Transactions, the Prior
Acquisitions and the Montare Acquisition as if they had occurred at the
beginning of the periods indicated. Such statements have been derived from, and
should be read in conjunction with, the Unaudited Pro Forma Combined Financial
Statements and notes thereto, the separate historical consolidated financial
statements of COMFORCE and Uniforce and the notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Prospectus.
44
<PAGE>
COMFORCE CORPORATION
SELECTED UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997 Nine Months Ended September 30, 1996
------------------------------------ ------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Comforce Uniforce Adjustments Company Comforce Uniforce Adjustments Company
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales ...................... $161,402 $132,953 $ 294,355 $138,282 $105,867 $ 244,149
Cost of sales .................. 141,638 107,449 249,087 121,136 83,718 204,854
-------- -------- --------- -------- -------- ---------
Gross profit ................... 19,764 25,504 45,268 17,146 22,149 39,295
Operating expenses:
Selling, general and
administrative
expense (6) .............. 13,366 17,325 30,691 12,282 15,102 27,384
Depreciation and
amortization ............. 1,317 953 $ 1,444(1) 3,714 1,298 789 $ 1,552(1) 3,639
-------- -------- -------- --------- -------- -------- -------- ---------
14,683 18,278 1,444 34,405 13,580 15,891 1,552 31,023
-------- -------- -------- --------- -------- -------- -------- ---------
Operating income ............... 5,081 7,226 (1,444) 10,863 3,566 6,258 (1,552) 8,272
-------- -------- -------- --------- -------- -------- -------- ---------
Interest expense, net .......... 11,091(2) 15,278 12,553(2) 15,278
Bridge financing costs ......... 5,822
Other expense .................. 31 (58)
-------- --------- -------- ---------
(11,091) 21,131 12,553 15,336
-------- --------- -------- ---------
Loss before income
taxes ....................... (12,535) (10,268) (14,105) (7,064)
-------- --------- -------- ---------
Benefit from income
taxes ....................... (4,721) (3,241) (4,509)(3) (1,960)
-------- --------- -------- ---------
Net loss ....................... (7,814) (7,027) (9,596) (5,104)
-------- --------- -------- ---------
Preferred stock
dividends ................... $ 18(4) $ 18 $ 18(4) $ 18
-------- --------- -------- ---------
Net loss attributable to
common
stockholders ................ $ (7,832) $ (7,045) $ (9,614) $ (5,122)
======== ========= ======== =========
Loss per share ................. $ (0.45) $ (0.40)
========= =========
Weighted average
shares outstanding
(000's) ..................... 15,512(5) 12,980(5)
========= =========
Other Data:
EBITDA (7) ..................... $ 15,046 $ 12,120
Adjusted EBITDA (8) ............ 17,088 14,745
Loss per share as
adjusted (9) ................... $(0.23) $ (0.40)
========= =========
</TABLE>
See notes to selected unaudited pro forma combined financial statements.
45
<PAGE>
COMFORCE CORPORATION
SELECTED UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Comforce Uniforce Adjustments The Company
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .................................................... $184,438 $144,625 $ 329,063
Cost of sales ................................................ 161,014 114,334 275,348
-------- -------- ---------
Gross profit ................................................. 23,424 30,291 53,715
Operating expenses:
Selling, general and administrative expense (6) ........... 16,704 20,980 37,684
Depreciation and amortization ............................. 1,736 1,080 $ 2,034(1) 4,850
-------- -------- --------- ---------
18,440 22,060 2,034 42,534
-------- -------- --------- ---------
Operating income ............................................. 4,984 8,231 (2,034) 11,181
======== ======== ========= =========
Interest expense, net ........................................ 16,502(2) 20,370
Other expense ................................................ (82)
--------- ---------
16,502 20,452
--------- ---------
Loss before income taxes ..................................... (18,536) (9,271)
--------- ---------
Benefit from income taxes .................................... (5,937)(3) (2,561)
--------- ---------
Net loss ..................................................... (12,599) (6,710)
--------- ---------
Preferred stock dividends .................................... $ 25(4) $ 25
Accretive dividend on Series F Preferred Stock ............... $ 100(4) $ 100
--------- ---------
Net loss attributable to common stockholders ................. $ (12,724) $ (6,835)
========= =========
Loss per share ............................................... $ (0.51)
=========
Weighted average shares outstanding (000's) .................. 13,527(5)
=========
Other Data:
EBITDA (7) ................................................... $ 16,600
Adjusted EBITDA (8) .......................................... 20,100
Loss per share as adjusted (9) ............................... $ (0.51)
=========
</TABLE>
See notes to selected unaudited pro forma combined financial statements.
46
<PAGE>
COMFORCE Corporation
Notes to Selected Unaudited Pro Forma Combined Financial Statements
(1) Reflects the amortization of goodwill resulting from the acquisition of
Uniforce. The pro forma COMFORCE amortization expense reflects the
amortization of intangibles resulting from its acquisitions during the
period October 17, 1995 through September 30, 1997.
(2) The pro forma adjustment to interest expense reflects interest expense on
the placement of the Notes and Senior Debentures and borrowings under the
New Credit Facility aggregating $167 million. Pro forma interest expense
has been calculated using interest rates of 8.25%, 12.0% and 15.0% per
annum for the New Credit Facility, Notes and Senior Debentures,
respectively, plus the amortization of debt financing costs. Financing
costs do not include the effects of the Warrants.
(3) The pro forma adjustment for income taxes reflects the tax effect of the
pro forma adjustments (excluding non-deductible amortization), the tax
effect of S Corporation earnings treated as C Corporation earnings and the
tax benefit of losses by other entities within the pro forma combined
group.
(4) Pro forma dividends for all periods presented represent dividends and
accretive dividends on $500,000 of Series F preferred stock remaining
outstanding as of September 30, 1997 and deemed outstanding for all periods
presented.
(5) Pro forma weighted average shares include shares issued to finance
acquisition transactions and exclude common stock equivalents as this
effect would be anti-dilutive.
(6) Selling, general and administrative expense includes legal settlement costs
and merger-related costs of $469,000, $209,000 and $569,000 for the
nine-month period ended September 30, 1997, the nine-month period ended
September 30, 1996 and the year ended December 31, 1996, respectively. See
the Unaudited Pro Forma Combined Financial Statements beginning on page
F-2.
(7) EBITDA represents operating income plus depreciation and amortization plus
the adjustment for the legal settlement costs described in note (6) above.
Management believes that EBITDA is a measure commonly used by analysts and
investors to determine a company's ability to incur and service its debt.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income (as determined in accordance with GAAP), as a measure of a
company's operating results or cash flows (as determined in accordance with
GAAP), or as a measure of a company's liquidity.
(8) Adjusted to include management's estimate of $1 million and $2.5 million of
identified annual cost savings from the acquisition of Rhotech and
Uniforce, respectively, related to (i) personnel-related and other cost
savings at Rhotech and Uniforce, (ii) elimination of public company
expenses at Uniforce and (iii) integration of back office operations.
Rhotech was acquired on February 28, 1997 and the effects of cost savings
for the nine-month period ended September 30, 1997 are prorated
accordingly. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a
percentage of net sales.
(9) Adjusted to exclude the $5.8 million of bridge financing costs related to
the Prior Refinancings in the nine-month period ended September 30, 1997.
47
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
COMFORCE CORPORATION
The following table sets forth selected financial data of COMFORCE as of
and for each of the five years in the period ended December 31, 1996 and for the
nine month periods ended September 30, 1997 and 1996. The statement of
operations and balance sheet data as of and for each of the five years in the
period ended December 31, 1996 are derived from COMFORCE's audited historical
consolidated financial statements included elsewhere in this Prospectus. The
statement of operations and balance sheet data as of and for the nine month
periods ended September 30, 1997 and 1996 have been derived from the unaudited
historical financial statements of COMFORCE. In the opinion of management, the
unaudited data includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. Interim
results for the nine month period ended September 30, 1997 are not necessarily
indicative of results that can be expected in future periods. "Other Data," not
directly derived from COMFORCE's financial statements, have been presented to
provide additional analysis. The Selected Historical Financial Data below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Historical Results of Operations-COMFORCE."
"Summary Historical Financial Data-COMFORCE" and the historical financial
statements and notes thereto included elsewhere in this Prospectus.
48
<PAGE>
COMFORCE Corporation (1)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
(unaudited) (in thousands, except per share data)
------------- --------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales ............................... $ 145,986 $ 33,514 $ 55,867 $ 2,387 -- -- --
Cost of sales ........................... 127,227 28,690 47,574 1,818 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Gross profit ............................ 18,759 4,824 8,293 569 -- -- --
Selling, general and
administrative expense ............... 11,842 2,891 5,266 461 $ 966 $ 701 $ 421
Depreciation and amortization ........... 1,241 343 614 362 -- -- --
Stock compensation charge (2) ........... -- -- -- 3,425 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ................. 5,676 1,590 2,413 (3,679) (966) (701) (421)
Interest expense, net (3) ............... 7,973 102 201 585 1,316 754 --
Other expense (income) .................. (344) (29) (40) 33 -- 1 --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income
taxes and extraordinary
credit ............................... (1,953) 1,517 2,252 (4,297) (2,282) (1,456) (421)
Provision (credit) for income
taxes ................................ (646) 610 900 35 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations ........................... (1,307) 907 1,352 (4,332) (2,282) (1,456) (421)
Loss from discontinued
operations (4) ....................... -- -- -- (17,211) (16,220) (216) (34,198)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary credit ................. (1,307) 907 1,352 (21,543) (18,502) (1,672) (34,619)
Extraordinary credit, net
discharge or indebtedness (5) ........ -- -- -- 6,657 8,965 22,057 --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ................. (1,307) 907 1,352 (14,886) (9,537) 20,385 (34,619)
Preferred stock dividends ............... 732 -- 325 -- -- -- --
Accretive dividend on Series F
preferred stock ...................... -- 193 665 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)
attributable to common
shares .......................... $ (2,039) $ 714 $ 362 $ (14,886) $ (9,537) $ 20,385 $ (34,619)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share:
Continuing operations before
accretive dividend ................ $ (0.15) $ 0.06 $ 0.08 $ (0.95) $ (0.72) $ (0.39) $ (0.13)
Discontinued operations .............. -- -- -- (3.74) (5.08) (0.06) (10.86)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary credit and
accretive dividend ................ $ (0.15) $ 0.06 $ 0.08 $ (4.69) $ (5.80) $ (0.45) $ (10.99)
Extraordinary credit ................. -- -- -- 1.45 2.81 6.03 --
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
(unaudited) (in thousands, except per share data)
------------- --------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Accretive dividend on Series
F preferred stock ...................... -- -- (0.05) -- -- -- --
Net income (loss) per
share ................................ $ (0.15) $ 0.06 $ 0.03 $ (3.24) $ (2.99) $ 5.58 $(10.99)
Weighted average shares
outstanding (000's) ....................... 13,256 12,661 12,991 4,596 3,195 3,656 3,149
Other Data:
EBITDA (6) ................................... $ 6,917 $ 1,933 $ 3,027 $ 108 --(10) --(10) --(10)
Capital expenditures ......................... 548 183 329 656 --(10) --(10) --(10)
Ratio of EBITDA to interest
expense ................................... 0.9x 19.0x 15.1x 0.2x --(10) --(10) --(10)
Gross margin (7) ............................. 12.8% 14.4% 14.8% 23.8% --(10) --(10) --(10)
EBITDA margin (6) ............................ 4.7% 5.8% 5.4% 4.5% --(10) --(10) --(10)
Ratio of earnings to fixed
charges ................................... --(8) -- 9.6x(8) --(8)
Balance Sheet Data:
Working capital (deficit) .................... $ 9,103 $ 4,699 $ 8,012 $ (1,697) --(10) --(10) --(10)
Accounts receivable .......................... 26,547 10,081 12,042 1,698 --(10) --(10) --(10)
Intangible assets, net ....................... 38,722 14,036 24,756 4,801 --(10) --(10) --(10)
Total assets (9) ............................. 75,739 26,620 43,366 8,536 --(10) --(10) --(10)
Total debt, including current
maturities ................................ 36,488 3,250 3,850 500 --(10) --(10) --(10)
Preferred stock .............................. 1 2 2 -- --(10) --(10) --(10)
Stockholders' equity ......................... 28,946 18,716 34,744 2,238 --(10) --(10) --(10)
</TABLE>
- -----------
(1) Results for the year ended December 31, 1995 represent results of COMFORCE
Telecom from the date of its acquisition, October 17, 1995. Results for the
year ended December 31, 1996 represent results of COMFORCE Telecom for the
entire year, results of Williams from the acquisition date of March 3, 1996
through December 31, 1996, results of RRA from the acquisition date of May
10, 1996 through December 31, 1996, results of Force Five from the
effective date of acquisition of July 31, 1996 through December 31, 1996,
results of AZATAR from the effective date of acquisition of November 1,
1996 through December 31, 1996, and results of Continental from the
effective date of acquisition of November 8, 1996 through December 31,
1996. Results for the nine months ended September 30, 1996 represent
results of COMFORCE for the entire nine months, results of Williams from
the acquisition date of March 3, 1996 through September 30, 1996 and the
results of RRA from the acquisition date of May 10, 1996 through September
30, 1996. Results for the nine months ended September 30, 1997 represent
results of Rhotech from the acquisition date of February 28, 1997 through
September 30, 1997. COMFORCE's jewelry operations were discontinued
effective as of September 30, 1995. Accordingly, selected financial data of
COMFORCE's jewelry operations for each of the three years in the period
ended December 31, 1994 have been reclassified to discontinued operations.
(2) Represents a non-recurring compensation charge related to the issuance of a
35% common stock interest in COMFORCE to certain individuals to manage
COMFORCE's entry into the technical staffing services business.
50
<PAGE>
(3) Includes $5.8 million of bridge financing costs for the nine months ended
September 30, 1997.
(4) The loss from discontinued operations for the year ended December 31, 1995
includes a charge to operations of $12.9 million to write-off the remaining
goodwill of COMFORCE's discontinued jewelry operations effective June 30,
1995 and a provision of $1.6 million for loss on disposal of these
discontinued operations. The loss from discontinued operations for the year
ended December 31, 1994 includes a charge to operations of $10.8 million
representing a write-off of goodwill of COMFORCE's former New Dimensions
subsidiary. The loss from discontinued operations for the year ended
December 31, 1992 includes charges to operations of $8.7 million
representing an impairment of goodwill at December 31, 1992 and $8.5
million representing increased reserves for markdown allowances and
inventory valuation.
(5) The 1995 and 1994 extraordinary credits represent gains from net discharge
of indebtedness under terms of COMFORCE's debt settlement agreement with
its bank related to the discontinued jewelry operations. The 1993
extraordinary credit represents a gain from a net discharge of indebtedness
due to the reorganization of COMFORCE's former New Dimensions subsidiary.
(6) EBITDA represents income (loss) from continuing operations before income
taxes and extraordinary credits plus depreciation and amortization plus the
adjustment for the non-recurring stock compensation charge of $3.4 million
in 1995. Management believes that EBITDA is a measure commonly used by
analysts and investors to determine a company's ability to service and
incur its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, net income (as determined in accordance with GAAP) as
a measure of a company's operating results or cash flows (as determined in
accordance with GAAP) or as a measure of a company's liquidity. EBITDA
margin is calculated as EBITDA as a percentage of net sales.
(7) Gross margin is calculated as gross profit as a percentage of net sales.
(8) The Company's fixed charges exceeded its earnings as a result of loss
before income taxes of $4.3 million for the year ended December 31, 1995
and $2.0 million for the nine month period ended September 30, 1997. For
purposes of the ratios, earnings consist of income from operations and
fixed charges. Fixed charges consist of interest expense, amortization of
debt financing costs and one-third of rental expenses.
(9) As partial consideration for a debt settlement agreement, in December 1994,
COMFORCE's bank lender received all of the assets of COMFORCE's former New
Dimensions subsidiary.
(10) Data not presented as information is not meaningful since COMFORCE was not
in the staffing business during such periods.
SELECTED HISTORICAL FINANCIAL DATA
UNIFORCE SERVICES, INC.
The following table sets forth selected financial data of Uniforce as of
and for each of the five years in the period ended December 31, 1996 and for the
nine-month periods ended September 30, 1997 and 1996. The statement of
operations and balance sheet data as of and for each of the five years in the
period ended December 31, 1996 are derived from Uniforce's audited historical
consolidated financial statements included elsewhere in this Prospectus. The
statement of operations and balance sheet data as of and for the nine-month
periods ended September 30, 1997 and 1996 have been derived from the unaudited
historical financial statements of Uniforce. In the opinion of management, the
unaudited data includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. Interim
results for the nine-month period ended September 30, 1997 are not necessarily
indicative of results that can be expected in future periods. "Other Data," not
directly derived from Uniforce's financial statements, have been presented to
provide additional analysis. The Selected Historical Financial Data below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Historical Results of Operations-Uniforce,"
"Summary Historical Financial Data-Uniforce" and the historical financial
statements and notes thereto included elsewhere in this Prospectus.
51
<PAGE>
Uniforce Services, Inc. (1)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited) (dollars in thousands, except EPS data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales of supplemental staffing services . $127,265 $ 97,804 $134,437 $126,268 $108,486 $81,818 $ 78,916
Service revenues and fees ............... 5,688 5,589 7,714 8,203 6,695 4,324 4,009
-------- -------- -------- -------- -------- ------- --------
Total revenues ....................... 132,953 103,393 142,151 134,471 115,181 86,142 82,925
-------- -------- -------- -------- -------- ------- --------
Cost of supplemental staffing services .. 100,783 76,214 104,685 98,163 83,767 63,489 61,150
Licensees' share of gross margin (2) .... 6,666 5,833 7,977 9,473 9,896 8,793 9,575
-------- -------- -------- -------- -------- ------- --------
Cost of sales ........................ 107,449 82,047 112,662 107,636 93,663 72,282 70,725
-------- -------- -------- -------- -------- ------- --------
Gross profit ............................ 25,504 21,346 29,489 26,835 21,518 13,860 12,200
Selling, general and administration
expense .............................. 17,100 14,556 20,075 19,451 15,731 10,656 9,604
Litigation settlement (3) ............... -- -- 360 -- -- -- --
Merger transaction costs (4) ............ 225 -- -- -- -- -- --
Depreciation and amortization ........... 953 783 1,074 940 941 873 938
-------- -------- -------- -------- -------- ------- --------
Operating income ........................ 7,226 6,007 7,980 6,444 4,846 2,331 1,658
Interest expense (income), net .......... 1,829 1,564 2,170 728 127 (150) (208)
Other expense (income), net ............. (9) (19) (45) (29) (7) 70 47
-------- -------- -------- -------- -------- ------- --------
Income before provision for income
taxes ................................ 5,406 4,462 5,855 5,745 4,726 2,411 1,819
Provision for income taxes .............. 2,126 1,695 2,185 2,182 1,775 918 675
-------- -------- -------- -------- -------- ------- --------
Net income .............................. $ 3,280 $ 2,767 $ 3,670 $ 3,563 $ 2,951 $ 1,493 $ 1,144
======== ======== ======== ======== ======== ======= ========
Net income per share:
Primary .............................. $ 1.02 $ 0.85 $ 1.13 $ 0.83 $ 0.65 $ 0.35 $ 0.26
Fully diluted ........................ 1.00 0.84 -- -- -- -- --
======== ======== ======== ======== ======== ======= ========
Weighted average shares outstanding:
Primary ('000s) ...................... 3,232 3,273 3,258 4,311 4,553 4,307 4,348
Fully diluted ('000s) ................ 3,286 3,293 -- -- -- -- --
Other Data:
EBITDA (5) .............................. $ 8,404 $ 6,790 $ 9,414 $ 7,384 $ 5,787 $ 3,204 $ 2,596
Capital expenditures .................... 1,085 775 1,464 670 592 440 83
Ratio of EBITDA to interest expense
(6) .................................. 4.6x 4.3x 4.3x 10.1x 45.6x NM NM
Gross margin (7) ........................ 19.2% 20.6% 20.7% 20.0% 18.7% 16.1% 14.7%
EBITDA margin (5) ....................... 6.3% 6.6% 6.6% 5.5% 5.0% 3.7% 3.1%
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(unaudited) (dollars in thousands, except EPS data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ......................... $40,396 $30,953 $29,003 $29,181 $19,281 $17,508 $16,661
Accounts and funding and
service fees receivable, net ............ 46,522 40,584 35,985 35,747 26,286 18,518 16,297
Intangible assets, net .................. 7,375 8,067 7,790 4,347 5,059 2,039 2,047
Total assets ............................ 65,792 57,929 54,969 50,596 41,496 30,235 28,040
Total debt, including current
maturities ........................... 36,880 30,416 27,670 12,509 6,300 -- 1,000
Stockholders' equity .................... 17,432 13,421 14,222 24,160 23,112 20,708 19,852
</TABLE>
- -----------
(1) Results for the year ended December 31, 1996 include results of Montare
from the date of its acquisition, May 17, 1996 through December 31, 1996.
Results for the nine months ended September 30, 1996 include results of
Montare from the acquisition date, May 17, 1996 through September 30, 1996.
Results for the nine months ended September 30, 1997 include the results of
Montare for the entire nine months.
(2) Licensees' share of gross margin is principally based upon a percentage of
the gross margin generated from sales by licensed offices.
(3) In 1996, Uniforce settled litigation with vendors of training films
alleging that Uniforce improperly used and/or copied vendors' tapes.
(4) Represents costs incurred in connection with the Merger and Tender Offer.
(5) EBITDA represents operating income plus depreciation and amortization plus
adjustments for the litigation settlement and merger-related costs
discussed in notes (3) and (4) above. Management believes that EBITDA is a
measure commonly used by analysts and investors to determine a company's
ability to service and incur debt. EBITDA should not be considered as an
alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of Uniforce's operating results or cash
flows (as determined in accordance with GAAP) as a measure of Uniforce's
liquidity. EBITDA margin is calculated as EBITDA as a percentage of total
revenues.
(6) Management believes this ratio is a measure commonly used by analysts and
investors to determine a company's ability to service and incur debt.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income (as determined in accordance with GAAP) as a measure of
Uniforce's operating results or cash flows (as determined in accordance
with GAAP) or as a measure of Uniforce's liquidity.
(7) Gross margin is a calculation of gross profit as a percentage of total
revenues.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Set forth below are discussions and analyses of financial condition and
results of operations of COMFORCE and Uniforce by the respective managements of
such companies. Reference is also made to the Unaudited Pro Forma Combined
Financial Statements beginning on page F-2 and the discussion of such pro forma
results under "Prospectus Summary-Discussion of Pro Forma Results." The Company
believes that its future operating results may not be directly comparable to
historical operating results of either COMFORCE or Uniforce because of the
Company's increased size, related cost savings and marketing synergies.
Since October 1995 until prior to the consummation of the Uniforce
Acquisition in November 1997, COMFORCE completed seven acquisitions and Uniforce
completed one acquisition. See "Prospectus Summary-Prior Acquisitions and
Refinancings" and "Business-Acquisitions." Each of the Prior Acquisitions and
the Montare Acquisition has been accounted for on a purchase basis and the
results of operations of each of the businesses acquired have been included in
the acquiring company's historical financial statements from the date of
acquisition. Certain of the Prior Acquisitions provide for contingent payments
by COMFORCE as a part of the purchase consideration based upon the operating
results of the acquired businesses for specified future periods.
The Prior Acquisitions were financed by COMFORCE principally through its
issuance of debt and equity securities and borrowings under bank credit
facilities. As a result, COMFORCE's historical results of operations include
bridge financing costs which are not expected to be incurred in future periods
and preferred stock dividends. In addition, as a result of its rapid growth
through acquisitions, the discussion and comparison of COMFORCE's historical
results of operations set forth below may not be meaningful. See "Prospectus
Summary-Management's Discussion of Summary Pro Forma Results" and "Unaudited Pro
Forma Combined Financial Statements" beginning on page F-2.
Gross margins on staffing services can vary significantly depending on
factors such as the specific services being performed, the overall contract size
and the amount of recruiting required. Margins on the Company's sales in the
technical services sector are typically significantly lower than those in the
telecommunications and information technology sectors, although the trend in the
IT staffing sector has been toward lower margins generally as this sector
matures and consolidates. Additionally, in certain markets the Company has
experienced significant pricing pressure from some of its competitors.
Consequently, changes in the Company's sales mix can be expected to impact the
overall gross margins generated by the Company.
Staffing personnel placed by the Company are employees of the Company. The
Company is responsible for employee related expenses for its employees,
including workers' compensation, unemployment compensation insurance, Medicare
and Social Security taxes and general payroll expenses. The Company offers
health, dental, disability and life insurance to its billable employees.
Staffing and consulting companies, including the Company, typically pay their
billable employees weekly for their services before receiving payment from their
customers, often resulting in significant outstanding receivables. To the extent
the Company increases revenues through acquisitions and/or internal growth,
these receivables will grow and there will be greater requirements for borrowing
availability under its credit facilities to fund current operations.
In addition, the principal assets of staffing and consulting companies are
typically their relationships with their employees and their customers, rather
than tangible assets. Consequently, amortization of intangibles, principally
goodwill, has increased as a result of the Prior Acquisitions and the Uniforce
Acquisition and can be expected to further increase if the Company continues to
grow through acquisitions. See "Risk Factors-Potential Impairment of Intangible
Assets."
54
<PAGE>
Results of Operations-COMFORCE
Historical financial information for COMFORCE for 1995 and prior years
relates principally to operations discontinued by COMFORCE effective September
30, 1995. Only limited results of COMFORCE's contingent staffing operations
(following COMFORCE's acquisition of COMFORCE Telecom in October 1995) are
reflected in 1995. See "Business-Discontinued Operations."
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenues of $146 million for the nine months ended September 30, 1997 were
$112.5 million, or approximately 336% higher than revenues for the nine months
ended September 30, 1996. The increase in 1997 revenues is attributable
principally to COMFORCE's completion of five acquisitions since the end of the
first quarter of 1996.
Cost of revenues for the nine months ended September 30, 1997 was 87.2% of
revenues compared to cost of revenues of 85.6% for the nine months ended
September 30, 1996. The 1997 cost of revenues increase of 1.6% is a result of
COMFORCE's expansion into more mature technical staffing sectors, which
historically generate gross margins substantially lower than telecommunications
and information technology sectors, principally due to the nature of the related
contracts and competition in this sector.
Selling, general and administrative expenses as a percentage of revenue was
8.1% for the nine months ended September 30, 1997, compared to 8.6% for the nine
months ended September 30, 1996. The decrease is principally attributable to the
acquisitions completed during 1996 and 1997 which contributed increased revenues
with lower incremental selling, general and administrative costs.
Operating income for the nine months ended September 30, 1997 was $5.7
million, compared to operating income of $1.6 million for the nine months ended
September 30, 1996. This increase was principally attributable to COMFORCE's
completion of five acquisitions since the end of the first quarter of 1996.
COMFORCE's interest expense for the nine months ended September 30, 1997 is
attributable principally to the amortization of bridge finance costs payable on
the $25.2 million principal amount of Old Subordinated Debentures issued by
COMFORCE in February and March 1997, the proceeds of which were used to
partially fund the acquisition of Rhotech and for working capital purposes. The
Old Subordinated Debentures were refinanced in June 1997.
The income tax reflects a credit for the nine months ended September 30,
1997 for $646,000 on a loss before income taxes of $2 million, compared to taxes
of $610,000 on pretax income of $1.5 million for the nine months ended September
30, 1996. Such credit assumes that the Company will have taxable income in
future periods. The difference between the Federal statutory income tax rate and
the Company's effective tax rate relates primarily to state income taxes and the
nondeductibility of certain intangible assets.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues of $55.9 million for the year ended December 31, 1996 were $53.5
million higher than revenues for the year ended December 31, 1995. Approximately
30% of this increase in revenues is attributable to full year of operations for
COMFORCE Telecom in 1996, and approximately 70% is attributable to the
acquisition of five additional staffing business by COMFORCE during 1996.
Cost of revenues for the year ended December 31, 1996 was 85.2% of revenues
compared to cost of revenues of 76.2% for the year ended December 31, 1995. The
1996 cost of revenues increase of 9.0% is a result of COMFORCE's expansion into
more mature technical staffing sectors, which historically generate gross
margins substantially lower than telecommunications and IT sectors, principally
due to the nature of the related contracts and competition in this sector.
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Selling, general and administrative expenses for the year ended December
31, 1996 increased $4.8 million from the selling, general and administrative
expenses for the year ended December 31, 1995. The increase in selling, general
and administrative expense is principally due to COMFORCE's limited operations
in 1995. The stock compensation charge incurred by COMFORCE in 1995 of $3.4
million relates to stock awarded to certain individuals to direct COMFORCE's
entry into the technical staffing business.
Historical operating income for the year ended December 31, 1996 was $2.4
million compared to an operating loss of $3.7 million for the year ended
December 31, 1995. The improvement of $6.1 million was principally attributable
to the discontinuance in the 1996 period of the non-recurring stock compensation
charge of $3.4 million recorded in 1995. The 1996 operating income was also
impacted by the acquisitions completed during the year and increased margins on
revenue growth in COMFORCE's telecommunications and information technology
sectors.
The income tax provision for the year ended December 31, 1996 was $900,000
on income of $2.3 million compared with an income tax provision of $35,000 on
loss before income taxes and extraordinary credit of $4.3 million for the year
ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
COMFORCE had revenues of $2.4 million for the year ended December 31, 1995.
As a result of COMFORCE's discontinuation of its jewelry operations in September
1995 and the restatement of its financial statements for the year ended December
31, 1994 to reflect such discontinuation, COMFORCE had limited revenues
(commencing with its acquisition of COMFORCE Telecom in October 1995) in 1995
and no revenues in 1994. See "Business-Discontinued Operations."
Cost of revenues for the year ended December 31, 1995 was 76.2% of
revenues.
Selling, general and administrative expenses for the year ended December
31, 1995 were $461,000, compared to selling, general and administrative expenses
for the year ended December 31, 1994 of $966,000. This decrease was principally
due to the elimination of certain costs of the former operations. The stock
compensation charge incurred by COMFORCE in 1995 of $3.4 million relates to
stock awarded to certain individuals to direct COMFORCE's entry into the
technical staffing business.
Operating loss for the year ended December 31, 1995 was $3.7 million
compared to an operating loss of $1.0 million for the year ended December 31,
1994. The increase in operating loss of $2.7 million was principally
attributable to the stock compensation charge of $3.4 million recorded in 1995.
Interest expense for the year ended December 31, 1995 decreased $0.7
million as compared to the year ended December 31, 1994. The 1995 decrease is
principally due to the discharge in 1994 and 1995 of indebtedness under terms of
the bank loan agreements related to COMFORCE's discontinued jewelry operations.
As a result of the discontinuance of its jewelry operations, it has been
determined that COMFORCE will be unable to utilize losses from those businesses
in the future.
Results of Operations-UNIFORCE
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Total revenues increased by $29.6 million or 28.6% from $103.4 million in
the first nine months of 1996 to $133.0 million in the first nine months of
1997. The increases in revenues described throughout this discussion of the
results of Uniforce for the nine months ended September 30, 1997 as compared to
the nine months ended September 30, 1996 were primarily the result of volume
increases relating to new and existing clients.
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Sales of supplemental staffing services increased by $29.5 million for the
first nine months of 1997 as compared to the same period in 1996. PrO Unlimited
sales increased by $8.0 million or 29.0% for the first nine months of 1997 as
compared to the corresponding 1996 period. Uniforce Information Services/Brannon
& Tully sales increased by $11.5 million or 52.8% for the first nine months of
1997 as compared to the corresponding 1996 period. Sales of Montare, a provider
of IT contract professionals, acquired on May 17, 1996, contributed $6.5 million
for the first nine months of 1997 and $2.5 million from the date of acquisition
to September 30, 1996. The remaining increases in sales resulted from general
increases in Uniforce's other operations.
Service revenues and fees increased by 1.8% from $5.6 million for the first
nine months of 1996 to $5.7 million for the first nine months of 1997. Increased
service revenues and fees that were generated by THISCO and its subsidiaries
were offset by the loss of service revenues for the first nine months of 1997
due to the contract termination of one major client and the re-evaluation and
resulting termination of certain less profitable customers of Brentwood.
System-wide sales, which includes sales of associated offices serviced by
THISCO and Brentwood, increased by $49.5 million or 19.6% from $252.6 million in
the first nine months of 1996 to $302.2 million in the first nine months of
1997.
Cost of supplemental staffing services was 79.2% of sales of supplemental
staffing services in the first nine months of 1997 and 77.9% in the first nine
months of 1996. The higher percentage in the first nine months of 1997 was a
result of increased sales of PrO Unlimited, which have a high percentage payroll
expense in relation to sales.
Licensees' share of gross margin is principally based upon a percentage of
the gross margin generated from sales by licensed offices. Gross margin from
such sales of supplemental staffing services amounted to $26.5 million in the
first nine months of 1997 and $21.6 million in the first nine months of 1996.
Licensees' share of gross margin as a percentage of sales of supplemental
staffing services was 25.2% in the first nine months of 1997 and 27.0% in the
first nine months of 1996. The lower share as a percentage of total gross margin
in 1997 was due to increased sales of Uniforce Information Services/Brannon &
Tully and Uniforce Information Services/Montare for which there are no related
licensee distributions and to the increased sales of PrO Unlimited for which
there are limited distributions.
General and administrative expenses increased by $2.5 million or 17.5% for
the first nine months of 1997 as compared to the first nine months of 1996. This
increase resulted principally from higher payroll and recruiting costs with
respect to permanent staff, expenses relating to Uniforce Information
Services/Montare operations (acquired in May 1996), and higher facility costs.
As a percentage of revenues, general and administrative expenses were 12.9% in
the first nine months of 1997 and 14.1% in the first nine months of 1996.
The merger-related costs of $225,000 represent non tax-deductible
transaction costs incurred by Uniforce in connection with the Merger Agreement
described in Note 4 to Uniforce's Consolidated Condensed Financial Statements
for the nine months ended September 30, 1997.
For the first nine months of 1997, net interest expense increased by
$266,000 or 17.0% as compared to the same period in 1996. The increase in
interest expense for the 1997 period compared to 1996 is a result of increased
borrowings throughout 1997 for the acquisition of Montare and increased working
capital requirements due to the continued growth in Uniforce's business.
As a result of the factors discussed above, for the first nine months, net
earnings increased by 18.6% from $2.8 million ($.85 per share on a primary
basis) in 1996 to $3.3 million ($1.02 per share on a primary basis) in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased by 5.7% from $134.5 million in 1995 to $142.2
million in 1996. The increases in revenues described throughout this discussion
of the results of Uniforce for the year ended December 31, 1996 as
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compared to the year ended December 31, 1995 were primarily the result of volume
increases relating to new and existing clients.
Sales of supplemental staffing services increased by 6.5%, or $8.2 million,
in 1996 as compared to 1995. PrO Unlimited sales increased by $13.1 million or
52.9% in 1996, and Uniforce Information Services/Brannon & Tully sales increased
by $4.8 million or 18.9%, in 1996 as compared to 1995. Contributing to the
increase in sales was Uniforce's acquisition in May 1996 of certain assets of
Montare, a provider of IT contract professionals. This acquisition contributed
$4.2 million of sales from May 17, 1996 through year end. These increases were
offset by a $15.5 million decrease in sales of licensed offices, principally due
to a reduction in the number of licensed offices as a result of contract buyouts
by two of its operators.
Service revenues and fees decreased by 6.0% from $8.2 million in 1995 to
$7.7 million in 1996. This decline was the result of increased service revenues
and fees generated by THISCO, one of Uniforce's subsidiaries, being more than
offset by certain Licensee service revenues and fees relating to the contract
buyouts noted above which were recorded in 1995.
System-wide sales, which include sales of Associated Offices serviced by
two of Uniforce's subsidiaries, THISCO and Brentwood, increased $34.8 million,
or 11.3%, from $307.1 million in 1995 to $341.9 million in 1996.
Cost of supplemental staffing services was 77.9% of sales of supplemental
staffing services during 1996 as compared to 77.7% in 1995. The higher
percentage in 1996 was the result of increased sales by PrO Unlimited, which
have a high percentage of payroll expense in relation to sales.
Licensees' share of gross margin is principally based upon a percentage of
the gross margin generated from sales by licensed offices. The gross margin from
sales of supplemental staffing services amounted to $29.8 million and $28.1
million for 1996 and 1995, respectively. Licensees' share of gross margin as a
percentage of sales of supplemental staffing services was 26.8% for 1996 as
compared to 33.7% in 1995. The lower share as a percentage of gross margin in
1996 is due to lower Licensee sales, increased sales of Uniforce Information
Services/Brannon & Tully and Uniforce Information Services/Montare, for which
there are no related Licensee distributions, and to the increased sales of PrO
Unlimited for which there are limited distributions.
General and administrative expenses increased by 3.2%, or $624,000, in 1996
as compared to 1995. The increase resulted principally from expenses relating to
the operations of Uniforce Information Services/Montare. Further contributing to
the increase were higher facility costs, payroll and recruiting costs with
respect to permanent staff and costs relating to the implementation of a new
payroll and billing system. These increases were offset by a reduction in
Uniforce's provision for bad debts and, after giving consideration to certain
insurance coverages, a reduction of professional costs associated with certain
litigation.
In January 1996, various vendors of training films filed an action against
Uniforce. The plaintiffs alleged that Uniforce improperly used and/or copied
plaintiffs' tapes. Uniforce incurred a charge of $360,000 in settling this
matter.
Net interest expense increased by $1.4 million during 1996. The increase in
1996 as compared to 1995 is a result of increased borrowings used for the
repurchase of 1,250,000 shares of Uniforce Common Stock in the tender offer, the
acquisition of Montare International and increased working capital required due
to the continued growth in Uniforce's business.
There was no material difference in the effective income tax rate in 1996
as compared to 1995.
As a result of the factors discussed above, net earnings increased by 3.0%
from $3.6 million in 1995 to $3.7 million in 1996.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues increased by 16.7% from $115.2 million in 1994 to $134.5
million, in 1995. The increases in revenues described throughout this discussion
of the results of Uniforce for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 were primarily the result of volume increases
relating to new and existing clients.
Sales of supplemental staffing services increased by 16.4% or $17.8 million
in 1995 as compared to 1994. These increases resulted principally from
Uniforce's acquisition in April 1994 of certain assets of Brannon & Tully. This
acquisition contributed $25.5 million of sales in 1995 as compared to $12.4
million for the period from April 18, 1994 to December 31, 1994. This
acquisition has had a favorable impact on Uniforce's results of operations and
its ability to develop higher margin professional services. Sales by Uniforce's
subsidiaries, PrO Unlimited, and to a lesser degree LabForce, continued to
increase as Uniforce emphasized the marketing of these services. The sales of
PrO Unlimited increased by $9.9 million in 1995 as compared to 1994.
Service revenues and fees increased by 22.5% from $6.7 million in 1994 to
$8.2 million in 1995. Service revenues and fees generated by THISCO and
Brentwood increased by $1.0 million in 1995 compared to 1994. Also contributing
to this increase were certain Licensee service revenues and fees which increased
by $494,000 in 1995 as compared to 1994.
In addition, system-wide sales, which include sales of Associated Offices
serviced by THISCO and Brentwood, increased by 22.9%, from $249.8 million in
1994 to $307.1 million in 1995.
Cost of supplemental staffing services was 77.7% of sales of supplemental
staffing services during 1995 as compared to 77.2% in 1994. The higher
percentage in 1995 was the result of increased sales by PrO Unlimited, which
have a high percentage of payroll expense in relation to sales.
Licensees' share of gross margin is principally based upon a percentage of
the gross margin generated from sales by licensed offices. The gross margin from
sales of supplemental staffing services amounted to $28.1 million and $24.7
million for 1995 and 1994, respectively. Licensees' share of gross margin as a
percentage of sales of supplemental staffing services was 33.7% for 1995 as
compared to 40.0% in 1994. The lower share as a percentage of gross margin in
1995 is due, in part, to the sales of Uniforce Information Services/Brannon &
Tully for which there are no related Licensee distributions, and to PrO
Unlimited for which there are limited distributions.
General and administrative expenses increased by 23.6% or $3.7 million in
1995 as compared to 1994. As a percentage of revenues, general and
administrative expenses were 14.5% and 13.7% for 1995 and 1994, respectively.
These increases resulted principally from compensation and overhead expenses
relating to Uniforce Information Services/Brannon & Tully operations. Further
contributing to the increase were higher expenses relating to payroll costs with
respect to permanent staff offset by savings in staff recruiting costs and
increased legal fees relating to certain litigation. In addition, the provision
for possible losses on receivables, notes receivable and other assets increased
in 1995 as compared to 1994.
Net interest expense increased by $601,000 during 1995. The increase in
1995 as compared to 1994 is a direct result of increased borrowings used for the
acquisition of Brannon & Tully and to meet working capital requirements due to
the increased system-wide sales.
There was no material difference in the effective income tax rate in 1995
as compared to 1994.
As a result of the factors discussed above, net earnings increased by 20.8%
from $3.0 million in 1994 to $3.6 million in 1995.
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Financial Condition, Liquidity and Capital Resources
The Company
The total amount of funds required to effect the Uniforce Acquisition was
approximately $93.6 million. The total amount of funds required to refinance the
Prior Credit Facility and the Uniforce Credit Facility, provide for working
capital and pay fees and expenses incurred in connection with the Uniforce
Acquisition was approximately $80.6 million. These costs were funded from the
proceeds of the Notes Offering, the Units Offering and the New Credit Facility
and available cash from operations.
The Company has historically paid its billable employees weekly for their
services before receiving payment from its customers. Additionally, certain
statutory payroll and related taxes, as well as other fringe benefits, are
generally paid by the Company before the Company receives payment from its
customers. Consequently, a significant portion of the Company's cost of revenues
is normally paid by the Company prior to receiving payment from its customers.
Increases in the Company's revenues, resulting from expansion of existing
offices or establishment of new offices, will require additional cash resources
necessary to support such growth. The debt service costs associated with the
borrowing under the Notes, the Senior Debentures and the New Credit Facility
will significantly increase liquidity requirements. Management of the Company
believes that, based on pro forma results of operations and anticipated growth,
including growth through acquisitions, cash flow from operations and funds
anticipated to be available under the New Credit Facility will be sufficient to
service the Company's indebtedness, to fund growth at anticipated levels and to
meet anticipated working capital requirements for the foreseeable future.
However, various factors, including those described under "Risk Factors," could
prevent the Company from realizing these objectives.
As of December 18, 1997, the Company had outstanding $20 million in
principal amount of Senior Debentures issued by COMFORCE bearing interest at a
rate of 15%, $110 million in principal amount of Notes issued by COI bearing
interest at a rate of 12%, $34 million outstanding under the New Credit Facility
bearing interest at a rate of 7.875% and $7.2 million outstanding under the New
Credit Facility bearing interest at a rate of 8.75%. See "Description of the
Senior Debentures," "Description of the Notes" and "Description of Other
Indebtedness."
As of September 30, 1997, approximately $131.4 million, or 57% of the
Company's pro forma total assets were intangible assets. These pro forma
intangible assets substantially represent amounts attributable to goodwill
recorded in connection with the Company's acquisitions and will be amortized
over a five to 40 year period, resulting in an annual charge of approximately
$4.0 million. Various factors could impact the Company's ability to generate the
earnings necessary to support this amortization schedule, including those
described under "Risk Factors-Potential Impairment of Intangible Assets." The
failure of the Company to generate earnings necessary to support the
amortization charge may result in an impairment of the asset. The resulting
write-off could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMFORCE is obligated under various acquisition agreements to make earn-out
payments to the sellers of acquired companies, subject to the acquired
companies' meeting certain contractual requirements. For calendar year 1997,
sellers are entitled to earn-out payments of $521,000, all of which have been
paid. The maximum amount of the remaining potential earn-out payments is $5.0
million in cash and $4.5 million in stock payable in the three-year period from
1998 to 2000. COMFORCE cannot currently estimate whether it will be obligated to
pay the maximum amount; however, COMFORCE anticipates that the cash generated by
the operations of the acquired companies will provide all or a substantial part
of the capital required to fund the cash portion of the earn-out payments.
COMFORCE
During the first nine months of 1997, COMFORCE's primary sources of funds
to meet working capital needs were from operations, funds made available through
COMFORCE's $25.2 million offering of Old Subordinated Debentures in February and
March 1997 and borrowings under a short-term credit facility with U.S. Bank
entered into in February 1997 which provided for up to $7.5 million in
availability and through the Prior Credit Facility
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entered into in June 1997. A portion of the net proceeds from the offering of
the Old Subordinated Debentures was also used to fund COMFORCE's acquisition of
Rhotech in February 1997. On June 25, 1997, COMFORCE completed the $40 million
Prior Credit Facility. The Prior Credit Facility consisted of a revolving credit
facility of up to $20 million and a $20 million term loan. COMFORCE utilized all
of the proceeds of the term loan and a portion of the availability under the
revolving credit facility to redeem the Old Subordinated Debentures. Additional
funds available under the revolving credit facility were used to retire the
existing $7.5 million revolving credit facility with U.S. Bank. The Prior Credit
Facility was repaid in full in connection with the Transactions.
Cash and cash equivalents decreased $938,000 during the nine months ended
September 30, 1997. Cash flows of $2.8 million used in operating activities and
cash flows of $15.2 million used by investing activities were in excess of cash
flows provided by financing activities of $17.1 million. Cash flows used by
operating activities were principally attributable to the need to fund growth in
accounts receivable and their carrying costs. Cash flows used in investing
activities are principally related to the purchase of Rhotech. Cash flows from
financing activities were principally attributable to net proceeds available to
COMFORCE in connection with its sale of the Old Subordinated Debentures (which
were redeemed on June 25, 1997) and net borrowings under the credit facility
with U.S. Bank (which was repaid on June 25, 1997) and net borrowings under the
Prior Credit Facility (which was repaid on November 26, 1997). The Old
Subordinated Debentures were redeemed and the net borrowings under the credit
facility with U.S. Bank were repaid with proceeds from the Prior Credit Facility
(as described in Note 4 to COMFORCE's Consolidated Condensed Financial
Statements for the nine months ended September 30, 1997).
Uniforce
As of September 30, 1997, Uniforce's working capital increased to $40.4
million, as compared to $29.0 million at December 31, 1996. The increase in
system-wide sales, which include sales of associated offices, during the first
nine months of 1997 resulted in increases in accounts and funding and service
fees receivable. The increase in accounts receivable and funding and service
fees receivable was largely financed through Uniforce's long term credit
facility. In addition, working capital increased due to the continuing
profitable operations of Uniforce.
During the first nine months of 1997, Uniforce paid quarterly cash
dividends on shares of its Common Stock at $.03 per share (or $273,000). During
1996, Uniforce paid quarterly cash dividends on shares of its Common Stock of
$0.03 per share (or $363,000).
During the first nine months of 1997, Uniforce's primary sources of funds
to meet working capital needs were from operations and borrowings under the
Uniforce Credit Facility which consisted of a revolving credit facility of up to
$46.0 million and $5.7 million in term loans. The Uniforce Credit Facility was
repaid on November 26, 1997 in connection with the Transactions.
In January 1996, Uniforce successfully completed its offer to purchase
1,250,000 shares of Uniforce Common Stock at $11.25 per share. The total amount
required to purchase such shares was $14.1 million, exclusive of related fees
and other expenses. The purchase price and related expenses were funded with
borrowings available under the Uniforce Credit Facility.
Seasonality
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services in the technical services sector has
historically been lower during the year-end holidays through January of the
following year, showing gradual improvement over the remainder of the year.
Although less pronounced than in technical services, the demand for services of
the telecommunications and IT sectors is typically lower during the first
quarter until customers' operating budgets are finalized. The Company believes
that the effects of seasonality will be less severe in the future if revenues
contributed by the information technology and telecommunications sectors
continue to increase as a percentage of the Company's consolidated revenues.
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Other Matters
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes standards for computing and presenting
earnings per share. SFAS No. 128 will be effective for financial statements
issued for periods ending after December 15, 1997. Earlier application is not
permitted. Management has not yet evaluated the effects of this change on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 becomes effective in fiscal 1999. Management
has not yet evaluated the effects of this change on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds and
reports revenues. SFAS 131 becomes effective in fiscal 1999. Management has not
evaluated the effect of this change on the Company's financial statements.
THE CONTINGENT STAFFING AND CONSULTING INDUSTRY
General
The contingent staffing and consulting industry has evolved into a
permanent and significant component of the staffing plans of many corporations.
The number of temporary workers as a percentage of total employment in the
United States has increased from 0.2% in 1972 to more than 2% in 1996, based on
statistics published by the U.S. Bureau of Labor Statistics. The contingent
staffing and consulting industry has grown rapidly in the 1990s, and industry
analysts expect this growth to continue. The U.S. market for staffing services
grew at a compound annual rate of approximately 16.3% from approximately $20.5
billion in 1991 to approximately $43.6 billion in 1996, based on statistics
published by the NATSS.
Corporate restructuring, downsizing, increased government regulations
governing employee relations, 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 corporations to risk liability upon the discharge of
employees has led to an increase in companies using staffing services as a means
of evaluating the qualifications of personnel before hiring them on a full-time
basis. In addition, entrants into the labor force increasingly look to such
assignments as a way to build experience, make contacts, and get valuable
exposure to a variety of work settings, and as a vehicle to gain full-time
employment.
Organizations have also begun using flexible staffing to reduce
administrative overhead and to allow management to focus on core business
functions by strategically outsourcing operations such as recruiting, training
and benefits administration. An ancillary benefit of staffing services,
particularly for smaller businesses, is the shifting of certain employment costs
and risks (e.g., workers' compensation and unemployment insurance) to the
personnel provider, which can spread the costs and risks over a larger pool of
employees.
Larger users of staffing services are increasingly demanding centralized
staffing services through national contracts with a few preferred providers. In
part as a result of this trend toward national contracts, the highly fragmented
industry is also currently experiencing a trend toward consolidation. These
trends have increased the need
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for staffing firms to be able to provide highly qualified contingent staffers
offering a broad range of services on a nation-wide or international basis and
also to provide value-added services such as training capabilities, management
services and the ability to effectively utilize technology in the recruiting,
training and hiring of contingent staffers.
Staffing firms that recruit contingent employees fall into two major
categories: (i) specialty staffing and consulting firms, which specialize in one
or a few specialty fields, such as the Company's IT and Telecom sectors and
portions of its Technical services sector, and (ii) traditional staffing firms,
which tend to supply primarily clerical or light industrial personnel.
Specialty Staffing and Consulting
The specialty staffing and consulting sector of the industry has
represented an area of more rapid growth that has tended to generate higher
margins than more traditional staffing services. Taxable revenues attributable
to supplying personnel in the specialty staffing sector have increased from $5.1
billion in 1990 to $7.4 billion in 1993 and $10.0 billion in 1994, an annual
growth rate of 35.1% between 1993 and 1994 and 18.3% over the four-year period,
based on information published by the Census Bureau. The Company believes that
the IT portion of the specialty staffing and consulting sector will grow at a
rate of 20% to 25% annually over the next few years. In addition, the Company
believes that, although the contingent staffing industry as a whole has tended
to be cyclical, the specialty staffing and consulting sector may continue to
grow during economic downturns because technological changes will continue to
necessitate spending for both infrastructure and to retain employees skilled in
new technologies. In recent years, there has been intense competition to attract
the limited number of qualified personnel with the skills and experience
necessary to meet the specialty staffing requirements of clients. The Company
believes that it is increasingly important for a staffing firm to be able to
provide interesting assignments with high-profile customers that offer employees
the opportunity to enhance their skills and marketability, as well as to offer
competitive wages and benefits packages.
Information Technology Sector
The demand for qualified personnel is increasing significantly in
computer-related disciplines such as technical project support, software
development and documentation, systems and database management, and desktop
publishing. As a result, information technology services is one of the most
rapidly growing sectors of the contingent staffing and consulting industry.
Management believes that the demand for IT services will continue to grow,
principally as a result of accelerating technological advances requiring highly
specialized expertise and the need for enterprise-wide integration of computer
systems. The continuing transition, particularly by large corporations, from
legacy systems to computer networks using client/server architecture is a key
factor contributing to the demand for technical staffing services. Rapid
technological change makes it increasingly difficult and expensive for
businesses to employ full-time technicians with the leading edge expertise
needed to maintain and upgrade advanced and complex computer systems. Companies
are increasingly relying on outsourcing, staffing and consulting services to
maintain and upgrade their systems and to train full-time employees in the use
and support of their systems. At the same time, an increasing number of
technical professionals are choosing to operate as consultants, motivated by a
desire for more flexible work schedules and an opportunity to work with emerging
and challenging technologies in a variety of industries and work environments.
Such consultants generally are able to maintain compensation levels comparable
to or higher than those of similarly skilled, full-time employees.
With the approach of the Year 2000, management believes that over the next
several years opportunities in the IT sector will increase as companies utilize
contingent personnel to correct the Year 2000 problem which will result in many
computer applications losing their ability to distinguish dates after December
31, 1999, unless reprogrammed. Industry sources estimate that corporations and
government agencies will spend from $200 to $600 billion to assess and correct
this problem, and the Company believes that expenditures for correcting this
problem will extend for several years after the year 2000 as more critical
applications are corrected first.
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Telecommunications Sector
As businesses globalize and advance technologically, the demand for
telecommunications-related services has increased. Enactment of the
Telecommunications Act of 1996, which deregulates substantial portions of the
telecommunications industry, has been the impetus for the recent and expected
future growth in the industry. The growth of the telecommunications industry is
being fueled also by the rising demand for wireless telecommunications services
which have increased dramatically since their commercial introduction in 1984.
This demand is largely attributable to the widespread availability and
increasing affordability of mobile telephone, paging, personal communications
services ("PCS") and other emerging wireless telecommunications services.
Technological advances and a regulatory environment more favorable to
competition have also served to stimulate market growth. The Company believes
the installation of these networks, which is labor-intensive and requires
specialized technical personnel, will significantly increase the demand for
staffing, consulting and outsourcing services. Currently, wireless penetration
is estimated to be approximately 16% of the telephone market and, according to
Paul Kagan Associates, Inc., is expected to exceed 47% by 2006.
The telecommunications industry uses contingent personnel to provide
services ranging from basic equipment installation to sophisticated engineering
skills, typically in support of telecommunications network expansion or
modernization. Skilled contingent personnel are involved in planning, designing,
engineering, installation and maintenance of wireline and wireless communication
systems development, satellite and earth station deployment, network maintenance
and plant modernization.
Technical Services
The technical services sector has both specialty and traditional elements.
The specialty aspect of the technical services sector of the industry includes
providing highly skilled professionals, such as scientists and researchers and
engineers and other professionals involved in commercial enterprises such as
avionics and aerospace, energy and power, pharmaceutical, marine and
petrochemical, while employees involved in the more traditional aspect of the
technical services sector of the industry perform less skilled services, such as
light industrial work. This sector is more mature than the more rapidly emerging
IT and telecommunications sectors. However, the Company believes that this
sector has experienced significant growth in recent years due principally to the
factors that have contributed to the growth in the contingent staffing and
consulting industry generally, including the increasing prevalence of corporate
restructurings and downsizings, increased government regulations governing
employee relations and the desire by many companies to shift employee costs from
a fixed to a variable expense.
Traditional Staffing Services
Traditional staffing companies derive their revenues primarily from
supplying clerical and light industrial workers. In many cases, customers of
traditional staffing companies seek contingent employees to fill positions
during peak production periods or to temporarily replace absent workers. The
traditional staffing services sector is expected to continue to grow, but at a
slower rate than the staffing industry as a whole. The Company believes that
this sector is also likely to be more affected by an economic downturn than the
specialty staffing sector. This sector also tends to operate at lower margins
than the specialty staffing and consulting sector.
BUSINESS
Overview
The Company is a leading provider of specialty staffing, consulting and
outsourcing solutions primarily to Fortune 500 companies for their information
technology ("IT"), telecommunications, scientific and engineering-related needs.
Through its network of 86 offices (55 Company-owned and 31 licensed) located
throughout the United States, the Company recruits and places highly skilled
contingent personnel and outsources payrolling and other financial
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services for a broad customer base of over 2,300 companies. The Company's labor
force includes approximately 7,800 billable employees, consisting primarily of
computer programmers, systems consultants and analysts, telecommunications and
other engineers and technicians, scientists and researchers, as well as skilled
office support personnel. The Company also maintains a database of over 160,000
highly skilled employees. The Company had pro forma net sales and Adjusted
EBITDA (as defined) of $379.3 million and $22.4 million, respectively, for the
twelve-month period ended September 30, 1997.
The Company's senior management team of Christopher P. Franco, James L.
Paterek and Michael Ferrentino established COMFORCE in 1995 to capitalize on the
consolidation opportunities in the specialty staffing and consulting industry.
Since the initial acquisition of COMFORCE Telecom in October 1995 until prior to
the acquisition of Uniforce in November 1997, this management team has
successfully acquired and integrated seven specialty staffing companies with
1995 annual sales of approximately $175.2 million. These companies had histories
of profitable growth, and COMFORCE has continued this growth during 1996 and
1997 after completing the acquisitions. COMFORCE's net sales and EBITDA (as
defined) increased by 16.7% and 30.9%, respectively, for the nine months ended
September 30, 1997 on a pro forma basis.
On November 26, 1997, COMFORCE completed a tender offer pursuant to which
it acquired, through an indirect wholly-owned subsidiary, approximately 96.5% of
the issued and outstanding common stock of Uniforce. On December 3, 1997, as the
result of a merger, Uniforce became an indirect wholly-owned subsidiary of
COMFORCE. Uniforce is a leading provider of staffing and consulting solutions
for the IT, professional and office support markets and funding services to
independent staffing and consulting firms, with pro forma net sales for the
twelve months ended September 30, 1997 of $171.7 million. Uniforce's net sales
and EBITDA increased by 25.6% and 19.3%, respectively, for the nine months ended
September 30, 1997 on a pro forma basis. The Company's net sales and EBITDA
increased by 20.6% and 24.1%, respectively, for the nine months ended September
30, 1997 on a pro forma combined basis. The Uniforce Acquisition positions the
Company with the critical mass, breadth of services and geographic penetration
to continue to increase sales through internal and external growth and improve
profitability through economies of scale and integration efficiencies.
The Company operates through four divisions, as described below:
COMFORCE Information Technologies. The Company's IT division provides
highly skilled programmers, help desk personnel, systems consultants and
analysts, software engineers and project managers for a wide range of technical
assignments, including client server, mainframe, Year 2000, desktop services,
internet/intranet and MIS. The IT division also provides payrolling services in
addition to these staffing solutions to certain of its IT customers. The
Company's principal IT customers include Microsoft Corporation, BellSouth
Telecommunications, Inc., Boeing Information Services, Inc., Eastman Kodak
Company, Tyson Foods, Inc., First Union Corporation, NationsBanc Services, Inc.
and MCI Telecommunications Corporation. Through Uniforce's Brannon & Tully(R)
and Montare International(TM) divisions, the Uniforce Acquisition significantly
enhances the Company's presence in this high- growth sector of the staffing
industry which the Company believes will increase 20% to 25% per year. The
Company expects this division to grow principally through increased sales to
existing IT customers and through opportunities to cross-sell the Company's IT
staffing solutions to its Telecom and other division customers. For the
twelve-month period ended September 30, 1997, the IT division had pro forma net
sales of $117.9 million.
COMFORCE Telecom. The Company's Telecom division provides skilled personnel
to plan, design, engineer, install and maintain wireless and wireline
telecommunications systems, including cellular, PCS, microwave, radio, satellite
and other networks. The Company's staffing and consulting business originated
with this specialty sector, and the Company and several of the companies it has
acquired have long-standing relationships with leading telecommunications
companies. The Telecom division's principal customers include AT&T Corporation,
Northern Telecom, Inc., Harris Corporation, Lucent Technologies, Inc., Reltec
Corporation, ALCATEL Network Systems, Inc., Motorola, Inc., Sprint Corporation
and Omnipoint Corporation. The Company expects this division to continue to grow
significantly through increased sales to existing Telecom customers as well as
through cross-selling
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opportunities with the telecommunications customers served by the Company's IT
division. For the twelve-month period ended September 30, 1997, the Telecom
division had pro forma net sales of $31.2 million.
COMFORCE Staffing Services. The Company's Staffing Services division
operates in two areas, Technical Services and Professional Services. The Company
provides Technical staffing solutions and, in some cases, payrolling services to
a group of technology-intensive clients working in the areas of aerospace,
avionics, electronics, laser and weapons technology, environmental safety and
alternative energy source development. The Company's Technical Services business
is generally conducted through long-term, high-volume contracts that are not
subject to fixed prices and require low administrative overhead. The Company
offers Professional staffing services through 10 Company-owned and 31 licensed
locations that provide services including medical office staffing solutions,
office automation personnel, customer service/call center personnel and
laboratory professionals. The Staffing Services division's principal Technical
Services customers include The Boeing Company, Westinghouse Electric
Corporation, McDonnell Douglas Corporation and the National Department of Energy
National Research Laboratories at Los Alamos, Sandia and Lawrence Livermore. The
Staffing Services division's Professional Services customers include R.R.
Donnelley & Sons Co., Estee Lauder Companies, Inc. and Dial Corporation, as well
as many smaller companies such as independent medical providers and accounting
firms. The Company believes it has a significant opportunity to cross-sell its
Professional Services to its Technical Services customers as well as to its IT
and Telecom customers. For the twelve-month period ended September 30, 1997, the
Staffing Services division had pro forma net sales of $168.3 million, of which
$47.5 million related to sales by licensees.
COMFORCE Financial Services. The Company's Financial Services division
provides payroll funding services and back office support to approximately 100
independent consulting and staffing companies and provides consulting and
related payrolling services to clients in connection with their use of
independent contractors. The Financial Services division significantly benefits
from Uniforce's sophisticated back office operations, as well as Uniforce's
substantial investment in the PeopleSoft(R) software package, which the Company
believes will become the industry standard. For the twelve- month period ended
September 30, 1997, the Financial Services division had pro forma net sales of
$61.9 million.
Business Strengths
o Emphasis on Specialty Staffing and Consulting Sectors. The Company
provides high-quality, creative staffing and consulting solutions to companies
with dynamic needs in specialty high technology areas. Through its focused
acquisition program, the Company has increased its presence in the high-growth
IT, telecommunications, scientific and engineering-related sectors. The Company
adopted this strategy to capitalize on these areas, which generally produce
higher profit margins and experience lower turnover rates and less cyclicality
than more traditional staffing industry sectors. The Uniforce Acquisition
enhances and expands the Company's presence in these specialty areas, which
represented a majority of the Company's net sales on a pro forma basis for the
twelve- month period ended September 30, 1997.
o High-Quality Customer Base. The Company benefits from established,
long-standing relationships with a broad customer base which includes many
Fortune 500 clients. The Company provides staffing services to over 2,300
companies in diverse industries throughout the United States and internationally
and has an excellent customer retention record. The Company's principal
customers include many dynamic businesses in growing industries that have an
increasing need for contingent employees. The Company's key customers include
Boeing, Microsoft, Sun Microsystems, BellSouth and Los Alamos National
Laboratory. None of the Company's customers accounts for more than 10% of sales
on a pro forma combined basis.
o Critical Mass. Through its history of successful acquisitions, the
Company has broadened and added to its line of services, expanded its geographic
presence and increased pro forma annual net sales to $379.3 million for the
twelve-month period ended September 30, 1997 on a pro forma combined basis. The
Company now provides staffing and consulting services to over 2,300 customers
through its network of 86 offices in 27 states. The Company
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believes it has achieved a critical mass necessary to compete successfully for
national vendor accounts as well as further expand its presence in regional
markets.
o Highly Skilled Labor Force. The Company believes its labor force of
approximately 7,800 highly skilled billable employees provides a competitive
advantage in servicing the specialty staffing and consulting needs of its
customers. The Company believes it experiences low employee turnover and is able
to attract and recruit high-quality staffing personnel by providing attractive
assignments with high-profile customers, highly competitive compensation
packages, tailored benefit plans and value-added training opportunities. The
Company draws personnel for assignments from its extensive proprietary database
of over 160,000 prospective employees.
o Highly Efficient Back Office Operations. The Uniforce Acquisition brings
to the Company Uniforce's back office operation, which the Company believes is
one of the most advanced and efficient in the industry. Based in Woodbury, New
York, the sophisticated operation is the centerpiece of the Company's back
office structure. Currently servicing approximately $680 million of annual
"system-wide" revenues on a pro forma combined basis (including approximately
$300 million generated by other staffing firms and processed by the Company),
the back office system has the capacity to enable the Company to grow
significantly. The Company believes that this back office processing capability
also will enable the Company to continue to effectively integrate acquisitions
and realize significant operating efficiencies.
o Broad Offering of Services. The Company believes its ability to provide a
wide range of high-quality staffing and consulting solutions gives it a
competitive advantage as larger customers consolidate their purchasing of
staffing and consulting services. The Company is able to provide a wide variety
of contingent employees including highly specialized IT and telecommunications
professionals, scientists and researchers, skilled medical office support staff,
legal and accounting personnel and other support staff and light industrial
employees. The Company also provides a variety of value added services,
including (i) training for the Company's billable workforce; (ii) outsourcing
management services such as the Company's RightSourcing(sm), Needs Analysis and
Vendor-on-Premises programs; (iii) consulting services to assist clients in
connection with their use of independent contractors; and (iv) innovative uses
of the Internet and other technology, including the Company's Homework(sm)
program. The Company also provides smaller, independent staffing companies with
funding and back office support services. The Company believes its range of
services also provides significant cross-selling opportunities.
o Reputation as Successful Consolidator. The Company has established a
strong reputation as a successful consolidator in the contingent staffing and
consulting industry through its acquisition of eight specialty staffing and
consulting companies since 1995. The Uniforce Acquisition, the most recent of
these acquisitions, enhances this reputation. The Company's management has
integrated its prior acquisitions with minimal staff turnover and an excellent
customer retention record and expects that the integration of Uniforce's
operations will follow this pattern. The Company is positioned for further
growth through acquisitions with additional borrowing capacity under the New
Credit Facility and the ability to use its publicly traded common stock to fund
all or part of acquisition costs. The Company believes its advanced back office
capabilities will assist it in integrating future acquisitions quickly and
efficiently.
Business Strategy
Management's growth strategy includes the following principal elements:
o Emphasize Internal Growth. The Company intends to continue to expand its
existing businesses by pursuing the following objectives:
Emphasize Specialty Sectors. Since the Company entered the contingent
staffing and consulting business, specialty, high technology-related sectors
have provided a significant portion of the Company's growth. These sectors of
the specialty staffing and consulting industry as a whole have also grown
substantially in recent years. As a result,
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management is pursuing a focused sales and marketing effort in these areas to
capitalize on their higher growth in demand for services and resulting profit
potential.
Capitalize on Cross-selling Opportunities. The Company provides a wide
variety of contingent employees, as well as a variety of value-added services,
to a broad, high-quality and geographically diverse customer base. Management
believes significant opportunities exist to cross-sell services of each of its
divisions to clients of its other divisions. In particular, the Company intends
to market its IT division's services to its Telecom division's customers and
vice versa.
Expand Employee Recruiting and Training. In order to meet the increasing
demand for a limited supply of high-quality contingent personnel, the Company
intends to continue to expand its recruiting and training efforts. The Company
will continue to augment and update its proprietary database to add new
contingent personnel and to reflect changes in the skills and availability of
its billable employees in order to ensure a proper fit between personnel and the
assignment being staffed. The Company currently uses the Internet and other
technology in its recruiting and training efforts and intends to further develop
its use of such technology-based recruiting and training capabilities.
o Pursue External Growth through Strategic Acquisitions. The Company
intends to continue to make acquisitions of established, profitable businesses
in new and existing markets that provide the Company with opportunities to
expand its geographic service base and diversify and strengthen its service mix,
particularly in the specialty staffing and consulting sectors. The Company
evaluates acquisition opportunities using an acquisition profile that includes
such factors as market location, market share, services complementary to the
Company's existing service offerings, strength of management and cultural fit of
management with the Company's decentralized, entrepreneurial environment. The
Company is positioned to build on its solid reputation as a successful
consolidator in the industry with the improved, more permanent capitalization
resulting from the completion in November 1997 of the Notes Offering and the
Units Offering, additional borrowing capacity under the New Credit Facility and
the ability to use the Company's publicly traded common stock to fund all or
part of acquisition costs. Management believes that as the Company grows through
acquisitions, it improves its ability to secure larger contracts.
o Increase Operating Efficiency. In connection with its strategies for
internal and external growth, the Company believes that its efficient back
office operations will allow it to increase its profitability by adding offices,
employees and acquired businesses without proportionately increasing its
overhead expenses, enabling it to spread fixed costs over an increasingly larger
revenue base. In addition, the Company believes that centralization of its back
office functions will result in additional operating efficiencies through the
elimination of redundancies and through the development of economies of scale in
administering the Company's payrolling services.
Acquisitions
The Company has acquired eight staffing services businesses since October
1995. Following an acquisition, the Company integrates the operations of the
acquired company into those of the Company, in some cases into more than one of
the Company's divisions. As a result, certain of the acquired companies are no
longer operated on a stand-alone basis following acquisition. However, the
history of the Company's acquisitions is useful in understanding its acquisition
strategy. Each of the acquired companies, their markets, and the principal
customers they serve, is described briefly in the table below.
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<TABLE>
<CAPTION>
Acquired Year Acquisition Revenue for Offices Market Served Principal
Company Founded Date Fiscal Year ------- ------------- Customers
------- ------- ---- Prior to ---------
Acquisition
(millions)
----------
<S> <C> <C> <C> <C> <C> <C>
COMFORCE 1987 October 1995 $8.2 NY, VA, TX, Telecom Motorola; AT&T; Northern
Telecom GA, NC (5 Telecom
(formerly Yield offices)
TechniGlobal)..
Williams........... 1991 March 1996 $4.2 FL (1 office) Telecom Reltec; Fujitsu
RRA................ 1964 May $52.0 AZ, NY, Technical Services Gulfstream; McDonnell
1996 NM, MO, Douglas; National
SC, WA, CA, Laboratories; Westinghouse
FLA
(10 offices)
Force Five......... 1993 August 1996 $7.1 TX, TN, IT American Airlines; Tyson
WA, CA, Foods
MO (5
offices)
AZATAR............. 1980 November $7.1 NY (2 offices) IT Xerox; Kodak
1996
Continental........ 1965 November $9.9 NY, VA Telecom Nynex; BellSouth
1996 (2 offices)
Rhotech............ 1971 February $85.7 WA, NC, Technical Services and Boeing; Microsoft; First
1997 CA, OR IT Union Corporation
(9 offices)
Uniforce........... 1961 November $142.2 NY, AL, CA, IT, Professional BellSouth; Sun Microsystems;
1997 CO, FL, GA, Services and Financial Texas Instruments; State of
IL, KS, MA, Services Georgia; Pfizer; Owens
MD, MI, NH, Illinois
NJ, NM,
NV, NC, OK,
OR, PA, TN,
TX, VA, WA
(21 company-
owned and 31
licensed
offices)
</TABLE>
Management believes that acquired businesses can be integrated into the
Company at low incremental costs, enabling it to spread fixed costs over an
increasingly larger revenue base. The Company generally attempts to retain the
management of acquired companies. In cases in which the seller remains with the
Company as part of the management team, the Company seeks, where possible, to
pay a portion of the purchase price in stock to provide further incentives to
management through ownership in the Company. In the past, following an
acquisition, the Company has generally marketed the services of the acquired
company under the "COMFORCE" name, but has sometimes retained the former
marketing identities of its acquired companies during a transition period.
However, the Company contemplates that the Uniforce name will continue to be
used following the Uniforce Acquisition.
The Company currently expects that it will incur a restructuring charge in
the fourth quarter of 1997, in connection with certain potential severance and
other costs related to the integration of COMFORCE and Uniforce. Management
currently believes that such restructuring charge will be approximately $2.0
million; however, no assurance can be given that any such charge, if incurred,
will not exceed such amount.
The Company believes that there exist a substantial number of potentially
attractive acquisition opportunities in the staffing services industry. The
Company from time to time enters into discussions and non-binding letters of
intent which may lead to potential acquisitions but no assurance can be given
that future acquisitions will be consummated.
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Services
The Company provides a wide range of staffing, consulting and outsourcing
services, as well as financial and other support services. The Company's
extensive proprietary database and national presence enable it to draw from a
wealth of resources to link highly-trained computer, telecommunications and
other professionals, as well as clerical personnel, with businesses that need
highly skilled labor. The Company's services are designed to give its customers
maximum flexibility and maximum choice. The Company's professionals are
available on a short-term or long-term basis. The Company's services permit
businesses to increase the volume of their work without increasing fixed
overhead and permanent personnel costs.
The Company operates through four divisions-Information Technology,
Telecom, Staffing Services and Financial Services. A description of the types of
services provided by each division follows.
Information Technology
The Company's IT division recruits and trains employees who provide
staffing for specific projects requiring highly specialized skills such as
applications programming and development, client/server development, systems
software architecture and design, systems engineering and systems integration.
In addition, in the IT sector, the Company provides non-recruited payrolling
services to certain customers. These services consist of acting as the employer
for workers identified by the customer, preparing payrolls, withholding taxes
and tracking hours and vacation and sick days. In addition, these employees
participate in the Company's benefit programs rather than those of the customer.
In many cases, when employees for whom the Company provides non-recruited
payrolling services terminate their employment, the Company's customers seek its
assistance in recruiting the replacements for these workers.
The employees of the Company's IT division act as consultants, programmers,
systems analysts, project managers, application development and maintenance data
base administrators, network specialists, software engineers and technical
writers. The IT division accounted for $117.9 million, or 31.1%, of the
Company's pro forma net sales during the twelve-month period ended September 30,
1997, of which $83.8 million consisted of recruited services and $34.1 million
consisted of non-recruited payrolling services. The Company expects that
revenues contributed by the IT division will continue to increase as a
percentage of its total revenues.
Telecom
The Company's Telecom division recruits and trains employees who provide
services ranging from basic equipment installation to sophisticated engineering
skills, typically in support of telecommunications network expansion or
modernization programs. The Company provides skilled personnel who are involved
in planning, designing, engineering, installation and maintenance of wireline
and wireless communication systems development, satellite and earth station
deployment, network management and plant modernization. The Telecom division
accounted for $31.2 million, or 8.2%, of the Company's pro forma net sales
during the twelve-month period ended September 30, 1997.
Staffing Services
Technical Services. The Technical Services portion of the Company's
Staffing Services division recruits employees who offer both manufacturing and
engineering support on research and development and product design projects. The
Company also provides non-recruited payrolling services to certain Technical
Services customers. The Company provides staffing for national laboratory
research in such areas as environmental safety, alternative energy source
development and laser technology, and provides highly-skilled labor meeting
diverse commercial needs in the avionics and aerospace, architectural,
automotive, energy and power, pharmaceutical, marine and petrochemical fields.
The Technical Staffing Services portion of the Staffing Services division
accounted for $108.5 million, or
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28.6%, of the Company's pro forma net sales during the twelve-month period ended
September 30, 1997, of which $78.5 million consisted of recruited services and
$30.0 million consisted of non-recruited payrolling services.
Professional Services. The Company provides highly specialized professional
chemists, biologists, engineers, laboratory instrumentation operators,
technicians and others to companies involved in pharmaceutical, environmental,
biotech and processing businesses. The Company also recruits and trains skilled
clerical personnel who provide various more traditional services for medical,
legal and accounting professionals. The Company provides experienced, highly
skilled medical office support staffers, such as billers/accounting clerks,
claims processors and coding specialists, medical secretaries, transcriptionists
and medical records personnel for today's highly sophisticated health care
industry. Legal staffers serve as legal secretaries/ typists, paralegals, law
clerks, librarians and in other law-related areas. In addition, the Company
provides contingent staffers for general accounting services and other
finance-related tasks, such as bookkeeping, recordkeeping and credit and
collection, as well as for general and automated office services. The
Professional Services portion of the Staffing Services division accounted for
$59.8 million or 15.8%, of the Company's pro forma net sales during the
twelve-month period ended September 30, 1997, of which $47.5 million was
attributable to Licensees. See "-Licensed Offices."
Financial Services
The Company offers contingent staff payroll financing and/or total back
office administrative services for agreed-upon fees to approximately 100
independent staffing and consulting firms. The Company's back office services
include preparation of various management reports and analysis, payment of all
federal, state and local payroll taxes and preparation and filing of quarterly
and annual payroll tax returns for the contingent personnel placed by
independently owned and operated staffing and consulting firms. Contingent
personnel placed by such independent staffing and consulting firms remain
employees of such firms. Customized paychecks and invoices are provided to the
clients of such firms in the name of such firms. Clients of such firms remit
payment directly to the Company, which is the owner of the receivables from such
clients. Each independent staffing and consulting firm that uses the Company's
financial services is responsible for collection of the accounts receivable
generated by it. The amount of any account receivable which is not collected
within a specified period after billing is charged back by the Company to such
firm.
Through Uniforce's Pro Unlimited division, the Company also provides
confidential consulting and conversion services to companies that require
assistance in complying with regulations regarding the use of independent
contractors, returning retirees and consultants. The Company offers client
companies consulting services incorporating a proprietary liability and risk
scoring system to assess the likelihood of a client's independent contractor
being reclassified as an employee by a governmental authority. If appropriate,
the Company may become the employer of some or all of the workers of these
clients and, in such cases, will provide various services for these employees,
including preparing payrolls, withholding taxes and tracking hours and vacation
and sick days.
The Company's Financial Services division accounted for $61.9 million, or
16.3%, of the Company's pro forma net sales during the twelve-month period ended
September 30, 1997.
Staffing Solutions
The Company offers its customers various staffing alternatives to meet its
clients' diverse needs, including Project Support, Vendor-on-Premises,
RightSourcing(sm) and Needs Analysis, as well as the services provided by the
Company's Financial Services division. In addition, the Company is currently
developing a telecommuting service, COMFORCE Homework(sm), to offer its
customers even greater flexibility.
Project Support
The Company contracts with its Project Support customers to provide
staffing for specific projects requiring highly specialized skills such as
applications programming and development, client/server development, systems
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software architecture and design, systems engineering and systems integration.
Generally, project staffing involves the commitment of a team of employees who
remain at the site until a project is completed. However, the Company helps its
customers complete their development projects by providing both short-term and
long-term staffing. The Company has the resources and experience to plan and
manage a project from conception through completion, as well as the ability to
enter a project midstream, assess its status, develop a plan and successfully
complete the project.
Vendor-on-Premises
Through its Vendor-on-Premises programs, the Company coordinates personnel
services by establishing an on-site office to assist in the procurement and
management of the customer's workforce. The program facilitates customer use of
contingent personnel and allows the customer to outsource a portion of its
personnel responsibility. The Company designs and implements customized programs
that can include services such as specialized testing, drug screening, selection
and monitoring of secondary staffing vendors, enforcement of the customer's
quality standards, and orientation of the workforce. The program can also
provide permanent, full-time placement services through traditional staff
selection and recruiting services.
RightSourcing(sm)
Through the RightSourcing(sm) programs, the Company evaluates the
performance level of a particular department, function, or project and
recommends ways to increase cost-effectiveness and workforce efficiency through
specific staffing strategies. The Company then tailors a program to meet
specific staffing needs and established performance standards. Through the use
of RightSourcing(sm) software, the customer can access information and data
regarding the cost, management and productivity of its contract and permanent
personnel. The RightSourcing(sm) program provides the customer with the option
to transfer its workers from its payroll to the Company's payroll.
Needs Analysis
Through its Needs Analysis service, the Company evaluates the specific
objectives and requirements of a project or function and identifies needed staff
positions and responsibilities. This is accomplished by the development of a
work breakdown structure and other needs analysis techniques that define tasks,
outputs, and interdependencies, establish task durations and milestones, and
identify elements critical to the successful implementation of the function or
completion of the project. The resulting staffing plan defines an organizational
structure, identifies specific staff positions, numbers, responsibilities, and
qualifications, defines the start and end date of each position, and indicates
the employment category for each position (permanent full-time, temporary
short-term, or contract). The staffing requirements can then be matched to the
Company's proprietary database of more than 160,000 prospective employees.
Telecommuting Initiative
The Company's COMFORCE Homework(sm) program is designed to provide a
telecommuting alternative for highly-skilled professionals, thereby eliminating
geographic barriers and allowing the Company to provide the most qualified staff
for specific customer requirements. The program is also designed to provide
increased flexibility by allowing part-time staff to assist more than one
customer over any given time period and by reducing overhead costs to the
customer. The Company's staffing, consulting and outsourcing services are
particularly well suited for telecommuting due to the highly skilled nature of
its employee base.
Customers
The Company provides staffing, consulting and outsourcing solutions to over
2,300 customers including telecommunication equipment manufacturers,
telecommunication service providers (wireline and wireless), computer software
and hardware manufacturers, aerospace and avionics firms, utilities, national
laboratories engaged in such areas as environmental safety research and
development of alternative energy sources and laser technology,
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pharmaceuticals companies, cosmetics companies, health care facilities,
educational institutions and accounting firms. Many of the Company's customers
are Fortune 500 companies and other large organizations.
The Company believes that its large customer base provides it with
attractive opportunities for further marketing and cross-selling of its staffing
solutions capabilities. In addition, the requirements of these organizations
often provide opportunities for major projects that extend for multiple years or
generate additional assignments.
In certain cases, the Company's contracts with its customers provide that
the Company will have the first opportunity to supply the personnel required by
that customer. Other staffing companies not under contract with the customer are
then offered the opportunity to supply personnel only if the Company is unable
to meet the customer's requirements.
Customers of the Company's IT division generally obtain the Company's
services on a contract and purchase order basis and are invoiced weekly or
bi-weekly. Customers of the Telecom division typically operate on a purchase
order basis and are invoiced weekly. Technical Services' customers generally
obtain the Company's services on a long-term contract basis and typically are
invoiced weekly. Professional Services' customers typically operate on a
purchase order basis and typically are invoiced weekly. Customers of Financial
Services generally obtain the Company's services on a long-term contract basis
and typically are invoiced weekly.
One customer accounted for 19% of COMFORCE's 1996 historical net sales. In
1995, three customers accounted for 17.3%, 12.6% and 10.1%, respectively, of
COMFORCE's historical net sales. On a pro forma combined basis, no customer
accounted for more than 10% of the Company's net sales during 1996 or 1995.
Sales and Marketing
The Company services its customers through a network of 55 company-owned
and 31 licensed branch offices located in 26 states across the United States and
its corporate headquarters located in Lake Success, New York. The Company's
sales and marketing strategy is focused on expanding its business with existing
customers through cross-selling and establishing relationships with new
customers. The strategy focuses on national accounts that are primarily serviced
on a local level through its branch locations.
The national accounts, as well as local accounts serviced by the Company,
are targeted by account managers at the branch offices, permitting the Company
to capitalize on the local expertise and established relationships of its branch
office employees. Such accounts are solicited through personal sales
presentations, telephone marketing, direct mail solicitation, referrals from
customers, and advertising in a variety of local and national media including
the Yellow Pages, magazines, newspapers, trade publications and through the
Company's home page on the World Wide Web. The Company also sponsors public
relations activities designed to enhance public recognition of the Company and
its services. Local employees are encouraged to be active in civic organizations
and industry trade groups to facilitate the development of new customer
relationships.
Although the Company has no offices outside the United States, its domestic
sales and marketing personnel have served customers whose staffing needs extend
to countries on six of the seven continents. The Company's international and
national sales and marketing effort is and will continue to be coordinated by
management at the corporate level, enabling the Company to develop a consistent,
focused strategy to pursue national and international account opportunities.
This strategy allows the Company to capitalize on the desire of national and
international customers to work with a limited number of preferred vendors for
their staffing requirements. As larger customers consolidate their purchasing of
staffing and consulting services, management believes that the Company's ability
to provide a full range of services to such customers will be a competitive
advantage.
In certain markets, the Company intends to cross-sell contingent staffing
and consulting services. The Company has established long-term relationships
with many of its customers. Most of these customers are currently serviced by
only one of the Company's divisions. The Company believes that the access and
goodwill from these
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existing customer relationships provide it with significant advantages in
marketing services to these customers in other sectors.
In order to maximize its marketing effectiveness, the Company provides
motivational training to empower its employees and instill a proactive,
solution-based approach to problem solving. In addition, the Company offers
additional compensation, in the form of cash and stock options, to certain of
its employees as incentive to maximize their sales efforts.
Recruiting of Billable Employees
The Company's success is dependent upon its ability to effectively and
efficiently match skilled personnel with specific customer assignments. As a
result of continuous recruiting efforts, the Company has established an
extensive national resume database of over 160,000 prospective employees with
expertise in the disciplines served by the Company. The Company continuously
updates its proprietary database to reflect changes in personnel skill levels
and availability. Upon receipt of assignment specifications, the Company
searches the database to identify suitable personnel. Once an employee's skills
are matched to the specifications, the Company considers other selection
criteria such as interpersonal skills, availability and geographic preferences
to ensure there is a proper fit between personnel and the assignment being
staffed. The Company's resume database can be searched by a number of different
criteria, including specific skills or qualifications. The database is protected
by multilevel security systems and by limiting access so that only Company
employees having a need to do so can access the database and then can only
access the particular portions of the database appropriate to their needs.
To identify qualified personnel for inclusion in its proprietary database,
the Company solicits referrals from its existing personnel and customers and
places advertisements in local newspapers, trade magazines and on the Company's
home page on the World Wide Web. As competition for the limited number of
qualified personnel with certain "specialty" skills intensifies, the Company
intends to enhance its recruiting practices to attract personnel in areas of
high demand.
The Company makes various training opportunities available to its
employees. The Company has on staff a software engineer who trains the Company's
billable and staff personnel in various software languages and techniques. The
Company also frequently agrees to bear a portion of the training costs for
training contingent personnel in a particular IT discipline needed by a client.
In addition, the Company currently intends to enhance its IT training capacity
by providing online training through the Internet. The Company also maintains a
training facility in Dallas, Texas, where Telecom staffers are trained to
install and test telecommunications equipment. The Company also provides a
telephone hot line to assist its clerical employees with software problems or
questions.
The Company believes it has a competitive advantage in attracting and
retaining specialty staffing and consulting personnel as it provides assignments
with high-profile customers that make use of advanced technology and offer the
employees the opportunity to obtain additional experience that can enhance their
skills and overall marketability. The Company also offers flexible schedules,
wages and, depending on the contract or assignment, paid holidays, vacation, and
certain benefit plan opportunities to attract and retain qualified personnel. In
addition, the Company offers its billable employees a wide range of choices for
custom designing a benefit package specific to each employee's needs and an
opportunity for immediate participation in the Company's 401(k) savings plan.
The Company also offers health insurance benefits to its billable employees at
their cost through a national trade association to which the Company belongs.
Competition
The contingent staffing and consulting industry is very competitive and
fragmented. There are relatively limited barriers to entry, particularly in the
more traditional sectors of the industry, and new competitors frequently enter
the market. The Company's competitors vary depending on geographic region and
the nature of the service(s) being provided. The Company faces substantial
competition from both larger firms possessing substantially greater
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financial, technical and marketing resources than the Company and smaller,
regional firms with a strong presence in their respective local markets. Large
national firms that offer specialty staffing and consulting services include
AccuStaff Incorporated, Corestaff, Inc., Butler International, Inc., CDI
Corporation and TAD Technical Services. The Professional Services portion of the
Company's Staffing Services division also competes with such national
supplemental staffing firms as Kelly Services, Inc., Olsten Corporation,
Manpower, Inc. and Adia Services, Inc. Local firms are typically operator-owned,
and each market generally has one or more significant competitors. The Company
believes that as it grows and expands geographically, it may compete with
additional national, regional and local service providers.
Management believes that the availability and quality of candidates, the
effective monitoring of job performance, scope of geographic service and the
price of service are the principal elements of competition. The availability of
quality contingent personnel is an especially important facet of competition. In
order to attract staffing candidates, the Company places emphasis upon its
ability to provide long-term placement opportunities, competitive compensation,
quality and varied assignments, and scheduling flexibility. The Company believes
its ability to compete also depends in part on a number of competitive factors
outside its control, including the ability of its competitors to hire, retain
and motivate skilled technical and management personnel and the extent of its
competitors' responsiveness to customer needs. Additionally, in certain markets
the Company has experienced significant pricing pressure from some of its
competitors. Although the Company believes it competes favorably with respect to
these factors, it expects competition to increase, and there can be no assurance
that the Company will remain competitive.
Employees
The Company currently employs approximately 450 full-time staff employees
and has approximately 7,800 billable employees on assignment. In addition to
employees on assignment, the Company maintains a proprietary database of over
160,000 prospective employees with expertise in the disciplines served by the
Company. Billable employees are employed by the Company on an as-needed basis
dependent on customer demand and are paid only for time they actually work.
Non-billable administrative personnel provide management, sales and marketing
and other services in support of the Company's staffing services.
For its non-billable employees, the Company offers a package of benefits
which it believes to be competitive, including vacation and holiday pay and a
401(k) plan. All employees are covered by workers' compensation and general
liability insurance. 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 for all employees. The Company
also offers its billable employees the benefits described under "- Recruiting of
Billable Employees."
Intellectual Property
The Company has applications pending with the Patent and Trademark Office
for federal registration of the service marks "COMFORCE" and RightSourcing for
job placement services for staffing personnel and permanent employees and
telecommunications and computer consultation services and the service mark
COMFORCE Homework for intent to use for job placement services for placing
personnel from traditional work environments into a home environment. Uniforce
holds United States service mark registrations for the name "Uniforce(R)" (with
logo design), for the names of certain of Uniforce's business units and for
various marketing slogans. Uniforce also holds, or has applied for, United
States trademark registrations for the names of various programs and systems it
has developed. It also has certain service mark registrations in New York, the
United Kingdom, Brazil and Mexico.
Licensed Offices
Uniforce has granted licenses to operate Uniforce offices. The most recent
license for a new office was granted in July 1992. It is contemplated that
licensees will continue to operate their businesses following the Uniforce
Acquisition under the terms of the licensing agreements entered into with
Uniforce. Licensees have the exclusive right to open and maintain one or more
offices within a designated territory, using the Uniforce(R) name and service
marks,
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and the "Uniforce System," consisting of marketing programs, operating methods,
forms, advertising and promotional materials. Uniforce-owned branch offices and
licensed offices are generally not operated in the same territory, although it
is contemplated that certain existing COMFORCE offices which operate in the same
territory as Uniforce licensees will continue to operate under the COMFORCE
name.
Licensees recruit contingent personnel and promote their services to both
existing and new clients obtained through the licensees' marketing efforts.
Performance of the contingent personnel and overall service quality is the
direct responsibility of licensees. As licensees are ultimately responsible for
the collection of accounts receivable, they must conform to strict credit and
collection practices structured by Uniforce.
The Company and the licensees share the gross profits from each licensed
office. While licensing agreements have a perpetual term, the Company may
terminate a license for material breach by a licensee or for other significant
good cause as prescribed in the licensing agreements. In addition, at any time
after a period specified in the licensing agreement (generally 18 months, but
five to ten years in certain cases), a licensee may surrender its license and
withdraw from the contingent staffing business in the territory or, upon payment
to the Company of an amount based on a predetermined formula, assume and
continue the operation of the business independently of the Company, Uniforce,
the Uniforce name and the Uniforce System. If a licensee exercises this option,
Uniforce may then license a new office or operate a Company-owned office under
the Uniforce name in the territory.
Regulations
Contingent staffing and consulting services firms are generally subject to
one or more of the following types of government regulation: (i) registration of
the employer/employees; (ii) licensing, record keeping and recording
requirements; and (iii) substantive limitations on operations. Contingent
staffing and consulting firms are the legal employers of their workers.
Therefore, the Company is governed by laws regulating the employer/employee
relationship, such as tax withholding or reporting, social security or
retirement, antidiscrimination and workers' compensation. In addition, the sale
of franchises or licenses is subject to regulation, both by the Federal Trade
Commission and a number of states. See "-Licensed Offices."
Properties
The Company leases its corporate headquarters as well as its 33 branch
offices. Uniforce leases its headquarters office, a regional office and its 21
branch offices. These leases are for office space ranging in size from
approximately 150 square feet to approximately 23,500 square feet, in the case
of Uniforce's headquarters office, and have remaining lease terms of from less
than one year to four years with the exception of the lease for Uniforce's
headquarters office which extends to 2006. The Company owns no real estate,
except for an approximately 700 square foot condominium owned by Uniforce.
Licensees are responsible for securing their own facilities, which are not
included in this discussion.
The Company believes that its facilities are adequate for its present and
reasonably anticipated future business requirements, except to the extent of
future acquisitions of existing businesses. In the case of such acquisitions,
the Company expects to assume the leases of businesses acquired or, to the
extent possible, consolidate such operations with existing offices. The Company
does not anticipate difficulty locating additional facilities, if needed.
Legal Proceedings
In January 1997, Austin A. Iodice, who served as the Company's Chief
Executive Officer, President and Vice Chairman while the Company was engaged in
the jewelry business, and Anthony Giglio, who performed the functions of the
Company's Chief Operating Officer while the Company was engaged in the jewelry
business, filed separate suits against the Company in the Connecticut Superior
Court alleging that the Company had breached the terms of management agreements
entered into with them by failing to honor options to purchase Common Stock
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awarded to them in connection with the management of the jewelry business under
the terms of such management agreements and the Company's Long-Term Stock
Investment Plan. The suits allege that the plaintiffs are entitled to an
unspecified amount of damages. The Company believes that the option to purchase
370,419 shares granted to Mr. Iodice (through Nitsua, Ltd., a corporation
wholly-owned by him) and the option to purchase 185,210 shares granted to Mr.
Giglio, each having an exercise price of $1.125 per share, expired in 1996,
three months after Messrs. Giglio and Iodice ceased to be employed by the
Company. Messrs. Giglio and Iodice maintain that they were agents and not
employees of the Company and that the options continue to be exercisable. In
March 1997, the Company filed motions to dismiss each of these suits on
jurisdictional grounds and the court scheduled hearings on these motions. In
December 1997, the Company elected to withdraw these motions and is currently
preparing its answer to the complaints. The Company intends to vigorously defend
these suits.
In a case filed in U.S. District Court, Central District of California,
against Rhotech and Technical Staff Associates, Inc. ("TSA"), which was acquired
by Rhotech in 1992, TSA's former insurance carrier has alleged that TSA and
Rhotech are obligated to repay to it approximately $1.6 million that it was
required to pay in connection with an injury and death that occurred in November
1992 to a temporary employee of TSA. The action has been referred to Rhotech's
insurance carrier, which is defending it with a reservation of rights. Rhotech
has been granted summary judgment with respect to all claims made in the action,
which judgment is the subject of an appeal by the plaintiff. Management believes
that the case is without substantial merit and intends to vigorously defend it.
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 maintains general liability insurance,
property insurance, automobile insurance, employee benefit liability insurance,
owner's and contractor's protective insurance and exporter's foreign operations
insurance with coverage of $1 million on a per claim basis and $2 million
aggregate (with $3 million umbrella coverage). The Company insures against
workers' compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign workers. The Company also maintains
fidelity insurance in the amount of $25,000 per claim and directors' and
officers' liability insurance in the amount of $2 million. The Company is
presently soliciting quotations to obtain errors and omissions coverage.
Discontinued Operations
History of Discontinued Operations
From 1985 until September 1995, the Company, under the name The Lori
Corporation, was engaged in the business of designing and distributing fashion
jewelry (referred to as "Lori" as the context may require). Prior thereto, under
the names American Photocopy Equipment Company and APECO Corporation, the
Company engaged in various business activities, including the manufacture of
photocopy machines. The Company's current management was not involved in the
operation of any of these discontinued businesses.
Due to continuing losses in the jewelry business and the erosion of the
markets for its products, in September 1995, Lori adopted a plan to discontinue
the jewelry business and determined to seek to enter into another line of
business. In June 1995, Lori contracted with current management to direct its
entry into the technical staffing business. On October 17, 1995, Lori acquired
all of the capital stock of Spectrum Global Services, Inc. (formerly d/b/a YIELD
Global and subsequently renamed COMFORCE Telecom, Inc.). In addition, in
connection with its new business direction, Lori changed its name to COMFORCE
Corporation. At the time of the acquisition, COMFORCE Telecom 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 Telecom, which was not a party to the Chapter 11 proceeding, was
approved by the bankruptcy court in which Spectrum's bankruptcy was pending.
Spectrum had acquired COMFORCE Telecom in 1993.
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In conjunction with the COMFORCE Telecom acquisition, the Company and ARTRA
GROUP Incorporated, then the Company's majority stockholder ("ARTRA"), entered
into an Assumption Agreement as of October 17, 1995 (the "Assumption
Agreement"). 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 October 17, 1995, and applied
the proceeds of the sale thereof to pay creditors. On April 12, 1996, ARTRA sold
the business and certain of the assets of the Company's Lawrence Jewelry Company
subsidiary ("Lawrence") for a selling price of $252,000 plus certain proceeds
subsequently realized from the sale of existing inventory, which proceeds were
applied to pay creditors of Lawrence or deposited in an escrow account to be
applied for such purpose. ARTRA has advised the Company that none of the
proceeds from the sale would remain following the payment of such creditors.
Environmental Matters
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 chemicals 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, particularly before the enactment of laws
governing the safe disposal of hazardous substances, at an indeterminable number
of sites. Although the controlling stockholders and current management had no
involvement in such prior manufacturing operations, the Company could be held to
be responsible for clean-up costs if any hazardous substances were deposited at
these manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), or under other Federal or state environmental laws now or hereafter
enacted. However, except for the Gary, Indiana site described below, the Company
has not been notified by the Federal Environmental Protection Agency (the "EPA")
that it is a potentially responsible party for, nor is the Company aware of
having disposed of hazardous substances at, any site.
In December 1994, the Company was notified by the EPA that it was a
potentially responsible party under CERCLA for the disposal of hazardous
substances at a site in Gary, Indiana. The alleged disposal occurred in the
mid-1970s at a time when the Company conducted operations as APECO Corporation.
In this connection, in December 1994, the Company was named as one of
approximately 80 defendants in a case brought in the United States District
Court for the Northern District of Indiana by a group of 14 potentially
responsible parties who agreed in a consent order entered into with the EPA to
clean up this site. In October 1997, ARTRA entered into a settlement agreement
with all of the plaintiffs to settle the case for a cash payment of $50,000.
Under the terms of this settlement agreement, the Company was dismissed as a
defendant in the case and released and discharged from any liability in
connection with this matter.
THE TRANSACTIONS
On August 13, 1997, COMFORCE , Uniforce and COMFORCE Columbus, Inc., a
wholly owned subsidiary of COMFORCE ("Subsidiary") executed an Agreement and
Plan of Merger (the "Merger Agreement") which provided for the Uniforce
Acquisition. Pursuant to the Merger Agreement, COMFORCE caused Subsidiary to
commence a tender offer (the "Tender Offer") to acquire all of the outstanding
Uniforce Common Stock for a per share price of $28 in cash and 0.5217 shares of
COMFORCE Common Stock (collectively the "Per Share Consideration").
On November 26, 1997, following the close of the Tender Offer at midnight
on November 25, 1997, the Company accepted all 2,931,741 shares of Uniforce
Common Stock (representing approximately 96.5% of the issued and outstanding
shares of Uniforce Common Stock) that had been tendered in the Tender Offer. On
December 3, 1997, the Company completed the merger of Uniforce and the
Subsidiary (the "Merger"), and made available for payment to the holders of the
remaining 106,802 shares of Uniforce Common Stock (who did not tender their
stock) cash and stock equal in amount to the Per Share Consideration. In
addition, as required under the Merger Agreement,
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the Company made available for payment to the holders of options to purchase an
additional 370,010 shares of Uniforce Common Stock cash in an amount equal to
the difference between (i) $32.00 per share and (ii) the per share exercise
price of each such option.
Accordingly, subject to any Uniforce shareholder subsequently exercising
statutory appraisal rights, the total consideration paid by the Company to
acquire Uniforce was $93.6 million in cash and 1,585,000 shares of its Common
Stock. In addition, the Company estimates that it will incur an additional $8.5
million in fees, commissions and expenses in connection with the Tender Offer
and Merger and related financing and other transactions in connection therewith.
A portion of the net proceeds of the Notes Offering were used to pay the
cash portion of the Per Share Consideration. The remaining net proceeds of the
sale of the Old Notes, the net proceeds of the sale of the Old Senior Debentures
and approximately $37.0 million of borrowings under the New Credit Facility were
used in the Refinancing to repay in full the Prior Credit Facility and the
Uniforce Credit Facility.
MANAGEMENT
Executive Officers, Key Employees and Directors
The following table sets forth certain information concerning each
individual who currently serves as an executive officer, key employee or
director of the Company, including such person's business experience during at
least the past five years, positions held with each of COI and the Company and
certain directorships held by such person. Each director holds office until the
next annual meeting of the stockholders and until his successor has been duly
elected and qualified.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers/Employee Directors
James L. Paterek................................ 35 Chairman of the Board
Christopher P. Franco........................... 38 Chief Executive Officer and Director
Michael Ferrentino.............................. 35 President and Director
Paul J. Grillo.................................. 45 Vice President-Finance and Chief Financial Officer
Andrew Reiben................................... 32 Director of Finance and Chief Accounting Officer
Malcolm High.................................... 45 Corporate Controller
Other Key Employees
John Fanning.................................... 66 President of COMFORCE Financial Services Division
Rosemary Maniscalco............................. 56 President of COMFORCE Professional Staffing Services;
Acting President of COMFORCE Information Technologies
Stanley Rashkin................................. 44 President of COMFORCE Technical Staffing Services
Bruce Astrom.................................... 47 President of COMFORCE Telecom
Non-Employee Directors
Michael Madden.................................. 48 Vice Chairman
Richard Barber.................................. 38 Director
Keith Goldberg.................................. 34 Director
Dr. Glen Miller................................. 61 Director
Marc Werner..................................... 40 Director
</TABLE>
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Executive Officers
James L. Paterek has served as Chairman of the Board of COI since its
formation in October 1997 and of the Company since February 1997, having
previously served as consultant to the Company since December 1995. Mr. Paterek
was a founder of Yield TechniGlobal which was purchased by Spectrum Global
Services, Inc. (following its acquisition by the Company, renamed COMFORCE
Telecom Inc. ("COMFORCE Telecom")) and he served as COMFORCE Telecom's President
from 1987 to 1995.
Christopher P. Franco has served as the Chief Executive Officer and a
Director of COI since its formation in October 1997 and of the Company since
February 1997, having previously served as Executive Vice President of the
Company since December 1995. In addition, Mr. Franco has served as Secretary of
the Company since December 1995. From 1993 to 1995, Mr. Franco served as Vice
President and General Counsel of Spectrum Information Technologies, Inc.
(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).
Michael Ferrentino has served as the President and a Director of COI since
its formation in October 1997 and of the Company since December 1995. Mr.
Ferrentino was a founder of COMFORCE Telecom, and he served as COMFORCE
Telecom's Vice President from 1987 to 1993 and as its Executive Vice President
from 1993 to 1995. From 1984 through 1987, he was employed by Dun & Bradstreet.
Paul J. Grillo has served as Vice President-Finance and Chief Financial
Officer of COI since its formation in October 1997 and of the Company since July
1996. From July 1991 to July 1996, Mr. Grillo provided business planning and
acquisition advisory services to a number of industries including
telecommunications, contract services, manufacturing, publishing and real estate
management. From April 1980 to June 1991, Mr. Grillo served as Senior Vice
President-Finance, Treasurer and Chief Financial Officer of Butler Service
Group, Inc., an international contract technical staffing services company. Mr.
Grillo is a certified public accountant.
Andrew Reiben has served as Chief Accounting Officer of COI since its
formation in October 1997 and of the Company since February 1996 and as Director
of Finance of the Company since April 1997. From 1993 to February 1996, Mr.
Reiben served as Controller of Daystar Robinson, a C.H. Robinson company (New
York). From 1989 to 1993, Mr. Reiben was a Senior Accountant with Coopers &
Lybrand LLP (New York), a certified public accounting firm. Mr. Reiben is a
certified public accountant.
Malcolm High has served as the Corporate Controller of COI since its
formation in October 1997 and of the Company since April 1997. Prior thereto,
from 1985 to April 1997, Mr. High held various positions with TAD Resources
International, Inc. (staffing services), including Vice President (1991 to April
1997), Corporate Controller (1989 to April 1997) and Assistant Corporate
Controller (1985 to 1989). He is an associate member of the Chartered Institute
of Management Accountants (ACMA) of the United Kingdom.
At the time of its acquisition in October 1995, Spectrum Global Services,
Inc. ("Spectrum Global"), now known as COMFORCE Telecom, was one of several
wholly-owned subsidiaries of Spectrum Information Technologies, Inc., a Delaware
corporation ("Spectrum"), which had filed a Chapter 11 petition in January 1995.
Spectrum Global was not a party to the Chapter 11 proceeding. At the time of the
filing of this petition by Spectrum, Mr. Franco served as a Vice President of
Spectrum. In addition, at the time of the filing of this petition, Mr. Paterek
served as the President of Spectrum Global, and he had previously served as a
director of Spectrum (from 1993 to 1994). However, Messrs. Franco and Paterek
were neither involved in the decision to file the petition nor aware that the
petition had been filed until it had been publicly announced. Spectrum had
acquired Spectrum Global (then known as Yield TechniGlobal) from its founders,
Messrs. Paterek and Ferrentino, in 1993. See "Business-Discontinued Operations."
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Other Key Employees
John Fanning, founder of Uniforce, served as President and a director of
Uniforce from 1961, the year in which Uniforce's first office was opened, until
November 1997. Mr. Fanning entered the employment field in 1954, when he founded
the Fanning Personnel Agency, Inc., his interest in which he sold in 1967 to
devote his efforts solely to Uniforce's operations. He also founded and served
as the first president of the Association of Personnel Agencies of New York. In
November 1997, Mr. Fanning became President of COMFORCE Financial Services
Division.
Rosemary Maniscalco joined Uniforce as Sales and Marketing Coordinator in
December 1981. In June 1982, her duties were expanded to include direction of
Uniforce's license marketing efforts, as well as the development of marketing
concepts. In 1983, she was appointed the Uniforce's Director of Corporate
Development, in May 1984, she was elected Executive Vice President and in June
1992, she was designated Chief Operating Officer. She served in that position
until November 1997. In November 1997, she became President of COMFORCE
Professional Staffing Services Division and Acting President of COMFORCE
Information Technologies Division.
Stanley Rashkin has served as President of the Company's subsidiary,
COMFORCE Technical Services, since May 1996, following the Company's acquisition
of DataTech, RRA, and Project Staffing Support Team. During the four years prior
to May 1996, Mr. Rashkin served as President of DataTech, and Project Staffing
Support Team, a technical staffing and consulting services business.
Bruce Astrom has served as President, and prior thereto, Senior Vice
President, of the Company's COMFORCE Telecom subsidiary since May 1996. From
1982 to 1996, Mr. Astrom was employed by Butler International, most recently as
Vice President of Butler Telecom, an international telecommunications staffing
and specialty services provider.
Non-Employee Directors
Michael Madden has served as Vice Chairman of COI since its formation in
October 1997 and of the Company since September 15, 1997 and is a member of the
Finance Committee of the Board. He has served as Chairman of Hanover Capital
L.L.C. (merchant banking) since July 1996 and as a Director of FM Properties,
Inc. (real estate investments) since 1991. From 1994 to 1995, Mr. Madden served
as a Vice Chairman and member of the Executive Committee of the Board of
Directors of PaineWebber Incorporated (investment banking), having previously
headed the transition team to integrate Kidder Peabody & Co. (investment
banking) into PaineWebber Incorporated following their 1994 merger. Mr. Madden
held various positions with Kidder Peabody & Co. from 1973 to 1989 and from 1993
to 1994, most recently as Executive Vice President responsible for Global
Origination. He previously served as Senior Managing Director and co-head of
Worldwide Investment Banking (1989 to 1993) and a Director (1990 to 1993) of
Lehman Brothers (investment banking).
Richard Barber has served as a Director of COI since its formation in
October 1997 and of the Company since December 1995 and is a member of the Audit
Committee of the Board. He is a partner at L.H. Frishkoff & Company, a certified
public accounting firm. Mr. Barber is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants and has served as a committee member of the New York State Real
Estate Accounting Committee.
Keith Goldberg has served as a Director of COI since its formation in
October 1997 and of the Company since December 1995 and is a member of the
Compensation and Stock Option Committees of the Board. He is a partner at J.
Walter Thompson Advertising. Previously, he worked for BBDO Advertising as an
Associate Creative Director from 1994 to 1995. From 1990 through 1994, he served
as a Vice President at Young & Rubicam (advertising).
Dr. Glen Miller has served as a Director of COI since its formation in
October 1997 and of the Company since December 1995 and is a member of the
Audit, Compensation and Stock Option Committees of the Board. He
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<PAGE>
is a Vice President of Pacer International, a telecommunications construction
company. Prior thereto, he had served as Vice President of Cybertel Network
Systems and as Vice President of TeleData, both telecommunications service
companies. From 1990 to 1994, Dr. Miller was responsible for strategic planning
for the Harris Corporation (electronics and communications). 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.
Marc Werner has served as a Director of COI since its formation in October
1997 and of the Company since May 1997 and is a member of the Finance Committee
of the Board. He is the President and Chief Executive Officer of Cornucopia
Capital Advisors (financial and strategic advisory services). In addition, Mr.
Werner has served as the Vice Chairman of Ameriquest Technologies, Inc.
(computer products) since 1993. Prior thereto, Mr. Werner served as the
President and Chief Executive Officer of Werner Financial Inc. (investment,
insurance, real estate and claims management) (1995 to 1997); as the Chief
Financial Officer of Werner Holdings (PA) Inc. (climbing products, extruded
industrial products and financial services) (1986 to 1996); as the President and
Chief Executive Officer of B-E Industries (industrial holding company) (1982 to
1986); and as Vice President and Chief Financial Officer of Borg-Erickson
(bathroom scale manufacturer) (1981 to 1986). Mr. Werner is a certified public
accountant.
Mr. Madden had served as a director of Spectrum from 1993 to 1994. However,
Mr. Madden was neither a director of Spectrum when it filed its petition under
Chapter 11 nor in any manner involved in its decision to do so. See
"Business-Discontinued Operations."
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 director or officer and another person pursuant to which he was
selected as a director or officer except as may be hereinafter described.
Director Compensation and Arrangements
Non-employee directors receive fees of $1,000 per quarter. In addition,
under the Company's Long-Term Stock Investment Plan, each non-employee director
is entitled to receive options to purchase 10,000 shares of Common Stock upon
his initial election to the Board and, annually thereafter, options to purchase
10,000 shares upon his reelection to the Board, at an exercise price equal to
the market price on the date of grant. All options granted to non-employee
directors under these non-discretionary provisions of the Plan provide that the
options become exercisable one year from the date of grant and terminate 10
years from the date of grant.
Executive Officer Compensation
The following table shows all compensation paid by the Company and its
subsidiaries for the fiscal years ended December 31, 1996, 1995 and 1994 to each
person who has served as the chief executive officer of the Company at any time
since the beginning of the last completed fiscal year and to the Company's most
highly compensated executive officers who served as executive officers during
the last fiscal year whose income exceeded $100,000 (the "Named Executive
Officers"). No other executive officers of the Company received compensation in
excess of $100,000 in 1996.
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Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards
----------------------------- ----------------------
Name and Position Year Salary ($) Bonus ($) Options/SAR's (#)
- ----------------- ---- ---------- --------- -----------------
<S> <C> <C> <C> <C>
Christopher P. Franco, .......................... 1996 150,000 -- 112,500(2)
Chief Executive Officer 1995 28,846 739,264(1) --
1994 -- -- --
Michael Ferrentino, ............................. 1996 150,000 -- 281,250(2)
President 1995 79,703 739,264(1) --
1994 -- -- --
</TABLE>
- ----------
(1) This amount represents the value of shares of Common Stock which the
Company issued or agreed to issue in 1995 to Messrs. Franco and Ferrentino
for agreeing to direct the Company's entry into the technical staffing
business. Management valued the Company based on its discussions with
market makers and other advisors, taking into account (i) that the business
then conducted by the Company, which was discontinued during the third
quarter of 1995, had a negligible value, and (ii) the value of the Company
was principally related to the potential effect that a purchase of COMFORCE
Telecom, if successfully concluded, would have on the market value of the
Company's Common Stock. Management believes this value is a fair and
appropriate value based upon the Company's financial condition as of the
date the Company became obligated to issue these shares.
(2) The options shown are currently exercisable options to purchase the
Company's Common Stock at an exercise price of $6.75 per share. These
options were granted pursuant to a letter agreement dated June 29, 1995 and
subsequently amended as of October 6, 1995.
Option Awards. The following table sets forth information concerning
options to purchase the Company's Common Stock granted to Named Executive
Officers in 1996. No stock appreciation rights were awarded to either of the
Named Executive Officers in 1996.
Option Grants in Fiscal Year 1996
<TABLE>
<CAPTION>
Potential Realizable
--------------------
Value at Assumed
----------------
Annual Rates of
---------------
Stock Price
-----------
Appreciation for
----------------
Individual Grants Option Term(2)
----------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Option/SARs Employees Price Expiration
Name Granted (#)(1) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- -------------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Christopher P. Franco ............... 112,500 9.0% $6.75 1/10/06 $477,563 $1,210,275
Michael Ferrentino .................. 281,250 22.6% $6.75 1/10/06 $1,193,916 $3,025,620
</TABLE>
- ----------
(1) The options shown are currently exercisable options granted to purchase the
Company's Common Stock at an exercise price of $6.75 per share. These
options were granted pursuant to a letter agreement dated June 29, 1995 and
subsequently amended as of October 6, 1995. These options terminate on
January 10, 2006.
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<PAGE>
(2) The potential realizable value shown is calculated based upon appreciation
of the Common Stock issuable under options, calculated over the full term
of the options assuming 5% and 10% annual appreciation in the value of the
Company's Common Stock from the date of grant, net of the exercise price of
the options.
Option Values. The following table sets forth information concerning the
aggregate number and values of options held by Named Executive Officers as of
December 31, 1996. Neither of the Named Executive Officers hold stock
appreciation rights and neither of the Named Executive Officers exercised any
options in 1996.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year End (#) Fiscal Year End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ------------- -------------
<S> <C> <C>
Christopher P. Franco............................... 112,500/0 $843,750/0
Michael Ferrentino.................................. 281,250/0 $2,109,375/0
</TABLE>
- ----------
(1) This information is presented as of December 31, 1996. See Note 1 to the
"Option Grants in Fiscal Year 1996" table and the notes to the "Summary
Compensation Table" for a description of the terms of the options listed in
this table.
Employment Agreements
COMFORCE Employees
The Company entered into employment agreements with all of its executive
officers and with the Presidents of its Telecom and Technical Services
subsidiaries. In most cases, these agreements are for a term of two years and
are 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, Christopher P. Franco, the Chief Executive Officer
of the Company, Michael Ferrentino, the President of the Company, and James L.
Paterek, the Chairman of the Company, are entitled to annual compensation of
$150,000, $150,000 and $208,000, respectively, plus such bonuses as are awarded
by the Board, and each is entitled to participate in the Company's normal
benefit programs. If the Company terminates an 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. The agreements with Messrs. Franco and Ferrentino
terminate in December 1997, and the parties are presently negotiating renewals
of these agreements.
Uniforce Employees
John Fanning and Rosemary Maniscalco have been principal employees of
Uniforce and have entered into employment agreements, described below, to
continue as employees of Uniforce following consummation of the merger.
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<PAGE>
Under his employment agreement, Mr. Fanning will be employed as President
of the Company's Financial Services Division for an initial term of one year and
on a year-to-year basis thereafter. Mr. Fanning is to be paid a base salary of
$150,000 per year plus supplemental pay of $134,500 per year. The Employment
Agreement may be terminated if Mr. Fanning dies, is permanently disabled and for
certain events constituting "cause." In addition, the Employment Agreement may
be terminated by Uniforce by written notice at any time (subject to the
obligation to make severance payments if termination occurs during the initial
term). Under a separate Noncompetition Agreement, Mr. Fanning has agreed not to
compete with Uniforce for a period of two years after termination of Mr.
Fanning's employment with Uniforce, but in no event shall such term be less than
four years following commencement of the term of the Employment Agreement.
Under her employment agreement, Ms. Maniscalco will be employed as
President of Uniforce and of the Professional Services section of the Staffing
Services division for an initial term of two years and on a year-to-year basis
thereafter. Ms. Maniscalco is to be paid a base salary of $150,000 per year and
supplemental pay of $90,000 per year. The Employment Agreement also provides
that COMFORCE will grant to Ms. Maniscalco an incentive stock option to purchase
50,000 shares of COMFORCE Common Stock, which option is to become exercisable
over a two year period provided Ms. Maniscalco remains employed with Uniforce.
Ms. Maniscalco is also entitled to receive certain incentive compensation. The
Employment Agreement may be terminated if Ms. Maniscalco dies, is permanently
disabled and for certain events constituting "cause." In addition, the
Employment Agreement may be terminated by Uniforce by written notice at any time
(subject to the obligation to make severance payments if termination occurs
during the initial term). Ms. Maniscalco has agreed not to compete with Uniforce
for a period of two years after termination of her employment with Uniforce for
any reason.
In addition, Uniforce entered into arrangements with Ms. Maniscalco under
which she was entitled to receive a cash bonus of $780,761 (subject to reduction
in certain circumstances), payable to the extent of 10% thereof on January 11,
1999, to the extent of 30% thereof on January 11, 2000 and as to the balance
thereof on January 11, 2001, provided that she is then employed by Uniforce. The
cash bonus installments were subject to acceleration in the event of Ms.
Maniscalco's death, the merger of Uniforce, the sale of all or substantially all
of Uniforce's assets or a change of control of Uniforce and, accordingly, were
paid in full upon the consummation of the Merger.
Compensation Committee Interlocks and Insider Participation
During 1996, Michael Ferrentino, Keith Goldberg and Dr. Glen Miller served
as the Company's Compensation Committee. There are no interlocking
relationships, as defined in the regulations of the Securities and Exchange
Commission, involving any of these individuals.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 29, 1995, the Company entered into a letter agreement with
Christopher P. Franco, the Chief Executive Officer and Secretary of the Company,
James L. Paterek, the Chairman of the Company, and Michael Ferrentino, the
President of the Company, subsequently amended as of October 6, 1995 (as
amended, the "Letter Agreement"), pursuant to which Messrs. Franco, Paterek and
Ferrentino agreed to direct the Company's entry into the technical staffing
business. As consideration for agreeing to guide the Company's entry into the
technical staffing business, the Company agreed, inter alia, to (i) issue to
Messrs. Franco, Paterek and Ferrentino, and one other individual who agreed to
serve as a Vice President of COMFORCE Telecom, Kevin W. Kiernan, such number of
shares of Common Stock then 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 businesses it then operated; (iii) nominate four
individuals selected by these principals to serve on the Company's Board of
Directors; and (iv) reserve for issuance to the principals 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.
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<PAGE>
In the aggregate, 3,888,084 shares of the Company's Common Stock were
issued to the principals in October 1995 and December 1996 in full satisfaction
of the Company's obligations to issue its shares under the terms of the Letter
Agreement, all as follows:
Name No. of Shares
- ---- -------------
Michael Ferrentino....................................... 999,794
Christopher P. Franco.................................... 999,794
James L. Paterek......................................... 1,666,322
Kevin W. Kiernan......................................... 222,174
----------
Total.................................................... 3,888,084
These shares have the same rights and privileges as all other shares of the
Company's Common Stock.
The Company made loans in 1995 and 1996 of $367,000 in the aggregate to
these principals to cover their tax liabilities resulting from these
transactions. The obligations were evidenced by notes and bore interest at the
rate of 6% per annum. As more fully described below, the obligations of Messrs.
Paterek, Franco and Ferrentino were discharged in August 1997.
As a condition to the funding of the Prior Credit Facility, the lenders
required Messrs. Paterek, Franco and Ferrentino to each pledge as additional
collateral to secure the Company's obligations under the Prior Credit Facility
500,000 shares of the Company's common stock owned by them and all of the
options to purchase common stock held by them (281,250 shares in the case of
Messrs. Paterek and Ferrentino and 112,500 shares in the case of Mr. Franco),
which shares had a current market value in excess of $12 million as of the date
the Prior Credit Facility was funded. In recognition of both the substantial
benefit afforded to the Company by the pledges and the cost to the principals of
making the pledges, in August 1997, the board of directors of the Company
authorized the issuance of an aggregate consideration of approximately $650,000
to Messrs Paterek, Franco and Ferrentino, which amount was utilized to repay
outstanding loans of such officers due to the Company described above and
related payroll withholding taxes. The board of directors of the Company
determined this consideration to be reasonable based on the valuation of the
pledges as determined by the appraisal performed by the independent valuation
firm. The aggregate amount of this consideration is included as a part of the
fees and expenses incurred in connection with the Prior Credit Facility. The
pledges were released when the Prior Credit Facility was repaid as part of the
Refinancing.
See "Management-Employment Agreements" for a description of the employment
agreements entered into between the Company and each of Messrs. Paterek,
Ferrentino and Franco.
In October 1995, the Company entered into a consulting agreement with Tarek
Corporation ("Tarek"), a corporation wholly-owned by Mr. Paterek. Mr. Paterek
was a founder of COMFORCE Telecom and served as its President from 1985 to
September 1995. Tarek agreed to engage Mr. Paterek to perform the services
required under the agreement, principally to advise the Company as to
fundamental strategies and policies relating to its operations, as to
acquisitions and the integration of acquired businesses and as to growth
strategies generally. Under the terms of the agreement, Tarek agreed to devote
at least 50 hours per month performing services for the Company. The agreement
was originally for a term of three years, but was terminated upon Mr. Paterek's
election as Chairman of the Company in February 1997. Under this agreement, Mr.
Paterek received compensation of $157,000 annually plus reimbursement for
expenses incurred in performing his duties under the agreement. In addition, Mr.
Paterek was entitled to participate in the Company's normal benefit programs.
Yield Industries, Inc., a corporation wholly-owned by Messrs. Paterek and
Ferrentino earned a fee of $750,000 related to its interest in COMFORCE Telecom
in connection with the Company's acquisition of
86
<PAGE>
COMFORCE Telecom, $250,000 of which was paid in 1995 and the balance of which
was paid in January 1996. Yield Industries, Inc. was not affiliated with
COMFORCE Telecom.
The Company paid L.H. Frishkoff & Company, a certified public accounting
firm at which Richard Barber, a Director of the Company, is a partner,
approximately $196,907 in fees during 1997 (through August 31, 1997) and
approximately $104,000 in fees during 1996 for tax-related advisory services.
In connection with the extension by Heller Financial, Inc. ("Heller") of
the New Credit Facility to the Company, John Fanning, a former shareholder of
Uniforce and the current holder of approximately 5.9% of the issued and
outstanding Common Stock of the Company, provided cash collateral to Heller in
the amount of $5.0 million. Under the terms of his agreement with Heller, $2.5
million of the amount pledged is required to be released when the Company has
unused borrowing availability under the New Credit Facility of at least $15
million for 15 consecutive business days, with the balance to be released when
the Company has $17.5 million of unused borrowing availability for a like
period. As consideration for this agreement, the Company has agreed to pay to
Mr. Fanning a 12% per annum yield on his cash collateral, less the actual return
thereon as invested. See "Description of Other Indebtedness."
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<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 December 19, 1997 by (i) each person who
is known by the Company to own beneficially more than 5% of the shares of Common
Stock, (ii) each director and executive officer of the Company, and (iii) all
directors and executive officers of the Company as a group (11 persons). Unless
stated otherwise, each person so named exercises sole voting and investment
power as to the shares of Common Stock so indicated. There were 15,296,350
shares of Common Stock issued and outstanding as of December 19, 1997. None of
the officers or directors own any shares of the Company's outstanding Series F
Preferred Stock. All of the shares of common stock of COI and the PIK Preferred
Stock of COI to be issued in connection with the Transactions will be owned
beneficially and of record by the Company. See "Description of Capital Stock."
<TABLE>
<CAPTION>
Name and Address of Number(1) Percentage(1)
Beneficial Owner --------- -------------
- ----------------
<S> <C> <C>
Management:
James L. Paterek(2) ........................... 1,947,572 12.5%
2001 Marcus Avenue
Lake Success, New York 11042
Christopher P. Franco(3) ...................... 1,002,294 6.5%
2001 Marcus Avenue
Lake Success, New York 11042
Michael Ferrentino(4) ......................... 2,393,012 15.4%
2001 Marcus Avenue
Lake Success, New York 11042
Andrew Reiben(5) .............................. 20,000 *
Paul Grillo(6) ................................ 12,500 *
Malcolm High .................................. -- --
Dr. Glen Miller(7) ............................ 20,000 *
Richard Barber(7) ............................. 20,000 *
Keith Goldberg(7) ............................. 20,000 *
Marc Werner(8) ................................ 100,000 *
Michael Madden(9) ............................. 50,000 *
Directors and officers as a group ............. 4,695,584 29.0%
(11 persons)(10)
Other Significant Stockholders:
ARTRA GROUP Incorporated (11)(12) ............. 1,728,000 11.3%
500 Central Avenue
Northfield, Illinois 60093
John Fanning(13) .............................. 914,996 6.0%
</TABLE>
- ----------
* Less than 1%
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(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. Paterek, the Chairman of the Company,
include (i) 1,666,322 shares currently held of record by him and (ii)
281,250 shares issuable to him upon exercise of an option at an exercise
price of $6.75 per share.
(3) The shares beneficially owned by Mr. Franco, the Chief Executive Officer
and a Director of the Company, include (i) 889,794 shares currently held of
record by him and (ii) 112,500 shares issuable to him upon exercise of an
option at an exercise price of $6.75 per share.
(4) The shares beneficially owned by Mr. Ferrentino, the President and a
Director of the Company, include (i) 999,794 shares currently held of
record by him, (ii) 281,250 shares issuable to him upon exercise of an
option at an exercise price of $6.75 per share, (iii) 889,794 shares held
of record by Christopher P. Franco which are subject to a voting agreement
among him, Mr. Ferrentino, and Kevin W. Kiernan, a Vice President of
COMFORCE Telecom, under which Mr. Ferrentino has voting power (the "Voting
Agreement"), and (iv) 222,174 shares held of record by Mr. Kiernan which
are subject to the Voting Agreement.
(5) The shares beneficially owned by Mr. Reiben, the Chief Accounting Officer
and Director of Finance of the Company, are shares issuable upon the
exercise of an option at an exercise price of $7.25 per share.
(6) The shares beneficially owned by Mr. Grillo, the Chief Financial Officer of
the Company, are issuable upon the exercise of an option at an exercise
price of $18.00.
(7) The shares beneficially owned by this individual include 10,000 shares
issuable to him upon exercise of an option at an exercise price of $6.75
per share and 10,000 shares issuable to him upon exercise of an option at
an exercise price of $17.00.
(8) The shares shown to be beneficially owned by Mr. Werner include 100,000
shares issuable upon the exercise of a warrant at an exercise price of
$7.625.
(9) The shares beneficially owned by Mr. Madden, a Director of the Company, are
issuable to him upon the exercise of an option at an exercise price of
$7.375 per share.
(10) The shares shown to be beneficially owned by the directors and officers as
a group include (i) 3,555,910 shares held of record by them, (ii) 222,174
shares held of record by Mr. Kiernan (under which Mr. Ferrentino has voting
power), (iii) 20,000 shares issuable upon the exercise of an option at an
exercise price of $7.25 per share, (iv) 705,000 shares issuable upon the
exercise of an option at an exercise price of $6.75 per share, (v) 12,500
shares issuable upon the exercise of an option at an exercise price of
$18.00, (vi) 100,000 shares issuable upon the exercise of a warrant at an
exercise price of $7.625, (vii) 30,000 shares issuable upon the exercise of
an option at $17.00 per share and (viii) 50,000 shares issuable upon the
exercise of an option at an exercise price $7.375.
(11) 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 indirectly owns 11.3% of the Company's Common Stock. Insofar
as each is deemed to be a beneficial owner of the Company's shares owned of
record in each case by ARTRA, Peter R. Harvey owns 1,772,833 shares, or
11.6%, of the Company's Common
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<PAGE>
Stock and John Harvey owns 1,803,333 shares, or 11.8%, of the Company's
Common Stock. Each such person maintains a business address at 500 Central
Avenue, Northfield, Illinois 60093.
(12) ARTRA, a Delaware corporation, presently owns 233,036 shares of record in
its name and 1,511,667 shares of record through a wholly-owned subsidiary,
Fill-Mor Holding, Inc. ("Fill-Mor")(hereinafter all holdings of Fill-Mor
are referred to as ARTRA's).
(13) Includes 188,601 shares held by a limited partnership of which Mr. Fanning
is the general partner. Mr. Fanning disclaims beneficial ownership of the
shares owned by such limited partnership in excess of his proportional
interest in the partnership.
90
<PAGE>
THE NOTES EXCHANGE OFFER
Purpose and Effect of the Notes Exchange Offer
The Old Notes were originally sold by COI on November 26, 1997, to the
Initial Purchaser pursuant to the Note Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers pursuant to
Rule 144A under the Securities Act, or institutional "accredited investors" (as
defined in Rule 501(a) (1), (2), (3) or (7) of Regulation D under the Securities
Act). Pursuant to the Note Purchase Agreement, COI entered into the Notes
Registration Rights Agreement, pursuant to which COI has agreed, for the benefit
of the holders of the Unregistered Notes, at COI's cost, (i) to file a
registration statement with the Commission within 30 days after the date of the
original issue (the "Issue Date") of the Unregistered Notes (such date of
filing, the "Filing Date") with respect to the Notes Exchange Offer for the
Exchange Notes, (ii) use its best efforts to cause the Notes Exchange Offer
Registration Statement to be declared effective under the Securities Act within
90 days after the Issue Date, (iii) use its best efforts to cause such Notes
Exchange Offer Registration Statement to remain effective until the closing of
the Notes Exchange Offer and (iv) use its best efforts to consummate the Notes
Exchange Offer no later than 130 days after the Issue Date. Upon the
registration statement being declared effective, COI will offer the Exchange
Notes in exchange for the Unregistered Notes. COI will keep the Notes Exchange
Offer open for no less than 30 business days (or longer if required by
applicable law) after the date on which notice of the Notes Exchange Offer is
mailed to the holders of the Unregistered Notes.
For each Old Note properly tendered and accepted pursuant to the Notes
Exchange Offer, the holder of such Unregistered Note will receive a New Note
having a principal amount equal to that of the Old Note tendered. Interest on
each New Note will accrue or accumulate from the last interest payment date on
which interest was paid on the Unregistered Note tendered in exchange therefor
or, if no interest has been paid on such Unregistered Note, from the Issue Date.
Each holder of the Unregistered Notes who wishes to exchange the
Unregistered Notes for Exchange Notes in the Notes Exchange Offer will be
required to represent in the GREEN Letter of Transmittal that (i) it is not an
affiliate of COI, (ii) the Exchange Notes to be received by it were acquired in
the ordinary course of its business, (iii) at the time of commencement of the
Notes Exchange Offer, it has no arrangement with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes and (iv) it is not acting on behalf of any person who could not truthfully
make the foregoing representations.
In the event that (i) applicable law or interpretations of the staff of the
Commission do not permit COI to effect the Notes Exchange Offer, (ii) in certain
circumstances, the Initial Purchaser so requests, (iii) any holder of the
Unregistered Notes (other than the Initial Purchaser) who is not eligible to
participate in the Notes Exchange Offer so requests, or (iv) for any reason the
Notes Exchange Offer is not consummated within 165 days after the Issue Date,
COI will at its cost, (a) as promptly as reasonably practicable, file a shelf
registration statement covering resales of the Unregistered Notes (a "Notes
Shelf Registration Statement"), (b) use its best efforts to cause such Notes
Shelf Registration Statement to be declared effective under the Securities Act
by the 165th day after the Issue Date (or promptly if such Notes Shelf
Registration Statement was filed pursuant to clause (ii), above) and (c) use its
best efforts to keep effective such Notes Shelf Registration Statement until the
earlier of two years after the Issue Date (or one year from the date the Notes
Shelf Registration Statement is declared effective if such Notes Shelf
Registration Statement is filed upon the request of the Initial Purchaser
pursuant to clause (ii) above) or such shorter period which will terminate when
all of the Notes covered by the Notes Shelf Registration Statement have been
sold pursuant to the Notes Shelf Registration Statement or when all of the
Unregistered Notes become eligible for resale pursuant to Rule 144 under the
Securities Act without volume restriction. See "--Resale of the Exchange Notes".
COI will, in the event of the filing of a Notes Shelf Registration Statement,
provide to each holder of the Registered Notes copies of the prospectus which is
a part of such Notes Shelf Registration Statement. A holder that sells its
Registered Notes pursuant to the Notes Shelf Registration Statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability
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provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Notes Registration Rights Agreement which is
applicable to such holder (including certain indemnification rights and
obligations thereunder).
If COI fails to comply with the above provisions or if such Notes Shelf
Registration Statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest"), as applicable, shall become
payable with respect to the Exchange Notes as follows:
(i) if the registration statement for the Notes Exchange Offer or the Notes
Shelf Registration Statement is not filed within 30 days following the Issue
Date, the Additional Interest shall accrue on the Unregistered Notes over and
above the stated interest at a rate of 0.50% per annum for the first 60 days
commencing on the 31st day after the Issue Date, such Additional Interest
increasing by an additional 0.50% per annum at the beginning of each subsequent
90- day period;
(ii) if the registration statement for the Notes Exchange Offer or the
Notes Shelf Registration Statement is not declared effective within 90 days
following the Issue Date, Additional Interest shall accrue on the Unregistered
Notes over and above the stated interest at a rate of 0.50% per annum for the
first 90 days commencing on the 91st day after the Issue Date, such Additional
Interest increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) COI has not exchanged all Unregistered Notes validly tendered
in accordance with the terms of the Notes Exchange Offer on or prior to 130 days
after the Issue Date or (B) the registration statement for the Notes Exchange
Offer ceases to be effective at any time prior to the time that the Notes
Exchange Offer is consummated or (C) if applicable, the Notes Shelf Registration
Statement has been declared effective and such Notes Shelf Registration
Statement ceases to be effective at any time prior to the second anniversary of
the Issue Date (unless all the Registered Notes have been sold thereunder or as
otherwise provided herein), then the Additional Interest shall accrue on the
Unregistered Notes over and above the stated interest of 0.50% per annum for the
first 50 days commencing on (x) the 131st day after the Issue Date with respect
to the Notes validly tendered and not exchanged by COI, in the case of (A)
above, or (y) the day the registration statement for the Notes Exchange Offer
ceases to be effective or usable for its intended purpose in the case of (B)
above, or (z) the day the Notes Shelf Registration Statement ceases to be
effective in the case of (C) above, the rate of such Additional Interest
increasing by an additional 0.50% per annum at the beginning of each subsequent
90-day period; provided, however, that the Additional Interest payable on the
Unregistered Notes may not exceed in the aggregate 2.0% per annum; and provided
further, that (1) upon the filing of the registration statement for the Notes
Exchange Offer or the Notes Shelf Registration Statement (in the case of clause
(i) above), (2) upon the effectiveness of such registration statement for the
Notes Exchange Offer or the Notes Shelf Registration Statement (in the case of
(ii) above), or (3) upon the exchange of Exchange Notes for all Unregistered
Notes tendered (in the case of clause (iii) (A) above), or upon the
effectiveness of the registration statement for the Notes Exchange Offer which
had ceased to remain effective in the case of clause (iii) (B) above, or upon
the effectiveness of the Notes Shelf Registration Statement which had ceased to
remain effective (in the case of clause (iii) (C) above), the Additional
Interest accruing on the Unregistered Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash on the same interest payment dates as
interest on the Unregistered Notes. The Additional Interest will be determined
by multiplying the applicable rate of such Additional Interest by the principal
amount of the Unregistered Notes multiplied by a fraction, the numerator of
which is the number of days such Additional Interest was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
The summary herein of all material provisions of the Notes Registration
Rights Agreement does not purport to be exhaustive and is subject to, and is
qualified in its entirety by, all the provisions of the Notes Registration
Rights Agreement, copies of which will be made available upon request to COI.
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Following the consummation of the Notes Exchange Offer, holders of the
Unregistered Notes who were eligible to participate in the Notes Exchange Offer
but who did not tender their Unregistered Notes will not have any further
exchange or registration rights and such Unregistered Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Unregistered Notes could be adversely affected.
Terms of the Notes Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the GREEN Letter of Transmittal, COI will accept any and all Unregistered
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. COI will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Notes Exchange Offer. Holders may tender some or all of their Unregistered
Notes pursuant to the Notes Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Unregistered Notes except (i) the New Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, and (ii) the Exchange Notes
have been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Notes Indenture.
As of the date of this Prospectus $110,000,000 aggregate principal amount
of Old Notes are outstanding. COI has fixed the close of business
_______________, 1998 as the record date for the Notes Exchange Offer for
purposes of determining the persons to whom this Prospectus and the GREEN Letter
of Transmittal will be mailed initially.
Holders of the Unregistered Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Notes Indenture in
connection with the Notes Exchange Offer. COI intends to conduct the Notes
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
COI shall be deemed to have accepted validly tendered Unregistered Notes
when, as and if COI has given oral or written notice thereof to the Notes
Exchange Agent. The Notes Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from COI.
If any tendered Unregistered Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Unregistered Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Unregistered Notes in the Notes Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
of the GREEN Letter of Transmittal, transfer taxes with respect to the exchange
of Unregistered Notes pursuant to the Notes Exchange Offer. COI will pay all
charges and expenses, other than the transfer taxes in certain circumstances, in
connection with the Notes Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_____________, 1998, unless COI, in its sole discretion, extends the Notes
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Notes Exchange Offer is extended.
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In order to extend the Notes Exchange Offer, COI will notify the Notes
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
COI reserves the right, (i) to delay accepting any Unregistered Notes, to
extend the Notes Exchange Offer or to terminate the Notes Exchange Offer if any
of the conditions set forth below under "--Conditions" shall not have been
satisfied, by giving oral or written notice of such delay, extension or
termination to the Notes Exchange Agent or (ii) to amend the terms of the Notes
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
Procedures for Tendering
The tender of Unregistered Notes pursuant to any of the procedures set
forth in this Prospectus and in the GREEN Letter of Transmittal will constitute
a binding agreement between the Tendering Holder and COI in accordance with the
terms and subject to the conditions set forth herein and in such Letter of
Transmittal. The tender of Unregistered Notes will constitute an agreement to
deliver good and marketable title to all tendered Unregistered Notes prior to
the Expiration Date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind.
EXCEPT AS PROVIDED IN "--GUARANTEED DELIVERY PROCEDURES," UNLESS THE
UNREGISTERED NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE NOTES
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED
AND DULY EXECUTED GREEN LETTER OF TRANSMITTAL), COI MAY, AT ITS OPTION, REJECT
SUCH TENDER. ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST DEPOSIT OF
TENDERED UNREGISTERED NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS.
NOTWITHSTANDING THE FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL BE
DEEMED TO HAVE MADE VALID DELIVERY WHERE THE NOTES EXCHANGE AGENT RECEIVES AN
AGENT'S MESSAGE (DEFINED BELOW) PRIOR TO THE EXPIRATION DATE.
Accordingly, to properly tender Unregistered Notes, the following
procedures must be followed:
Unregistered Notes held through DTC. Each Beneficial Owner holding
Unregistered Notes through a DTC Participant must instruct such DTC Participant
to cause its Unregistered Notes to be tendered in accordance with the procedures
set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Unregistered Notes through DTC must (i) electronically
transmit its acceptance through ATOP, and DTC will then edit and verify the
acceptance, execute a book-entry delivery to the Notes Exchange Agent's account
at DTC and send an Agent's Message to the Notes Exchange Agent for its
acceptance, or (ii) comply with the guaranteed delivery procedures set forth
below and in the Notice of Guaranteed Delivery. See "--Guaranteed Delivery
Procedures."
The Notes Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Notes Exchange Offer with respect
to Unregistered Notes held through DTC, and any financial institution that is a
DTC Participant may make book-entry delivery of interests in Unregistered Notes
into the Notes Exchange Agent's account through ATOP. However, although delivery
of interests in the Unregistered Notes may be effected through book-entry
transfer into the Notes Exchange Agent's account through ATOP, an Agent's
Message in connection with such book-entry transfer, and any other required
documents, must be, in any case, transmitted to and received by the Notes
Exchange Agent at its address set forth under "--Notes Exchange Agent," or the
guaranteed delivery procedures set forth below must be complied with, in each
case, prior to the Expiration Date. Delivery of documents to DTC does not
constitute delivery to the Notes Exchange Agent. The confirmation of a
book-entry
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transfer into the Notes Exchange Agent's account at DTC as described above is
referred to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Notes Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a GREEN Letter of Transmittal and agree to be bound by the terms of
such Letter of Transmittal and that COI may enforce such agreement against such
DTC Participants.
Cede & Co., as the Holder of the global certificates representing the Old
Notes (the "Global Notes"), will tender a portion of each of the Global Notes
equal to the aggregate principal amount due at the stated maturity for which
instructions to tender are given by DTC Participants.
Unregistered Notes held by Holders. Each Holder must (i) complete and sign
and mail or deliver the accompanying GREEN Letter of Transmittal, and any other
documents required by such Letter of Transmittal, together with certificate(s)
representing all tendered Unregistered Notes, to the Notes Exchange Agent at its
address set forth under "--Notes Exchange Agent," or (ii) comply with the
guaranteed delivery procedures set forth below and in the Notice of Guaranteed
Delivery. See "--Guaranteed Delivery Procedures."
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Unregistered Notes are tendered for the account
of an Eligible Institution including (as such terms are defined in Rule
17Ad-15): (i) a bank; (ii) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a Securities Transfer Association
recognized program.
If a Letter of Transmittal or any Unregistered Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
COI of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the GREEN Letter of
Transmittal the name and address to which substitute certificates evidencing
Unregistered Notes for amounts not tendered are to be issued or sent, if
different from the name and address of the person signing such Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no instructions are given, such Unregistered Notes not tendered,
as the case may be, will be returned to the person signing such Letter of
Transmittal.
By tendering, each Holder and each DTC Participant will make to COI the
representations set forth in the third paragraph under the heading "--Purpose
and Effect of the Notes Exchange Offer."
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a GREEN Letter of Transmittal or
transmitting an acceptance through ATOP, as the case may be, each Tendering
Holder waives any right to receive any notice of the acceptance for purchase of
its Unregistered Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Unregistered Notes will be resolved by COI,
whose determination will be final and binding. COI reserves the absolute right
to reject any or all tenders that are not in proper form or the acceptance of
which may, in the opinion of counsel for COI, be unlawful. COI also reserves the
absolute right to waive any condition to the Notes Exchange
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Offer and any irregularities or conditions of tender as to particular
Unregistered Notes. COI's interpretation of the terms and conditions of the
Notes Exchange Offer (including the instructions in the GREEN Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured within such time as COI shall determine.
COI and the Notes Exchange Agent shall not be under any duty to give
notification of defects in such tenders and shall not incur liabilities for
failure to give such notification. Tenders of Unregistered Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Unregistered Notes received by the Notes Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Notes Exchange Agent to the tendering Holder,
unless otherwise provided in the GREEN Letter of Transmittal, as soon as
practicable following the Expiration Date.
LETTERS OF TRANSMITTAL AND UNREGISTERED NOTES MUST BE SENT ONLY TO THE
NOTES EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR UNREGISTERED NOTES
TO COI OR DTC.
The method of delivery of Unregistered Notes and Letters of Transmittal,
any required signature guaranties and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only when actually received by the
Notes Exchange Agent. If delivery is by mail, it is suggested that the Holder
use properly insured, registered mail with return receipt requested, and that
the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Notes Exchange Agent prior to the Expiration Date.
Guaranteed Delivery Procedures
Unregistered Notes held through DTC. DTC Participants holding Unregistered
Notes through DTC who wish to cause their Unregistered Notes to be tendered, but
who cannot transmit their acceptances through ATOP prior to the Expiration Date,
may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Notes Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, facsimile transmission or overnight courier)
substantially in the form provided by COI herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection therewith
(as described above) are received by the Notes Exchange Agent within
three NYSE trading days after the date of the execution of the Notice
of Guaranteed Delivery.
Unregistered Notes Held by Holders. Holders who wish to tender their
Unregistered Notes and (i) whose Unregistered Notes are not immediately
available, (ii) who cannot deliver their Unregistered Notes, the GREEN Letter of
Transmittal or any other required documents to the Notes Exchange Agent or (iii)
who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Notes Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name
and address of the holder, the certificate number(s) of such
Unregistered Notes and the principal amount of Unregistered Notes
tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the GREEN Letter
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of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Unregistered Notes (or a confirmation of book-entry
transfer of such Unregistered Notes into the Notes Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by such Letter of Transmittal will be deposited by the
Eligible Institution with the Notes Exchange Agent; and
(c) such properly completed and executed GREEN Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Unregistered Notes in proper form for transfer (or a
confirmation or book-entry transfer of such Unregistered Notes into
the Notes Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by such Letter of
Transmittal are received by the Notes Exchange Agent upon three New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Notes Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Unregistered Notes according to
the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Unregistered Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
Unregistered Notes held through DTC. DTC Participants holding Unregistered
Notes who have transmitted their acceptances through ATOP may, prior to 5:00
p.m., New York City time, on the Expiration Date, withdraw the instruction given
thereby by delivering to the Notes Exchange Agent, at its address set forth
under "--Notes Exchange Agent," a written, telegraphic or facsimile notice of
withdrawal of such instruction. Such notice of withdrawal must contain the name
and number of the DTC Participant, the principal amount due at the stated
maturity or number of shares of the Unregistered Notes to which such withdrawal
related and the signature of the DTC Participant. Withdrawal of such an
instruction will be effective upon receipt of such written notice of withdrawal
by the Notes Exchange Agent.
Unregistered Notes held by Holders. Holders may withdraw a tender of
Unregistered Notes in the Notes Exchange Offer, by a telegram, telex, letter or
facsimile transmission notice of withdrawal received by the Notes Exchange Agent
at its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Unregistered Notes to be withdrawn (the
"Depositor"), (ii) identify the Unregistered Notes to be withdrawn (including
the certificate number(s) and principal amount due at the stated maturity of
such Unregistered Notes, or, in the case of Unregistered Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the GREEN Letter of Transmittal by which
such Unregistered Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Unregistered Notes register the transfer of such
Unregistered Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Unregistered Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
COI, whose determination shall be final and binding on all parties. Any
Unregistered Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Notes Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Unregistered Notes so withdrawn are validly
retendered. Any Unregistered Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Notes Exchange Offer. Properly withdrawn Unregistered Notes
may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
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All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Unregistered Notes being withdrawn are held for the
account of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or GREEN Letter of
Transmittal, as the case may be, to which such withdrawal relates. If a notice
of withdrawal is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other person
acting in a fiduciary or representative capacity, such person must so indicate
when signing and must submit with the revocation appropriate evidence of
authority to execute the notice of withdrawal. A DTC Participant or a Holder may
withdraw an instruction or a tender, as the case may be, only if such withdrawal
complies with the provisions of this Prospectus.
A withdrawal of a tender of Unregistered Notes by a DTC Participant or a
Holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new GREEN Letter of
Transmittal, as the case may be, in accordance with the procedures described
herein.
Conditions
Notwithstanding any other term of the Notes Exchange Offer, COI shall not
be required to accept for exchange, or exchange Notes for, any Unregistered
Notes, and may terminate or amend the Notes Exchange Offer as provided herein
before the acceptance of such Unregistered Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Notes
Exchange Offer which, in the judgment of COI upon written advice of
counsel, could reasonably be expected to materially impair the ability
of COI to proceed with the Notes Exchange Offer or any material
adverse development has occurred in any existing action or proceeding
with respect to COI or any of the subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the judgment
of COI and based on written advice of counsel, could reasonably be
expected to materially impair the ability of COI to proceed with the
Notes Exchange Offer or materially impair the contemplated benefits of
the Notes Exchange Offer to COI; or
(c) any governmental approval has not been obtained, which approval COI
shall, in its discretion and based on written advice of counsel, deem
necessary for the consummation of the Notes Exchange Offer as
contemplated hereby.
If any of the conditions are not satisfied, COI may (i) refuse to accept
any Unregistered Notes and return all tendered Unregistered Notes to the
tendering holders, (ii) extend the Notes Exchange Offer and retain all
Unregistered Notes tendered prior to the expiration of the Notes Exchange Offer,
subject, however, to the rights of holders to withdraw such Unregistered Notes
(see "--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Notes Exchange Offer and accept all properly tendered
Unregistered Notes which have not been withdrawn.
Notes Exchange Agent
Wilmington Trust Company has been appointed as Notes Exchange Agent for the
Notes Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Notes
Exchange Agent addressed as follows:
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Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: James P. Lawler
Telephone: (302) 651-8775
Facsimile: (302) 651-1576
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by COI. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of COI and its affiliates.
COI has not retained any dealer-manager in connection with the Notes
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Notes Exchange Offer. COI however, will pay the
Notes Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Notes Exchange
Offer will be paid by COI. Such expenses include fees and expenses of the Notes
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Unregistered Notes, which is face value, as reflected in COI's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by COI. The expenses of the Notes Exchange Offer
will be expended over the time of the Exchange Notes.
Consequences of Failure to Exchange
The Unregistered Notes that are not exchanged for Exchange Notes pursuant
to the Notes Exchange Offer will remain restricted securities. Accordingly, such
Unregistered Notes may be resold only (i) to COI (upon redemption thereof or
otherwise), (ii) so long as the Unregistered Notes are eligible for resale
pursuant to Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel reasonably acceptable to COI), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Resale of the Exchange Notes
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
COI believes that a holder or other person who receives Exchange Notes in the
ordinary course of business, whether or not such person is the holder (other
than (i) a broker-dealer who purchases such Exchange Notes from COI to resell
pursuant to Rule 144A or any other available exemption under
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the Securities Act or (ii) a person that is an "affiliate" of COI within the
meaning of Rule 405 under the Securities Act) who receives Exchange Notes in
exchange for Unregistered Notes, and who is not participating, does not intend
to participate, and has no arrangement or understanding with such person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Notes Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Unregistered Notes, where such Securities were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Notes Registration
Rights Agreement, each holder accepting the Notes Exchange Offer is required to
represent to COI in the GREEN Letter of Transmittal that (i) the Exchange Notes
are to be acquired by the holder or the person receiving such Exchange Notes,
whether or not such person is the holder, in the ordinary course of business,
(ii) the holder or any such other person (other than a broker-dealer referred to
in the next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of COI within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives Exchange Notes
for its own account in exchange for Unregistered Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
For a description of the procedures for such resales by Participating
Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF NOTES
General
The Old Notes were issued, and the New Notes will be issued, under an
indenture, dated as of November 26, 1997 (the "Notes Indenture"), between COI
and Wilmington Trust Company, as trustee (the "Notes Trustee"), a copy of which
is available upon request to COI. The Old Notes and the New Notes will be
treated as a single class of securities under the Notes Indenture. The following
is a summary of certain provisions of the Notes Indenture and the Notes and does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Notes Indenture (including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended) and the Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of COI in
the Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Notes Trustee in New York, New York), except that,
at the option of COI, payment of interest may be made by check mailed to the
address of the holders of the Notes as such address appears in the Note
Register. Initially, the Notes Trustee will act as Paying Agent and Registrar
for the Notes. The Notes may be presented for registration of transfer and
exchange at the offices of the Registrar, which initially will be the Notes
Trustee's corporate trust office. COI may change any Paying Agent and Registrar
without notice to holders of the Notes.
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The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but COI may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Terms of Notes
The Notes Indenture permits the issuance of up to $200.0 million aggregate
principal amount of Notes, of which $110.0 million are issued and outstanding;
provided that any Notes issued after the Issue Date shall only be issued in
minimum increments of $10.0 million and in compliance with the covenant
described under "- Certain Covenants- Limitation on Indebtedness and the
restrictions contained in the New Credit Facility. The Notes mature on December
1, 2007. Each Note bears interest at the rate of 12.0% per annum from the date
of issuance, or from the most recent date to which interest has been paid or
provided for, and is payable semiannually on June 1 and December 1 of each year
(each an "Interest Payment Date"), commencing on June 1, 1998, to holders of
record at the close of business on the May 15 or November 15 immediately
preceding the Interest Payment Date. The interest rate on the Notes is subject
to increase under certain circumstances. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months. The Notes will not be
entitled to the benefit of any mandatory sinking fund.
Optional Redemption
Except as set forth below, the Notes will not be redeemable at the option
of COI prior to December 1, 2002. On and after such date, the Notes will be
redeemable, at COI's option, in whole or in part, at any time upon not less than
30 nor more than 60 days' prior notice mailed by first-class mail to each
holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), if redeemed during the 12-month period
commencing on December 1 of the years set forth below, plus accrued and unpaid
interest to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant Interest
Payment Date):
Period Redemption
- ------ Price
-----
2002........................................................... 106.000%
2003........................................................... 104.000%
2004........................................................... 102.000%
2005 and thereafter............................................ 100.000%
Optional Redemption Upon Equity Offering. In addition, at any time prior to
December 1, 2000, COI may, at its option, redeem up to 35% of the aggregate
principal amount of the Notes, with net cash proceeds of one or more Equity
Offerings by COMFORCE Corporation so long as there is a Public Market at the
time of such redemption, at a redemption price equal to 112.000% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, however, that after any such redemption the
aggregate principal amount of the Notes outstanding must equal at least 65% of
the Notes issued as of the date of such redemption under the Notes Indenture. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, COI shall make such redemption not more than 90 days after the
consummation of any such Equity Offering.
Selection. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Notes Trustee on a pro rata basis, by lot or
by such other method as the Notes Trustee in its sole discretion shall deem to
be fair and appropriate; provided, however, that if a partial redemption is made
with proceeds of an Equity Offering, selection of the Notes or portion thereof
for redemption shall be made by the Notes Trustee only on a pro rata basis,
unless such method is otherwise prohibited. Notes may be redeemed in part in
multiples of $1,000 principal
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amount only. Notice of redemption will be sent, by first class mail, postage
prepaid, at least 45 days (unless a shorter period is acceptable to the Notes
Trustee) prior to the date fixed for redemption to each holder whose Notes are
to be redeemed at the last address for such holder then shown on the registry
books. If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after any redemption date, interest will cease to
accrue on the Notes or part thereof called for redemption as long as COI has
deposited with the Paying Agent funds in satisfaction of the redemption price
pursuant to the Notes Indenture.
Fraudulent Conveyance
The use of the proceeds of the debt (including the Notes) incurred in
connection with the Uniforce Acquisition and the Refinancing may subject such
incurrence of debt and the obligations of COI under the Notes to review by a
court under relevant federal bankruptcy and state fraudulent conveyance and
transfer statutes and, if a court makes certain findings, it could take certain
actions detrimental to the holders of the Notes. See "Risk Factors-Fraudulent
Conveyance Considerations."
Ranking
The Notes are senior unsecured obligations of COI. The Notes rank pari
passu in right of payment with all existing and future senior indebtedness of
COI and will rank senior in right of payment to any future subordinated
indebtedness of COI. As of September 30, 1997, on a pro forma basis, after
giving effect to the Transactions, the aggregate principal amount of COI's
outstanding senior indebtedness would be approximately $142.8 million. The Notes
are effectively subordinated to any secured debt of COI, to the extent of the
assets serving as security therefor. The Notes are structurally subordinated to
all liabilities of COI's direct and indirect subsidiaries. As of September 30,
1997, on a pro forma basis after giving effect to the Transactions, the
aggregate principal amount of COI's outstanding secured indebtedness to which
the Notes would have been effectively subordinated, to the extent of the assets
serving as security therefor, would have been approximately $37.8 million and
the aggregate amount of the outstanding liabilities of subsidiaries of COI to
which holders of Notes would be structurally subordinated would have been $59.6
million (including $37.8 million of indebtedness).
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require COI to repurchase all or
any part of such holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant Interest Payment Date): (i) any
sale, lease, exchange or other transfer (collectively, a "Transfer") (in one
transaction or a series of related transactions) of all or substantially all of
the assets of COI and its Subsidiaries; or (ii) a majority of the Board of
Directors of the Company or of any direct or indirect holding company thereof
shall consist of Persons who are not Continuing Directors of the Company; or
(iii) the acquisition by any Person or Group (other than the Management Group)
of the power, directly or indirectly, to vote or direct the voting of securities
having more than 35% of the ordinary voting power for the election of directors
of the Company or of any direct or indirect holding company thereof; provided
that no Change of Control shall be deemed to occur pursuant to this clause
(iii), so long as the Management Group owns an amount of securities representing
a greater portion of such ordinary voting power than such Person or Group; or
(iv) the acquisition by any Person or Group (including, but not limited to, the
Management Group) of the power, directly or indirectly, to vote or direct the
voting of securities having more than 49.9% of the ordinary voting power for the
election of directors of the Company or any direct or indirect holding company
thereof; or (v) COMFORCE Corporation ceases to own all of the outstanding Voting
Stock of COI.
Within 30 days following any Change of Control, unless COI has mailed a
repurchase notice with respect to all the outstanding Notes in connection with
such Change of Control, COI shall mail a notice to each holder with
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a copy to the Notes Trustee stating: (1) that a Change of Control has occurred
and that such holder has the right to require COI to repurchase such holder's
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of repurchase
(subject to the right of holders of record on a record date to receive interest
on the relevant Interest Payment Date); (2) the repurchase date (which shall be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (3) the procedures determined by COI, consistent with the Notes
Indenture, that a holder must follow in order to have its Notes repurchased.
COI will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the Notes Indenture, COI will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Notes Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of COI and
its Subsidiaries. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the Notes Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the law which governs
the Notes Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear as to whether a Change of Control has occurred and whether COI is
required to make an offer to repurchase the Notes as described above.
The occurrence of certain of the events that would constitute a Change of
Control would also constitute a default under the New Credit Facility. Future
senior indebtedness of COI and its Subsidiaries may also contain prohibitions of
certain events that would constitute a Change of Control or require such senior
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require COI to repurchase the Notes could cause
a default under such senior indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase of COI. Finally, COI's
ability to pay cash to the holders upon a repurchase may be limited by COI's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. Even if
sufficient funds were otherwise available to allow COI to comply with its
repurchase obligations in the event of a Change of Control, the terms of the New
Credit Facility may prohibit COI's prepayment of Notes prior to their scheduled
maturity. The Notes Indenture provides, so long as COI is primarily obligated
under or has guaranteed the repayment of principal and interest on the New
Credit Facility, that prior to the mailing of a redemption notice in respect of
a Change of Control, but in any event within 30 days following any Change of
Control, COI covenants to, if at such time the terms of the New Credit Facility
require repayment upon a Change of Control, (i) repay in full and terminate all
commitments and Indebtedness under the New Credit Facility or (ii)(A) offer to
repay in full and terminate all commitments and all Indebtedness under the New
Credit Facility and (B) repay the Indebtedness owed to each such lender that has
accepted such offer or (iii) obtain the requisite consents under the New Credit
Facility to waive the provisions of this sentence. Consequently, if COI is not
able to prepay the Indebtedness under the New Credit Facility and any other
senior indebtedness containing similar restrictions or obtain requisite
consents, as described above, COI will be unable to fulfill its repurchase
obligations if holders of Notes exercise their repurchase rights following a
Change of Control, thereby resulting in an Event of Default under the Notes
Indenture.
Certain Covenants
The Notes Indenture contains certain covenants including, among others, the
following:
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Limitation on Indebtedness.
(a) COI shall not, and shall not permit any of its Restricted Subsidiaries
to Incur any Indebtedness; provided, however, that: (i) COI may Incur
Indebtedness which is subordinated to the Notes, if no Default or Event of
Default shall have occurred and be continuing at the time of such Incurrence or
would occur as a consequence of such Incurrence, the Consolidated Coverage Ratio
would be equal to at least 1.50 to 1.00; provided that no such Indebtedness
(other than Indebtedness issued by the Company to a seller of a Permitted
Business) shall have a Stated Maturity which is earlier than the Stated Maturity
of the Notes; and (ii) COI may Incur Indebtedness ranking on a parity with the
Notes if no Default or Event of Default shall have occurred and be continuing at
the time of such Incurrence or would occur as a consequence of such Incurrence
and the Consolidated Coverage Ratio would be at least equal to 2.25 to 1.00.
(b) Notwithstanding the foregoing paragraph (a), COI and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Credit Facility
(including, without limitation, any renewal, extension, refunding,
restructuring, replacement or refinancing thereof referred to in the
definition thereof) provided, however, that the aggregate principal amount
of all Indebtedness Incurred pursuant to this clause (i) does not exceed
$75.0 million at any time outstanding, less the aggregate principal amount
thereof repaid with the net proceeds of Asset Dispositions;
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financing or purchase money obligations, in each case Incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in a Permitted Business or
Incurred to refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the date of
such acquisition or the date of completion of such construction or
improvement; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii) shall not exceed $5.0
million at any time outstanding;
(iii) Indebtedness of COI owing to and held by any Wholly-Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
COI or any Wholly-Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or any other event which results
in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary
or any subsequent transfer of any such Indebtedness (except to COI or any
Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (a) the Notes and the Exchange Notes,
(b) Existing Indebtedness and (c) any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (iv) or Incurred
pursuant to paragraph (a) above;
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired by
COI (other than Indebtedness Incurred in anticipation of, or to provide all
or any portion of the funds or credit support utilized to consummate the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary or was otherwise acquired by
COI); provided, however, that at the time such Restricted Subsidiary is
acquired by COI, COI would have been able to Incur $1.00 of additional
Indebtedness pursuant to paragraph (a) above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (v) and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by COI or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
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business, (B) in respect of performance bonds or similar obligations of COI
or any of its Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations and
(C) arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness) incurred
in the ordinary course of business;
(vii) Indebtedness under Currency Agreements and Interest Rate
Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of COI or its
Restricted Subsidiaries (as determined in good faith by the Board of
Directors of COI) and correspond in terms of notional amount, duration,
currencies and interest rates as applicable, to Indebtedness of COI or its
Restricted Subsidiaries Incurred without violation of the Notes Indenture
or to business transactions of COI or its Restricted Subsidiaries on
customary terms entered into in the ordinary course of business;
(viii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credits, surety bonds or performance bonds
securing any obligations of COI or any of its Restricted Subsidiaries
pursuant to such agreements, in each case Incurred in connection with the
disposition of any business assets or Restricted Subsidiary of COI (other
than Guarantees of Indebtedness or other obligations incurred by any Person
acquiring all or any portion of such business assets or Restricted
Subsidiary of COI for the purpose of financing such acquisition) in a
principal amount not to exceed the gross proceeds actually received by COI
or any of its Restricted Subsidiaries in connection with such disposition;
provided, however, that the principal amount of any Indebtedness incurred
pursuant to this clause (viii) when taken together with all Indebtedness
incurred pursuant to this clause (viii) and then outstanding, shall not
exceed $2.0 million;
(ix) Indebtedness consisting of (A) Guarantees by COI (so long as COI
could have incurred such Indebtedness directly without violation of the
Notes Indenture) and (B) Guarantees by a Restricted Subsidiary of
Indebtedness incurred by COI without violation of the Notes Indenture (so
long as such Restricted Subsidiary could have incurred such Indebtedness
directly without violation of the Notes Indenture);
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by COI
or its Subsidiaries drawn against insufficient funds in the ordinary course
of business in an amount not to exceed $250,000 at any time, provided that
such Indebtedness is extinguished within two business days of its
incurrence; and
(xi) Indebtedness (other than Indebtedness described in clauses
(i)-(x)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this clause
(xi) and then outstanding, will not exceed $10.0 million (it being
understood that any Indebtedness Incurred under this clause (xi) shall
cease to be deemed Incurred or outstanding for purposes of this clause (xi)
(but shall be deemed to be Incurred for purposes of paragraph (a)) from and
after the first date on which COI or its Restricted Subsidiaries could have
Incurred such Indebtedness under the foregoing paragraph (a) without
reliance upon this clause (xi)).
(c) COI will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments. (a) COI shall not, and shall not permit
any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
COI or any of its Restricted Subsidiaries) except (A) dividends or distributions
payable in its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock and dividends in
additional shares of Preferred Stock of COI outstanding on the Issue Date, (B)
dividends or distributions payable to COI or a Restricted Subsidiary of COI
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which holds any equity interest in the paying Restricted Subsidiary (and if the
Restricted Subsidiary paying the dividend or making the distribution is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata
basis), (C) dividends, or other distributions in an amount equal to the "public
company" expenses of COMFORCE, including, but not limited to, legal, regulatory
compliance and accounting expenses, in any event not to exceed $1.25 million in
any fiscal year and (D) dividends payable out of Net Available Cash resulting
from an Asset Disposition to the extent, and only to the extent, that (x) such
amount will be used to comply with the covenant described in "Description of
Senior Debentures-Limitation on Sales of Assets and Subsidiary Stock" and (y)
the Company has previously complied with clauses (A), (B) and (C) of clause
(a)(i) of the covenant described in " -Limitation on Sales of Assets and
Subsidiary Stock", (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of COI held by Persons other than a Wholly-Owned Subsidiary of
COI or any Capital Stock of a Restricted Subsidiary of COI held by any Affiliate
of COI, other than a Wholly-Owned Subsidiary (in either case, other than in
exchange for its Capital Stock (other than Disqualified Stock)), (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of purchase, repurchase or acquisition) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment as described in preceding clauses (i)
through (iv) being referred to as a "Restricted Payment"); if at the time COI or
such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom); or (2) COI is not
able to incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
under "-Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments declared or made subsequent
to the Issue Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the first day
of the fiscal quarter beginning on or after the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
as to which financial results are available (but in no event ending more than
135 days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate net proceeds received by COI from the issue or sale of its Capital
Stock (other than Disqualified Stock) or other capital contributions subsequent
to the Issue Date (other than net proceeds received from an issuance or sale of
such Capital Stock to (x) a Subsidiary of COI, (y) an employee stock ownership
plan or similar trust or (z) management employees of COI or any Subsidiary of
COI); provided, however, that the value of any non-cash net proceeds shall be as
determined by the Board of Directors in good faith, except that in the event the
value of any non-cash net proceeds shall be $2.0 million or more, the value
shall be as determined in writing by an independent investment banking firm of
nationally recognized standing; (C) the amount by which Indebtedness of COI is
reduced on COI's balance sheet upon the conversion or exchange (other than by a
Restricted Subsidiary of COI) subsequent to the Issue Date of any Indebtedness
of COI convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of COI (less the amount of any cash, or other property, distributed by
COI upon such conversion or exchange); and (D) the amount equal to the net
reduction in Investments (other than Permitted Investments) made after the Issue
Date by COI or any of its Restricted Subsidiaries in any Person resulting from
(i) repurchases or redemptions of such Investments by such Person, proceeds
realized upon the sale of such Investment to an unaffiliated purchaser,
repayments of loans or advances or other transfers of assets by such Person to
COI or any Restricted Subsidiary of COI or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously included in the
calculation of the amount of Restricted Payments; provided, however, that no
amount shall be included under this Clause (D) to the extent it is already
included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of COI made by exchange
for, or out of the proceeds of the substantially concurrent sale of, Capital
Stock of COI (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary, an employee stock ownership plan or similar trust or
management employees of COI or any Subsidiary of COI); provided, however, that
(A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from clause (3) (B) of paragraph
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(a); (ii) any purchase or redemption of Subordinated Obligations of COI made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of COI in compliance with the "Limitation on
Indebtedness" covenant; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments; (iii)
any purchase or redemption of Subordinated Obligations from Net Available Cash
to the extent permitted under "- Limitation on Sales of Assets and Subsidiary
Stock" below; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; and (iv)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; provided,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; provided, however, that in the case of clauses (i), (ii)
and (iii) no Default or Event of Default shall have occurred or be continuing at
the time of such payment or as a result thereof.
(c) For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the Capital Stock or Indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment in an aggregate amount
in excess of $2.0 million, a written opinion as to the fairness of the valuation
thereof (as determined by COI) for purposes of determining compliance with the
"Limitation on Restricted Payments" covenant in the Notes Indenture shall be
issued by an independent investment banking firm of national standing.
(d) Not later than the date of making any Restricted Payment, COI shall
deliver to the Notes Trustee an Officer's Certificate stating that such
Restricted Payment complies with the Notes Indenture and setting forth in
reasonable detail the basis upon which the required calculations were computed,
which calculations may be based upon COI's latest available quarterly financial
statements and a copy of any required investment banker's opinion.
Limitation on Liens. The Notes Indenture provides that COI will not and
will not permit any Restricted Subsidiary to, directly or indirectly, create or
permit to exist any Liens except for Permitted Liens.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
COI shall not, and shall not permit any of its Restricted Subsidiaries to,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligation owed to COI, (ii) make any loans or advances to
COI or (iii) transfer any of its property or assets to COI, except: (a) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issue Date, including the New Credit Facility; (b) any encumbrance or
restriction with respect to such a Restricted Subsidiary pursuant to an
agreement relating to any Indebtedness issued by such Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary was acquired by COI and
outstanding on such date (other than Indebtedness Incurred in anticipation of,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary of COI or was acquired
by COI); (c) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement evidencing Indebtedness Incurred without
violation of the Notes Indenture or effecting a refinancing of Indebtedness
issued pursuant to an agreement referred to in clauses (a) or (b) or this clause
(c) or contained in any amendment to an agreement referred to in clauses (a) or
(b) or this clause (c); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any of such
agreement, refinancing agreement or amendment, taken as a whole, are no less
favorable to the holders of the Notes in any material respect, as determined in
good faith by the Board of Directors of COI, than encumbrances and restrictions
with respect to such Restricted Subsidiary contained in agreements in effect at,
or entered into on, the Issue Date; (d) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with
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respect to, or Lien on, any property or assets of COI or any Restricted
Subsidiary not otherwise prohibited by the Notes Indenture, (C) that is included
in a licensing agreement to the extent such restrictions limit the transfer of
the property subject to such licensing agreement or (D) arising or agreed to in
the ordinary course of business and that does not, individually or in the
aggregate, detract from the value of property or assets of COI or any of its
Subsidiaries in any manner material to COI or any such Restricted Subsidiary;
(e) in the case of clause (iii) above, restrictions contained in security
agreements, mortgages or similar documents securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements; (f) in the case of clause (iii) above, any
instrument governing or evidencing Indebtedness of a Person acquired by COI or
any Restricted Subsidiary of COI at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person so acquired; provided, however, that
such Indebtedness is not incurred in connection with or in contemplation of such
acquisition; (g) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (h) encumbrances or
restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) COI shall not, and
shall not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) COI or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market value,
as determined in good faith by COI's Board of Directors (including as to the
value of all non-cash consideration), of the shares and assets subject to such
Asset Disposition, (ii) at least 80% of the consideration thereof received by
COI or such Restricted Subsidiary is in the form of cash or Cash Equivalents and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by COI (or such Restricted Subsidiary, as the case may
be) (A) first, to the extent COI or any Restricted Subsidiary elects (or is
required by the terms of any senior secured indebtedness), (x) to prepay, repay
or purchase senior secured indebtedness or (y) to the investment in or
acquisition of Additional Assets within 270 days from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second,
within 270 days from the receipt of such Net Available Cash, to the extent of
the balance of such Net Available Cash after application in accordance with
clause (A), to make an offer to purchase Notes at 100% of their principal amount
plus accrued and unpaid interest, if any, thereon; (C) third, within 90 days
after the later of the application of Net Available Cash in accordance with
clauses (A) and (B) and the date that is 270 days from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to prepay, repay or
repurchase Indebtedness (other than Preferred Stock) of a Wholly-Owned
Subsidiary (in each case other than Indebtedness owed to COI); and (D) fourth,
to the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C), to (w) the investment in or
acquisition of Additional Assets, (x) the making of Temporary Cash Investments,
(y) the prepayment, repayment or purchase of Indebtedness of COI (other than
Indebtedness owing to any Subsidiary of COI) or Indebtedness of any Subsidiary
(other than Indebtedness owed to COI or any of its Subsidiaries) or to pay
dividends to COMFORCE Corporation, to the extent, and only to the extent, that
such dividends are used by COMFORCE Corporation to repurchase Senior Debentures
which COMFORCE Corporation is obligated to repurchase pursuant to the covenant
described in "Description of Senior Debentures-Limitation on Sales of Assets and
Subsidiary Stock" or (z) any other purpose otherwise permitted under the Notes
Indenture, in each case within the later of 45 days after the application of Net
Available Cash in accordance with clauses (A), (B) and (C) or the date that is
360 days from the receipt of such Net Available Cash; provided, however, that,
in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (B), (C) or (D) above, COI or such Restricted Subsidiary
shall retire such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions, COI and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant at any time exceeds $10.0 million. COI shall not be required
to make an offer for Notes pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clause (A))
is less than $10.0 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
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For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of senior indebtedness of COI or senior
indebtedness of any Restricted Subsidiary of COI and the release of COI or such
Restricted Subsidiary from all liability on such senior indebtedness in
connection with such Asset Disposition (in which case COI shall, without further
action, be deemed to have applied such assumed Indebtedness in accordance with
clause (A) of the preceding paragraph) and (y) securities received by COI or any
Restricted Subsidiary of COI from the transferee that are promptly (and in any
event within 60 days) converted by COI or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a) (iii) (B), COI will be required to purchase Notes
tendered pursuant to an offer by COI for the Notes at a purchase price of 100%
of their principal amount plus accrued and unpaid interest, if any, to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Notes Indenture. If the aggregate
purchase price of the Notes tendered pursuant to the offer is less than the Net
Available Cash allotted to the purchase of the Notes, COI will apply the
remaining Net Available Cash in accordance with clauses (a) (iii) (C) or (D)
above.
(c) COI will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the Notes Indenture. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, COI will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under the Notes Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) COI will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, enter into or
conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of COI, other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to COI or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $500,000, the terms of such transaction have been approved
by a majority of the members of the Board of Directors of COI and by a majority
of the disinterested members of such Board, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above); and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $1.0 million, COI has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair to COI or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under "-
Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, or any stock options and stock ownership
plans for the benefit of employees, officers and directors, consultants and
advisors approved by the Board of Directors of COI, (iii) loans or advances to
employees in the ordinary course of business of COI or any of its Restricted
Subsidiaries in aggregate amount outstanding not to exceed $250,000 to any
employee or $1.0 million in the aggregate at any time, (iv) any transaction
between Wholly-Owned Subsidiaries, (v) indemnification agreements with, and the
payment of fees and indemnities to, directors, officers and employees of COI and
its Restricted Subsidiaries, in each case in the ordinary course of business,
(vi) transactions pursuant to agreements in existence on the Issue Date which
are (x) described in the Prospectus or (y) otherwise, in the aggregate,
immaterial to COI and its Restricted Subsidiaries taken as a whole, (vii) any
employment, non-competition or confidentiality agreements entered into by COI or
any of its Restricted Subsidiaries with its employees in the ordinary course of
business, (viii) the issuance of Capital Stock of COI (other than Disqualified
Stock).
Limitation on Issuances of Capital Stock of Restricted Subsidiaries. COI
will not permit any of its Restricted Subsidiaries to issue any Capital Stock to
any Person (other than to COI or a Wholly-Owned Subsidiary of COI) or permit any
Person (other than COI or a Wholly-Owned Subsidiary of COI) to own any Capital
Stock of a Restricted
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Subsidiary of COI, if in either case as a result thereof such Restricted
Subsidiary would no longer be a Restricted Subsidiary of COI; provided, however,
that this provision shall not prohibit (x) COI or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Notes Indenture.
Limitation on Sale/Leaseback Transactions. COI will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into,
Guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction with respect to any property or assets unless (i) COI or such
Restricted Subsidiary, as the case may be, would be entitled, pursuant to the
Notes Indenture, to Incur Indebtedness secured by a Permitted Lien on such
property or assets in an amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such
Sale/Leaseback Transaction are at least equal to the fair market value of the
property or assets subject to such Sale/Leaseback Transaction (such fair market
value determined, in the event such property or assets have a fair market value
in excess of $1.0 million, no more than 30 days prior to the effective date of
such Sale/Leaseback Transaction, by the Board of Directors of COI as evidenced
by a resolution of such Board) and (iii) the net cash proceeds of such
Sale/Leaseback Transaction are applied in accordance with the provisions
described under "- Limitation on Sales of Assets and Subsidiary Stock."
SEC Reports. COI will file with the Notes Trustee and provide to the
holders of the Notes, within 15 days after it files them with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which COI files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event that COI is not required
to file such reports with the Commission pursuant to the Exchange Act, COI will
nevertheless deliver such Exchange Act information to the holders of the Notes
within 15 days after it would have been required to file it with the Commission.
Limitation on Designations of Unrestricted Subsidiaries. COI may designate
any Subsidiary of COI (other than a Subsidiary of COI which owns Capital Stock
of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Notes
Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) COI would be permitted under the Notes Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by COI
and the Restricted Subsidiaries on such date and (ii) the aggregate amount
of other Investments of COI and the Restricted Subsidiaries in such
Subsidiary on such date; and
(c) COI would be permitted to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-Limitation on Indebtedness" at the time of Designation (assuming
the effectiveness of such Designation).
In the event of any such Designation, COI shall be deemed to have made an
Investment constituting a Restricted Payment pursuant to the covenant described
under "-Limitation on Restricted Payments" for all purposes of the Notes
Indenture in the Designation Amount. The Notes Indenture further provides that
COI shall not, and shall not permit any Restricted Subsidiary to, at any time
(x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary
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(including any right to take enforcement action against such Unrestricted
Subsidiary), except, in the case of clause (x) or (y), to the extent permitted
under the covenant described under "-Limitation on Restricted Payments."
The Notes Indenture further provides that COI may revoke any Designation of
a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the Notes
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
COI delivered to the Notes Trustee certifying compliance with the foregoing
provisions.
Merger and Consolidation. COI shall not consolidate with or merge with or
into, or convey, transfer or lease all or substantially all of its assets to,
any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Issuer") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Issuer
(if not COI) shall expressly assume, by supplemental indenture, executed and
delivered to the Notes Trustee, in form satisfactory to the Notes Trustee, all
the obligations of COI under the Notes and the Notes Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Issuer or any Subsidiary of the Successor
Issuer as a result of such transaction as having been incurred by the Successor
Issuer or such Restricted Subsidiary at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Issuer (A)
shall have a Consolidated Net Worth equal or greater to the Consolidated Net
Worth of COI immediately prior to such transaction and (B) shall be able to
incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of
"Limitation on Indebtedness"; and (iv) COI shall have delivered to the Notes
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Notes Indenture; and (v) there has been delivered to the Notes
Trustee an Opinion of Counsel to the effect that holders of Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such consolidation, merger, conveyance, transfer or lease and will be subject
to U.S. federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such consolidation, merger,
conveyance, transfer or lease had not occurred.
The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of, COI under the Notes Indenture, but, in the
case of a lease of all or substantially all its assets, COI will not be released
from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of COI may consolidate with, merge into or transfer all or part of
its properties and assets to COI.
Events of Default
Each of the following constitutes an Event of Default under the Notes
Indenture: (i) a default in any payment of interest on any Note when due,
continued for 30 days, (ii) a default in the payment of principal or premium of
any Note when due at its Stated Maturity, upon optional or mandatory redemption,
upon required repurchase, upon declaration or otherwise, (iii) the failure by
COI to comply with its obligations under the "Merger and Consolidation" covenant
described under "-Certain Covenants" above, (iv) the failure by COI to comply
for 30 days after notice with any of its obligations under the covenants
described under "-Change of Control" above or under covenants described under
"-Certain Covenants" above (in each case, other than a failure to purchase Notes
which shall constitute an Event
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of Default under clause (ii) above), other than "Merger and Consolidation," (v)
the failure by COI to comply for 60 days after notice with its other agreements
contained in the Notes Indenture, (vi) Indebtedness of COI or any Restricted
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $1.0 million and such
default shall not have been cured or such acceleration rescinded after a 10-day
period, (vii) certain events of bankruptcy, insolvency or reorganization of COI
or a Significant Subsidiary (the "bankruptcy provisions") or (viii) any judgment
or decree for the payment of money in excess of $1.0 million (to the extent not
covered by insurance) is rendered against COI or a Significant Subsidiary and
such judgment or decree shall remain undischarged or unstayed for a period of 60
days after such judgment becomes final and non- appealable (the "judgment
default provision"). However, a default under clause (iv) or (v) will not
constitute an Event of Default until the Notes Trustee or the holders of 25% in
principal amount of all outstanding series of Notes, voting as a single class,
notify COI of the default and COI does not cure such default within the time
specified in clause (iv) or (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Notes Trustee or the
holders of at least 25% in principal amount of all outstanding series of Notes,
voting as a single class, by notice to COI may declare the principal of and
premium and accrued and unpaid interest, if any, on all the Notes to be due and
payable. Upon such a declaration, such principal and premium and accrued and
unpaid interest shall be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of COI
occurs, the principal of and premium and accrued and unpaid interest on all the
Notes will become and be immediately due and payable without any declaration or
other act on the part of the Notes Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of all outstanding
series of Notes, voting as a single class, may rescind any such acceleration
with respect to the Notes and its consequences.
Subject to the provisions of the Notes Indenture relating to the duties of
the Notes Trustee, if an Event of Default occurs and is continuing, the Notes
Trustee will be under no obligation to exercise any of the rights or powers
under the Notes Indenture at the request or direction of any of the holders
unless such holders have offered to the Notes Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
may pursue any remedy with respect to the Notes Indenture or the Notes unless
(i) such holder has previously given the Notes Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of all
outstanding series of Notes, voting as a single class, have requested the Notes
Trustee to pursue the remedy, (iii) such holders have offered the Notes Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Notes Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of all series of outstanding Notes,
acting as a single class, have not given the Notes Trustee a direction that, in
the opinion of the Notes Trustee, is inconsistent with such request within such
60-day period. Subject to certain restrictions, the holders of a majority in
principal amount of all outstanding series of Notes, voting as a single class,
are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Notes Trustee or of exercising any
trust or power conferred on the Notes Trustee. The Notes Trustee, however, may
refuse to follow any direction that conflicts with law or the Notes Indenture or
that the Notes Trustee determines is unduly prejudicial to the rights of any
other holder or that would involve the Notes Trustee in personal liability.
Prior to taking any action under the Notes Indenture, the Notes Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Notes Indenture provides that if a Default occurs and is continuing and
is known to the Notes Trustee, the Notes Trustee must mail to each holder notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Note, the
Notes Trustee may withhold notice if and so long as its board of directors, a
committee of its board of directors or a committee of its Trust officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, COI is required to deliver to the Notes Trustee, within 90 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. COI also is
required to deliver to the
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Notes Trustee, within 30 days after the occurrence thereof, written notice of
any events which would constitute certain Defaults.
Amendments and Waivers
Subject to certain exceptions, the Notes Indenture may be amended with the
consent of the holders of a majority in principal amount of all outstanding
series of Notes, voting as a single class, then outstanding and any past default
or compliance with any provisions may be waived with the consent of the holders
of a majority in principal amount of all outstanding series of Notes, voting as
a single class. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "-Optional Redemption" above,
(v) make any Note payable in money other than that stated in the Note, (vi)
impair the right of any holder to receive payment of principal of and interest
on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, COI and the Notes Trustee may amend the
Notes Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of COI under the Notes Indenture
(provided that there has been delivered to the Notes Trustee an Opinion of
Counsel to the effect that holders of Notes will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such assumption and
will be subject to U.S. federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such assumption had
not occurred), to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163 (f) (2) (B) of the
Code), to add further Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of COI for the benefit of the holders or to surrender
any right or power conferred upon COI, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the Commission in connection with the qualification of the Notes Indenture under
the Trust Indenture Act.
The consent of the holders is not necessary under the Notes Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Notes Indenture becomes effective, COI is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
Defeasance
COI at any time may terminate all its obligations under the Notes and the
Notes Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. COI at any
time may terminate its obligations under covenants described under "-Certain
Covenants" (other than "Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "-Events of
Default" above and the limitations contained in clauses (iii) and (iv) under
"-Certain Covenants -Merger and Consolidation" above ("covenant defeasance").
COI may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If COI exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event
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of Default with respect thereto. If COI exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in clause (iv), (vi), (vii) (with respect only to Significant
Subsidiaries), (viii) or (ix) under "-Events of Default" above or because of the
failure of COI to comply with clause (iii) or (iv) under "-Certain Covenants -
Merger and Consolidation" above.
In order to exercise either defeasance option, COI must irrevocably deposit
in trust (the "defeasance trust") with the Notes Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Notes Trustee of
an Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law.
Satisfaction and Discharge of the Notes Indenture
The Notes Indenture will cease to be of further effect (except as otherwise
expressly provided for in the Notes Indenture) when either (i) all outstanding
Notes have been delivered (other than lost, stolen or destroyed Notes which have
been replaced) to the Notes Trustee for cancellation or (ii) all outstanding
Notes have become due and payable, whether at maturity or as a result of the
mailing of a notice of redemption pursuant to the terms of the Notes Indenture
and COI has irrevocably deposited with the Notes Trustee funds sufficient to pay
at maturity or upon redemption all outstanding Notes, including interest thereon
(other than lost, stolen, mutilated or destroyed Notes which have been
replaced), and, in either case, COI has paid all other sums payable under the
Notes Indenture. The Notes Trustee is required to acknowledge satisfaction and
discharge of the Notes Indenture on demand of COI accompanied by an Officer's
Certificate and an Opinion of Counsel at the cost and expense of COI.
Transfer and Exchange
Upon any transfer of a Note, the registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Notes Indenture. The
registrar is not required to transfer or exchange any Notes selected for
redemption nor is the registrar required to transfer or exchange any Notes for a
period of 15 days before a selection of Notes to be redeemed. The registered
holder of a Note may be treated as the owner of it for all purposes.
Concerning the Notes Trustee
Wilmington Trust Company is the Notes Trustee under the Notes Indenture and
has been appointed by COI as Registrar and Paying Agent with regard to the
Notes.
The Notes Indenture contains certain limitations on the rights of the Notes
Trustee, should it become a creditor of COI, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Notes Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as
defined) it must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Notes Indenture will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Notes Trustee. The Notes Indenture provides that in case
an Event of Default shall occur (which shall not be cured) the Notes Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Notes Trustee will be under no obligation to exercise any of its rights or
powers under the Notes Indenture at the request of any of the holders of the
Notes issued thereunder unless they shall have offered to the Notes Trustee
security and indemnity satisfactory to it.
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Governing Law
The Notes Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by COI or a Restricted Subsidiary of COI; (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of COI; or (iv) Permitted Investments of the type and in
the amounts described in clause (viii) of the definition thereof; provided,
however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary
is primarily engaged in a Permitted Business.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by COI or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to COI or by COI or a Restricted Subsidiary to a
Wholly-Owned Subsidiary, (ii) a disposition of inventory in the ordinary course
of business, (iii) a disposition of obsolete or worn out equipment or equipment
that is no longer useful in the conduct of the business of COI and its
Restricted Subsidiaries and that is disposed of in each case in the ordinary
course of business, (iv) dispositions of property for net proceeds which, when
taken collectively with the net proceeds of any other such dispositions under
this clause (iv) that were consummated since the beginning of the calendar year
in which such disposition is consummated, do not exceed $1.0 million, and (v)
transactions permitted under "-Certain Covenants-Merger and Consolidation"
above. Notwithstanding anything to the contrary contained above, a Restricted
Payment made in compliance with the "Limitation on Restricted Payments" covenant
shall not constitute an Asset Disposition except for purposes of determinations
of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the product of
the numbers of years (rounded upwards to the nearest month) from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption multiplied by the amount of such payment by (ii)
the sum of all such payments.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
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"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"COI" means COMFORCE Operating, Inc., a Delaware corporation.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the stated maturity of the Notes) and less, (x) the aggregate
amount of contingent and "earnout" payments in respect of any Permitted Business
acquired by COI or any Restricted Subsidiary that are paid in cash during such
period and (y) to the extent added in calculating Consolidated Net Income, (A)
exchange or translation gains on foreign currencies and (B) non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Subsidiary of
COI shall be included in Consolidated Cash Flow only to the extent (and in the
same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if COI or any of its Restricted Subsidiaries has incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been incurred on the first day of such period (provided that if such
Indebtedness is incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by the Board
of Directors of COI) shall be deemed outstanding for purposes of this
calculation), and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(B) if since the beginning of such period any Indebtedness of COI or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and the underlying commitment terminated and has not been
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replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period,
(C) if since the beginning of such period COI or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (i) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of COI or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to COI and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of COI is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent COI and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale) and (ii) increased by interest income
attributable to the assets which are the subject of such Asset Disposition for
such period, (D) if since the beginning of such period COI or any of its
Restricted Subsidiaries (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary of COI (or any Person which becomes a Restricted
Subsidiary of COI as a result thereof) or an acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder which
constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary of COI or was merged with or into
COI or any Restricted Subsidiary of COI since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (C) or (D) above if made by
COI or a Restricted Subsidiary of COI during such period, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of COI. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of COI and its Restricted Subsidiaries determined
in accordance with GAAP, plus, to the extent not included in such interest
expense (i) interest expense attributable to Capitalized Lease Obligations, (ii)
capitalized interest, (iii) amortization of original issue discount, (iv)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (v) interest actually paid by COI
or any such Restricted Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (vi) net payments (whether positive or negative)
pursuant to Interest Rate Agreements, (vii) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
COI) in connection with Indebtedness Incurred by such plan or trust and (viii)
cash and Disqualified Stock dividends in respect of all Preferred Stock of
Subsidiaries and Disqualified Stock of COI held by Persons other than COI or a
Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs, (b) interest
income and (c) non-cash interest expense. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of COI,
that was not a Wholly-Owned Subsidiary, shall be included only to the extent
(and in the same proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of COI and its consolidated Subsidiaries determined in accordance
with GAAP; provided, however, that there shall not be included
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in such Consolidated Net Income: (i) any net income (loss) of any person
acquired by COI or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of COI if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to COI (other than restrictions in effect on the Issue Date with
respect to a Restricted Subsidiary of COI and other than restrictions that are
created or exist in compliance with the "Limitation on Restrictions on
Distributions from Restricted Subsidiaries" covenant), (iii) any gain or loss
realized upon the sale or other disposition of any assets of COI or its
consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (iv) any extraordinary gain or loss, (v) the
cumulative effect of a change in accounting principles, (vi) the net income of
any Person, other than a Restricted Subsidiary, except to the extent of the
lesser of (A) cash dividends or distributions actually paid to COI or any of its
Restricted Subsidiaries by such Person and (B) the net income of such Person
(but in no event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of COI or any of its Restricted Subsidiaries in such Person and (vii)
any non-cash expenses attributable to grants or exercises of employee stock
options. Notwithstanding the foregoing, for the purpose of the covenant
described under "-Certain Covenants-Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to COI or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a) (3) (D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of COI and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of COI ending prior to the taking of any action for the purpose
of which the determination is being made and for which financial statements are
available (but in no event ending more than 135 days prior to the taking of such
action), as (i) the par or stated value of all outstanding Capital Stock of COI
plus (ii) paid in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of the Notes Indenture or (ii) was nominated for election or elected to the
Board of Directors of such Person with the affirmative vote of a majority of the
Continuing Directors of such Person who were members of such Board of Directors
at the time of such nomination or election.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the final Stated Maturity of the Notes.
"Equity Offering" means an offering for cash by COMFORCE Corporation of its
common stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
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"Existing Indebtedness" means Indebtedness of COI or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued, thereon,
after application of the net proceeds of the New Credit Facility and the Notes
as described in the Prospectus.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of COI acting reasonably and in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of COI delivered to the Notes Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Notes Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Notes Indenture shall be computed in conformity with GAAP.
"Group" shall mean any "group" for purposes of Section 13(d) of the
Exchange Act.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v) ) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (x) trade payables and accrued expenses incurred in
the ordinary course of business and (y) contingent or "earnout" payment
obligations in respect of any Permitted Business acquired by COI or any
Restricted Subsidiary), which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of COI, any Preferred Stock of such Restricted Subsidiary
to the extent such obligation
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arises on or before the Stated Maturity of the Notes (but excluding, in each
case, accrued dividends) with the amount of Indebtedness represented by such
Disqualified Stock or Preferred Stock, as the case may be, being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price; provided that, for purposes hereof the "maximum fixed
repurchase price" of any Disqualified Stock or Preferred Stock, as the case may
be, which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock or Preferred Stock, as the
case may be, as if such Disqualified Stock or Preferred Stock, as the case may
be, were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Notes Indenture, and if such price is based on the
fair market value of such Disqualified Stock or Preferred Stock, as the case may
be, such fair market value shall be determined in good faith by the Board of
Directors of COI and (ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate Agreements.
Unless specifically set forth above, the amount of Indebtedness of any Person at
any date shall be the outstanding principal amount of all unconditional
obligations as described above, as such amount would be reflected on a balance
sheet prepared in accordance with GAAP, and the maximum liability of such
Person, upon the occurrence of the contingency giving rise to the obligation, of
any contingent obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
the portion (proportionate to COI's equity interest in a Restricted Subsidiary
to be designated as an Unrestricted Subsidiary) of the fair market value of the
net assets of such Restricted Subsidiary of COI at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, COI shall be
deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) COI's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion (proportionate
to COI's equity interest in such Subsidiary) of the fair market value of the net
assets of such Subsidiary at the time that such Subsidiary is so redesignated a
Restricted Subsidiary; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors and evidenced by a resolution of such Board of Directors certified in
an Officers' Certificate to the Notes Trustee.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means James L. Paterek, Christopher P. Franco and
Michael Ferrentino.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets
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subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition, (iv) the deduction of appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition,
provided however, that upon any reduction in such reserves (other than to the
extent resulting from payments of the respective reserved liabilities), Net
Available Cash shall be increased by the amount of such reduction to reserves,
and retained by COI or any Restricted Subsidiary of COI after such Asset
Disposition and (v) any portion of the purchase price from an Asset Disposition
placed in escrow (whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or otherwise in
connection with such Asset Disposition) provided, however, that upon the
termination of such escrow, Net Available Cash shall be increased by any portion
of funds therein released to COI or any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"New Credit Facility" means the Loan and Security Agreement, dated as of
November 26, 1997, among COMFORCE and COI and certain subsidiaries thereof, as
guarantors, and various other direct and indirect active subsidiaries thereof,
as borrowers, Heller, and any other financial institutions from time to time
party thereto, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including by way of adding Subsidiaries of COI as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Non-Recourse Debt" means Indebtedness (i) as to which neither COI nor any
Restricted Subsidiary (a) provides any guarantee or credit support of any kind
(including any undertaking, guarantee, indemnity, agreement or instrument that
would constitute Indebtedness) or (b) is directly or indirectly liable (as a
guarantor, general partner or otherwise) and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of COI or
any Restricted Subsidiary to declare a default under such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Officer" means the Chairman of the Board, the Vice-Chairman of the Board,
the Chief Executive Officer, the Chief Financial Officer, the President, any
Vice-President, the Treasurer or the Secretary of COI.
"Officer's Certificate" shall mean a certificate signed by two Officers of
COI, at least one of whom shall be the principal executive, financial or
accounting officer of COI.
"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Notes Trustee, from legal counsel who is acceptable to the
Notes Trustee.
"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of COI and its Restricted
Subsidiaries on the date of the Notes Indenture, as reasonably determined by
COI's Board of Directors.
"Permitted Investment" means an Investment by COI or any of its Restricted
Subsidiaries in (i) a Wholly-Owned Subsidiary of COI; provided, however, that
the primary business of such Wholly-Owned Subsidiary
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is a Permitted Business; (ii) another Person if as a result of such Investment
such other Person becomes a Wholly-Owned Subsidiary of COI or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, COI or a Wholly-Owned Subsidiary of COI; provided, however, that in
each case such Person's primary business is a Permitted Business; (iii)
Temporary Cash Investments; (iv) receivables owing to COI or any of its
Restricted Subsidiaries, created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans and
advances to employees made in the ordinary course of business consistent with
past practices of COI or such Restricted Subsidiary in an aggregate amount
outstanding at any one time not to exceed $250,000 to any one employee or $1.0
million in the aggregate; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to COI
or any of its Restricted Subsidiaries or in satisfaction of judgments or claims;
(viii) a Person engaged in a Permitted Business or a loan or advance by COI the
proceeds of which are used solely to make an investment in a Person engaged in a
Permitted Business or a Guarantee by COI of Indebtedness of any Person in which
such Investment has been made; provided, however, that no Permitted Investments
may be made pursuant to this clause (viii) to the extent the amount thereof
would, when taken together with all other Permitted Investments made pursuant to
this clause (viii), exceed $5.0 million in the aggregate (plus, to the extent
not previously reinvested, any return of capital realized on Permitted
Investments made pursuant to this clause (viii), or any release or other
cancellation of any Guarantee constituting such Permitted Investment); (ix)
Persons to the extent such Investment is received by COI or any Restricted
Subsidiary as consideration for asset dispositions effected in compliance with
the covenant described under "Certain Covenants Limitations on Sales of Assets
and Subsidiary Stock"; (x) prepayments and other credits to suppliers made in
the ordinary course of business consistent with the past practices of COI and
its Restricted Subsidiaries; and (xi) Investments in connection with pledges,
deposits, payments or performance bonds made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations.
"Permitted Liens" means: (i) pledges or deposits by COI or any Restricted
Subsidiary under workmen's compensation laws, unemployment insurance laws, other
types of social security benefits or similar legislation, or good faith deposits
in connection with bids, tenders or contracts (other than for the payment of
Indebtedness) or leases to which COI or any Restricted Subsidiary is a party, or
deposits to secure public or statutory obligations or deposits of cash or United
States government bonds to secure surety or appeal bonds to which COI or any
Restricted Subsidiary is a party, or deposits as security for contested taxes or
import duties or for the payment of rent, in each case incurred by COI or any
Restricted Subsidiary in the ordinary course of business consistent with past
practice; (ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due from COI or any Restricted
Subsidiary or being contested in good faith by appropriate proceedings by COI or
any Restricted Subsidiary, as the case may be, or other Liens arising out of
judgments or awards against COI or any Restricted Subsidiary with respect to
which COI or such Restricted Subsidiary, as the case may be, will then be
prosecuting an appeal or other proceedings for review; (iii) Liens for property
taxes or other taxes, assessments or governmental charges of COI or any
Restricted Subsidiary not yet due or payable or subject to penalties for
nonpayment or which are being contested by COI or such Restricted Subsidiary, as
the case may be, in good faith by appropriate proceedings; (iv) Liens in favor
of issuers of performance bonds and surety bonds issued pursuant to clause
(b)(vi) under "- Certain Covenants - Limitation on Indebtedness"; (v) survey
exceptions, encumbrances, easements or, reservations of, or rights of others
for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone
lines and other similar purposes or zoning or other restrictions as to the use
of real property of COI or any Restricted Subsidiary incidental to the ordinary
course of conduct of the business of COI or such Restricted Subsidiary or as to
the ownership of properties of COI or any Restricted subsidiary, which, in
either case, were not incurred in connection with Indebtedness and which do not
in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of COI or any
Restricted subsidiary; (vi) Liens to secure Indebtedness permitted under clauses
(a)(ii) and (b)(i) under "-Certain Covenants - Limitation on Indebtedness";
(vii) Liens outstanding immediately after the Issue Date as set forth on
Schedule II to the Notes Indenture (and not otherwise permitted by clause (vi));
(viii) Liens on property, assets or shares of stock of any Restricted Subsidiary
at the time such Restricted Subsidiary became a Subsidiary of COI; provided,
however, that (A) if any such Lien has been Incurred in anticipation of such
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transaction, such property, assets or shares of stock subject to such Lien will
have a fair market value at the date of the acquisition thereof not in excess of
the lesser of (1) the aggregate purchase price paid or owed by COI in connection
with the acquisition of such Restricted Subsidiary and (2) the fair market value
of all property and assets of such Restricted Subsidiary and (B) any such Lien
will not extend to any other assets owned by COI or any Restricted Subsidiary;
(ix) Liens on property or assets at the time COI or any Restricted Subsidiary
acquired such assets, including any acquisition by means of a merger or
consolidation with or into COI or such Restricted Subsidiary; provided, however,
that (A) if any such Lien is Incurred in anticipation of such transaction, such
property or assets subject to such Lien will have a fair market value at the
date of the acquisition thereof not in excess of the lesser of (1) the aggregate
purchase price paid or owed by COI or such Restricted Subsidiary in connection
with the acquisition thereof and of any other property and assets acquired
simultaneously therewith and (2) the fair market value of all such property and
assets acquired by COI or such Restricted Subsidiary and (B) any such Lien will
not extend to any other property or assets owned by COI or any Restricted
Subsidiary; (x) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to COI or a Wholly Owned Subsidiary; (xi) Liens to secure any
extension, renewal, refinancing, replacement or refunding (or successive
extensions, renewals, refinancings, replacements or refundings), in whole or in
part, of any Indebtedness secured by Liens referred to in any of clauses (vii),
(viii) and (ix); provided, however, that any such Lien will be limited to all or
part of the same property or assets that secured the original Lien (plus
improvements on such property) and the aggregate principal amount of
Indebtedness that is secured by such Lien will not be increased to an amount
greater than the sum of (A) the outstanding principal amount, or, if greater,
the committed amount, of the Indebtedness described under clauses (vii), (viii)
and (ix) at the time the original Lien became a Permitted Lien under the
Indenture and (B) an amount necessary to pay any premiums, fees and other
expenses Incurred by COI in connection with such refinancing, refunding,
extension, renewal or replacement; (xii) Liens on property or assets of COI
securing Interest Rate Agreements and Currency Agreements so long as the related
Indebtedness is, and is permitted under "- Certain Covenants - Limitation on
Indebtedness", secured by a Lien on the same property securing the relevant
Interest Rate Agreement or Currency Agreement; (xiii) Liens securing
Indebtedness incurred under the New Credit Facility or any Guarantee thereof by
any Restricted Subsidiary; and (xiv) Liens on property or assets of COI or any
Restricted Subsidiary securing Indebtedness (1) under purchase money obligation
or Capitalized Lease Obligations permitted under clause (b)(ii) under "- Certain
Covenants - Limitation on Indebtedness" or (2) under Sale/Leaseback Transactions
permitted under "- Certain Covenants - Limitation on Sale/Leaseback
Transactions"; provided, that (A) the amount of Indebtedness Incurred in any
specific case does not, at the time such Indebtedness is Incurred, exceed the
lesser of the cost or fair market value of the property or asset acquired or
constructed in connection with such purchase money obligation or Capitalized
Lease Obligation or subject to such Sale/Leaseback Transaction, as the case may
be, (B) such Lien will attach to such property or asset upon acquisition of such
property or asset and or upon commencement of such Sale/Leaseback Transaction,
as the case may be, and (C) no property or asset of COI or any Restricted
Subsidiary (other than the property or asset acquired or contracted in
connection with such purchase money Obligation or Capitalized Lease Obligation
or subject to such Sale/Leaseback Transaction, as the case may be) are subject
to any Lien securing such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
COMFORCE Corporation if (a) the common stock of COMFORCE Corporation is then
registered with the Securities and Exchange Commission pursuant to Section 12(b)
or 12(g) of the Exchange Act and traded either on a national securities exchange
or in the National Association of Securities Dealers Automated Quotation System
and (b) at least 15% of the total issued and
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outstanding common stock of COMFORCE Corporation as applicable, has been
distributed prior to such time by means of an effective registration statement
under the Securities Act of 1933.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Notes
Indenture or Incurred in compliance with the Notes Indenture (including
Indebtedness of COI that refinances Indebtedness of any Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Notes and (B) Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the lesser of (A) the Average Life of the Notes and (B) the Average
Life of the Indebtedness being refinanced and, (iii) the Refinancing
Indebtedness is in an aggregate principal amount (or if issued with original
issue discount, an aggregate issue price) that is equal to (or 101% of, in the
case of a refinancing of the Notes in connection with a Change of Control) or
less than the sum of the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced (plus the amount of any premium required to be
paid in connection therewith and reasonable fees and expenses therewith)
provided, further, that Refinancing Indebtedness shall not include Indebtedness
of a Subsidiary which refinances Indebtedness of COI.
"Restricted Subsidiary" means any Subsidiary of COI other an Unrestricted
Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby COI or a Restricted Subsidiary transfers
such property to a Person and COI or a Subsidiary leases it from such Person.
"Secured Indebtedness" means any Indebtedness of COI secured by a Lien.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of COI within the meaning of Rule 1-02 under Regulation
S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of COI (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of COI.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar
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equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act), (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) Investments in
commercial paper, maturing not more than 180 days after the date of acquisition,
issued by a corporation (other than an Affiliate of COI) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of COI that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
COI (including any newly acquired or newly formed Subsidiary of COI) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, COI or any Restricted Subsidiary of COI that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of such designation,
and does not thereafter create, Incur, issue, assume, guarantee or otherwise
becomes liable with respect to any Indebtedness other than Non-Recourse Debt and
either (A) the Subsidiary to be so designated has total consolidated assets of
$10,000 or less or (B) if such Subsidiary has consolidated assets greater than
$10,000, then such designation would be permitted under "-Certain Covenants -
Limitation on Restricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary subject to the limitations
contained in "-Certain Covenants Limitation on Designations of Unrestricted
Subsidiaries."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of COI, at least
99% of the Capital Stock of which (other than directors' qualifying shares) is
owned by COI or another Wholly-Owned Subsidiary.
THE DEBENTURES EXCHANGE OFFER
Purpose and Effect of the Debentures Exchange Offer
The Units, which were, in part, comprised of the Old Senior Debentures,
were sold by the Company on November 26, 1997, to the Initial Purchaser pursuant
to the Units Purchase Agreement. The Initial Purchaser subsequently resold the
Units, including the Old Senior Debentures, to qualified institutional buyers
pursuant to Rule 144A under the Securities Act, or institutional "accredited
investors" (as defined in Rule 501(a) (1), (2), (3) or (7) of Regulation D under
the Securities Act). Pursuant to the Unit Purchase Agreement, the Company
entered into the Senior Debentures Registration Rights Agreement, pursuant to
which the Company has agreed, for the benefit of the holders of the Unregistered
Senior Debentures, at the Company's cost, to (i) file a registration statement
with the Commission within 30 days after the date of the original issue (the
"Issue Date") of the Unregistered Senior Debentures (such date of filing, the
"Filing Date") with respect to the Debentures Exchange Offer for the Exchange
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Senior Debentures, (ii) use its best efforts to cause the Debentures Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 90 days after the Issue Date, (iii) use its best efforts to cause such
Debentures Exchange Offer Registration Statement to remain effective until the
closing of the Debentures Exchange Offer and (iv) use its best efforts to
consummate the Debentures Exchange Offer no later than 130 days after the Issue
Date. Upon the registration statement being declared effective, the Company will
offer the Exchange Senior Debentures in exchange for the Unregistered Senior
Debentures. The Company will keep the Debentures Exchange Offer open for no less
than 30 business days (or longer if required by applicable law) after the date
on which notice of the Debentures Exchange Offer is mailed to the holders of the
Unregistered Senior Debentures.
For each Old Senior Debenture properly tendered and accepted pursuant to
the Debentures Exchange Offer, the holder of such Unregistered Senior Debenture
will receive a New Senior Debenture having a principal amount equal to that of
the Old Senior Debenture tendered. Interest on each New Senior Debenture will
accrue or accumulate from the last interest payment date on which interest was
paid on the Unregistered Senior Debenture tendered in exchange therefor or, if
no interest has been paid on such Unregistered Senior Debenture, from the Issue
Date.
Each holder of the Unregistered Senior Debentures who wishes to exchange
the Unregistered Senior Debentures for Exchange Senior Debentures in the
Debentures Exchange Offer will be required to represent in the BLUE Letter of
Transmittal that (i) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Company, (ii) the Exchange Senior Debentures to be
received by it were acquired in the ordinary course of its business, (iii) at
the time of commencement of the Debentures Exchange Offer, it has no arrangement
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Senior Debentures and (iv) it is not acting on
behalf of any person who could not truthfully make the foregoing
representations.
In the event that (i) applicable law or interpretations of the staff of the
Commission do not permit the Company to effect the Debentures Exchange Offer,
(ii) in certain circumstances, the Initial Purchaser so requests, (iii) any
holder of the Unregistered Senior Debentures (other than the Initial Purchaser)
who is not eligible to participate in the Debentures Exchange Offer so requests,
or (iv) for any reason the Debentures Exchange Offer is not consummated within
165 days after the Issue Date, the Company will at its cost, (a) as promptly as
reasonably practicable, file a shelf registration statement covering resales of
the Unregistered Senior Debentures (a "Debentures Shelf Registration
Statement"), (b) use its best efforts to cause such Debentures Shelf
Registration Statement to be declared effective under the Securities Act by the
165th day after the Issue Date (or promptly if such Debentures Shelf
Registration Statement was filed pursuant to clause (ii), above) and (c) use its
best efforts to keep effective such Debentures Shelf Registration Statement
until the earlier of two years after the Issue Date (or one year from the date
the Debentures Shelf Registration Statement is declared effective if such
Debentures Shelf Registration Statement is filed upon the request of the Initial
Purchaser pursuant to clause (ii) above) or such shorter period which will
terminate when all of the Debentures covered by the Debentures Shelf
Registration Statement have been sold pursuant to the Debentures Shelf
Registration Statement or when all of the Unregistered Senior Debentures become
eligible for resale pursuant to Rule 144 under the Securities Act without volume
restriction. See "--Resale of the Exchange Senior Debentures". The Company will,
in the event of the filing of a Debentures Shelf Registration Statement, provide
to each holder of the Registered Debentures copies of the prospectus which is a
part of such Debentures Shelf Registration Statement. A holder that sells its
Registered Debentures pursuant to a Debentures Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Debentures
Registration Rights Agreements which are applicable to such holder (including
certain indemnification rights and obligations thereunder).
If the Company fails to comply with the above provisions or if such
Debentures Shelf Registration Statement fails to become effective, then, as
liquidated damages, additional interest (the "Additional Interest") shall become
payable with respect to the Exchange Senior Debentures as follows:
(i) if the registration statement for the Debentures Exchange Offer or the
Debentures Shelf Registration Statement is not filed within 30 days following
the Issue Date, the Additional Interest shall accrue on the Unregistered
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Senior Debentures over and above the stated interest at a rate of 0.50% per
annum for the first 90 days commencing on the 91st day after the Issue Date,
such Additional Interest increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period;
(ii) if the registration statement for the Debentures Exchange Offer or the
Debentures Shelf Registration Statement is not declared effective within 90 days
following the Issue Date, Additional Interest shall accrue on the Unregistered
Senior Debentures over and above the stated interest at a rate of 0.50% per
annum for the first 90 days commencing on the 91st day after the Issue Date,
such Additional Interest increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Unregistered Senior
Debentures validly tendered in accordance with the terms of the Debentures
Exchange Offer on or prior to 130 days after the Issue Date or (B) the
registration statement for the Debentures Exchange Offer ceases to be effective
at any time prior to the time that the Debentures Exchange Offer is consummated
or (C) if applicable, the Debentures Shelf Registration Statement has been
declared effective and such Debentures Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of the Issue Date (unless
all the Registered Debentures have been sold thereunder or as otherwise provided
herein), then the Additional Interest shall accrue on the Unregistered Senior
Debentures over and above the stated interest at a rate of 0.50% per annum for
the first 50 days commencing on (x) the 131st day after the Issue Date with
respect to the Debentures validly tendered and not exchanged by the Company, in
the case of (A) above, or (y) the day the registration statement for the
Debentures Exchange Offer ceases to be effective or usable for its intended
purpose in the case of (B) above, or (z) the day the Debentures Shelf
Registration Statement ceases to be effective in the case of (C) above, the rate
of such Additional Interest increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; provided, however, that the
Additional Interest payable on the Unregistered Senior Debentures may not exceed
in the aggregate 2.0% per annum; and provided further, that (1) upon the filing
of the registration statement for the Debentures Exchange Offer or the
Debentures Shelf Registration Statement (in the case of clause (i) above), (2)
upon the effectiveness of such registration statement for the Debentures
Exchange Offer or the Debentures Shelf Registration Statement (in the case of
(ii) above), or (3) upon the exchange of Exchange Senior Debentures for all
Unregistered Senior Debentures tendered (in the case of clause (iii) (A) above),
or upon the effectiveness of the registration statement which had ceased to
remain effective in the case of clause (iii) (B) above, or upon the
effectiveness of the Debentures Shelf Registration Statement which had ceased to
remain effective (in the case of clause (iii) (C) above), the Additional
Interest accruing on the Unregistered Senior Debentures as a result of such
clause (or the relevant subclause thereof), as the case may be, shall cease to
accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash or, at the option of the Company, by the
issuance of additional Debentures, on the same interest payment dates of the
Unregistered Senior Debentures. The aggregate Additional Interest will be
determined by multiplying the applicable rate of such Additional Interest by the
principal amount of the Unregistered Senior Debentures multiplied by a fraction,
the numerator of which is the number of days such Additional Interest was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
The summary herein of all material provisions of the Debentures
Registration Rights Agreement does not purport to be exhaustive and is subject
to, and is qualified in its entirety by, all the provisions of the Debentures
Registration Rights Agreement, copies of which will be made available upon
request to the Company.
Following the consummation of the Debentures Exchange Offer, holders of the
Unregistered Senior Debentures who were eligible to participate in the
Debentures Exchange Offer but who did not tender their Unregistered Senior
Debentures will not have any further exchange or registration rights and such
Unregistered Senior Debentures will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Unregistered Senior Debentures could be adversely affected.
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Terms of the Debentures Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the BLUE Letter of Transmittal, the Company will accept any and all
Unregistered Senior Debentures validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of New Senior Debentures in exchange for each $1,000 principal
amount of outstanding Old Senior Debentures accepted in the Debentures Exchange
Offer. Holders may tender some or all of their Unregistered Senior Debentures
pursuant to the Debentures Exchange Offer. However, Old Senior Debentures may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Senior Debentures are the same as the
form and terms of the Unregistered Senior Debentures except (i) the New Senior
Debentures bear a Series B designation and a different CUSIP Number from the Old
Senior Debentures and (ii) the Exchange Senior Debentures have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof. The New Senior Debentures will evidence the same debt as the
Old Senior Debentures and will be entitled to the benefits of the Senior
Indenture.
As of the date of this Prospectus $20,000,000 aggregate principal amount of
Old Senior Debentures are outstanding. The Company has fixed the close of
business _______________, 1998 as the record date for the Debentures Exchange
Offer for purposes of determining the persons to whom this Prospectus and the
BLUE Letter of Transmittal will be mailed initially.
Holders of the Unregistered Senior Debentures do not have any appraisal or
dissenters' rights under the General Corporation Law of Delaware or the Senior
Indenture in connection with the Debentures Exchange Offer. The Company intends
to conduct the Debentures Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Unregistered
Senior Debentures when, as and if the Company has given oral or written notice
thereof to the Debentures Exchange Agent. The Debentures Exchange Agent will act
as agent for the tendering holders for the purpose of receiving the Exchange
Senior Debentures from the Company.
If any tendered Unregistered Senior Debentures are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, the certificates for any such unaccepted
Unregistered Senior Debentures will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Unregistered Senior Debentures in the Debentures
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions of the BLUE Letter of Transmittal, transfer taxes
with respect to the exchange of Unregistered Senior Debentures pursuant to the
Debentures Exchange Offer. The Company will pay all charges and expenses, other
than the transfer taxes in certain circumstances, in connection with the
Debentures Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_____________, 1998, unless the Company, in its sole discretion, extends the
Debentures Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Debentures Exchange Offer is extended.
In order to extend the Debentures Exchange Offer, the Company will notify
the Debentures Exchange Agent of any extension by oral or written notice and
will mail to the registered holders an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date.
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The Company reserves the right, (i) to delay accepting any Unregistered
Senior Debentures, to extend the Debentures Exchange Offer or to terminate the
Debentures Exchange Offer if any of the conditions set forth below under
"--Conditions" shall not have been satisfied, by giving oral or written notice
of such delay, extension or termination to the Debentures Exchange Agent or (ii)
to amend the terms of the Debentures Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders.
Procedures for Tendering
The tender of Unregistered Senior Debentures pursuant to any of the
procedures set forth in this Prospectus and in the BLUE Letter of Transmittal
will constitute a binding agreement between the Tendering Holder and the Company
in accordance with the terms and subject to the conditions set forth herein and
in such Letter of Transmittal. The tender of Unregistered Senior Debentures will
constitute an agreement to deliver good and marketable title to all tendered
Unregistered Senior Debentures prior to the Expiration Date free and clear of
all liens, charges, claims, encumbrances, interests and restrictions of any
kind.
EXCEPT AS PROVIDED IN "--GUARANTEED DELIVERY PROCEDURES," UNLESS THE
UNREGISTERED SENIOR DEBENTURES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH
THE DEBENTURES EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A
PROPERLY COMPLETED AND DULY EXECUTED BLUE LETTER OF TRANSMITTAL), THE COMPANY
MAY, AT ITS OPTION, REJECT SUCH TENDER. ISSUANCE OF EXCHANGE SENIOR DEBENTURES
WILL BE MADE ONLY AGAINST DEPOSIT OF TENDERED UNREGISTERED SENIOR DEBENTURES AND
DELIVERY OF ALL OTHER REQUIRED DOCUMENTS. NOTWITHSTANDING THE FOREGOING, DTC
PARTICIPANTS TENDERING THROUGH ATOP WILL BE DEEMED TO HAVE MADE VALID DELIVERY
WHERE THE DEBENTURES EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (DEFINED BELOW)
PRIOR TO THE EXPIRATION DATE.
Accordingly, to properly tender Unregistered Senior Debentures, the
following procedures must be followed:
Unregistered Senior Debentures held through DTC. Each Beneficial Owner
holding Unregistered Senior Debentures through a DTC Participant must instruct
such DTC Participant to cause its Unregistered Senior Debentures to be tendered
in accordance with the procedures set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Unregistered Senior Debentures through DTC must (i)
electronically transmit its acceptance through ATOP, and DTC will then edit and
verify the acceptance, execute a book-entry delivery to the Debentures Exchange
Agent's account at DTC and send an Agent's Message to the Debentures Exchange
Agent for its acceptance, or (ii) comply with the guaranteed delivery procedures
set forth below and in the Notice of Guaranteed Delivery. See "--Guaranteed
Delivery Procedures."
The Debentures Exchange Agent will (promptly after the date of this
Prospectus) establish accounts at DTC for purposes of the Debentures Exchange
Offer with respect to Unregistered Senior Debentures held through DTC, and any
financial institution that is a DTC Participant may make book-entry delivery of
interests in Unregistered Senior Debentures into the Debentures Exchange Agent's
account through ATOP. However, although delivery of interests in the
Unregistered Senior Debentures may be effected through book-entry transfer into
the Debentures Exchange Agent's account through ATOP, an Agent's Message in
connection with such book-entry transfer, and any other required documents, must
be, in any case, transmitted to and received by the Debentures Exchange Agent at
its address set forth under "--Debentures Exchange Agent," or the guaranteed
delivery procedures set forth below must be complied with, in each case, prior
to the Expiration Date. Delivery of documents to DTC does not constitute
delivery to the Debentures Exchange Agent. The confirmation of a book-entry
transfer into the Debentures Exchange Agent's account at DTC as described above
is referred to herein as a "Book-Entry Confirmation."
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The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Debentures Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a BLUE Letter of Transmittal and agree to be bound by the terms of such
Letter of Transmittal and that the Company may enforce such agreement against
such DTC Participants.
Cede & Co., as the Holder of the global certificates representing the Old
Senior Debentures (the "Global Debentures"), will tender a portion of each of
the Global Debentures equal to the aggregate principal amount due at the stated
maturity for which instructions to tender are given by DTC Participants.
Unregistered Senior Debentures held by Holders. Each Holder must (i)
complete and sign and mail or deliver the accompanying BLUE Letter of
Transmittal, and any other documents required by such Letter of Transmittal,
together with certificate(s) representing all tendered Unregistered Senior
Debentures, to the Debentures Exchange Agent at its address set forth under
"--Debentures Exchange Agent," or (ii) comply with the guaranteed delivery
procedures set forth below and in the Notice of Guaranteed Delivery. See
"--Guaranteed Delivery Procedures."
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Unregistered Senior Debentures are tendered for
the account of an Eligible Institution including (as such terms are defined in
Rule 17Ad-15): (i) a bank; (ii) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a Securities Transfer Association
recognized program.
If a Letter of Transmittal or any Unregistered Security is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of
a corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the BLUE Letter of
Transmittal the name and address to which substitute certificates evidencing
Unregistered Senior Debentures for amounts not tendered are to be issued or
sent, if different from the name and address of the person signing such Letter
of Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no instructions are given, such Unregistered Senior Debentures not
tendered, as the case may be, will be returned to the person signing such Letter
of Transmittal.
By tendering, each Holder and each DTC Participant will make to the Company
the representations set forth in the third paragraph under the heading
"--Purpose and Effect of the Debentures Exchange Offer."
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a BLUE Letter of Transmittal or
transmitting an acceptance through ATOP, as the case may be, each Tendering
Holder waives any right to receive any notice of the acceptance for purchase of
its Unregistered Senior Debentures.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Unregistered Senior Debentures will be
resolved by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which may, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the absolute right to waive any
condition to the Debentures Exchange Offer and any irregularities or conditions
of tender as to particular Unregistered Senior Debentures. The Company's
interpretation of the terms and conditions of the Debentures Exchange Offer
(including the instructions in the BLUE Letter of Transmittal) will be final and
binding. Unless
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waived, any irregularities in connection with tenders must be cured within such
time as the Company shall determine. The Company and the Debentures Exchange
Agent shall not be under any duty to give notification of defects in such
tenders and shall not incur liabilities for failure to give such notification.
Tenders of Unregistered Senior Debentures will not be deemed to have been made
until such irregularities have been cured or waived. Any Unregistered Senior
Debentures received by the Debentures Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Debentures Exchange Agent to the tendering Holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
LETTERS OF TRANSMITTAL AND UNREGISTERED SENIOR DEBENTURES MUST BE SENT ONLY
TO THE DEBENTURES EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR
UNREGISTERED SENIOR DEBENTURES TO THE COMPANY OR DTC.
The method of delivery of Unregistered Senior Debentures and Letters of
Transmittal, any required signature guaranties and all other required documents,
including delivery through DTC and any acceptance through ATOP, is at the
election and risk of the persons tendering and delivering acceptances or Letters
of Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only when actually received by the
Debentures Exchange Agent. If delivery is by mail, it is suggested that the
Holder use properly insured, registered mail with return receipt requested, and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Debentures Exchange Agent prior to the Expiration Date.
Guaranteed Delivery Procedures
Unregistered Senior Debentures held through DTC. DTC Participants holding
Unregistered Senior Debentures through DTC who wish to cause their Unregistered
Senior Debentures to be tendered, but who cannot transmit their acceptances
through ATOP prior to the Expiration Date, may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Debentures Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, facsimile transmission or overnight courier)
substantially in the form provided by the Company herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection therewith
(as described above) are received by the Debentures Exchange Agent
within three NYSE trading days after the date of the execution of the
Notice of Guaranteed Delivery.
Unregistered Senior Debentures Held by Holders. Holders who wish to tender
their Unregistered Senior Debentures and (i) whose Unregistered Senior
Debentures are not immediately available, (ii) who cannot deliver their
Unregistered Senior Debentures, the BLUE Letter of Transmittal or any other
required documents to the Debentures Exchange Agent or (iii) who cannot complete
the procedures for book-entry transfer, prior to the Expiration Date, may effect
a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Debentures Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name
and address of the holder, the certificate number(s) of such
Unregistered Senior Debentures and the principal amount of
Unregistered Senior Debentures tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration
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Date, the BLUE Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Unregistered Senior
Debentures (or a confirmation of book-entry transfer of such
Unregistered Senior Debentures into the Debentures Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by such Letter of Transmittal will be deposited by the
Eligible Institution with the Debentures Exchange Agent; and
(c) such properly completed and executed BLUE Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Unregistered Senior Debentures in proper form for transfer
(or a confirmation or book-entry transfer of such Unregistered Senior
Debentures into the Debentures Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by
such Letter of Transmittal are received by the Debentures Exchange
Agent upon three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Debentures Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Unregistered Senior
Debentures according to the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Unregistered Senior
Debentures may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date.
Unregistered Senior Debentures held through DTC. DTC Participants holding
Unregistered Senior Debentures who have transmitted their acceptances through
ATOP may, prior to 5:00 p.m., New York City time, on the Expiration Date,
withdraw the instruction given thereby by delivering to the Debentures Exchange
Agent, at its address set forth under "--Debentures Exchange Agent," a written,
telegraphic or facsimile notice of withdrawal of such instruction. Such notice
of withdrawal must contain the name and number of the DTC Participant, the
principal amount due at the stated maturity or number of shares of the
Unregistered Senior Debentures to which such withdrawal related and the
signature of the DTC Participant. Withdrawal of such an instruction will be
effective upon receipt of such written notice of withdrawal by the Debentures
Exchange Agent.
Unregistered Senior Debentures held by Holders. Holders may withdraw a
tender of Unregistered Senior Debentures in the Debentures Exchange Offer, by a
telegram, telex, letter or facsimile transmission notice of withdrawal received
by the Debentures Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Unregistered Senior
Debentures to be withdrawn (the "Depositor"), (ii) identify the Unregistered
Senior Debentures to be withdrawn (including the certificate number(s) and
principal amount due at the stated maturity of such Unregistered Senior
Debentures, or, in the case of Unregistered Senior Debentures transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the BLUE Letter of Transmittal by which such
Unregistered Senior Debentures were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Unregistered Senior Debentures register the transfer
of such Unregistered Senior Debentures into the name of the person withdrawing
the tender and (iv) specify the name in which any such Unregistered Senior
Debentures are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Unregistered Senior Debentures so
withdrawn will be deemed not to have been validly tendered for purposes of the
Debentures Exchange Offer and no Exchange Senior Debentures will be issued with
respect thereto unless the Unregistered Senior Debentures so withdrawn are
validly retendered. Any Unregistered Senior Debentures which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Debentures Exchange Offer. Properly withdrawn
Unregistered Senior Debentures may
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be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Unregistered Senior Debentures being withdrawn are held
for the account of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or BLUE Letter of
Transmittal, as the case may be, to which such withdrawal relates. If a notice
of withdrawal is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other person
acting in a fiduciary or representative capacity, such person must so indicate
when signing and must submit with the revocation appropriate evidence of
authority to execute the notice of withdrawal. A DTC Participant or a Holder may
withdraw an instruction or a tender, as the case may be, only if such withdrawal
complies with the provisions of this Prospectus.
A withdrawal of a tender of Unregistered Senior Debentures by a DTC
Participant or a Holder, as the case may be, may be rescinded only by a new
transmission of an acceptance through ATOP or execution and delivery of a new
BLUE Letter of Transmittal, as the case may be, in accordance with the
procedures described herein.
Conditions
Notwithstanding any other term of the Debentures Exchange Offer, the
Company shall not be required to accept for exchange, or exchange securities
for, any Unregistered Senior Debentures, and may terminate or amend the
Debentures Exchange Offer as provided herein before the acceptance of such
Unregistered Senior Debentures, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Debentures
Exchange Offer which, in the judgment of the Company upon written
advice of counsel, could reasonably be expected to materially impair
the ability of the Company to proceed with the Debentures Exchange
Offer or any material adverse development has occurred in any existing
action or proceeding with respect to the Company or any of the
subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the judgment
of the Company and based on written advice of counsel, could
reasonably be expected to materially impair the ability of the Company
to proceed with the Debentures Exchange Offer or materially impair the
contemplated benefits of the Debentures Exchange Offer to the Company;
or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its discretion and based on written advice of
counsel, deem necessary for the consummation of the Debentures
Exchange Offer as contemplated hereby.
If any of the conditions are not satisfied, the Company may (i) refuse to
accept any Unregistered Senior Debentures and return all tendered Unregistered
Senior Debentures to the tendering holders, (ii) extend the Debentures Exchange
Offer and retain all Unregistered Senior Debentures tendered prior to the
expiration of the Debentures Exchange Offer, subject, however, to the rights of
holders to withdraw such Unregistered Senior Debentures (see "--Withdrawal of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Debentures Exchange Offer and accept all properly tendered Unregistered Senior
Debentures which have not been withdrawn.
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Debentures Exchange Agent
The Bank of New York has been appointed as Debentures Exchange Agent for
the Debentures Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Debentures
Exchange Agent addressed as follows:
The Bank of New York
101 Barclay Street, 21W
New York, NY 10286
Attention: Mary LaGumina
Telephone: (212) 815-5783
Facsimile: (212) 815-5915
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Debentures Exchange Offer and will not make any payments to brokers, dealers, or
others soliciting acceptances of the Debentures Exchange Offer. The Company
however, will pay the Debentures Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith.
The cash expenses to be incurred in connection with the Debentures Exchange
Offer will be paid by the Company. Such expenses include fees and expenses of
the Debentures Exchange Agent and Trustee, accounting and legal fees and
printing costs, among others.
Accounting Treatment
The Exchange Senior Debentures will be recorded at the same carrying value
as the Unregistered Senior Debentures, which is face value, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized by the Company. The expenses of
the Debentures Exchange Offer will be expended over the time of the Exchange
Senior Debentures.
Consequences of Failure to Exchange
The Unregistered Senior Debentures that are not exchanged for Exchange
Senior Debentures pursuant to the Debentures Exchange Offer will remain
restricted securities. Accordingly, such Unregistered Senior Debentures may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Unregistered Senior Debentures are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of Rule 144A,
in accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
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Resale of the Exchange Senior Debentures
With respect to resales of Exchange Senior Debentures, based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that a holder or other person who
receives Exchange Senior Debentures in the ordinary course of business, whether
or not such person is the holder (other than (i) a broker-dealer who purchases
such Exchange Senior Debentures from the Company to resell pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Senior Debentures in exchange for
Unregistered Senior Debentures, and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Senior Debentures to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Senior
Debentures a prospectus that satisfies the requirements of Section 10 of the
Securities Act. However, if any holder acquires Exchange Senior Debentures in
the Debentures Exchange Offer for the purpose of distributing or participating
in a distribution of the Exchange Senior Debentures, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action letters
or any similar interpretive letters, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each Participating Broker-Dealer that receives Exchange
Senior Debentures for its own account in exchange for Unregistered Senior
Debentures, where such Debentures were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Senior Debentures.
As contemplated by these no-action letters and the Debentures Registration
Rights Agreement, each holder accepting the Debentures Exchange Offer is
required to represent to the Company in the BLUE Letter of Transmittal that (i)
the Exchange Senior Debentures are to be acquired by the holder or the person
receiving such Exchange Senior Debentures, whether or not such person is the
holder, in the ordinary course of business, (ii) the holder or any such other
person (other than a broker-dealer referred to in the next sentence) is not
engaging and does not intend to engage, in the distribution of the Exchange
Senior Debentures, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the
Exchange Senior Debentures, (iv) neither the holder nor any such other person is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Debentures Exchange Offer for
the purpose of distributing the Exchange Senior Debentures it must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Senior Debentures and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives Exchange Senior Debentures for its own account in exchange for
Unregistered Senior Debentures must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Senior Debentures. For
a description of the procedures for such resales by Participating
Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF UNITS
The Old Senior Debentures were issued as part of Units pursuant to a Unit
Agreement dated as of November 26, 1997 between COMFORCE and the Initial
Purchaser. Each Unit consists of Senior Debentures having a principal amount of
$1,000 at maturity and 8.45 Warrants, each to purchase one share of Common
Stock. The Senior Debentures and the Warrants will be detachable and will be
separately transferable, subject to compliance with applicable securities laws,
on the earliest to occur of (i) February 24, 1998, (ii) such earlier date as may
be determined by the Initial Purchaser with the consent of the Company, (iii) in
the event of a Change of Control, the date the Company mails notice thereof to
the holders of Units and (iv) the effective date of the Debentures Exchange
Offer Registration Statement. The definitions of certain terms used in the
following summary are set forth below under "Description of Senior
Debentures-Certain Definitions."
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DESCRIPTION OF SENIOR DEBENTURES
General
The Old Senior Debentures were issued, and the New Senior Debentures will
be issued, under an indenture, dated as of November 26, 1997 (the "Senior
Indenture"), between the Company and The Bank of New York, as trustee (the
"Debenture Trustee"), a copy of which is available upon request to the Company.
The Old Senior Debentures and the New Senior Debentures will be treated as a
single class of securities under the Senior Indenture. The following is a
summary of certain provisions of the Senior Indenture and the Senior Debentures
and does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Senior Indenture (including
the definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended) and the Senior Debentures.
Principal of, premium, if any, and interest on the Senior Debentures will
be payable, and the Senior Debentures may be exchanged or transferred, at the
office or agency of the Company in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Debenture
Trustee in New York, New York), except that, at the option of the Company,
payment of interest may be made by check mailed to the address of the holders of
the Senior Debentures as such address appears in the Senior Debenture Register.
Initially, the Debenture Trustee will act as Paying Agent and Registrar for the
Senior Debentures. The Senior Debentures may be presented for registration of
transfer and exchange at the offices of the Registrar, which initially will be
the Debenture Trustee's corporate trust office. The Company may change any
Paying Agent and Registrar without notice to holders of the Senior Debentures.
The Senior Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000 (except
for Senior Debentures issued in payment of interest on the Senior Debentures).
No service charge will be made for any registration of transfer or exchange of
Senior Debentures, but the Company may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
Terms of Senior Debentures
The Senior Indenture permits the issuance of up to $50.0 million aggregate
principal amount of Senior Debentures, of which $20.0 million are issued and
outstanding; provided that any Senior Debentures issued after the Issue Date
shall only be issued in minimum increments of $5.0 million and in compliance
with the covenant described under "-Certain Covenants-Limitation on
Indebtedness." The Senior Debentures mature on December 1, 2009. Each Senior
Debenture bears interest at the rate of 15% per annum from the date of issuance,
or from the most recent date to which interest has been paid or provided for,
and is payable semiannually on June 1 and December 1 of each year, commencing on
June 1, 1998, to holders of record at the close of business on the May 15 or
November 15 (each an "Interest Payment Date") immediately preceding the Interest
Payment Date. The interest rate on the Senior Debentures is subject to increase
under certain circumstances. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The Senior Debentures are not entitled
to the benefit of any mandatory sinking fund. Prior to December 1, 2002,
interest is payable in cash or in additional Senior Debentures on each Interest
Payment Date, at the option of the Company. From and after December 1, 2002,
interest is payable only in cash. To the extent that the Company is prohibited
pursuant to the terms of the New Credit Facility or the Notes from paying
interest in cash subsequent to December 1, 2002, the Company will pay interest
equal to the interest rate then applicable to the Senior Debentures plus 2.00%.
Optional Redemption
The Senior Debentures will be redeemable, at the Company's option, in whole
or in part, at any time upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), if
redeemed during the 12-month
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period commencing on December 1 of the years set forth below, plus accrued and
unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
Interest Payment Date):
Period Redemption
- ------ Price
-----
1997........................................................ 103.000%
1998 and thereafter......................................... 107.500%
Optional Redemption Upon Equity Offering. In addition, at any time the
Company may, at its option, redeem up to 100% of the Senior Debentures, with net
cash proceeds of one or more Equity Offerings by the Company so long as there is
a Public Market at the time of such redemption, at the redemption prices set
forth above plus accrued and unpaid interest thereon, if any, to the date of
redemption. In order to effect the foregoing redemption with the proceeds of any
Equity Offering, the Company shall make such redemption not more than 90 days
after the consummation of any such Equity Offering.
Selection. In the case of any partial redemption, selection of the Senior
Debentures for redemption will be made by the Debenture Trustee on a pro rata
basis, by lot or by such other method as the Debenture Trustee in its sole
discretion shall deem to be fair and appropriate; provided, however, that if a
partial redemption is made with proceeds of an Equity Offering, selection of the
Senior Debentures or portion thereof for redemption shall be made by the
Debenture Trustee only on a pro rata basis, unless such method is otherwise
prohibited. Senior Debentures may be redeemed in part in multiples of $1,000
principal amount only. Notice of redemption will be sent, by first class mail,
postage prepaid, at least 45 days (unless a shorter period is acceptable to the
Debenture Trustee) prior to the date fixed for redemption to each holder whose
Senior Debentures are to be redeemed at the last address for such holder then
shown on the registry books. If any Senior Debenture is to be redeemed in part
only, the notice of redemption that relates to such Senior Debenture shall state
the portion of the principal amount thereof to be redeemed. A new Senior
Debenture in principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original
Senior Debenture. On and after any redemption date, interest will cease to
accrue on the Senior Debentures or part thereof called for redemption as long as
the Company has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the Senior Indenture.
Fraudulent Conveyance
The use of the proceeds of the debt (including the Senior Debentures)
incurred in connection with the Uniforce Acquisition and the Refinancing may
subject such incurrence of debt and the obligations of the Company under the
Senior Debentures to review by a court under relevant federal bankruptcy and
state fraudulent conveyance and transfer statutes and, if a court makes certain
findings, it could take certain actions detrimental to the holders of the Senior
Debentures. See "Risk Factors-Fraudulent Conveyance Considerations."
Ranking
The Senior Debentures are direct and unconditional senior obligations of
COMFORCE and are secured by a pledge by COMFORCE of all of the issued and
outstanding capital stock, par value $0.01 per share, of COI, a wholly-owned
subsidiary of COMFORCE. The payment obligations of COMFORCE under the Senior
Debentures will at all times rank at least equal in priority of payment with all
existing and future senior indebtedness of COMFORCE. The Senior Indenture
permits each of COMFORCE and COI to incur additional indebtedness (including
senior indebtedness) subject to certain limitations. As of September 30, 1997,
on a pro forma basis after giving effect to the Transactions, the aggregate
principal amount of COMFORCE's outstanding senior indebtedness would have been
approximately $20.0 million. The Senior Debentures are structurally subordinated
to all liabilities of the Company's direct and indirect subsidiaries and
effectively subordinated to all future secured indebtedness of
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the Company. As of September 30, 1997, on a pro forma basis, after giving effect
to the Transactions, (i) the Company had no outstanding secured indebtedness
other than the Senior Debentures and (ii) the aggregate amount of the
outstanding liabilities of subsidiaries of COMFORCE to which holders of Senior
Debentures would be structurally subordinated would have been $169.6 million
(including $147.8 million of indebtedness).
Negative Pledge
The Company is not permitted to pledge any capital stock of COI, other than
pursuant to the terms of the Senior Debentures. The Company is required to own
100% of the capital stock of COI.
Security
Pursuant to the Senior Indenture, the obligations of the Company are
secured by all of the outstanding capital stock of COI and the Company has
assigned and pledged to the Debenture Trustee for its benefit and the benefit of
the holders of Senior Debentures, a security interest in the capital stock of
COI and certain proceeds from time to time received, receivable or otherwise
distributed in respect thereof (the "Collateral"). The Company will also assign
and pledge to the Debenture Trustee as part of the Collateral all of the shares
of capital stock of COI hereafter acquired by it. The security interest in the
Collateral will be a first priority security interest. However, absent an
acceleration of the Senior Debentures, the Company will be able to vote, as it
sees fit in its sole discretion, the capital stock of the Company.
There can be no assurance that the proceeds of the sale of any Collateral
pursuant to the Senior Indenture following an Event of Default would be
sufficient to satisfy payments due on the Senior Debentures. See "Risk Factors -
Security for the Senior Debentures".
If an Event of Default occurs under the Senior Indenture, the Debenture
Trustee on behalf of the holders of the Senior Debentures, in addition to any
rights or remedies available to it under the Senior Indenture may take such
action as it deems advisable to protect and enforce its rights in the
Collateral, including the institution of foreclosure proceedings. The proceeds
received by the Debenture Trustee from any foreclosure will be applied by the
Debenture Trustee first to pay the expenses of such foreclosure and fees and
other amounts then payable to the Debenture Trustee under the Senior Indenture
and thereafter to pay the principal and interest on the Senior Debentures.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require the Company to repurchase
all or any part of such holder's Senior Debentures at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of repurchase (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant Interest
Payment Date): (i) any sale, lease, exchange or other transfer (collectively, a
"Transfer") (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries; or (ii) a
majority of the Board of Directors of the Company or of any direct or indirect
holding company thereof shall consist of Persons who are not Continuing
Directors of the Company; (iii) the acquisition by any Person or Group (other
than the Management Group) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 35% of the ordinary voting
power for the election of directors of the Company or of any direct or indirect
holding company thereof; provided, that no Change of Control shall be deemed to
occur pursuant to this clause (iii), so long as the Management Group owns an
amount of securities representing a greater percentage of such ordinary voting
power than such Person or Group; or (iv) the acquisition by any Person or Group
(including, but not limited to, the Management Group) of the power, directly or
indirectly, to vote or direct the voting of securities having more than 49.9% of
the ordinary voting power for the election of directors of the Company or any
direct or indirect holding company thereof.
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Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Senior Debentures
in connection with such Change of Control, the Company shall mail a notice to
each holder with a copy to the Debenture Trustee stating: (1) that a Change of
Control has occurred and that such holder has the right to require the Company
to repurchase such holder's Senior Debentures at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase (subject to the right of holders of record on a
record date to receive interest on the relevant Interest Payment Date), (2) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (3) the procedures determined by the
Company, consistent with the Senior Indenture, that a holder must follow in
order to have its Senior Debentures repurchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Debentures pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Senior Indenture, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Senior Indenture by
virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries. With respect to the disposition of property or
assets, the phrase "all or substantially all" as used in the Senior Indenture
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under New York law (which is the law which
governs the Senior Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and therefore
it may be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to repurchase the Senior Debentures as
described above.
The occurrence of certain of the events that would constitute a Change of
Control would also constitute a default under the New Credit Facility and the
Notes Indenture. Future senior indebtedness of the Company and its Subsidiaries
may also contain prohibitions of certain events that would constitute a Change
of Control or require such senior indebtedness to be repurchased upon a Change
of Control. Moreover, the exercise by the holders of their right to require the
Company to repurchase the Senior Debentures could cause a default under such
senior indebtedness even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. Even if sufficient funds were otherwise available to allow the
Company to comply with its repurchase obligations in the event of a Change of
Control, the terms of the New Credit Facility or the Notes Indenture may
prohibit the Company's prepayment of Senior Debentures prior to their scheduled
maturity.
Certain Covenants
The Senior Indenture contains certain covenants including, among others,
the following:
Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that: the Company
may Incur Indebtedness, if no Default or Event of Default shall have occurred
and be continuing at the time of such Incurrence or would occur as a consequence
of such Incurrence and the Consolidated Coverage Ratio would be equal to at
least 1.20 to 1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
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(i) Indebtedness Incurred pursuant to the New Credit Facility
(including, without limitation, any renewal, extension, refunding,
restructuring, replacement or refinancing thereof referred to in the
definition thereof) provided, however, that the aggregate principal amount
of all Indebtedness Incurred pursuant to this clause (i) does not exceed
$75.0 million at any time outstanding, less the aggregate principal amount
thereof repaid with the net proceeds of Asset Dispositions;
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financing or purchase money obligations, in each case Incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in a Permitted Business or
Incurred to refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the date of
such acquisition or the date of completion of such construction or
improvement; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii) shall not exceed $5.0
million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to
and held by the Company or any Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or any Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) Indebtedness represented by (a) the Senior Debentures and the
Exchange Debentures, (b) the Notes and the Exchange Notes, (c) Existing
Indebtedness and (d) any Refinancing Indebtedness Incurred in respect of
any Indebtedness described in this clause (iv) or Incurred pursuant to
paragraph (a) above;
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to paragraph
(a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (v) and (B) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations and (C) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchises or customers of obligations (other than
Indebtedness) incurred in the ordinary course of business;
(vii) Indebtedness under Currency Agreements and Interest Rate
Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the Company
or its Restricted Subsidiaries (as determined in good faith by the Board of
Directors of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates as applicable, to Indebtedness of
the Company or its Restricted Subsidiaries Incurred without violation of
the Senior Indenture or to
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business transactions of the Company or its Restricted Subsidiaries on
customary terms entered into in the ordinary course of business;
(viii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credits, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness or other
obligations incurred by any Person acquiring all or any portion of such
business assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition) in a principal amount not to exceed the gross
proceeds actually received by the Company or any of its Restricted
Subsidiaries in connection with such disposition; provided, however, that
the principal amount of any Indebtedness incurred pursuant to this clause
(viii) when taken together with all Indebtedness incurred pursuant to this
clause (viii) and then outstanding, shall not exceed $2.0 million;
(ix) Indebtedness consisting of (A) Guarantees by the Company (so long
as the Company could have incurred such Indebtedness directly without
violation of the Senior Indenture) and (B) Guarantees by a Restricted
Subsidiary of senior indebtedness incurred by the Company without violation
of the Senior Indenture (so long as such Restricted Subsidiary could have
incurred such Indebtedness directly without violation of the Senior
Indenture);
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by the
Company or its Subsidiaries drawn against insufficient funds in the
ordinary course of business in an amount not to exceed $250,000 at any
time, provided that such Indebtedness is extinguished within two business
days of its incurrence; and
(xi) Indebtedness (other than Indebtedness described in clauses
(i)-(x)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this clause
(xi) and then outstanding, will not exceed $10.0 million (it being
understood that any Indebtedness Incurred under this clause (xi) shall
cease to be deemed Incurred or outstanding for purposes of this clause (xi)
(but shall be deemed to be Incurred for purposes of paragraph (a)) from and
after the first date on which the Company or its Restricted Subsidiaries
could have Incurred such Indebtedness under the foregoing paragraph (a)
without reliance upon this clause (xi)).
(c) The Company will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock, (B) dividends or distributions payable to the Company or a
Restricted Subsidiary of the Company which holds any equity interest in the
paying Restricted Subsidiary (and if the Restricted Subsidiary paying the
dividend or making the distribution is not a Wholly-Owned Subsidiary, to its
other holders of Capital Stock on a pro rata basis) and (C) cash dividends in
respect of the preferred stock of the Company that is issued and outstanding
prior to the date of the Senior Indenture, (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Company held by Persons
other than a Wholly-Owned Subsidiary of the Company or any Capital Stock of a
Restricted Subsidiary of the Company held by any Affiliate of the Company, other
than a Wholly-Owned Subsidiary (in either case, other than in exchange for its
Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
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satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of purchase, repurchase or
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment as described in
preceding clauses (i) through (iv) being referred to as a "Restricted Payment");
if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); or (2) the Company is not able to incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under "-Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments declared or made subsequent to the Issue Date would exceed the sum of
(A) 50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from the first day of the fiscal quarter beginning on or
after the Issue Date to the end of the most recent fiscal quarter ending prior
to the date of such Restricted Payment as to which financial results are
available (but in no event ending more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate net proceeds received by
the Company from the issue or sale of its Capital Stock (other than Disqualified
Stock) or other capital contributions subsequent to the Issue Date (other than
net proceeds received from an issuance or sale of such Capital Stock to (x) a
Subsidiary of the Company, (y) an employee stock ownership plan or similar
trust) or (z) management employees of the Company or any Subsidiary of the
Company (other than sales of Capital Stock (other than Disqualified Stock) to
management employees of the Company pursuant to bona fide employee stock option
plans of the Company); provided, however, that the value of any non-cash net
proceeds shall be as determined by the Board of Directors in good faith, except
that in the event the value of any non-cash net proceeds shall be $2.0 million
or more, the value shall be as determined in writing by an independent
investment banking firm of nationally recognized standing; (C) the amount by
which Indebtedness of the Company is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Restricted Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or other property, distributed by the
Company upon such conversion or exchange); and (D) the amount equal to the net
reduction in Investments (other than Permitted Investments) made after the Issue
Date by the Company or any of its Restricted Subsidiaries in any Person
resulting from (i) repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of assets by such
Person to the Company or any Restricted Subsidiary of the Company or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously
included in the calculation of the amount of Restricted Payments; provided,
however, that no amount shall be included under this Clause (D) to the extent it
is already included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary, an employee stock ownership plan
or similar trust or management employees of the Company or any Subsidiary of the
Company); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3) (B) of paragraph
(a); (ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company in compliance with the
"Limitation on Indebtedness" covenant; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "-Limitation on Sales of Assets and
Subsidiary Stock" below; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments; and
(iv) dividends paid within 60 days after the date of declaration if at such date
of declaration such dividend would have complied with this provision; provided,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; provided, however, that in the case of clauses (i), (ii)
and (iii) no Default or Event of Default shall have occurred or be continuing at
the time of such payment or as a result thereof.
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(c) For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further that (i) in the
case of any Restricted Payment made with capital stock or indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the capital stock or indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment in an aggregate amount
in excess of $2.0 million, a written opinion as to the fairness of the valuation
thereof (as determined by the Company) for purposes of determining compliance
with the "Limitation on Restricted Payments" covenant in the Senior Indenture
shall be issued by an independent investment banking firm of national standing.
(d) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Debenture Trustee an Officer's Certificate stating that
such Restricted Payment complies with the Senior Indenture and setting forth in
reasonable detail the basis upon which the required calculations were computed,
which calculations may be based upon the Company's latest available quarterly
financial statements and a copy of any required investment banker's opinion.
Limitation on Liens. The Senior Indenture provides that the Company will
not and will not permit any Restricted Subsidiary to, directly or indirectly,
create or permit to exist any Liens except for Permitted Liens.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any of its Restricted Subsidiaries
to, create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any such Restricted Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligation owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (a) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date, including the New Credit Facility
and the Notes Indenture; (b) any encumbrance or restriction with respect to such
a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
issued by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company and outstanding on such date
(other than Indebtedness Incurred in anticipation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary of the Company or was acquired by the Company);
(c) any encumbrance or restriction with respect to such a Restricted Subsidiary
pursuant to an agreement evidencing Indebtedness Incurred without violation of
the Senior Indenture or effecting a refinancing of Indebtedness issued pursuant
to an agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses (a) or (b) or
this clause (c); provided, however, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less favorable to
the holders of the Senior Debentures in any material respect, as determined in
good faith by the Board of Directors of the Company, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in agreements
in effect at, or entered into on, the Issue Date; (d) in the case of clause
(iii), any encumbrance or restriction (A) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Senior Indenture, (C) that is included in a
licensing agreement to the extent such restrictions limit the transfer of the
property subject to such licensing agreement or (D) arising or agreed to in the
ordinary course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any of its
Subsidiaries in any manner material to the Company or any such Restricted
Subsidiary; (e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements; (f) in the case of clause
(iii) above, any instrument governing or evidencing Indebtedness of a Person
acquired by the Company or any Restricted Subsidiary of the Company at the
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time of such acquisition, which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person so
acquired; provided, however, that such Indebtedness is not incurred in
connection with or in contemplation of such acquisition; (g) any restriction
with respect to such a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such sale
or disposition; and (h) encumbrances or restrictions arising or existing by
reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Company's Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 80% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of any senior secured
indebtedness or the Notes), (x) to prepay, repay or purchase senior secured
indebtedness or Notes or (y) to the investment in or acquisition of Additional
Assets within 270 days from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (B) second, within 270 days from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to make an offer
to purchase Senior Debentures at 100% of their principal amount plus accrued and
unpaid interest, if any, thereon; (C) third, within 90 days after the later of
the application of Net Available Cash in accordance with clauses (A) and (B) and
the date that is 270 days from the receipt of such Net Available Cash, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A) and (B), to prepay, repay or repurchase Indebtedness (other
than Preferred Stock) of a Wholly-Owned Subsidiary (in each case other than
Indebtedness owned to the Company); and (D) fourth, to the extent of the balance
of such Net Available Cash after application in accordance with clauses (A), (B)
and (C), to (w) the investment in or acquisition of Additional Assets, (x) the
making of Temporary Cash Investments, (y) the prepayment, repayment or purchase
of Indebtedness of the Company (other than Indebtedness owing to any Subsidiary
of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed
to the Company or any of its Subsidiaries) or (z) any other purpose otherwise
permitted under the Senior Indenture, in each case within the later of 45 days
after the application of Net Available Cash in accordance with clauses (A), (B)
and (C) or the date that is 360 days from the receipt of such Net Available
Cash; provided, however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (B), (C) or (D) above, the
Company or such Restricted Subsidiary shall retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this covenant at any
time exceeds $10.0 million. The Company shall not be required to make an offer
for Senior Debentures pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clause (A))
is less than $10.0 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of senior indebtedness of the Company or
senior indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such senior
indebtedness in connection with such Asset Disposition (in which case the
Company shall, without further action, be deemed to have applied such assumed
Indebtedness in accordance with clause (A) of the preceding paragraph) and (y)
securities received by the Company or any Restricted Subsidiary of the Company
from the transferee that are promptly (and in any event within 60 days)
converted by the Company or such Restricted Subsidiary into cash.
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(b) In the event of an Asset Disposition that requires the purchase of
Senior Debentures pursuant to clause (a) (iii) (B), the Company will be required
to purchase Senior Debentures tendered pursuant to an offer by the Company for
the Senior Debentures at a purchase price of 100% of their principal amount plus
accrued and unpaid interest, if any, to the purchase date in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Senior Indenture. If the aggregate purchase price of the Senior Debentures
tendered pursuant to the offer is less than the Net Available Cash allotted to
the purchase of the Senior Debentures, the Company will apply the remaining Net
Available Cash in accordance with clauses (a) (iii) (C) or (D) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Senior Debentures pursuant
to the Senior Indenture. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Senior Indenture by virtue
thereof.
Limitation on Affiliate Transactions. (a) The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of the Company, other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $500,000, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of such Board, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $1.0 million,
the Company has received a written opinion from an independent investment
banking firm of nationally recognized standing that such Affiliate Transaction
is fair to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"-Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, or any stock options and stock ownership
plans for the benefit of employees, officers and directors, consultants and
advisors approved by the Board of Directors of the Company, (iii) loans or
advances to employees in the ordinary course of business of the Company or any
of its Restricted Subsidiaries in aggregate amount outstanding not to exceed
$250,000 to any employee or $1.0 million in the aggregate at any time, (iv) any
transaction between Wholly-Owned Subsidiaries, (v) indemnification agreements
with, and the payment of fees and indemnities to, directors, officers and
employees of the Company and its Restricted Subsidiaries, in each case in the
ordinary course of business, (vi) transactions pursuant to agreements in
existence on the Issue Date which are (x) described in the Prospectus or (y)
otherwise, in the aggregate, immaterial to the Company and its Restricted
Subsidiaries taken as a whole, (vii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business, (viii) the
issuance of Capital Stock of the Company (other than Disqualified Stock).
Limitation on Issuances of Capital Stock of Restricted Subsidiaries. The
Company will not permit any of its Restricted Subsidiaries to issue any Capital
Stock to any Person (other than to the Company or a Wholly-Owned Subsidiary of
the Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own any Capital Stock of a Restricted Subsidiary
of the Company, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of the Company; provided, however,
that this provision shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Senior
Indenture.
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Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
Guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction with respect to any property or assets unless (i) the Company or
such Restricted Subsidiary, as the case may be, would be entitled, pursuant to
the Senior Indenture, to Incur Indebtedness secured by a Permitted Lien on such
property or assets in an amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such
Sale/Leaseback Transaction are at least equal to the fair market value of the
property or assets subject to such Sale/Leaseback Transaction (such fair market
value determined, in the event such property or assets have a fair market value
in excess of $1.0 million, no more than 30 days prior to the effective date of
such Sale/Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a resolution of such Board) and (iii) the net cash proceeds of such
Sale/Leaseback Transaction are applied in accordance with the provisions
described under "-Limitation on Sales of Assets and Subsidiary Stock."
SEC Reports. The Company will file with the Debenture Trustee and provide
to the holders of the Senior Debentures, within 15 days after it files them with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company files with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. In the event
that the Company is not required to file such reports with the Commission
pursuant to the Exchange Act, the Company will nevertheless deliver such
Exchange Act information to the holders of the Senior Debentures within 15 days
after it would have been required to file it with the Commission.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Senior Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Senior Indenture to make
an Investment at the time of Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the sum
of (i) fair market value of the Capital Stock of such Subsidiary owned by
the Company and the Restricted Subsidiaries on such date and (ii) the
aggregate amount of other Investments of the Company and the Restricted
Subsidiaries in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-Limitation on Indebtedness" at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "-Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Senior Indenture further provides that
the Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"-Limitation on Restricted Payments."
The Senior Indenture further provides that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
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(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Debenture Trustee certifying compliance with the
foregoing provisions.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to, any Person, unless: (i) the resulting, surviving or transferee Person
(the "Successor Issuer") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Issuer
(if not the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Debenture Trustee, in form satisfactory to the Debenture
Trustee, all the obligations of the Company under the Senior Debentures and the
Senior Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor Issuer or
any Subsidiary of the Successor Issuer as a result of such transaction as having
been incurred by the Successor Issuer or such Restricted Subsidiary at the time
of such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Issuer (A) shall have a Consolidated Net Worth equal or greater to the
Consolidated Net Worth of the Company immediately prior to such transaction and
(B) shall be able to incur at least an additional $1.00 of Indebtedness pursuant
to paragraph (a) of "-Limitation on Indebtedness"; and (iv) the Company shall
have delivered to the Debenture Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Senior Indenture; and (v) there
has been delivered to the Debenture Trustee an Opinion of Counsel to the effect
that holders of Senior Debenture will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such consolidation, merger,
conveyance, transfer or lease and will be subject to U.S. federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such consolidation, merger, conveyance, transfer or lease had not
occurred.
The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Senior Indenture, but,
in the case of a lease of all or substantially all its assets, the Company will
not be released from the obligation to pay the principal of and interest on the
Senior Debentures.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company.
Events of Default
Each of the following constitutes an Event of Default under the Senior
Indenture: (i) a default in any payment of interest on any Senior Debenture when
due, continued for 30 days, (ii) a default in the payment of principal of any
Senior Debenture when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise, (iii) the failure by the
Company to comply with its obligations under the "Merger and Consolidation"
covenant described under "-Certain Covenants" above, (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations under the
covenants described under "-Change of Control" above or under covenants
described under "-Certain Covenants" above (in each case, other than a failure
to purchase Senior Debentures which shall constitute an Event of Default under
clause (ii) above), other than "Merger and Consolidation," (v) the failure by
the Company to comply for 60 days after notice with its other agreements
contained in the Senior Indenture, (vi) Indebtedness of the Company or any
Restricted Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $1.0 million and
such default shall not have been cured
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or such acceleration rescinded after a 10-day period, (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions") and (viii) any judgment or decree for
the payment of money in excess of $1.0 million (to the extent not covered by
insurance) is rendered against the Company or a Significant Subsidiary and such
judgment or decree shall remain undischarged or unstayed for a period of 60 days
after such judgment becomes final and non-appealable (the "judgment default
provision"). However, a default under clause (iv) or (v) will not constitute an
Event of Default until the Debenture Trustee or the holders of 25% in principal
amount of all outstanding series of Senior Debentures, voting as a single class,
notify the Company of the default and the Company does not cure such default
within the time specified in clause (iv) or (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Debenture Trustee or
the holders of at least 25% in principal amount of all outstanding series of
Senior Debentures, voting as a single class, by notice to the Company may
declare the principal of and premium and accrued and unpaid interest, if any, on
all the Senior Debentures to be due and payable. Upon such a declaration, such
principal and premium and accrued and unpaid interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs, the principal of and accrued
and unpaid interest on all the Senior Debentures will become and be immediately
due and payable without any declaration or other act on the part of the
Debenture Trustee or any holders. Under certain circumstances, the holders of a
majority in principal amount of all outstanding series of Senior Debentures,
voting as a single class, may rescind any such acceleration with respect to the
Senior Debentures and its consequences.
Subject to the provisions of the Senior Indenture relating to the duties of
the Debenture Trustee, if an Event of Default occurs and is continuing, the
Debenture Trustee will be under no obligation to exercise any of the rights or
powers under the Senior Indenture at the request or direction of any of the
holders unless such holders have offered to the Debenture Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder may pursue any remedy with respect to the Senior Indenture or the
Senior Debentures unless (i) such holder has previously given the Debenture
Trustee notice that an Event of Default is continuing, (ii) holders of at least
25% in principal amount of all outstanding series of Senior Debentures, voting
as a single class, have requested the Debenture Trustee to pursue the remedy,
(iii) such holders have offered the Debenture Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Debenture Trustee has
not complied with such request within 60 days after the receipt of the request
and the offer of security or indemnity and (v) the holders of a majority in
principal amount of all outstanding series of Senior Debentures, voting as a
single class, have not given the Debenture Trustee a direction that, in the
opinion of the Debenture Trustee, is inconsistent with such request within such
60- day period. Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Senior Debentures are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee or of exercising any trust or power conferred
on the Debenture Trustee. The Debenture Trustee, however, may refuse to follow
any direction that conflicts with law or the Senior Indenture or that the
Debenture Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Debenture Trustee in personal liability. Prior
to taking any action under the Senior Indenture, the Debenture Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Senior Indenture provides that if a Default occurs and is continuing
and is known to the Debenture Trustee, the Debenture Trustee must mail to each
holder notice of the Default within 90 days after it occurs. Except in the case
of a Default in the payment of principal of, premium (if any) or interest on any
Senior Debenture, the Debenture Trustee may withhold notice if and so long as
its board of directors, a committee of its board of directors or a committee of
its Trust officers in good faith determines that withholding notice is in the
interests of the Senior Debenture holders. In addition, the Company is required
to deliver to the Debenture Trustee, within 90 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Debenture Trustee, within 30 days after the occurrence thereof, written
notice of any events which would constitute certain Defaults.
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Amendments and Waivers
Subject to certain exceptions, the Senior Indenture may be amended with the
consent of the holders of a majority in principal amount of all outstanding
series of Senior Debentures, acting as a single class, then outstanding and any
past default or compliance with any provisions may be waived with the consent of
the holders of a majority in principal amount of all outstanding series of
Senior Debentures, voting as a single class. However, without the consent of
each holder of an outstanding Senior Debenture affected, no amendment may, among
other things, (i) reduce the amount of Senior Debentures whose holders must
consent to an amendment, (ii) reduce the stated rate of or extend the stated
time for payment of interest on any Senior Debenture, (iii) reduce the principal
of or extend the Stated Maturity of any Senior Debenture, (iv) reduce the
premium payable upon the redemption or repurchase of any Senior Debenture or
change the time at which any Senior Debenture may be redeemed as described under
"-Optional Redemption" above, (v) make any Senior Debenture payable in money
other than that stated in the Senior Debenture, (vi) impair the right of any
holder to receive payment of principal of and interest on such holder's Senior
Debentures on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Senior Debentures
or (vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, the Company and the Debenture Trustee
may amend the Senior Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of the
Company under the Senior Indenture (provided that there has been delivered to
the Debenture Trustee an Opinion of Counsel to the effect that holders of Senior
Debentures will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such assumption and will be subject to U.S. federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such assumption had not occurred), to provide for
uncertificated Senior Debentures in addition to or in place of certificated
Senior Debentures (provided that the uncertificated Senior Debentures are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Senior Debentures are described in Section 163 (f)
(2) (B) of the Code), to add further Guarantees with respect to the Senior
Debentures, to secure the Senior Debentures, to add to the covenants of the
Company for the benefit of the holders or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder or to comply with any requirement of the Commission in
connection with the qualification of the Senior Indenture under the Trust
Indenture Act.
The consent of the holders is not necessary under the Senior Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Senior Indenture becomes effective, the
Company is required to mail to the holders a notice briefly describing such
amendment. However, the failure to give such notice to all the holders or any
defect therein, will not impair or affect the validity of the amendment.
Defeasance
The Company at any time may terminate all its obligations under the Senior
Debentures and the Senior Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Senior Debentures, to replace
mutilated, destroyed, lost or stolen Senior Debentures and to maintain a
registrar and paying agent in respect of the Senior Debentures. The Company at
any time may terminate its obligations under covenants described under "-Certain
Covenants" (other than "Merger and Consolidation"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "-Events of
Default" above and the limitations contained in clauses (iii) and (iv) under
"-Certain Covenants - Merger and Consolidation" above ("covenant defeasance").
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The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Debentures may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Senior Debentures may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Significant Subsidiaries), (viii) or (ix) under "-Events
of Default" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "-Certain Covenants - Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Debenture Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Senior Debentures to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the
Debenture Trustee of an Opinion of Counsel to the effect that holders of the
Senior Debentures will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law.
Satisfaction and Discharge of the Senior Indenture
The Senior Indenture will cease to be of further effect (except as
otherwise expressly provided for in the Senior Indenture) when either (i) all
outstanding Senior Debentures have been delivered (other than lost, stolen or
destroyed Senior Debentures which have been replaced) to the Debenture Trustee
for cancellation or (ii) all outstanding Senior Debentures have become due and
payable, whether at maturity or as a result of the mailing of a notice of
redemption pursuant to the terms of the Senior Indenture and the Company has
irrevocably deposited with the Debenture Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Senior Debentures, including
interest thereon (other than lost, stolen, mutilated or destroyed Senior
Debentures which have been replaced), and, in either case, the Company has paid
all other sums payable under the Senior Indenture. The Debenture Trustee is
required to acknowledge satisfaction and discharge of the Senior Indenture on
demand of the Company accompanied by an Officer's Certificate and an Opinion of
Counsel at the cost and expense of the Company.
Transfer and Exchange
Upon any transfer of a Senior Debenture, the registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents, and to pay any taxes and fees required by law or permitted by the
Indenture. The registrar is not required to transfer or exchange any Senior
Debentures selected for redemption nor is the registrar required to transfer or
exchange any Senior Debentures for a period of 15 days before a selection of
Senior Debentures to be redeemed. The registered holder of a Note may be treated
as the owner of it for all purposes.
Concerning the Debenture Trustee
The Bank of New York is the Debenture Trustee under the Senior Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Senior Debentures.
The Senior Indenture contains certain limitations on the rights of the
Debenture Trustee, should it become a creditor of the Company, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim a security or otherwise. The Debenture Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined) it must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Senior Debentures issued under the Senior Indenture will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Debenture Trustee. The Senior Indenture
provides that in case an Event of
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Default shall occur (which shall not be cured) the Debenture Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Debenture
Trustee will be under no obligation to exercise any of its rights or powers
under the Senior Indenture at the request of any of the holders of the Senior
Debentures issued thereunder unless they shall have offered to the Debenture
Trustee security and indemnity satisfactory to it.
Governing Law
The Senior Indenture provides that it and the Senior Debentures will be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
Certain Definitions
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of
the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (iv) dispositions of property for net
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning of
the calendar year in which such disposition is consummated, do not exceed $1.0
million, and (v) transactions permitted under "-Certain Covenants - Merger and
Consolidation" above. Notwithstanding anything to the contrary contained above,
a Restricted Payment made in compliance with the "Limitation on Restricted
Payments" covenant shall not constitute an Asset Disposition except for purposes
of determinations of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Senior Debentures, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
indebtedness, the quotient obtained by dividing (i) the sum of the product of
the numbers of years (rounded upwards to the nearest month) from
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the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption multiplied by the amount of such
payment by (ii) the sum of all such payments.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligation for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
form either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"COI" means COMFORCE Operating, Inc., a Delaware corporation.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the stated maturity of the Senior Debentures) and less, (x) the
aggregate amount of contingent and "earnout" payments in respect of any
Permitted Business acquired by the Company or any Restricted Subsidiary that are
paid in cash during such period and (y) to the extent added in calculating
Consolidated Net Income, (A) exchange or translation gains on foreign currencies
and (B) non-cash items (excluding such non-cash items to the extent they
represent an accrual for cash receipts reasonably expected to be received prior
to the Stated Maturity of the Senior Debentures), in each case for such period.
Notwithstanding the foregoing, the income tax expense, depreciation expense and
amortization expense of a Subsidiary of the Company shall be included in
Consolidated Cash Flow only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Company or any of its Restricted Subsidiaries has incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been incurred on the first day of such period (provided that if such
Indebtedness is incurred under a revolving credit facility
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(or similar arrangement or under any predecessor revolving credit or similar
arrangement) only that portion of such Indebtedness that constitutes the one
year projected average balance of such Indebtedness (as determined in good faith
by the Board of Directors of the Company) shall be deemed outstanding for
purposes of this calculation), and (2) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (B) if since the beginning of such period any Indebtedness of the
Company or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and the underlying commitment terminated and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period,
(C) if since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (i) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale) and (ii) increased
by interest income attributable to the assets which are the subject of such
Asset Disposition for such period, (D) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result thereof)
or an acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (E) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (C) or (D) above if made by
the Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries
determined in accordance with GAAP, plus, to the extent not included in such
interest expense (i) interest expense attributable to Capitalized Lease
Obligations, (ii) capitalized interest, (iii) non-cash interest expense and
amortization of original issue discount, (iv) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (v) interest actually paid by the Company or any such Restricted
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vi) net payments (whether positive or negative) pursuant to Interest
Rate Agreements, (vii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust
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and (viii) cash and Disqualified Stock dividends in respect of all Preferred
Stock of Subsidiaries and Disqualified Stock of the Company held by Persons
other than the Company or a Wholly-Owned Subsidiary and less (a) to the extent
included in such interest expense, the amortization of capitalized debt issuance
costs and (b) interest income. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary of the Company, that
was not a Wholly-Owned Subsidiary, shall be included only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its consolidated Subsidiaries determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any person acquired
by the Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) cash dividends or distributions actually paid to the
Company or any of its Restricted Subsidiaries by such Person and (B) the net
income of such Person (but in no event less than zero), and the net loss of such
Person (other than an Unrestricted Subsidiary) shall be included only to the
extent of the aggregate Investment of the Company or any of its Restricted
Subsidiaries in such Person and (viii) any non-cash expenses attributable to
grants or exercises of employee stock options. Notwithstanding the foregoing,
for the purpose of the covenant described under "- Certain Covenants -
Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a) (3) (D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of the Senior Indenture or (ii) was nominated for election or elected to
the Board of Directors of such Person with the affirmative vote of a majority of
the Continuing Directors of such Person who were members of such Board of
Directors at the time of such nomination or election.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the
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issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the Senior
Debentures, or (ii) is convertible into or exchangeable (unless at the sole
option of the issuer thereof) for (a) debt securities or (b) any Capital Stock
referred to in (i) above, in each case at any time prior to the final Stated
Maturity of the Senior Debentures.
"Equity Offering" means an offering for cash by the Company of its common
stock, or options, warrants or rights with respect to its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued, thereon,
after application of the net proceeds of the New Credit Facility, the Notes and
the Senior Debentures as described in the Prospectus.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Debenture Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Senior Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Senior Indenture shall be computed in conformity with GAAP.
"Group" shall mean any "group" for purposes of Section 13(d) of the
Exchange Act.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course
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of business of such Person to the extent that such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (x) trade payables and accrued expenses incurred in
the ordinary course of business and (y) contingent or "earnout" payment
obligations in respect of any Permitted Business acquired by the Company or any
Restricted Subsidiary), which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Restricted Subsidiary of the Company, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of the Senior Debentures (but excluding, in each case, accrued dividends) with
the amount of Indebtedness represented by such Disqualified Stock or Preferred
Stock, as the case may be, being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price;
provided that, for purposes hereof the "maximum fixed repurchase price" of any
Disqualified Stock or Preferred Stock, as the case may be, which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Senior Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of the Company at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors and
evidenced by a resolution of such Board of Directors certified in an Officers'
Certificate to the Debenture Trustee.
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"Issue Date" means the date on which the Senior Debentures are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means James L. Paterek, Christopher P. Franco and
Michael Ferrentino.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to any Person owning a beneficial
interest in assets subject to sale or minority interest holders in Subsidiaries
or joint ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition, provided however, that upon any reduction in such
reserves (other than to the extent resulting from payments of the respective
reserved liabilities), Net Available Cash shall be increased by the amount of
such reduction to reserves, and retained by the Company or any Restricted
Subsidiary of the Company after such Asset Disposition and (v) any portion of
the purchase price from an Asset Disposition placed in escrow (whether as a
reserve for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or otherwise in connection with such Asset
Disposition) provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"New Credit Facility" means the Loan and Security Agreement, dated as of
November 26, 1997, among COMFORCE and COI and certain subsidiaries thereof, as
guarantors, and various other direct and indirect active subsidiaries thereof,
as borrowers, Heller, and any other financial institutions from time to time
party thereto, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including by way of adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor, general partner or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Notes" means all of the 12% Senior Notes due 2007, issued and outstanding
under the Notes Indenture.
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"Notes Indenture" means that certain Indenture, dated as of November 26,
1997 between COI and Wilmington Trust Company, as Indenture Trustee.
"Officer" means the Chairman of the Board, the Vice-Chairman of the Board,
the Chief Executive Officer, the Chief Financial Officer, or any Vice-President,
the Treasurer or the Secretary of the Company.
"Officer's Certificate" shall mean a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Debenture Trustee, from legal counsel who is acceptable to the
Debenture Trustee.
"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Senior Indenture, as reasonably
determined by the Company's Board of Directors.
"Permitted Investment" means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary in an aggregate amount outstanding at any one time not to exceed
$250,000 to any one employee or $1.0 million in the aggregate; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Restricted
Subsidiaries or in satisfaction of judgments or claims; (viii) a Person engaged
in a Permitted Business or a loan or advance by the Company the proceeds of
which are used solely to make an investment in a Person engaged in a Permitted
Business or a Guarantee by the Company of Indebtedness of any Person in which
such Investment has been made; provided, however, that no Permitted Investments
may be made pursuant to this clause (viii) to the extent the amount thereof
would, when taken together with all other Permitted Investments made pursuant to
this clause (viii), exceed $5.0 million in the aggregate (plus, to the extent
not previously reinvested, any return of capital realized on Permitted
Investments made pursuant to this clause (viii), or any release or other
cancellation of any Guarantee constituting such Permitted Investment); (ix)
Persons to the extent such Investment is received by the Company or any
Restricted Subsidiary as consideration for asset dispositions effected in
compliance with the covenant described under "-Certain Covenants - Limitations
on Sales of Assets and Subsidiary Stock"; (x) prepayments and other credits to
suppliers made in the ordinary course of business consistent with the past
practices of the Company and its Restricted Subsidiaries; and (xi) Investments
in connection with pledges, deposits, payments or performance bonds made or
given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations.
"Permitted Liens" means: (i) pledges or deposits by the Company or any
Restricted Subsidiary under workmen's compensation laws, unemployment insurance
laws, other types of social security benefits or similar legislation, or good
faith deposits in connection with bids, tenders or contracts (other than for the
payment of Indebtedness) or leases to which the Company or any Restricted
Subsidiary is a party, or deposits to secure public or statutory obligations or
deposits of cash or United States government bonds to secure surety or appeal
bonds to which the Company or any Restricted Subsidiary is a party, or deposits
as security for contested taxes or import duties or for the payment of rent, in
each case incurred by the Company or any Restricted Subsidiary in the ordinary
course
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of business consistent with past practice; (ii) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due from the Company or any Restricted Subsidiary or being contested in good
faith by appropriate proceedings by the Company or any Restricted Subsidiary, as
the case may be, or other Liens arising out of judgments or awards against the
Company or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary, as the case may be, will then be prosecuting an appeal or
other proceedings for review; (iii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iv) Liens in favor of issuers of
performance bonds and surety bonds issued pursuant to clause (b)(vii) under
"-Certain Covenants - Limitation on Indebtedness"; (v) survey exceptions,
encumbrances, easements or, reservations of, or rights of others for, licenses,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real property
of the Company or any Restricted Subsidiary incidental to the ordinary course of
conduct of the business of the Company or such Restricted Subsidiary or as to
the ownership of properties of the Company or any Restricted Subsidiary, which,
in either case, were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (vi) Liens to secure Indebtedness permitted under
clauses (a) and (b)(i) under "- Certain Covenants - Limitation on Indebtedness";
(vii) Liens outstanding immediately after the Issue Date as set forth on
Schedule II to the Senior Indenture (and not otherwise permitted by clause
(vi)); (viii) Liens on property, assets or shares of stock of any Restricted
Subsidiary at the time such Restricted Subsidiary became a Subsidiary of the
Company; provided, however, that (A) if any such Lien has been Incurred in
anticipation of such transaction, such property, assets or shares of stock
subject to such Lien will have a fair market value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed by the Company in connection with the acquisition of such
Restricted Subsidiary and (2) the fair market value of all property and assets
of such Restricted Subsidiary and (B) any such Lien will not extend to any other
assets owned by the Company or any Restricted Subsidiary; (ix) Liens on property
or assets at the time the Company or any Restricted Subsidiary acquired such
assets, including any acquisition by means of a merger or consolidation with or
into the Company or such Restricted Subsidiary; provided, however, that (A) if
any such Lien is Incurred in anticipation of such transaction, such property or
assets subject to such Lien will have a fair market value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed by the Company or such Restricted Subsidiary in connection
with the acquisition thereof and of any other property and assets acquired
simultaneously therewith and (2) the fair market value of all such property and
assets acquired by the Company or such Restricted Subsidiary and (B) any such
Lien will not extend to any other property or assets owned by the Company or any
Restricted Subsidiary; (x) Liens securing Indebtedness or other obligations of a
Restricted Subsidiary owing to the Company or a Wholly Owned Subsidiary; (xi)
Liens to secure any extension, renewal, refinancing, replacement or refunding
(or successive extensions, renewals, refinancings, replacements or refundings),
in whole or in part, of any Indebtedness secured by Liens referred to in any of
clauses (vii), (viii) and (ix); provided, however, that any such Lien will be
limited to all or part of the same property or assets that secured the original
Lien (plus improvements on such property) and the aggregate principal amount of
Indebtedness that is secured by such Lien will not be increased to an amount
greater than the sum of (A) the outstanding principal amount, or, if greater,
the committed amount, of the Indebtedness described under clauses (vii), (viii)
and (ix) at the time the original Lien became a Permitted Lien under the Senior
Indenture and (B) an amount necessary to pay any premiums, fees and other
expenses Incurred by the Company in connection with such refinancing, refunding,
extension, renewal or replacement; (xii) Liens on property or assets of the
Company securing Interest Rate Agreements and Currency Agreements so long as the
related Indebtedness is, and is permitted under "-Certain Covenants-Limitation
on Indebtedness", secured by a Lien on the same property securing the relevant
Interest Rate Agreement or Currency Agreement; (xiii) Liens securing
Indebtedness incurred under (1) the Senior Indenture and (2) the New Credit
Facility or any Guarantee thereof by any Restricted Subsidiary; (xiv) Liens on
property or assets of the Company or any Restricted Subsidiary securing
Indebtedness (1) under purchase money obligation or Capitalized Lease
Obligations permitted under clause (b)(ii) under "-Certain Covenants -
Limitation on Indebtedness" or (2) under Sale/Leaseback Transactions permitted
under "-Certain Covenants - Limitation on Sale/Leaseback Transactions";
provided, that (A) the amount of Indebtedness Incurred in any specific case does
not, at the time such Indebtedness is Incurred, exceed the lesser of the cost or
fair market value of the property or asset acquired or constructed in connection
with
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such purchase money obligation or Capitalized Lease Obligation or subject to
such Sale/Leaseback Transaction, as the case may be, (B) such Lien will attach
to such property or asset upon acquisition of such property or asset and or upon
commencement of such Sale/Leaseback Transaction, as the case may be, and (C) no
property or asset of the Company or any Restricted Subsidiary (other than the
property or asset acquired or contracted in connection with such purchase money
Obligation or Capital Lease Obligation or subject to such Sale/Leaseback
Transaction, as the case may be) are subject to any Lien securing such
Indebtedness; and (xv) Liens securing the Senior Debentures.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
the Company if (a) the common stock of the Company is then registered with the
Securities and Exchange Commission pursuant to Section 12(b) or 12(g) of the
Exchange Act and traded either on a national securities exchange or in the
National Association of Securities Dealers Automated Quotation System and (b) at
least 15% of the total issued and outstanding common stock of the Company, as
applicable, has been distributed prior to such time by means of an effective
registration statement under the Securities Act of 1933.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Senior
Indenture or Incurred in compliance with the Senior Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Senior Debentures and (B) Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the lesser of (A) the Average Life of the Senior
Debentures and (B) the Average Life of the Indebtedness being refinanced and,
(iii) the Refinancing Indebtedness is in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
(or 101% of, in the case of a refinancing of the Senior Debentures in connection
with a Change of Control) or less than the sum of the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced.
"Restricted Subsidiary" means any Subsidiary of the Company other an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
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"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Senior Debentures pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of such designation, and does not thereafter create, Incur,
issue, assume, guarantee or otherwise becomes liable with respect to any
Indebtedness other than Non-Recourse Debt and either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under "-Certain Covenants - Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary subject to the limitations contained in "-Certain
Covenants - Limitation on Designations of Unrestricted Subsidiaries."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
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"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
DESCRIPTION OF WARRANTS
General
The Warrants were issued under a Warrant Agreement dated as of November 26,
1997 (the "Warrant Agreement") between the Company and The Bank of New York, as
Warrant Agent (the "Warrant Agent"). The following summary of certain provisions
of the Warrant Agreement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all of the provisions of the
Warrants and the Warrant Agreement, including the definitions therein of certain
terms. A copy of the Warrant Agreement can be obtained, upon request, from the
Company.
Each Warrant entitles the registered holder thereof, subject to and upon
compliance with the provisions thereof and the Warrant Agreement, at such
holder's option, prior to 5:00 P.M., New York City time, on December 1, 2009
(the "Expiration Date"), to purchase at a price of $7.55 per Warrant (the
"Exercise Price") from the Company one share of Common Stock (or such other
number as may result from adjustments as provided in the Warrant Agreement). The
number of shares of Common Stock for which a Warrant may be exercised is subject
to adjustment as set forth in the Warrant Agreement.
Warrants may be exercised on or after the Exercise Date, and before the
Expiration Date, by surrendering the Warrant Certificate evidencing the Warrants
with the form of election to purchase shares set forth on the reverse side
thereof duly completed and executed by the holder thereof and paying in full the
Exercise Price for such Warrants at the office or agency designated for such
purpose, which will initially be the corporate trust office of the Warrant Agent
in New York, New York. Each Warrant may only be exercised in whole and the
Exercise Price may be paid only in cash or by certified or official bank check.
"Exercise Date" is defined in the Warrant Agreement to mean the business day
after the sale of the Units.
The Warrant Certificates evidencing the Warrants may be surrendered for
exercise or exchange, and the transfer of Warrant Certificates will be
registrable, at the office or agency of the Company maintained for such purpose,
which initially will be the corporate trust office of the Warrant Agent in New
York, New York. No service charge will be made for any exercise, exchange or
registration of transfer of Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Holders of Warrants will not be entitled, by virtue of being holders, to
receive dividends, vote, receive notice of any meetings of stockholders or
otherwise have any right of stockholders of the Company.
Adjustment
The number of shares of Common Stock issuable upon exercise of a Warrant
(the "Exercise Rate") is subject to adjustment from time to time upon the
occurrence of certain events, including (a) dividends or distributions on Common
Stock of the Company payable in the Common Stock of the Company or certain other
Capital Stock of the Company; (b) subdivisions, combinations or certain
reclassifications of the Common Stock of the Company; (c) distributions to all
holders of Common Stock of the Company of rights, warrants or options to
purchase Common Stock of the Company at a price per share less than the Current
Market Value (as defined below) at the Time of Determination (as defined in the
Warrant Agreement); (d) issuances by the Company of Common Stock of the
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Company or of securities convertible into or exchangeable or exercisable for
Common Stock of the Company (other than pursuant to (1) the exercise of the
Warrants, (2) any options, warrants or rights outstanding as of the date of the
Warrant Agreement, (3) without limiting any options, warrants or rights
outstanding pursuant to the immediately preceding clause (2), any directors'
plans and employee stock option or purchase plans to the extent that the
aggregate number of shares of Common Stock of the Company (or securities
convertible into or exchangeable or exercisable for the Common Stock of the
Company) distributed under all such directors' plans and employee stock option
and purchase plans does not exceed 4,000,000 shares of the Company's Common
Stock at any time (of which options to purchase 2,069,030 shares are currently
outstanding), and (4) any security convertible into, or exchangeable or
exercisable for, the Company's Common Stock as to which the issuance thereof has
previously been the subject of any required adjustment pursuant to the Warrant
Agreement and exercisable securities of the Company for which the applicable
adjustment has already been made) at a price per share less than the Current
Market Value at the Time of Determination, and (e) distributions to stockholders
of assets, debt securities or certain rights, warrants or options to purchase
securities of the Company.
"Current Market Value" per share of Common Stock of the Company or any
other security at any date means (1) if the security is not registered under the
Exchange Act, (i) the value of the security determined in good faith by the
Board of Directors of the Company and certified in a board resolution, based on
the most recently completed arm's-length transaction between the Company and a
person other than an affiliate of the Company and the closing of which occurs on
such date or shall have occurred within the six months preceding such date, (ii)
if no such transaction shall have occurred on such date or within such six-month
period, the value of the security most recently determined as of a date within
the six months preceding such date by an independent financial expert or (iii)
if neither clause (i) nor (ii) is applicable, the value of the security
determined as of such date by an independent financial expert, or (2) if the
security is registered under the Exchange Act, the average of the daily closing
bid prices for each business day during the period commencing 15 business days
before such date and ending on the date one day prior to such date or, if the
security has been registered under the Exchange Act for less than 15 consecutive
business days before such date, then the average of the daily closing bid prices
for all of the business days before such date for which daily closing bid prices
are available. If the closing bid price is not determinable for at least 10
business days in such period, the Current Market Value of the security shall be
determined as if the security were not registered under the Exchange Act.
If the Company is a party to a consolidation, merger or binding share
exchange, or certain transfers of all or substantially all of its assets occur,
the right to exercise a warrant for Common Stock of the Company may be changed
by the Company into a right to receive securities, cash or other assets of the
Company or another person.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the holders of Warrant Certificates under the Warrant Agreement at
any time by the Company and the Warrant Agent with the consent of the holders of
Warrant Certificates representing a majority in number of the then outstanding
Warrants.
Mergers, Consolidations, etc.
Except as provided below, in the event that the Company consolidates with,
mergers with or into, or sells all or substantially all of its property and
assets to another person, each Warrant thereafter shall entitle the holder
thereof to receive upon exercise thereof the number of shares of capital stock
or other securities or property which the holder of a share of Common Stock is
entitled to receive upon completion of such consolidation, merger or sale of
assets. If the Company merges or consolidates with, or sells all or
substantially all of the property and assets of the Company to another person
and, in connection therewith, consideration to the holders of Common Stock in
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exchange for their shares is payable solely in cash, or in the event of the
dissolution, liquidation or winding-up of the Company, then the holders of the
Warrants will be entitled to receive distributions on an equal basis with the
holders of Common Stock or other securities issuable upon exercise of the
Warrants, as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price. Upon receipt of such payment, if any, the Warrants will
expire and the rights of the holders thereof will cease. In case of any such
merger, consolidation or sale of assets, the surviving or acquiring person and,
in the event of any dissolution, liquidation or winding-up of the Company, the
Company must deposit promptly with the Warrant Agent the funds, if any,
necessary to pay to the holders of the Warrants. After such funds and the
surrendered Warrant Certificates are received, the Warrant Agent must make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such person or persons as it may be direct in writing by the holders
surrendering such Warrants.
Delivery and Form
The Warrants are represented by a single permanent global certificate in
fully registered form. See "Book-Entry Delivery and Form". In addition, the
Warrants are subject to significant transfer restrictions and bear a legend
relating to such transfer restrictions. See "Registration Rights."
Registration Rights
The Company and the Initial Purchaser have entered into a Registration
Rights Agreement dated as of November 26, 1997 (the "Warrants Registration
Rights Agreement") with respect to the Warrant Shares. The Warrants Registration
Rights Agreement provides that the Initial Purchaser and persons to whom Warrant
Shares are transferred will have the registration rights and other rights and
obligations with respect to the Warrant Shares described below.
The Company has agreed, pursuant to the Warrant Registration Rights
Agreement, within 130 days of the date of issuance of the Warrants, to file and
use its best efforts to cause to become effective a shelf registration statement
covering resales of the Warrant Shares and to keep such shelf registration
statement effective for a minimum period of two years from issuance.
Furthermore, upon effectiveness of such registration statement, the Company has
agreed to use its reasonable efforts to have the Warrant Shares listed on the
American Stock Exchange or other national securities exchange on which the
Company's Common Stock is then listed, if any.
The Warrants Registration Rights Agreement contains customary provisions
whereby the beneficiaries thereof and the Company indemnify and agree to
contribute to the other with regard to losses caused by the misstatement of any
information required to be provided in a registration statement filed under the
Securities Act. The Warrants Registration Rights Agreement requires the Company
to pay the reasonable expenses associated with any registration, other than
underwriting discounts, commissions and transfer taxes.
The summary herein of certain provisions of the Warrants Registration
Rights Agreement does not purport to be complete and is subject to, and is a
qualified in its entirety by reference to, all of the provisions of the Warrants
Registration Rights Agreement, a copy of which is available upon request to the
Company.
DESCRIPTION OF OTHER INDEBTEDNESS
The New Credit Facility
On November 26, 1997, COMFORCE Corporation and COI and certain subsidiaries
thereof, as guarantors (the "Guarantors"), and various other direct and indirect
active subsidiaries thereof, as borrowers (the "Borrowers") (COMFORCE
Corporation, the Guarantors and the Borrowers collectively referred to as the
"Company"), entered into a Loan and Security Agreement (the "New Credit
Agreement") with Heller Financial, Inc., as lender and agent for other
participating lenders (collectively, "Heller"), to provide to the Company the
New Credit Facility providing
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for borrowings of up to $75.0 million based on a specified percentage of the
Company's eligible accounts receivable. At closing, the Company borrowed $37.3
million under the New Credit Facility.
From the date of the closing until Heller receives the Company's audited
financial statements for the year ended December 31, 1998 (the "Margin Date"),
borrowings under the New Credit Facility bear interest, at the Company's option,
at a per annum rate equal to either (i) the base rate as announced from time to
time by the Board of Governors of the Federal Reserve System as the "Bank Prime
Loan" rate (the "Base Rate") plus 0.50% or (ii) LIBOR plus 2.25%. Following the
Margin Date, the interest rate is subject to adjustment quarterly by a
percentage in excess of or less than the Base Rate or LIBOR as set forth below
based upon a specified leverage ratio:
Leverage Ratio Base Rate LIBOR
- -------------- --------- -----
Greater than 6.00 +.75 +2.50
Greater than 5.50 but less than +.50 +2.25
or equal to 6.00
Greater than 4.50 but less than +.25 +2.00
or equal to 5.50
Greater than 4.00 but less than +.00 +1.75
or equal to 4.50
Equal to or less than 4.00 -.25 +1.50
The obligations evidenced by the New Credit Facility are secured by a
pledge of the capital stock of the Borrowers and the Guarantors and security
interests in substantially all of the assets of the Borrowers and the
Guarantors. In addition, John Fanning, a former shareholder of Uniforce and the
current holder of approximately 5.9% of the issued and outstanding Common Stock
of the Company, provided cash collateral to Heller in the amount of $5.0
million. Under the terms of his agreement with Heller, $2.5 million of the
amount pledged is required to be released when the Company has unused borrowing
availability under the New Credit Facility of at least $15 million for 15
consecutive business days, with the balance to be released when the Company has
$17.5 million of unused borrowing availability for a like period. As
consideration for this agreement, the Company has agreed to pay to Mr. Fanning a
12% per annum yield on his cash collateral, less the actual return thereon as
invested.
The agreements evidencing the New Credit Facility contain various financial
and other covenants and conditions, including, but not limited to, limitations
on paying dividends, engaging in affiliate transactions, making acquisitions and
incurring additional indebtedness. The scheduled maturity date of the New Credit
Facility is November 26, 2002.
The New Credit Agreement specifies various events as Events of Default
which will permit the lenders to cease making loans and to declare all amounts
payable in respect of the New Credit Facility to be immediately due and payable.
These events include customary Events of Default for similar types of credit
facilities.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock having a par value of $.01 per share and 10,000,000 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.
As of December 19,
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1997, the Company had issued and outstanding capital stock consisting of
15,296,350 shares of Common Stock and 500 shares of Series F Preferred Stock. In
addition, as of the date of this Prospectus, there were options to purchase an
additional 2,069,030 shares of Common Stock, at an average exercise price of
$7.64 per share, issued and outstanding, and warrants to purchase an additional
2,137,794 shares of Common Stock, at an average exercise price of $7.63 per
share, issued and outstanding.
All the shares of capital stock of COI are owned by the Company. In
addition, COI issued to the Company all of the shares in a series of PIK
Preferred Stock having a liquidation value of $20.0 million in the aggregate
(the "PIK Preferred Stock"). As the holder of the PIK Preferred Stock, the
Company is entitled to cumulative dividends, when, as and if declared by COI's
Board of Directors, at a rate equal to the interest rate on the Senior
Debentures. The PIK Preferred Stock is redeemable at COI's option on the same
basis as the Senior Debentures are redeemable by the Company.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and Bylaws.
Common Stock
The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast decides
all questions, unless the matter is one upon which a different vote is required
by express provision of law or the Company's Certificate of Incorporation or
Bylaws. Cumulative voting is not permitted with respect to the election of
directors.
The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. Subject to the rights of
holders of Preferred Stock, if any shares of Preferred Stock are then
outstanding, in the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to participate equally, share for
share, in all assets remaining after payment of liabilities.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by the Company of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon the
Company's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.
Preferred Stock
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the Stockholders of the Company.
On October 25, 1996, the Board authorized the issuance of up to 10,000
shares of Preferred Stock, par value $0.01 per share, designated the Series F
Convertible Preferred Stock ("Series F Preferred Stock"). As subsequently
modified by agreement of the Company and the holders, each share of Series F
Preferred Stock will, (i) at the option of the holder or (ii) automatically on
the second anniversary of the date of issuance, be converted into such number of
shares of Common Stock determined by dividing $1,000 plus all accrued, unpaid
dividends thereon by the per share conversion price. The conversion price is 83%
of the average closing bid price of the Common Stock for the five trading days
immediately preceding the conversion date, subject to certain limitations.
Holders of shares of Series F Preferred Stock are entitled to cumulative
dividends of 5% per annum, payable quarterly on the first day of March, June,
September and December in each year, payable in cash or Common Stock (valued at
the closing price on the date of declaration), at the Company's election. The
Series F Preferred Stock has a liquidation preference over the
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Common Stock in the event of any liquidation or sale of the Company. Except as
otherwise provided by law, the holders of Series F Preferred Stock are not
entitled to vote. As of September 30, 1997, there were 500 shares of Series F
Preferred Stock outstanding with a liquidation value of $500,000.
Except for the Series F Preferred Stock, there are no other series or
classes of Preferred Stock with currently outstanding shares. All the shares of
all other series or classes of Preferred Stock previously authorized by the
Company's Board have been repurchased by the Company, canceled or converted into
Common Stock and are not subject to reissue.
The issuance of any additional series of Preferred Stock, and the relative
powers, preferences, rights, qualifications, limitations and restrictions of
such series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. The issuance of additional series of Preferred
Stock by the Board of Directors could, among other things, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a person or group to gain control of the Company. At
the date of this Prospectus, there are no plans, agreements or understandings
relative to the issuance of any shares of Preferred Stock.
Delaware Law
Certain provisions of the General Corporation Law of the State of Delaware,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
Section 203 of the General Corporation Law of the State of Delaware
prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by at least 66-2/3 of
the corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock. Although Section 203 permits a
corporation to elect not to be governed by its provisions, the Company to date
has not made this election.
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.
Transfer Agent
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal United States federal income
tax consequences of the ownership and disposition of Notes and Units to initial
purchasers who purchase the Notes or Units at the initial issue
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price. This summary is based on the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), administrative pronouncements, judicial decisions
and existing and proposed Treasury Regulations, changes to any of which
subsequent to the date of this Prospectus may affect the tax consequences
described herein (possibly retroactively). This summary discusses only Notes and
Units held as capital assets within the meaning of Section 1221 of the Code. It
does not discuss all of the tax consequences that may be relevant to a holder in
light of its particular circumstances or to holders subject to special rules,
such as certain financial institutions, insurance companies, tax-exempt
organizations, dealers or traders in securities or currencies, holders who hold
the Notes, Senior Debentures, Warrants or Units as a position in a "straddle" or
as part of a "hedging," "conversion" or "integrated" transaction, holders whose
functional currency is other than the U.S. dollar or holders that are not U.S.
Holders (as defined below). Persons considering the purchase of Notes or Units
should consult their tax advisors with regard to the application of the United
States federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a holder of a Note or a Unit
that for United States federal income tax purposes is (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized in
or under the laws of the United States or of any State thereof (including the
District of Columbia), (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust if (A) a
United States court is able to exercise primary supervision over the trust's
administration and (B) one or more United States persons have the authority to
control all of the trust's substantial decisions. Notwithstanding the preceding
sentence, to the extent provided in United States Treasury Regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons also will be U.S. Holders.
The Notes
Payments of Interest
Payments of interest on a Note generally will be taxable to a U.S. Holder
as ordinary interest income at the time that such payments are accrued or are
received (in accordance with the U.S. Holder's method of tax accounting).
It is possible that the IRS could assert that the Additional Interest which
the Company would be obligated to pay if the Notes Exchange Offer Registration
Statement is not filed or declared effective within the time periods set forth
herein (or certain other actions are not taken) (as described above under "Notes
Exchange Offer and Registration Rights") are "contingent payments" for United
States federal income tax purposes. If so treated, the Notes would be treated as
contingent payment debt instruments and certain adverse United States federal
income tax consequences could result. However, the United States Treasury
Regulations issued by the IRS regarding debt instruments that provide for one or
more contingent payments provide that, for purposes of determining whether a
debt instrument is a contingent payment debt instrument, remote or incidental
contingencies are ignored. The Company believes that the possibility of the
payment of Additional Interest is remote and, accordingly, does not intend to
treat the Notes as contingent payment debt instruments.
The Company does not intend to treat the possibility of an optional or
provisional redemption or repurchase of the Notes as giving rise to any
additional accrual of OID or recognition of ordinary income upon redemption,
sale or exchange.
Sale, Exchange or Retirement
Subject to the discussion of the Exchange Offer below, upon the sale,
exchange or retirement of a Note, a U.S. Holder would recognize gain or loss, if
any, equal to the difference between the amount realized on the sale, exchange
or retirement and the holder's adjusted tax basis in the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note will generally be
capital gain or loss. In the case of a noncorporate U.S. Holder, the maximum
marginal United States federal income tax rate applicable to such gain will be
lower than the maximum marginal
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United States federal income tax rate applicable to ordinary income if such U.S.
Holder's holding period for such Notes exceeds one year and will be further
reduced if such Notes were held for more than 18 months.
Exchange Offer
The exchange of Notes for Exchange Notes by a U.S. Holder pursuant to the
Exchange Offer should not constitute a taxable exchange for United States
federal income tax purposes. A U.S. Holder should not recognize gain or loss
upon the receipt of an Exchange Note pursuant to the Exchange Offer and should
be required to continue to include interest on the Exchange Notes in gross
income for United States federal income tax purposes in the manner and to the
extent described above. A U.S. Holder's holding period for an Exchange Note
should include the holding period for the original note exchanged pursuant to
the Exchange Offer and such holder's adjusted basis in an Exchange Note should
be the same as such holder's adjusted basis in such original Note.
Backup Withholding and Information Reporting
Certain noncorporate U.S. Holders may be subject to backup withholding at a
rate of 31% on payments made on a Note. Backup withholding will apply only if a
U.S. Holder (i) fails to furnish its Taxpayer Identification Number ("TIN")
which, in the case of an individual, would be his or her Social Security number,
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed
to properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the IRS that it is subject to backup
withholding. The amounts withheld under the backup withholding rules are not an
additional tax and may be refunded, or credited against the U.S. Holder's United
States federal income tax liability provided that the required information is
furnished to the IRS.
The Units
Allocation of the Issue Price Between a Senior Debenture and Warrant
Each Unit is comprised of a Senior Debenture and a Warrant. The "issue
price" of a Unit for United States federal income tax purposes will be the
initial offering price of a substantial amount of the Units to investors (other
than persons acting in their capacity as underwriters, placement agents or
wholesalers). The issue price will be allocated between the Senior Debenture and
the Warrant based on their respective fair market values at the time of
issuance, and a U.S. Holder's initial tax basis in each will be equal to the
amount so allocated. Based upon its estimate of the fair market value of a
Warrant, the Company intends to treat $19,493,000 of the issue price of a Unit
as allocable to the Senior Debenture (which amount the Company will therefore
treat as its "issue price" for United States federal income tax purposes) and
$507,000 as allocable to the Warrant. The Company intends to file information
returns with the Internal Revenue Service (the "IRS") based on such allocation.
The Company's allocation of the issue price is binding on a U.S. Holder for
United States federal income tax purposes unless the holder discloses the use of
a different allocation in its United States federal income tax return for the
year in which the Unit was acquired. However, the Company's allocation is not
binding on the IRS, and there can be no assurance that the IRS will not
challenge such allocation.
The Senior Debentures
In general, the excess of the "stated redemption price at maturity" of a
Senior Debenture over its "issue price" generally will constitute original issue
discount ("OID") for United States federal income tax purposes. The stated
redemption price at maturity of a Senior Debenture is the sum of all scheduled
amounts payable on the Senior Debenture (including interest). U.S. Holders of
the Senior Debentures will be required to include OID in income for United
States federal income tax purposes as it accrues, in accordance with a constant
yield method based on a compounding of interest, before the receipt of cash
payments attributable to such income. Under this method, U.S.
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Holders generally will be required to include in income increasingly greater
amounts of OID in successive accrual periods.
The Company does not intend to treat the possibility of an optional or
provisional redemption or repurchase of the Senior Debentures as giving rise to
any additional accrual of OID or recognition of ordinary income upon redemption,
sale or exchange.
Subject to the discussion of the Debenture Exchange Offer below, upon the
sale, exchange or retirement of a Senior Debenture, a U.S. Holder will recognize
taxable gain or loss equal to the difference between the amount realized and
such holder's adjusted tax basis. A U.S. Holder's adjusted tax basis generally
will equal the issue price of such Senior Debenture increased by the amount of
any OID previously included in income by such U.S. Holder with respect to such
Senior Debenture and decreased by any payment previously made on such Senior
Debenture. Such gain or loss realized on the sale, exchange or retirement will
be capital gain or loss. In the case of a noncorporate U.S. Holder, the maximum
marginal United States federal income tax rate applicable to such gain will be
lower than the maximum marginal United States federal income tax rate applicable
to ordinary income if such U.S. Holder's holding period for such Senior
Debentures exceeds one year and will be further reduced if such Senior
Debentures were held for more than 18 months.
The exchange of a Subordinated Debenture for an Exchange Debenture by a
U.S. Holder pursuant to the Exchange Offer should not constitute a taxable
exchange for United States federal income tax purposes. A U.S. Holder should not
recognize gain or loss upon the receipt of an Exchange Debenture pursuant to the
Exchange Offer and should be required to continue to include interest on the
Exchange Debenture in gross income for United States federal income tax purposes
in the manner and to the extent described above. A U.S. Holder's holding period
for an Exchange Debenture should include the holding period for the original
Subordinated Debenture exchanged pursuant to the Exchange Offer and such
holder's adjusted basis in an Exchange Subordinated Debenture should be the same
as such holder's adjusted basis in such original Subordinated Debenture.
The Company expects that the Senior Debentures will be applicable high
yield discount obligations as defined in the Code, because their yield to
maturity is expected to exceed the "applicable federal rate" in effect at the
time of their issuance (the "AFR") plus five percentage points. In that event no
portion of the OID on the Senior Debentures would be deductible by the Company
until paid. In addition, a portion of the OID thereon may not be deductible by
the Company at any time; such portion would be an amount that bears the same
ratio to such OID as (i) the excess of the yield to maturity of the Senior
Debentures over the AFR plus six percentage points bears to (ii) the yield to
maturity. To the extent that the non-deductible portion of OID would have been
treated as a dividend if it had been distributed with respect to the Company's
stock, it will be treated as a dividend to corporate holders for purposes of the
rules relating to the dividends received deduction.
It is possible that the IRS could assert that the Additional Interest which
the Company would be obligated to pay if the Debentures Exchange Offer
Registration Statement is not filed or declared effective within the time
periods set forth herein (or certain other actions are not taken) (as described
above under "Debentures Exchange Offer and Registration Rights") are "contingent
payments" for United States federal income tax purposes. If so treated, the
Senior Debentures would be treated as contingent payment debt instruments, and
certain adverse United States federal income tax consequences could result.
However, the United States Treasury Regulations issued by the IRS regarding debt
instruments that provide for one or more contingent payments provide that, for
purposes of determining whether a debt instrument is a contingent debt
instrument, remote or incidental contingencies are ignored. The Company believes
that the possibility of the payment of Additional Interest is remote and,
accordingly, does not intend to treat the Senior Debentures as contingent
payment debt instruments.
The Warrants
A U.S. Holder generally will not recognize any gain or loss upon exercise
of a Warrant (except with respect to any cash received in lieu of a fractional
share of Common Stock). A U.S. Holder will have tax basis in the shares
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of Common Stock received upon exercise equal to the sum of its tax basis in the
Warrants and the aggregate exercise price thereof. A U.S. Holder's holding
period in such shares of Common Stock would begin on the day after such Warrants
were exercised and will not include the period during which the Warrant was
held.
Upon the sale or exchange of a Warrant, a U.S. Holder will generally
recognize gain or loss equal to the difference, if any, between the amount
realized and the U.S. Holder's tax basis. If a Warrant expires unexercised, a
U.S. Holder may be permitted to claim a capital loss, in an amount equal to the
U.S. Holder's tax basis in the Warrant. Any such gain or loss will be capital
gain or loss if the Common Stock to which such Warrant relates would have been a
capital asset in the hands of such holder. In the case of a noncorporate U.S.
Holder, the maximum marginal United States federal income tax rate applicable to
such gain will be lower than the maximum marginal United States federal income
tax rate applicable to ordinary income if such U.S. Holder's holding period for
such Warrants exceeds one year and will be further reduced if such Warrants were
held for more than 18 months.
Under Section 305 of the Code, a U.S. Holder of a Warrant may be deemed to
have received a constructive distribution of ordinary dividend income from the
Company in the event of certain adjustments to the number of shares of Common
Stock to be issued on exercise of a Warrant or the failure to make such an
adjustment.
Backup Withholding and Information Reporting
Certain noncorporate U.S. Holders may be subject to backup withholding at a
rate of 31% on payments made on a Senior Debenture or a Warrant. Backup
withholding will apply only if a U.S. Holder (i) fails to furnish its TIN which,
in the case of an individual, would be his or her Social Security number, (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the IRS that it is subject to backup
withholding. The amounts withheld under the backup withholding rules are not an
additional tax and may be refunded, or credited against the U.S. Holder's United
States federal income tax liability provided that the required information is
furnished to the IRS.
BOOK-ENTRY, DELIVERY AND FORM
The Unregistered Securities were each issued as a single, permanent global
certificate in definitive, fully registered form (the "Unregistered Global
Securities"). Except for Exchange Securities issued to Non-Global Purchasers (as
defined below), the Exchange Securities will each initially be issued in the
form of one or more global certificates (collectively, the "Exchange Global
Certificates"). The Unregistered Global Securities were deposited on the date of
the closing of the Notes Offering and the concurrent offering of the Units, and
the Exchange Global Certificates will be deposited on the date of closing of the
Exchange Offers with, or on behalf of, the Depository and registered in the name
of a nominee of DTC.
Securities (i) originally purchased by or transferred to "foreign
purchasers" or Accredited Investors who are not QIBs or (ii) held by QIBs who
elect to take physical delivery of their certificates instead of holding their
interest through Global Securities (and which are thus ineligible to trade
through DTC) (collectively referred to herein as the "Non-Global Purchasers")
will be issued in registered form ("Certificated Securities"). Upon the transfer
to a QIB of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or such Global Security has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in each Global Security.
"Global Securities" means the Unregistered Global Securities or the Exchange
Global Securities, as the case may be.
The Global Securities. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Securities, DTC or its
custodian will credit, on its internal system, the principal amount of Notes, or
the principal amount of Senior Debentures, as the case may be, of the individual
beneficial interest represented by such Global Security to the respective
accounts of persons who have accounts with such depositary and
171
<PAGE>
(ii) ownership of beneficial interests in the Global Securities will be shown
on, and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of persons who have
accounts with DTC ("DTC Participants")) and the records of DTC Participants
(with respect to interests of persons other than DTC Participants). Ownership of
beneficial interests in the Global Securities will be limited to DTC
Participants or persons who hold interests through DTC Participants. QIBs may
hold their interests in the Global Securities directly through DTC, if they are
DTC Participants in such system, or indirectly through organizations which are
DTC Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of any of
the Global Securities, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Note or the Senior Debenture, as the
case may be, represented by the applicable Global Security for all purposes
under the Notes Indenture or the Senior Indenture, as the case may be. No
beneficial owner of an interest in the Global Securities will be able to
transfer that interest except in accordance with DTC's procedures, in addition
to those provided for under the Notes Indenture or the Senior Indenture.
Payments on the Global Securities will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the Notes
Trustee or the Debentures Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global Security, will credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the applicable Global Security as shown on the records of DTC or its nominee.
The Company also expects that payments by DTC Participants to owners of
beneficial interests in the Global Securities held through such DTC Participants
will be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
DTC Participants.
Transfers between DTC Participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearinghouse funds. If
a holder requires physical delivery of a Certificated Security for any reason,
including to sell Notes or Senior Debentures to persons in states which require
physical delivery of Certificated Securities, or to pledge such securities, such
holder must transfer its interest in the applicable Global Security, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Notes Indenture or the Senior Indenture, as the case may be.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Securities (including the presentation of the Securities
for exchange as described below) only at the direction of one or more DTC
Participants to whose account the DTC interests in the Global Securities are
credited and only in respect of such portion of the Securities as to which such
DTC Participant or DTC Participants has or have given such direction. However,
if there is an Event of Default under the Notes Indenture or the Senior
Indenture, DTC will exchange the Global Securities for Certificated Securities,
which it will distribute to its DTC Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between DTC Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly.
172
<PAGE>
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Securities among DTC Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company, the Initial Purchaser or any
other person will have any responsibility for the performance by DTC or its
Participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Securities and a successor depositary is
not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Securities.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to either Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Unregistered Securities, where such Exchange Securities were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that for a period of 180 days after the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
_________________, 1998, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to either Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities, or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commission or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Securities. Any broker-dealer that resells Exchange Securities that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Securities
may be deemed to be an 'underwriter' within the meaning of the Securities Act
and any profit on any such resale of Exchange Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensations under the Securities Act. The Letters of Transmittal state that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
pursuant to a Letter of Transmittal.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes and the Senior
Debentures will be passed upon for COI and the Company, respectively, by
Doepken, Keevican & Weiss Professional Corporation, Pittsburgh, Pennsylvania.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of COMFORCE Corporation and Subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows
173
<PAGE>
for each of the three years in the period ended December 31, 1996, included in
this Prospectus, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their report appearing herein.
The balance sheets of RHO Company Incorporated as of December 31, 1995 and
1996, and the related statements of income, changes in shareholders' deficit and
cash flows for the years ended December 31, 1995 and 1996, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent accountants,
as stated in their report appearing herein.
The consolidated balance sheets of Uniforce Services, Inc. and Subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the years in the three
year period ended December 31, 1996, have been included herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
174
<PAGE>
COMFORCE CORPORATION
AND UNIFORCE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Pages
-----
<S> <C>
COMFORCE CORPORATION PRO FORMA Unaudited Pro Forma Combined Financial
Statements:
Introduction........................................................................................................ F-2
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997................................................. F-3
Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997................... F-4
Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1996................... F-5
Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1996........................... F-6
Notes to Unaudited Pro Forma Combined Financial Statements.......................................................... F-7
COMFORCE CORPORATION
Audited Financial Statements:
Report of Independent Accountants................................................................................... F-10
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................................ F-11
Consolidated Statements of Operations for years ended December 31, 1996, 1995 and 1994.............................. F-12
Consolidated Statements of Stockholders' Equity for years ended December 31, 1996, 1995 and 1994.................... F-13
Consolidated Statements of Cash Flows for years ended December 31, 1996, 1995 and 1994.............................. F-15
Notes to Consolidated Financial Statements.......................................................................... F-17
Unaudited Interim Financial Statements:
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1997............................................. F-43
Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 1997 and
1996............................................................................................................. F-45
Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended
September 30, 1997............................................................................................... F-46
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
1996............................................................................................................. F-47
Notes to Unaudited Consolidated Financial Statements................................................................ F-48
RHO COMPANY INCORPORATED
Audited Financial Statements:
Report of Independent Public Accountants............................................................................ F-54
Balance Sheets as of December 31, 1996 and 1995..................................................................... F-55
Statements of Income for years ended December 31, 1996, 1995 and 1994............................................... F-56
Statements of Changes in Shareholders' Deficit for years ended December 31, 1996, 1995 and 1995..................... F-57
Statements of Cash Flows for years ended December 31, 1996, 1995 and 1994........................................... F-58
Notes to Financial Statements....................................................................................... F-59
UNIFORCE
Audited Consolidated Financial Statements:
Independent Auditors' Report........................................................................................ F-64
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................................ F-65
Consolidated Statements of Earnings for years ended December 31, 1996, 1995 and 1994................................ F-66
Consolidated Statements of Stockholders' Equity for years ended December 31, 1996, 1995 and 1994.................... F-67
Consolidated Statements of Cash Flows for years ended December 31, 1996, 1995 and 1994.............................. F-68
Notes to Consolidated Financial Statements.......................................................................... F-69
Unaudited Interim Financial Statements:
Unaudited Consolidated Condensed Balance Sheet as of September 30, 1997............................................. F-79
Unaudited Consolidated Condensed Statements of Earnings for the nine months ended September 30, 1997 and
1996............................................................................................................. F-80
Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 1997 and
1996............................................................................................................. F-81
Notes to Unaudited Consolidated Condensed Financial Statements...................................................... F-82
</TABLE>
F-1
<PAGE>
COMFORCE Corporation and Subsidiaries
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements reflect (i)
the treatment of the operation of the Company's jewelry business prior to
January 1, 1996 as a discontinued operation; (ii) the acquisition of business
operating in the staffing industry, including COMFORCE Telecom, Inc. ("COMFORCE
Telecom") in 1995, Williams Communications Services, Inc. ("Williams"), RRA,
Inc., Project Staffing Support Team, Inc. and DataTech Technical Services, Inc.
(collectively, "RRA"), Force Five, Inc. ("Force Five"), Continental Field
Services Corp. ("Continental"), and AZATAR Computer Systems, Inc. ("AZATAR"),
completed in 1996, RHO Company Incorporated ("Rhotech"), completed in 1997, and
the proposed acquisition of Uniforce Services, Inc. ("Uniforce") as if such
acquisitions had occurred on January 1, 1996 (other than the unaudited pro forma
balance sheet at September 30, 1997, which has been prepared as if all such
acquisitions were consummated as of such date) (and accounted for by the
purchase method); and (iii) the financing of $167 million of debt resulting from
the Notes Offering, the Units Offering and the initial borrowings under the New
Credit Facility as if such debt were outstanding for all periods presented and
replaced all historical financing arrangements. Prior to its acquisition by the
Company, each of these acquired businesses operated as a separate independent
entity. Since the unaudited pro forma combined financial statements set forth
below show the combined financial condition and operating results of these
recently acquired businesses during periods when they were not under common
control or management, the information presented may not be indicative of the
results which would have actually been obtained had such acquisitions been
completed on the dates indicated, or the Company's future financial or operating
results. These unaudited pro forma combined financial statements should be read
in conjunction with the financial statements of the respective entities included
therein, and the related notes thereto.
F-2
<PAGE>
COMFORCE Corporation
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMFORCE Uniforce Adjustments(1) (the Company)
-------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $2,670 $6,555 $(7,151) $2,074
Restricted cash and equivalents ................................ 360 -- -- 360
Accounts receivable and Service fees receivable, net ........... 26,547 46,522 -- 73,069
Prepaid expenses ............................................... 1,050 803 -- 1,853
Deferred financing fees ........................................ 1,628 -- (1,628) --
Income tax receivable .......................................... 590 -- -- 590
Deferred income taxes .......................................... 2,028 201 3,000 5,229
Other assets ................................................... 243 -- -- 243
--------- --------- --------- ---------
Total current assets ..................................... 35,116 54,081 (5,779) 83,418
--------- --------- --------- ---------
Deferred financing fees ........................................ -- 324 7,676 8,000
Property and equipment, net of accumulated
depreciation ................................................ 1,449 4,336 -- 5,785
Intangible assets, net of accumulated amortization ............. 38,722 7,051 85,614 131,387
Other assets ................................................... 452 -- -- 452
--------- --------- --------- ---------
Total assets ............................................. $75,739 $65,792 $87,511 $229,042
========= ========= ========= =========
Current liabilities:
Borrowings under revolving line of credit ...................... $16,488 $2,000 $(14,488) $4,000
Current portion of capitalized lease obligations ............... -- 204 -- 204
Accounts payable ............................................... 956 1,274 -- 2,230
Accrued expenses ............................................... 5,232 2,502 -- 7,734
Accrued payroll and payroll taxes .............................. 3,337 7,220 -- 10,557
Income taxes ................................................... -- 485 -- 485
--------- --------- --------- ---------
Total current liabilities ................................ 26,013 13,685 (14,488) 25,210
--------- --------- --------- ---------
Capitalized lease obligations .................................. -- 577 -- 577
Deferred income tax ............................................ 90 -- -- 90
Long-term bank debt ............................................ 20,000 34,098 (21,098) 33,000
Notes and Senior Debentures .................................... -- -- 130,000 130,000
Other .......................................................... 690 -- -- 690
Commitments and contingencies .................................. -- -- -- --
Stockholders' equity:
Series F Senior convertible preferred stock .................... 1 -- -- 1
Common stock ................................................... 137 51 (35) 153
Additional paid-in capital ..................................... 30,485 9,028 3,113 42,626
Retained deficit, since January 1, 1996 ........................ (1,677) -- (1,628) (3,305)
Retained earnings .............................................. -- 30,304 (30,304) --
Treasury stock ................................................. -- (21,951) 21,951 --
--------- --------- --------- ---------
Total stockholders' equity ............................... 28,946 17,432 (6,903) 39,475
--------- --------- --------- ---------
Total liabilities and stockholders' equity ..................... $75,739 $65,792 $87,511 $229,042
========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-3
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(2)
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMFORCE Rhotech Uniforce Adjustments(3 (the Company)
-------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $145,986 $15,416 $132,953 -- $294,355
Cost of revenues ................................ 127,227 14,411 107,449 -- 249,087
--------- --------- --------- --------- ---------
Gross profit ................................. 18,759 1,005 25,504 -- 45,268
Operating expenses:
Selling, general and administrative .......... 11,842 1,524 17,325 -- 30,691
Depreciation and amortization ................ 1,241 40 953 1,480 3,714
--------- --------- --------- --------- ---------
Income (loss) from operations ................... 5,676 (559) 7,226 (1,480) 10,863
Other (income) expense:
Bridge financing costs .......................... 5,822 -- -- -- 5,822
Other ........................................... (344) 384 (9) -- 31
Interest expense ................................ 2,151 207 1,829 11,091 15,278
--------- --------- --------- --------- ---------
7,629 591 1,820 11,091 21,131
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............... (1,953) (1,150) 5,406 (12,571) (10,268)
Provision (credit) for income taxes ............. (646) -- 2,126 (4,721) (3,241)
--------- --------- --------- --------- ---------
Net income (loss) ............................... (1,307) $(1,150) $3,280 $(7,850) (7,027)
========= ========= ========= ========= =========
Dividends on preferred stock .................... 732 18
--------- ---------
Loss available for common stockholders .......... $(2,039) $(7,045)
========= =========
Loss per share from operations .................. $(0.15) $(0.45)
========= =========
Weighted average shares outstanding ............. 13,256 15,512(4)
========= =========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996(2)
(in thousands except per share data)
<TABLE>
<CAPTION>
FORCE
COMFORCE Williams RRA FIVE AZATAR Continental
-------- -------- --- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 33,514 $ 657 $ 22,799 $ 4,598 $ 5,781 $ 7,377
Cost of revenues ..................... 28,690 499 20,959 3,454 4,619 6,259
-------- -------- -------- -------- -------- --------
Gross profit ......................... 4,824 158 1,840 1,144 1,162 1,118
Operating expenses:
Selling, general and
administrative .................... 2,891 64 1,375 1,274 555 802
Depreciation and
amortization ...................... 343 1 34 24 25 13
-------- -------- -------- -------- -------- --------
Income (loss) from
operations ........................ 1,590 93 431 (154) 582 303
Other expense (income) ............... (29) -- -- -- (54) (23)
Interest expense
(income) .......................... 102 -- 34 7 29 5
-------- -------- -------- -------- -------- --------
73 -- 34 7 (25) (18)
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes ...................... 1,517 93 397 (161) 607 321
Provision (credit) for
income taxes ...................... 610 39 -- (49) 254 --
-------- -------- -------- -------- -------- --------
Net income (loss) .................... 907 $ 54 $ 397 $ 112 $ 353 $ 321
======== ======== ======== ======== ========
Less dividends on
preferred stock ................... 193
--------
Add dividends on
common stock
equivalents ....................... 18
--------
Income (loss) available
for common
stockholders ...................... $ 732
========
Income (loss) per share
from operations ................... $ 0.06
========
Weighted average
shares outstanding ................ 12,661
========
<CAPTION>
Pro Forma Pro Forma
Rhotech Uniforce MONTARE Adjustments(3) (the Company)
------- -------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ............................... $ 63,556 $ 03,393 $ 2,474 -- $ 244,149
Cost of revenues ....................... 56,656 82,047 1,671 -- 204,854
--------- --------- --------- --------- ---------
Gross profit ........................... 6,900 21,346 803 -- 39,295
Operating expenses:
Selling, general and
administrative ...................... 5,321 14,556 546 -- 27,384
Depreciation and
amortization ........................ 226 783 6 2,184 3,639
--------- --------- --------- --------- ---------
Income (loss) from
operations .......................... 1,353 6,007 251 (2,184) 8,272
Other expense (income) ................. 197 (19) (14) -- 58
Interest expense
(income) ............................ 984 1,564 -- 12,553 15,278
--------- --------- --------- --------- ---------
1,181 1,545 (14) 12,553 15,336
--------- --------- --------- --------- ---------
Income (loss) before
income taxes ........................ 172 4,462 265 (14,737) (7,064)
Provision (credit) for
income taxes ........................ -- 1,695 -- (4,509) (1,960)
--------- --------- --------- --------- ---------
Net income (loss) ...................... $ 172 $ 2,767 $ 265 $ (10,228) (5,104)
========= ========= ========= =========
Less dividends on
preferred stock ..................... 18(5)
---------
Add dividends on
common stock
equivalents .........................
---------
Income (loss) available
for common
stockholders ........................ $ (5,122)
=========
Income (loss) per share
from operations ..................... $ (0.40)
=========
Weighted average
shares outstanding .................. 12,980(4)
=========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (2)
(in thousands except per share data)
<TABLE>
<CAPTION>
FORCE
COMFORCE Williams RRA FIVE AZATAR Continental
-------- -------- --- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 55,867 $ 657 $ 22,799 $ 4,598 $ 6,403 $ 8,368
Cost of revenues .................... 47,574 499 20,959 3,454 5,054 7,017
-------- -------- -------- -------- -------- --------
Gross profit ........................ 8,293 158 1,840 1,144 1,349 1,351
Operating expenses:
Selling, general and
administrative ................... 5,266 64 1,375 1,274 612 898
Depreciation and
amortization ..................... 614 1 34 14 28 13
-------- -------- -------- -------- -------- --------
Income(loss) from
operations ....................... 2,413 93 431 (144) 709 440
Other (income) expense .............. (40) -- (54) (25)
Interest expense
(income) ......................... 201 -- 34 7 29 5
-------- -------- -------- -------- -------- --------
161 -- 34 7 (25) (20)
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes ..................... 2,252 93 397 (151) 734 460
Provision (credit) for
income taxes ..................... 900 39 -- (49) 301 --
-------- -------- -------- -------- -------- --------
Net income (loss) ................... 1,352 $ 54 $ 397 $ (102) $ 433 $ 460
======== ======== ======== ======== ========
Dividends on preferred
stock ............................ 325
--------
NAccretive dividend on
Series F Preferred
Stock ............................ 665
--------
Income (loss) available
for common
stockholders ..................... $ 362
========
Income (loss) per share
from operations .................. $ 0.03
========
Weighted average shares
outstanding ...................... 12,991
========
<CAPTION>
Pro Form Pro Forma
Rhotech Uniforce MONTARE Adjustments(3) (the Company)
Revenues ................................. $ 85,746 $ 142,151 $ 2,474 -- $ 329,063
Cost of revenues ......................... 76,457 112,663 1,671 -- 275,348
--------- --------- --------- --------- ---------
Gross profit ............................. 9,289 29,488 803 -- 53,715
Operating expenses:
Selling, general and
administrative ........................ 7,215 20,434 546 -- 37,684
Depreciation and
amortization .......................... 297 1,074 6 2,769 4,850
--------- --------- --------- --------- ---------
Income(loss) from
operations ............................ 1,777 7,980 251 (2,769) 11,181
Other (income) expense ................... 260 (45) (14) -- 82
Interest expense
(income) .............................. 1,317 2,170 -- 16,607 20,370
--------- --------- --------- --------- ---------
1,577 2,125 (14) 16,607 20,452
--------- --------- --------- --------- ---------
Income (loss) before
income taxes .......................... 200 5,855 265 (19,376) (9,271)
Provision (credit) for
income taxes .......................... -- 2,185 -- (5,937) (2,561)
--------- --------- --------- --------- ---------
Net income (loss) ........................ $ 200 $ 3,670 $ 265 $ (13,439) $ (6,710)
========= ========= ========= =========
Dividends on preferred
stock ................................. $25 (5)
Accretive dividend on
Series F Preferred
Stock ................................. $ 100
=========
Income (loss) available
for common
stockholders .......................... $ (6,835)
=========
from operations ....................... $ (0.51)
=========
outstanding ........................... 13,527
=========
</TABLE>
See notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements
(1) Adjustment to record the acquisition of Uniforce and related financing as
follows (based on balance sheet data as of September 30, 1997):
Source of Funds: (in thousands)
--------------
Notes ................................................... $110,000
Units ................................................... 20,000
Borrowings under New Credit Facility .................... 37,000
Existing cash balances .................................. 7,151
--------
Total Sources ................................................. $174,151
========
Use of Funds:
Refinance Existing Credit Facility ...................... $ 36,488
Refinance Uniforce Credit Facility ...................... 36,098
Purchase of Uniforce shares ............................. 93,565
Transaction Costs ....................................... 8,000
--------
Total Uses .................................................... $174,151
========
In addition, the Company will issue approximately 1,585,000 shares of
COMFORCE common stock with a value of $12,157,000, which, together with the
cash portion of the purchase price of $93,565,000, will result in
additional intangibles, principally goodwill, of approximately $85,614,000.
In addition, the Company will write off $1,628,000 of deferred financing
fees associated with COMFORCE's previous financing arrangements, which
amount has not been recorded as an expense in the pro forma statement of
operations.
(2) The unaudited pro forma statements of operations include the statements of
operations for the companies listed for the periods prior to their
acquisition by COMFORCE. The unaudited pro forma statement of operations
for the period ended September 30, 1997 presents the financial statements
of COMFORCE and Uniforce for their respective 1997 nine month periods and
the results of operations for Rhotech (which was acquired on February 28,
1997 for a purchase price of $14.8 million and a contingent payout not to
exceed $3.3 million) from January 1, 1997 to February 28, 1997. The
unaudited pro forma statement of operations for the period ended September
30, 1996 presents the financial statements of COMFORCE, Uniforce (to be
acquired for a purchase price of $105.7 million), Rhotech, Force Five
(which was acquired for a purchase price of $2 million and contingent
payouts not to exceed $2 million), AZATAR (which was acquired for a
purchase price of $5.15 million and a contingent payout not to exceed $1.2
million) and Continental (which was acquired for a purchase price of $5
million and contingent payout not to exceed $1.02 million) for their
respective 1996 nine month periods and the results of operations for
companies acquired during the nine month period ended September 30, 1996 as
follows: Williams (which was acquired for a purchase price of $2 million
and a contingent payout not to exceed $2 million) (January 1 through March
3, 1996), RRA (which was acquired for a purchase price of $5.1 million and
a contingent payout not to exceed $650,000) (January 1 through May 10,
1996) and Montare International ("Montare") January 1, 1996 through May 17,
1996. Montare was acquired by Uniforce on May 17, 1996. The acquisition of
Montare did not have a material impact on Uniforce results of operations.
The unaudited pro forma statement of operations for the year ended December
31, 1996 includes the annual 1996 results of operations for COMFORCE,
Uniforce, and Rhotech and the results of operations for companies acquired
during the period as follows: Williams (January 1 through March 3, 1996),
RRA (January 1 through May 10, 1996), Force Five (January 1 through July
31, 1996), AZATAR (January 1 through November 3, 1996), Continental
(January 1 through
F-7
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements (Continued)
November 17, 1996) and Montare (January 1, 1996 through May 17, 1996). The
pro forma results of operations are presented as if these companies were
acquired on January 1, 1996 (and accounted for by the purchase method) and
do not purport to be an indication of the results of operations had these
acquisitions been made as of that date or of results which may occur in the
future.
(3) Pro forma adjustments include the following:
Nine Months Ended Year Ended
September 30, December 31,
1997 1996 1996
---- ---- ----
(in thousands)
Additional amortization of intangibles (a) ... $ (1,480) $ (2,184) $ (2,769)
(Increase) in interest expense (b) ........... (11,091) (12,553) (16,607)
Decrease in provision for income taxes (c) ... 4,721 4,509 5,937
-------- -------- --------
Total pro forma adjustments .................. $ (7,850) $(10,228) $(13,439)
======== ======== ========
(a) Amortization of intangibles assumes all of the acquisitions and
proposed acquisitions occurred on January 1, 1996. The table below reflects
the amortization of intangibles with lives ranging from 5 to 40 years,
including Uniforce goodwill amortized over 40 years:
Nine Months Ended Year ended
September 30, December 31,
1997 1996 1996
---- ---- ----
(In thousands)
Pro forma amortization:
Telecom ........................ $ 194 $ 194 $ 258
Williams ....................... 39 39 52
RRA ............................ 127 127 169
Force Five ..................... 39 39 52
Continental .................... 100 100 133
AZATAR ......................... 168 168 224
Rhotech ........................ 268 268 357
Uniforce ....................... 2,028 2,028 2,704
Less: historical amortization ........ (1,483) (779) (1,180)
------- ------- -------
Pro forma adjustment ................. $ 1,480 $ 2,184 $ 2,769
======= ======= =======
The allocation of excess purchase price over the fair value of the assets
acquired has not been finalized and management believes that any change to
the allocation will not have a material effect on the pro forma financial
statements of COMFORCE.
(b) The pro forma adjustment to interest expense reflects interest
expense on the placement of the Notes and Senior Debentures, borrowings
under the New Credit Facility and capital lease obligations aggregating
$167.8 million. Pro forma interest expense has been calculated using
interest rates of 8.25%, 12.0% and
F-8
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Combined Financial Statements (Continued)
15% per annum for the New Credit Facility, Notes and Senior Debentures,
respectively plus the amortization of debt financing costs. Financing costs
do not include the effects of the warrants.
(c) The pro forma adjustment for income taxes reflects the tax effect
of the proforma adjustments (excluding non-deductible amortization), the
tax effect of S Corporation earnings treated as C Corporation earnings and
the tax benefit of losses by other entities within the pro forma combined
group.
(4) Pro forma weighted average shares outstanding are calculated as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1997 1996 1996
---- ---- ----
(In thousands of shares)
<S> <C> <C> <C>
Historical weighted average shares outstanding ............... 13,256 12,661 12,991
Shares issued-Uniforce acquisition ........................... 1,585 1,585 1,585
Shares issued as compensation ................................ * * *
Shares issued-Telecom acquisition ............................ * * *
Shares issued-Force Five acquisition ......................... * * *
Shares issued-AZATAR acquisition ............................. * 243 *
Shares issued-Continental acquisition ........................ * 37 *
Common stock sold to fund Continental acquisition ............ * 460 *
Common stock equivalents Series D and E preferred stock ...... 671 1,107 893
Common stock equivalents on Series F preferred stock ......... ** ** **
Warrants issued in connection with the Continental acquisition ** ** **
Warrants issued in connection with the Telecom acquisition ... ** ** **
Shares issued to certain shareholders ........................ * ** **
Common stock equivalents which have become anti-dilutive ..... ** (3,113) (1,942)
Contingent shares ............................................ ** ** **
------ ------ ------
Total Pro Forma Shares ................................. 15,512 12,980 13,527
====== ====== ======
</TABLE>
- -----------
* Included in historical weighted average shares outstanding.
** Excluded as the effect would be anti-dilutive.
(5) Pro forma dividends for all periods presented represent dividends and
accretive dividends on $500,000 of Series F preferred stock remaining
outstanding as of September 30, 1997 and deemed outstanding for all periods
presented. Proceeds from this transaction of $167 million have been deemed
to be fully outstanding on a pro forma basis for all periods presented.
Accordingly, Series D preferred stock, the proceeds of which were utilized
for working capital purposes, and Series E preferred stock, the proceeds of
which were utilized to acquire RRA, have been deemed to have been converted
to common stock effective January 1, 1996, with the effects of such common
shares included in weighted average shares outstanding for all periods
presented.
F-9
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Comforce Corporation, Inc.:
We have audited the accompanying consolidated financial statements of Comforce
Corporation and Subsidiaries (the "Company") as listed in the index on page F-1
of this registration statement. 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 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
January 30, 1997, except as to Note 20
for which the date is March 21, 1997.
F-10
<PAGE>
Comforce Corporation and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1996 and 1995 (in thousands)
Assets
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3608 $ 649
Accounts receivable, net 12042 1698
Prepaid expenses 243
Other assets 373 117
Receivable from ARTRA GROUP Incorporated 1046
Deferred income tax 278
--------- --------
Total current assets 16,544 3,510
Property and equipment, net 744 90
Intangible assets, net 24,756 4,801
Other assets 1,322 135
--------- --------
Total assets $ 43,366 $ 8,536
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under revolving line of credit $ 3,850
Notes payable $ 500
Accounts payable 1,398 75
Accrued expenses 2,930 719
Income taxes 354 214
Liabilities to be assumed by ARTRA GROUP Incorporated, and
net liabilities of discontinued operations 3,699
--------- --------
Total current liabilities 8,532 5,207
--------- --------
Noncurrent liabilities to be assumed by ARTRA GROUP Incorporated 541
Obligations expected to be settled by the issuance of common stock 550
Deferred income tax 90
--------- --------
Total liabilities 8,622 6,298
--------- --------
Commitments and contingencies
Stockholders' Equity:
Series D senior convertible preferred stock, $.01 par value; 15,000 shares authorized,
7,002 shares issued and outstanding, liquidation value of $1,000 per share
($7,002,000) 1
Series F convertible preferred stock, $.01 par value; 10,000 shares
authorized, 3,250 shares issued and outstanding, liquidation value of
$1,000 per share ($3,250,000) 1
Common stock, $.01 par value; 100,000,000 shares authorized, 12,701,934 shares
issued and outstanding in 1996 and 9,309,000 shares issued and outstanding in 1995 127 92
Additional paid-in capital 34,253 95,993
Accumulated deficit (93,847)
Retained earnings, since January 1, 1996 362
--------- --------
Total stockholders' equity 34,744 2,238
--------- --------
Total liabilities and stockholders' equity $ 43,366 $ 8,536
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
Comforce Corporation and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except per share data)
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 55,867 $ 2,387
-------- --------
Costs and expenses:
Cost of goods sold 47,574 1,818
Stock compensation 3,425
Selling, general and administrative expenses 5,266 461 $ 966
Depreciation and amortization 614 362
-------- -------- --------
Total costs and expenses 53,454 6,066 966
-------- -------- --------
Operating income (loss) 2,413 (3,679) (966)
Other income (expense):
Interest expense (201) (585) (1,316)
Other income (expense), net 40 (33)
-------- -------- --------
(161) (618) (1,316)
Income (loss) from continuing operations before income taxes
and extraordinary credit 2,252 (4,297) (2,282)
Provision for income taxes (900) (35)
-------- -------- --------
Income (loss) from continuing operations 1,352 (4,332) (2,282)
Loss from discontinued operations (17,211) (16,220)
-------- -------- --------
Income (loss) before extraordinary credit 1,352 (21,543) (18,502)
Extraordinary credit, net discharge of indebtedness 6,657 8,965
-------- -------- --------
Net income (loss) 1352 (14,886) (9,537)
Dividends on preferred stock 325
-------- -------- --------
Accretive dividend on Series F preferred stock 665
-------- -------- --------
Income (loss) available to common stockholders $ 362 $(14,886) $ (9,537)
======== ======== ========
Income (loss) per share:
Continuing operations before accretive dividend $ .08 $ (0.95) $ (0.72)
Discontinued operations (3.74) (5.08)
-------- -------- --------
Income (loss) before extraordinary credit and accretive
dividend .08 (4.69) (5.80)
Extraordinary credit 1.45 2.81
Accretive dividend on Series F preferred stock (.05)
-------- -------- --------
Net income (loss) per share $ .03 $ (3.24) $ (2.99)
======== ======== ========
Weighted average shares outstanding 12,991 4,596 3,195
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
Comforce Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except share amounts)
Restricted
Preferred Stock Common Stock Common Stock
----------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------- ------- --------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,459 $17,273 3,162,772 $31
Net loss
ARTRA capital contributions
Lori preferred stock issued in exchange for
ARTRA notes and advances 2,242 2,242
Common stock issued under terms of debt settlement agreement
settlement agreement 100,000 1
Restricted common stock 100,000 $(700)
Exercise of stock options and warrants 2,500
Fractional shares purchased (253)
------- ------- --------- ----- -------- --------
Balance at December 31, 1994 9,701 19,515 3,265,019 32 100,000 (700)
Net earnings
Common stock issued as consideration for debt restructuring 150,000 2
Common stock issued as additional consideration for short-term
borrowings 141,176 1
Common stock issued to pay liabilities 115,098 1
Common stock sold through private placements 1,946,667 19
Common stock issued under compensation agreements with
individuals to manage the Company's telecommunications and
computer technical staffing services business 3,091,304 31
Common stock issued as additional consideration for Telecom
purchase guarantee 350,000 3
Common stock issued as compensation for Telecom acquisition fees 150,000 2
Common stock issued to ARTRA in exchange for the Company's
entire preferred stock issue (9,701) (19,515) 100,000 1
Restricted common stock issued as additional consideration for
short-term borrowings (100,000) 700
Liabilities assumed by ARTRA
Fractional shares purchased (66)
------- ------- --------- ----- -------- --------
Balance at December 31, 1995 -- -- 9,309,198 92 -- --
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
-------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1993 $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
Common stock issued under terms of debt settlement agreement
settlement agreement 699 700
Restricted common stock (700)
Exercise of stock options and warrants 13 13
Fractional shares purchased
-------- -------- -------
Balance at December 31, 1994 65,392 (78,961) 5,278
Net earnings (14,886) (14,886)
Common stock issued as consideration for debt restructuring 335 337
Common stock issued as additional consideration for short-term
borrowings 229 230
Common stock issued to pay liabilities 374 375
Common stock sold through private placements 5,820 5,839
Common stock issued under compensation agreements with
individuals to manage the Company's telecommunications and
computer technical staffing services business 2,844 2,875
Common stock issued as additional consideration for Telecom
purchase guarantee 587 590
Common stock issued as compensation for Telecom acquisition fees 251 253
Common stock issued to ARTRA in exchange for the Company's
entire preferred stock issue 19,514
Restricted common stock issued as additional consideration for
short-term borrowings 700
Liabilities assumed by ARTRA 647 647
Fractional shares purchased
-------- -------- -------
Balance at December 31, 1995 95,993 (93,847) 2,238
</TABLE>
F-13
Continued
<PAGE>
<TABLE>
<CAPTION>
Comforce Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity, Continued
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except share amounts)
Series E Series D
Common Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
------------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 9,309,198 $92
Quasi-Reorganization as of January 1, 1996
Exercise of stock options 4,500 1
Exercise of stock warrants 449,445 5
Issuance of Series E convertible preferred stock 8,871 $1
Conversion of Series E preferred to common stock 887,100 9 (8,871) (1)
Issuance of Series D senior convertible preferred stock 7,002 $1
Issuance of Series F preferred stock
Common stock sold through private placement 810,000 8
SEC registration fees
Common stock issued as consideration for the
purchase of Force Five 27,398 1
Common stock issued as consideration for the
purchase of AZATAR 243,211 2
Common stock issued as consideration for the purchase
of Continental 36,800 1
Common stock issued to pay liabilities assumed by ARTRA 137,500 1
Liabilities assumed by ARTRA
Common stock issued to management for anti-dilution provision 796,782 7
Net earnings
Dividends:
Series E preferred stock
Series D preferred stock
Series F preferred stock
Accretive dividend on Series F preferred stock
------------ -------- ------ ------ -------- ------
12,701,934 $127 -- $ -- 7,002 $1
============ ======== ====== ====== ======== ======
<CAPTION>
Retained
Series F Earnings
Preferred Stock Additional Since Total
--------------- Paid-in Accumulated January 1, Stockholders'
Shares Amount Capital Deficit 1996 Equity
------ ------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $95,993 $(93,847) $2,238
Quasi-Reorganization as of January 1, 1996 (93,847) 93,847
Exercise of stock options 22 23
Exercise of stock warrants 2,041 2,046
Issuance of Series E convertible preferred stock 4,635 4,636
Conversion of Series E preferred to common stock (8)
Issuance of Series D senior convertible preferred stock 6,415 6,416
Issuance of Series F preferred stock 33 $1 2,957 2,958
Common stock sold through private placement 6,362 6,370
SEC registration fees (300) (300)
Common stock issued as consideration for the
purchase of Force Five 499 500
Common stock issued as consideration for the
purchase of AZATAR 4,118 4,120
Common stock issued as consideration for the purchase
of Continental 574 575
Common stock issued to pay liabilities assumed by ARTRA 275 276
Liabilities assumed by ARTRA 3,318 3,318
Common stock issued to management for anti-dilution provision 534 541
Net earnings $1,352 1,352
Dividends:
Series E preferred stock (18) (18)
Series D preferred stock (280) (280)
Series F preferred stock (27) (27)
Accretive dividend on Series F preferred stock 665 (665)
---- --- ------- -------- ------ -------
33 $1 $34,253 $ -- $362 $34,744
==== === ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
Comforce Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,352 $(14,886) $ (9,537)
Adjustments to reconcile net earnings (loss) to cash flows from
operating activities:
Extraordinary gain from net discharge of indebtedness (6,657) (8,965)
Provision for disposal of fashion costume jewelry business 1,600
Depreciation of property, plant and equipment 139 101 438
Amortization of excess of cost over net assets acquired 475 261 1,018
Impairment of goodwill 12,930 10,800
Amortization of other assets 374 648
Common stock compensation 3,657
Allowance for doubtful accounts 212
Deferred taxes (189)
Changes in assets and liabilities, net of the effects of
acquisitions and the discontinued fashion costume
jewelry business (in 1995 and 1994):
(Increase) decrease in receivables (10,500) 913 2,117
Decrease in receivable from ARTRA 400
Decrease in inventories 2,105 1,098
Increase in prepaid expenses and other current assets (59) (56)
(Increase) decrease in other noncurrent assets (1,183) 170 153
Increase (decrease) in payables and accrued expenses 3,637 (2,127) (513)
Decrease in income taxes (60)
Decrease in other current and noncurrent
liabilities (408) (468)
-------- -------- --------
Net cash used by operating activities (5,776) (2,023) (3,211)
-------- -------- --------
Cash flows from investing activities:
Acquisition of COMFORCE Global, net of cash acquired (5,580)
Acquisition of Williams, RRA, Force Five, Continental and
Azatar, net of cash acquired (15,834)
Additions to property, plant and equipment (329) (656) (697)
Increase in receivable from officers (373)
Payment of liabilities with restricted cash 550 (550)
-------- -------- --------
Net cash used by investing activities (16,536) (5,686) (1,247)
-------- -------- --------
</TABLE>
F-15
Continued
<PAGE>
Comforce Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
for the years ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Payment of note payable (500)
Net increase (decrease) in short-term debt 2,486 (138)
Proceeds from line of credit 4,750
Repayment on line of credit (900)
Proceeds from issuance of preferred stock 14,010
Proceeds from exercise of stock options 23
Proceeds from exercise of warrants 2,046
Payment of registration costs (300)
Dividends paid (228)
Proceeds from long-term borrowings 1,241
Reduction of long-term debt (750) (444)
Proceeds from private placement of common stock 6,370 5,839
ARTRA capital contribution 1,500
Notes and advances from ARTRA 2,531
Other 11
-------- -------- --------
Net cash from financing activities 25,271 7,575 4,701
-------- -------- --------
Increase (decrease) in cash and cash equivalents 2,959 (134) 243
Cash and cash equivalents, beginning of year 649 783 540
-------- -------- --------
Cash and cash equivalents, end of year $ 3,608 $ 649 $ 783
======== ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 157 $ 273 $ 435
Income taxes paid, net 934 7 24
Supplemental schedule of noncash investing and financing activities:
Quasi-reorganization (93,848)
Common stock issued in connection with acquisitions 5,195 843
Accretive dividend on preferred stock 665
Common stock issued to settle liabilities 550 374
Amounts assumed by ARTRA 3,594
Accrued dividends 97
Common stock issued as consideration for debt
restructuring and short-term loans 567
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
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-16
<PAGE>
Comforce Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation:
COMFORCE Corporation ("COMFORCE" or the "Company"), formerly The Lori
Corporation ("Lori"), is a provider of telecommunications and computer
technical staffing and consulting services worldwide and maintains an
extensive global database of technical specialists. 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").
Effective January 1, 1996, the Company effected a quasi-reorganization
through the application of $93,847,000 of its $95,993,000 additional
paid-in capital account to eliminate its accumulated deficit. The Company's
Board decided to effect a quasi-reorganization given that the Company
achieved profitability following its entry into the technical staffing
business and discontinuation of its unprofitable Jewelry Business. The
Company's accumulated deficit at December 31, 1995 is primarily related to
the discontinued operations and is not, in management's view, reflective of
the Company's current financial condition.
ARTRA Group Incorporated ("ARTRA"), a public company whose shares are
traded on the New York Stock Exchange, was formerly the Company's parent
prior to October 17, 1995. At December 31, 1996, ARTRA owned less than 20%
of the Company's stock. ARTRA owns its shares of Common Stock in the
Company through a wholly-owned subsidiary, Fill-Mor Holding, Inc.
("Fill-Mor").
On October 17, 1995, Lori acquired one hundred percent of the capital stock
of COMFORCE Telecom Inc. ("COMFORCE Telecom"), formerly Spectrum Global
Services, Inc., d/b/a Yield Global, a wholly-owned subsidiary of Spectrum
Information Technologies, Inc. ("Spectrum"). In connection with the
re-focus of Lori's business, Lori changed its name to COMFORCE Corporation.
Since October 17, 1995, the Company has acquired a number of staffing and
consulting business throughout the United States. See Note 3.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of COMFORCE
Corporation, COMFORCE Telecom, Inc. COMFORCE Technical Services, Inc.
("CTS") and COMFORCE Information Technology, Inc. ("CIT"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
F-17
<PAGE>
Notes to Consolidated Financial Statements, Continued
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. The Company's allowance
for doubtful accounts was $213,000 as of December 31, 1996. Unbilled
receivables consists of revenues earned and recoverable costs for which
billings have not yet been presented to the customers as of the balance
sheet date. Unbilled accounts receivable was $1,148,000 and $151,000 as of
December 31, 1996 and 1995, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
primarily on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the life
of the lease or of the improvement. Maintenance and repairs are charged to
income as incurred and betterments that extend the useful life are
capitalized. Upon retirement or sale, the cost and accumulated depreciation
are eliminated from the respective accounts, and the gain or loss, if any,
is included in income.
If events or changes in circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the
long-lived asset, an impairment loss is recognized. To date, no impairment
losses have been recognized.
Intangibles
The net assets of a purchased business are recorded at their fair value at
the date of acquisition. At December 31, 1996, the excess of purchase price
over the fair value of net assets acquired (primarily goodwill) is
reflected as an intangible asset and amortized on a straight-line basis
over a period of 20-40 years. (See Note 5.)
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.
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. To
date, no impairment losses have been recognized.
F-18
<PAGE>
Notes to Consolidated Financial Statements, Continued
Income Taxes
The Company recognizes deferred income taxes for the tax consequences in
future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense consists of the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates relate to the
realizability of accounts receivable, long-lived assets and deferred tax
assets. Actual results could differ from those estimates.
Fair Values of Financial Instruments
Cash and cash equivalents and fixed rate debt obligations are reflected in
the accompanying consolidated balance sheets at amounts considered by
management to reasonably approximate fair value.
Management is not aware of any factors that would significantly affect the
value of these amounts.
Accounting for Long-Lived Assets
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which 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.
Accounting for Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. As
permitted by SFAS 123, the Company continues to measure compensation cost
in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," but provides pro forma disclosures of net
income and earnings per share as if the fair value method (as defined in
SFAS 123) had been applied beginning in 1995.
F-19
<PAGE>
Notes to Consolidated Financial Statements, Continued
Earnings Per Share Calculation
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes standards for computing and presenting
earnings per share (EPS). SFAS No. 128 will be effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application is not permitted. Management has not yet evaluated the effects
of this change on the Company's financial statements.
Reclassification
Certain items in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
3. Certain Acquisitions:
On October 17, 1995, Lori acquired one hundred percent of the capital stock
of COMFORCE Telecom. The price paid by the Company for the COMFORCE Telecom
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 $950,000, including a fee
of $750,000 to a related party, and 500,000 shares of the Company's common
stock valued at $843,000 (at a price per share of $1.68) 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 a then 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. Additionally, in conjunction with
the COMFORCE Telecom acquisition, ARTRA 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.
COMFORCE Telecom 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 Telecom was
accounted for by the purchase method and, accordingly, the assets and
liabilities of COMFORCE Telecom were included in the Company's financial
statements at their estimated fair market value at the date of acquisition
and COMFORCE Telecom's operations are included in the Company's statement
of operations from the date of acquisition. (See Note 5.)
The acquisition of COMFORCE was funded principally by private placements of
approximately 1,950,000 shares of the Company's common stock at $3.00 per
share plus detachable warrants to
F-20
<PAGE>
Notes to Consolidated Financial Statements, Continued
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.
On March 3, 1996, the Company acquired all of the assets of Williams
Communications Services, Inc. ("Williams"), a regional provider of
telecommunications and technical staffing services. The purchase price for
the assets of Williams was $2 million with a four year contingent payout
based on earnings of Williams. The value of the contingent payouts will not
exceed $2 million, for a total purchase price not to exceed $4 million. The
acquisition of Williams was accounted for by the purchase method and,
accordingly, Williams' operations are included in the Company's statement
of operations from the date of acquisition. (See Note 5.)
On May 10, 1996, the Company purchased all of the stock of Project Staffing
Support Team, Inc. and substantially all of the assets of RRA Inc. and
Datatech Technical Services, Inc. (collectively, "RRA") for an aggregate
purchase price of $5,100,000, plus acquisition costs and contingent
payments payable over three years in an aggregate amount not to exceed
$650,000. RRA is in the business of providing contract employees to other
businesses. The Company's headquarters are located in Tempe, Arizona. The
acquisition of RRA enables the Company, through its COMFORCE Technical
Services, Inc. subsidiary ("CTS"), to 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 acquisition was accounted for
by the purchase method and, accordingly, its operations are included in the
Company's statement of operations from the date of acquisition. (See Note
5.)
Effective July 31, 1996, the Company purchased all of the stock of Force
Five, Inc. ("Force Five") for an aggregate purchase price of $2,000,000,
payable in $1,500,000 cash, and 27,398 shares of the Company's Common Stock
valued at $500,000, plus a three-year contingent payout based on future
earnings of Force Five in an aggregate amount not to exceed $2,000,000.
Force Five, renamed COMFORCE Information Technologies, Inc. ("CIT"),
located in Dallas, Texas, provides information technology consulting
services to leading companies nationwide. The acquisition of Force Five was
accounted for under the purchase method and, accordingly, Force Five's
operations are included in the Company's statement of operations from the
date of acquisition. (See Note 5.)
On November 1, 1996, COMFORCE IT Acquisition Corp., a wholly-owned
subsidiary of the Company, merged with Azatar Computer Systems, Inc.
("Azatar") pursuant to the terms of an Agreement and Plan of Reorganization
entered into by such parties and W. Mark Holbrook, formerly the controlling
stockholder of Azatar (the "Merger Agreement"). Under the terms of the
Merger Agreement, the stockholders of Azatar received cash payments of
$1.03 million, 243,211 shares of the Company's common stock valued at $4.12
million, and contingent payments payable over three years in an aggregate
amount not to exceed $1.2 million payable in stock. Azatar is in the
business of information technology consulting. The acquisition of Azatar
was accounted for under the purchase method and, accordingly, Azatar's
operations are included in the Company's statement of operations from the
date of acquisition. (See Note 5.)
On November 8, 1996, the Company, through its subsidiary, COMFORCE Telecom
Inc., purchased, substantially all of the assets of Continental Field
Services Corporation and its affiliate, Progressive Telecom, Inc.,
(collectively "Continental") for a purchase price of $4.425 million in
F-21
<PAGE>
cash, 36,800 shares of the Company's common stock valued at $575,000, and
contingent payments payable over three years in an aggregate amount not to
exceed $1.02 million. The acquisition of Continental was accounted for
under the purchase method and, accordingly, Continental's operations are
included in the Company's statement of operations from the date of
acquisition. (See Note 5.)
The aforementioned acquisitions were acquired through funding raised from
the issuance of common stock, preferred stock and bank borrowings.
The following unaudited proforma summary presents the consolidated results
of operations as if the acquisition has occurred on January 1, 1995 and
does not purport to be an indication of what would have occurred had the
acquisition been made as of that date or of results which may occur in the
future (in thousands).
Year Ended December 31,
1996 1995
(Unaudited) (Unaudited)
Revenue $ 98,692 $ 91,571
Net income (loss) from continuing operations 2,015 (1,934)
Loss from discontinued operations -- (17,211)
Extraordinary credits, net discharge of indebtedness -- 6,657
---------- --------
Net income (loss) $ 2,015 $(12,488)
========== ========
Income (loss) per share from continuing operations $ .07 $ (.22)
Income (loss) per share from discontinued operations (1.74)
Extraordinary credits .67
---------- --------
Net income (loss) per share $ .07 $ (1.29)
========== ========
The above proforma data assume the issuance of Series F preferred stock and
the borrowing under the revolving line of credit to finance these
transactions. Proforma adjustments include an interest cost increase of
$96,000 in 1996, a reduction of interest expense of $126,000 in 1995,
additional goodwill amortization of $290,000 and $619,000 in the 1996 and
1995 periods, respectively, and the related income tax effect.
F-22
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Fixed Assets:
Fixed assets consist of (in thousands):
Estimated
Useful Lives
in Years 1996 1995
Office equipment 3-5 $ 225 $ 97
Furniture, fixtures and vehicles 3-7 592
Leasehold improvements 3-7 73
----- ----
890 97
Less, accumulated depreciation and amortization (146) (7)
----- ----
$ 744 $ 90
===== ====
Depreciation expense was $139,000, $101,000 and $438,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
5. Intangibles:
Intangibles as of December 31, 1996 and 1995 consisted of (in thousands):
Estimated
Useful
Lives
in Years 1996 1995
Excess of cost over net assets acquired (goodwill) 20-40 $ 24,547 $4,852
Non-compete covenants 5 730
Other 5 5
25,282 4,852
-------- ------
Less accumulated amortization (526) (51)
-------- ------
$ 24,756 $4,801
======== ======
Amortization expense was $475,000, $261,000 and $1,081,000 in the years ended
December 31, 1996, 1995 and 1994, respectively.
F-23
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Accrued Expenses:
Accrued expenses consist of the following (in thousands):
1996 1995
Payroll and payroll taxes $ 969
Pension plan 660
Vacation 324
Professional fees 288 $320
Medical insurance 171
Management fees 178
Other 518 221
------ ----
$2,930 $719
====== ====
7. Income Taxes:
The provision (benefit) for income taxes as of December 31, 1996 consists
of (in thousands):
1996 1995
Current:
Federal $ 867
State 222 35
Deferred (189)
----- ----
$ 900 $ 35
===== ====
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. 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 (in thousands):
1996 1995 1994
Statutory Federal tax rate provision (benefit) $34.0 $(34.0) $(34.0)
State and local taxes, net of Federal benefit 5.0 .3 .1
Current year tax loss not utilized 4.7
Impairment of goodwill 30.0 38.6
Amortization of goodwill .9 .6 3.6
Previously unrecognized benefit from utilizing tax
loss carryforwards (8.2)
----- ----- ------
$39.9 $ 1.6 $ .1
===== ===== ======
F-24
<PAGE>
Notes to Consolidated Financial Statements, 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, 1996 and
1995 (in thousands) are as follows:
1996 1995
Deferred tax assets:
Bad debt reserve $ 89
Accrued liabilities and other 189 $ 800
Net operating loss 16,400
-------- --------
Total deferred tax asset 278 17,200
-------- --------
Deferred tax liability:
Deductible intangibles 90
Machinery and equipment 100
-------- --------
Total deferred tax liability 90 100
-------- --------
Valuation allowance (17,100)
-------- --------
Net deferred tax asset $ 188 $ --
======== ========
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. As a result of the discontinuance of the
Jewelry business it has been determined that the Company will be unable to
utilize losses from those businesses in the future.
In 1995, the Company 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.
8. Debt:
On July 22, 1996, the Company and certain subsidiaries entered into a $10
million Revolving Credit Agreement (the "Credit Agreement") with the Chase
Manhattan Bank ("Chase") to provide working capital for the Company's
operations. The Company, COMFORCE Telecom and COMFORCE Technical Services,
Inc. are co-borrowers under the Credit Agreement and Project Staffing
Support Team, Inc. ("PSST") is a guarantor of the obligations. Principal
outstanding under the Credit Agreement is due June 30, 1998. Chase agreed
to make revolving credit loans outstanding as prime rate loans or LIBOR
loans, provided that, during the occurrence and continuance of an event of
default, the Company and its subsidiaries could not elect, and Chase had no
obligation to make, LIBOR loans. Interest on LIBOR loans is payable in the
amount of the LIBOR rate plus 2.0% per annum. Interest on the prime rate
loans is payable in the amount of Chase's prime rate as announced from time
to time (8.25% at December 31, 1996). The amount outstanding at December
31, 1996 was $3,850,000. As of December 31, 1996, the Company was not in
compliance with certain loan covenants. In March 1997, the Company repaid
its debt to Chase in full. (See Note 20.)
F-25
<PAGE>
Notes to Consolidated Financial Statements, Continued
At December 31, 1995, notes payable and long-term debt (in thousands)
consisted of:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
<S> <C> <C>
Outstanding debt:
Revolving credit borrowings $ 3,850
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
Less:
Liabilities to be assumed by ARTRA (1,986)
Liabilities included with discontinued operations (1,535)
------- -------
$ 3,850 $ 500
======= =======
</TABLE>
As discussed in Note 11, 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 $337,500 represented additional compensation for debt
restructuring and, as such, was charged against the extraordinary gain from
debt restructuring in 1995. The principal amount of the loan was reduced to
$750,000 at July 31, 1995. The remaining loan principal was not repaid on
its scheduled 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. The additional 50,000 shares at a value
of approximately $82,000 has been charged to interest expense in 1995. 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 valued
at approximately $149,000 (which amount was included in interest expense in
1995) 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
F-26
<PAGE>
Notes to Consolidated Financial Statements, Continued
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, increased on a
sliding scale if the receivables assigned were not collected within 45
days. Borrowings under the credit facility were 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.
In 1996, ARTRA completed the assumption of the agreed upon recorded
liabilities (see Note 9).
9. Liabilities to be Assumed by ARTRA Group Incorporated:
Under the Assumption Agreement between ARTRA and the Company in October
1995 (the "Assumption Agreement") entered into in connection with the
COMFORCE Telecom acquisition (see Note 3), ARTRA 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 acquire all of the assets and assume all liabilities of the
Company's discontinued Jewelry Business aggregating a net liability of
$4,240,000 as of December 31, 1995. In April 1996, ARTRA sold the business
and certain assets of the Jewelry Business.
At December 31, 1995, liabilities to be assumed by ARTRA 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 of December 31, 1996, ARTRA paid or assumed all of the above
liabilities. ARTRA continues to assume certain contingent liabilities
relating to outstanding litigation (see Note 16).
F-27
<PAGE>
Notes to Consolidated Financial Statements, Continued
On December 19, 1996, the Company and ARTRA agreed to settle various
differences in the interpretation of the Assumption Agreement dated October
1995. In addition, ARTRA has agreed to deposit into an escrow account
125,000 shares of COMFORCE common stock to collateralize its obligation
with respect to (1) a warrant to a lender to purchase 50,000 shares of
common stock at $5 per share with a put option for $500,000, which the
Company and ARTRA believe is no longer effective, (2) potential liability
for clean-up costs, if any, or other damages in connection with the Gary,
Indiana site as discussed in Note 16, and (3) the remaining assumed
liabilities of the jewelry operations of $350,000 due to certain creditors.
10. 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 Jewelry Business was disposed of in 1996 with no cost to the
Company.
The Company's 1995 consolidated financial statements have been reclassified
to report separately results of operations of the discontinued Jewelry
Business. Additionally, in conjunction with the Comforce Telecom
acquisition (see Note 3), ARTRA agreed to assume substantially 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, the Company's 1995 consolidated balance sheet has
been reclassified to report separately the remaining net liabilities to be
assumed by ARTRA, including net liabilities of the discontinued Jewelry
Business. (See Note 9.)
The operating results of the discontinued Jewelry Business for the years
ended December 31, 1995 and 1994 (in thousands) consists of:
Year Ended December 31,
------------------------
1995 1994
Net sales $ 10,588 $ 34,431
======== ========
Loss from operations before income taxes $(15,606) $(16,210)
Provision for income taxes (5) (10)
-------- --------
Loss from operations (15,611) (16,220)
-------- --------
Provision for disposal of business (1,600)
Provisions for income taxes
-------- --------
Loss on disposal of business (1,600)
-------- --------
Loss from discontinued operations $(17,211) $(16,220)
======== ========
F-28
<PAGE>
Notes to Consolidated Financial Statements, Continued
11. Extraordinary Gains Related to Discontinued Operations:
In accordance with the terms of the 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, the balance of this indebtedness was discharged.
(See Note 12.)
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. The 400,000 shares of ARTRA common stock issued as
consideration for the debt settlement agreement (with a fair market value
of $2,500,000 based upon the closing market price on the date of issue)
were contributed by ARTRA to Lori's capital account. The extraordinary gain
was calculated (in thousands) as follows:
<TABLE>
<S> <C>
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
========
</TABLE>
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:
F-29
<PAGE>
Notes to Consolidated Financial Statements, Continued
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
=======
12. Related Party Transactions:
During 1996, the Company made loans of $367,000 in the aggregate to 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,
to cover their tax liabilities resulting from the issuance of the Company's
common stock to them as inducements to direct the Company's entry into the
technical staffing business. Of this amount, $55,000 was advanced in 1995,
$38,000 was advanced in February 1996, $238,000 was advanced in April 1996,
and $36,000 was advanced in July 1996. Yield Industries, Inc., a
corporation wholly-owned by Messrs. Paterek and Ferrentino, earned a
delivery fee of $750,000 in connection with the Company's acquisition of
COMFORCE Telecom, $250,000 of which was paid in 1995 and the balance of
which was paid in 1996.
The Company paid L.H. Friskoff & Company, a certified public accounting
firm at which Richard Barber, a Director of the Company, is a partner,
approximately $104,000 in fees during 1996 for tax-related advisory
services.
Effective July 4, 1995, Lori's management agreed to issue up to a 35%
common stock interest in the Company to certain individuals to manage the
Company's entry into the technical staffing business (approximately
3,888,000 after certain anti-dilutive provisions). In October 1995, the
Company issued approximately 3,100,000 shares of its common stock to such
individuals. The remaining common shares due these individuals were issued
in 1996 after shareholder approval of an increase in the Company's
authorized common shares. The Company recognized a non-recurring
compensation charge of $3,425,0000 in 1995 related to the issuance of this
stock since these stock awards were 100% vested when issued, and were
neither conditioned upon these individuals' service to the Company as
employees nor the consummation of the COMFORCE Telecom's acquisition. The
cost of the remaining common shares of $500,000 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, and is classified
as equity as of December 31, 1996.
In conjunction with an agreement (see Note 11) 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,
F-30
<PAGE>
Notes to Consolidated Financial Statements, Continued
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 agreed to exchange 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. 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.
The $399,000 advance to ARTRA and the $647,000 payment on pre-existing Lori
liabilities made by ARTRA have been classified in the Company's
consolidated financial statements at December 31, 1995 as amounts
receivable from ARTRA.
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 and 1994, fees for these services amounted to
$91,000 and $151,000, respectively.
During 1994, ARTRA made net advances to Lori of $2,531,000. The advances
consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to the bank
in conjunction with the Amended Settlement Agreement with Lori's bank
lender, and certain non-interest bearing advances used to fund Lori working
capital requirements.
Effective December 29, 1994, ARTRA exchanged $2,242,000 of its notes and
advances for additional Lori Series C preferred stock. Additionally, the
August 18, 1994 Settlement Agreement required ARTRA to contribute cash of
$1,500,000 and ARTRA common stock with a fair market value of $2,500,000 to
Lori's capital account.
13. Equity:
In March 1996, 4,500 stock options were exercised at an average price of $5
per share.
In April 1996, 301,667 warrants were exercised at an average price of $3.12
per share.
In April 1996, in conjunction with the purchase of RRA, the Company sold
8,871 shares of Series E Preferred Stock at a selling price of $550 per
share for 8,470 shares and $750 per share for 401 shares. 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 Company 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. Holders of shares of Series E
Preferred Stock are entitled to dividends equal to those declared on the
common stock, or
F-31
<PAGE>
Notes to Consolidated Financial Statements, Continued
if no dividends are declared on the common stock, nominal cumulative
dividends payable only if the Series E Preferred Stock fails to be
converted into common stock by September 1, 1996. The Series E Preferred
Stock has a liquidation preference of $100 per share ($887,100 in the
aggregate for all outstanding shares). Effective as of October 28, 1996,
each share of Series E Preferred Stock was automatically converted into 100
shares of common stock.
In May 1996, the Company sold 7,002 shares of Series D Preferred Stock at a
selling price of $1,000 per share. The holder of each share of Series D
Preferred Stock has the right to convert such shares into 83.33 fully paid
and nonassessable shares of common stock at any time subsequent to the date
the Company's Certificate of Incorporation is amended so that the
Corporation has sufficient number of authorized and unissued common stock
to effect the conversion. Holders of the 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.
The Series D Preferred Stock has a liquidation preference of $1,000 per
share ($7,002,000 in the aggregate for all outstanding shares).
In May 1996, 16,667 warrants were exercised at an average price of $3.38
per share.
In July 1996, the Company issued 137,500 shares of common stock to pay
certain liabilities.
In August 1996, 20,000 warrants were exercised at an average price of $2.00
per share.
In September 1996, 27,398 common shares were issued as partial
consideration for the purchase of Force Five. (See Note 3.)
On October 25, 1996, the Board authorized the issuance of up to 10,000
shares of Preferred Stock, par value $0.01 per share, designated the Series
F Convertible Preferred Stock ("Series F Preferred Stock"). As subsequently
modified by agreement of the Company and the holders, each share of Series
F Preferred Stock will, (i) at the option of the holder or (ii)
automatically on the second anniversary of the date of issuance, be
converted into such number of shares of Common Stock determined by dividing
$1,000 plus all accrued, unpaid dividends thereon by the per share
conversion price. The conversion price is 83% of the average closing bid
price of the Common Stock for the five trading days immediately preceding
the conversion date, subject to certain limitations. Holders of shares of
Series F Preferred Stock are entitled to cumulative dividends of 5% per
annum, payable quarterly on the first day of March, June, September, and
December in each year, payable in cash or Common Stock (valued at the
closing price on the date of declaration), at the Company's election. The
Series F Preferred Stock has a liquidation preference over the Common Stock
in the event of any liquidation or sale of the Company. Except as otherwise
provided by law, the holders of Series F Preferred Stock will not be
entitled to vote. As of December 31, 1996, there were 3,250 shares of
Series F Preferred Stock outstanding. The Company recorded an accretive
dividend on Series F Preferred Stock related to the discount noted above of
$665,000.
In connection with the sale of the Series F Preferred Stock, the Company
issued warrants to purchase 15,000 shares of Common Stock at an exercise
price of $24.00 per share as a placement fee, which warrants expire in
October 1998.
F-32
<PAGE>
Notes to Consolidated Financial Statements, Continued
At the Company's annual meeting held on October 28, 1996, the Company's
stockholders ratified or approved, among other matters, (i) the Company's
issuance of 3,091,302 shares of its common stock and its agreement to issue
796,782 additional shares to certain individuals in consideration of their
agreement to direct the Company's entry into the technical staffing
business; (ii) the Company's entering into the technical staffing business
and exiting the fashion jewelry business and transactions related thereto,
including (a) its acquisition of all of the capital stock of Spectrum
Global Services, Inc. (formerly d/b/a/Yield Global and, following its
acquisition by the Company, renamed COMFORCE Telecom, Inc.), (b) its
issuance of 1,946,667 shares of its common stock plus detachable warrants
to purchase 973,333 shares of its common stock in a private placement, (c)
its issuance of 100,000 shares and 150,000 shares, respectively, of its
common stock to ARTRA, and Peter R. Harvey, formerly a director of the
Company, in consideration of their guarantees in connection with the
transactions, (d) its exchange of 100,000 shares of its common stock to
ARTRA for the 9,701 shares of the Company's Series C Preferred Stock held
by ARTRA, and (e) its disposition of its discontinued fashion jewelry
operations; (iii) an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
capital stock from 10,000,000 shares to 100,000,000 shares of common stock
and from 1,000,000 shares to 10,000,000 shares of Preferred Stock (upon
which approval, the 8,871 shares of Series E Preferred Stock which were
outstanding automatically converted to 8,871,000 shares of common stock);
(iv) an amendment to the Company's Certificate of Incorporation to
eliminate cumulative voting; (v) and to amend the Company's Long-Term Stock
Investment Plan (a) to increase the maximum number of shares which may be
issued under such Plan from 1,500,000 to 4,000,000 shares, (b) the grant of
options to non-employee directors, and (c) in various other respects,
principally designed to permit the Plan administrator additional
flexibility in structuring option grants.
In November 1996, 111,111 warrants were exercised at a price of $9 per
share.
In November 1996, the Company issued 243,211 shares and 36,800 shares as
partial consideration for the purchase of Azatar Computer Systems, Inc. and
Continental Field Services, Inc.
Effective December 26, 1996, the Company sold 460,000 shares of its Common
Stock, together with a related payment right, for $3.5 million. This
payment right requires the Company to make a payment to the investors in
either cash or Common Stock, at the Company's option, equal to the amount,
if any, by which $10.00 per share exceeds the average closing bid price for
the ten trading days prior to a specified payment date (not later than
April 1, 1997). See Note 20 for additional rights given to these holders of
Common Stock.
In addition, effective December 26, 1996, the Company sold 350,000 shares
of its Common Stock, together with a related payment right, for $3.5
million. This payment right requires the Company to make a payment to the
investors in either cash or Common Stock, at the Company's option, equal to
the amount, if any, by which $12.05 per share exceeds the average closing
bid price for the ten trading days prior to a specified payment date (not
later than May 1, 1997). In lieu of this amount, a payment of $2.05 per
share will be payable if, among other things, as of April 1, 1997, such
average trading price is between $10.00 and $15.00 and the Company's daily
trading volume does not meet specified levels.
F-33
<PAGE>
Notes to Consolidated Financial Statements, Continued
In connection with this private placement of Common Stock, the Company
issued warrants to purchase 198,928 shares of Common Stock at $19 per share
which expire on December 26, 1999. In addition, the Company paid a
placement fee of 8,000 shares of Common Stock and warrants to purchase
25,000 shares of Common Stock at $14.25 per share (market price) which
expire on December 26, 1999.
The Company's Series C cumulative preferred stock, which was owned in its
entirety by ARTRA, accrued dividends at the rate of 13% per annum on its
liquidation value. Book value and accumulated dividends of $7,011,000 on
this stock aggregated $19,515,000 at December 31, 1994. In the fourth
quarter of 1995, ARTRA agreed to exchange its Series C cumulative preferred
stock for 100,000 newly issued shares of the Company's common stock.
14. Earnings Per Share:
Earnings per common share is computed by dividing net earnings available
for common shareholders, by the weighted average number of shares of common
stock and common stock equivalents (stock options and warrants),
outstanding during each period. Common stock equivalents relate to
outstanding stock options and warrants. For this computation, shares of the
Series F Preferred Stock are anti-dilutive and as such are not considered
common stock equivalents for this calculation. The shares of Series D
Preferred Stock are not considered common stock equivalents and are
excluded from primary earnings per share. The dividends accrued or paid on
the Series D Preferred Stock of $175,000, Series E Preferred Stock of
$18,000, Series F Preferred Stock of $27,000, and accretive dividends on
Series F Preferred Stock of $665,000, have been deducted for computing
earnings available to common shareholders. Fully diluted earnings per share
have not been presented as the result is anti-dilutive or does not differ
from primary earnings per share. Primary earnings per share is calculated
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Earnings (loss) available for common shareholders $ 362 $ (14,886) $ (9,537)
======== ======== ========
Weighted average number of shares outstanding
for the period 11,049 4,596 3,195
Dilutive effect of common stock equivalents 1,942
-------- -------- --------
$ 12,991 $ 4,596 $ 3,195
======== ======== ========
Primary earnings (loss) per share $ .03 $ (3.24) $ (2.99)
======== ======== ========
</TABLE>
15. 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
F-34
<PAGE>
Notes to Consolidated Financial Statements, Continued
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. In
October 1996, the Stock Option Plan was amended to allow for the issuance
of an additional 2,500,000 options under the plan for a total of 4,000,000
shares.
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.
Summary of Options
A summary of stock option transactions for the year ended December 31, 1996
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Outstanding at January 1,
Shares 1,541,378 959,378 1,098,544
Prices $1.125 to $6.75 $1.125 to $5.00 $1.125 to $12.19
Options granted:
Shares 1,120,275 601,250 --
Price $6.75 to $27.00 $6.00 to $6.75 --
Options exercised:
Shares (4,500) -- (2,500)
Price $5.00 -- $5.00
Options cancelled:
Shares (565,628) (19,250) (136,666)
Price $1.125 $3.125 to $5.00 $3.125 to $12.19
Outstanding at December 31, 1996:
Shares 2,091,525 1,541,378 959,378
========= ========= =======
Price $1.125 to $22.75 $1.125 to $6.75 $1.125 to $5.00
Options exercisable at December 31, 1996 1,537,500 945,128 940,710
========= ======= =======
Options available for future grant at
December 31, 1996 778,475
=======
</TABLE>
Approximately 555,628 of the options shown as cancelled were exercisable as
of December 31, 1995 at an exercise price of $1.125 per share. The Company
maintains that these options
F-35
<PAGE>
Notes to Consolidated Financial Statements, Continued
terminated in 1996. The former option holders maintain that these options
continue to be exercisable. The Company is attempting to resolve this
dispute.
Warrants
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, such warrants to purchase 16,250 shares
of the Company's common stock at $4.00 per share remained outstanding.
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 shares, the fair market value at the dates of grant.
The warrants expire five years from the date of issue.
The acquisition of COMFORCE Telecom 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. In 1996, 36,667 warrants were exercised for $98,751. The warrants
expire five years from the date of issue.
In April 1996, the Company amended the warrants included above held by two
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 and to provide for the issuance of supplemental warrants to
purchase 301,667 at an exercise price of $9.00 per share (market value) for
each warrant exercised on or before April 12, 1996. Warrants to purchase
all 301,667 shares were exercised in April 1996. The Company used the
proceeds from the exercise of the warrants for working capital purposes.
In connection with the sale of the Series F Preferred Stock, the Company
issued warrants to purchase 15,000 shares of Common Stock at an exercise
price of $24.00 per share as a placement fee, which warrants expire in
October 1998.
On December 26, 1996, the Company sold 810,000 shares through a private
placement. In connection with this private placement of common stock, the
Company issued warrants to purchase 198,928 shares of common stock at $19
per share which expire on December 26, 1999 In addition, the Company paid a
placement fee of 8,000 shares of common stock and warrants to purchase
25,000 shares of common stock at $14.25 per share (market price) which
expire on December 26, 1999.
At December 31, 1996 and 1995, total warrants were outstanding to purchase
a total of 1,371,844 and 1,184,583 of the Company's common shares at prices
ranging from $2.00 per share to $24.00 per share. The warrants expire three
to five years from the date of issue at various dates through 1999.
F-36
<PAGE>
Notes to Consolidated Financial Statements, Continued
As discussed in Note 1, the Company has applied the disclosure-only
provision SFAS 123. Had compensation cost been determined based on the fair
value at the grant date consistent with the provisions of SFAS 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below for the years ended
December 31, 1996 and 1995:
1996 1995
(in thousands) (in thousands)
Net income (loss) attributable to common
shareholders as reported $ 362 $ (14,886)
========== ==========
Pro forma (loss) $ (1,898) $ (16,010)
========== ==========
Earnings (loss) per share as reported $ .03 $ (3.24)
========== ==========
Pro forma $ (.17) $ (3.48)
========== ==========
The weighted average fair value of each option has been estimated on the
date of grant using the Black-Scholes options pricing model with the
following weighted average assumptions used for grants in 1996 and 1995,
respectively: no dividend yield; expected volatility of 60%; risk-free
interest rate (ranging from 5.25% - 6.64%); and expected lives ranging from
approximately 4.5 to 5.5 years. Weighted averages are used because of
varying assumed exercise dates.
A summary of the status of the Company's stock option plans as of December
31, 1996 and 1995, and changes during the years ended on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,541,378 $ 3.24 959,378 $ 1.21
Granted 1,120,275 9.35 601,250 6.48
Exercised (4,500) 5.00
Canceled (565,628) 1.13 (19,250) 5.00
----------- -----------
Outstanding at end of year 2,091,525 7.08 1,541,378 3.24
=========== ===========
Options exercisable at year end 1,537,500 945,128
=========== ===========
Weighted average fair value of options granted during the year $ 4.37 $ 2.38
=========== ===========
</TABLE>
F-37
<PAGE>
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about stock options outstanding
at December 31, 1996 (shares in thousands):
Weighted
average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercisable
Prices Outstanding Life Price Exercisable Price
$1 360 6 $ 1 360 $ 1
$3 10 6 3 10 3
$6 to $7 1,431 9 7 1,138 7
$10 to $12 56 9 12
$17 to $19 152 9 18 30 17
$22 to $27 4 9 26
$14 to $17 79 9 16
------------ ------- ------- ---------- --------
$1 to $27 2,092 9 7 1,538 6
16. Litigation:
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, particularly
before the enactment of laws governing the safe disposal of hazardous
substances, at an indeterminable number of sites. Although the controlling
stockholders and current management had no involvement in such prior
manufacturing operations, the Company could be held to be responsible for
clean-up costs if any hazardous substances were deposited at these
manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), or under other Federal or state environmental laws now or
hereafter enacted. However, except for the Gary, Indiana site described
below, the Company has not been notified by the Federal Environmental
Protection Agency (the "EPA") that it is a potentially responsible-party
for, nor is the Company aware of having disposed of hazardous substances
at, any site.
In December 1994, the Company was notified by the EPA that it is a
potentially responsible party under CERCLA for the disposal of hazardous
substances at a site in Gary, Indiana. The alleged disposal occurred in the
mid-1970s at a time when the Company conducted operations as APECO
Corporation. In this connection, in December 1994, the Company was named as
one of approximately 80 defendants in a case brought in the United States
District Court for the Northern District of Indiana by a group of 14
potentially responsible parties who agreed in a consent order entered into
with the EPA to clean up this site. The plaintiffs have estimated the cost
of cleaning up this site to be $45 million and have offered to settle the
case with the Company for $991,445. This amount represents the plaintiffs'
estimate of the Company's pro rata share of the clean-up costs. At the
direction of ARTRA, which, as described below, is contractually obligated
to the Company for any environmental liabilities, the Company declined to
accept this settlement proposal, which was subsequently withdrawn.
F-38
<PAGE>
Notes to Consolidated Financial Statements, Continued
The evidence produced by the plaintiffs to date is the testamentary
evidence of four former employees of a waste disposal company that
deposited wastes at the Gary, Indiana site identifying the Company as a
customer of such disposal company, and entries in such disposal company's
bookkeeping ledgers showing invoices to the Company. The Company, however,
has neither discovered any records which indicate, nor located any current
or former employees who have advised, that the Company deposited hazardous
substances at the site. Management and its counsel cannot determine whether
a negative outcome is probable regarding the Company's potential liability
at this site. Accordingly, no provision has been made for the potential
liability related to this matter.
Under the terms of the Assumption Agreement and a subsequent agreement
entered into between ARTRA and the Company, ARTRA has agreed to pay and
discharge substantially all of the Company's pre-existing liabilities and
obligations, including environmental liabilities at any sites at which the
Company allegedly operated facilities or disposed of hazardous substances,
whether or not the Company is currently identified as a potentially
responsible party therefor. Consequently, the Company is entitled to
indemnification from ARTRA for any environmental liabilities associated
with the Gary, Indiana site. In addition, ARTRA has deposited 50,000 shares
of Common Stock in escrow as additional collateral to satisfy any judgment
adverse to the Company or to pay any agreed upon settlement amount with
respect to the Gary, Indiana site. Proceeds from the sale of the shares
held in escrow might not be sufficient to satisfy any such judgment or pay
any such settlement amount. While ARTRA is obligated to indemnify the
Company for any environmental liabilities, no assurance can be given that
ARTRA will be financially capable of satisfying its obligations with
respect to any liability in connection with the Gary, Indiana site or any
other environmental liabilities. ARTRA has advised that it intends to
vigorously defend this case.
In September 1996, the Company received notice of litigation from a
competitor who charged that RRA obtained and benefited from a list of
confidential data provided by a former employee of the competitor prior to
the acquisition of RRA. RRA has denied such charges. The Acquisition
Agreement provides for indemnification from any claims prior to the
acquisition.
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.
17. Savings Incentive and Profit Sharing Plan:
The Company participates in a savings incentive and profit sharing plan
(the "Plan"). All eligible employees may make contributions to the Plan on
a pre-tax salary reduction basis in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. No contributions were made by
the Company in 1996 and 1995.
Certain employees who work for governmental agencies are required to be
covered under a separate pension plan. During 1996, the Company recorded
approximately $700,000 of expense related to these benefits.
F-39
<PAGE>
Notes to Consolidated Financial Statements, Continued
18. Lease Commitments:
The Company leases certain office space and equipment in its
telecommunications and computer staffing service business. Rent expense for
all operating leases in 1996 and 1995 approximated $200,000 and $17,000,
respectively.
As of December 31, 1996, future minimum rent payments due under the terms
of noncancelable operating leases excluding any amount that will be paid
for operating costs are:
Year ending Total
December (in thousands)
1997 $ 425
1998 410
1999 287
2000 244
2001 218
Thereafter 24
------------
$ 1,608
============
The aggregate commitment for future salaries at December 31, 1996,
excluding bonuses, during the remaining term of all management and
employment agreements, are approximately:
Year ending Total
December (in thousands)
1997 $ 1,372
1998 1,010
1999 602
2000 17
-------------
$ 3,001
============
19. Concentration of Credit Risk:
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and cash equivalents and trade receivables.
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.
F-40
<PAGE>
Notes to Consolidated Financial Statements, Continued
At December 31, 1996, the Company had four customers, and at December 31,
1995, the Company had nine customers with accounts receivable balances that
aggregated 23% and 67% of the Company's total accounts receivable,
respectively. Percentages of total revenues from significant customers for
the years ended December 31, 1996 and from October 17, 1995 (entry into
staffing business) to December 31, 1995 are summarized as follows:
December 31, December 31
1996 1995
Customer 1 19.0% 17.3%
Customer 2 * 12.6%
Customer 3 * 10.1%
*Less than 10%.
20. Subsequent Events:
On February 28, 1997, the Company purchased all of the stock of RHO Company
Incorporated ("RHO") for $14.8 million payable in cash, plus a contingent
payout to be paid over three years based on future earnings of RHO payable
in stock in an aggregate amount not to exceed $3.3 million. The total
number of shares issuable under the contingent payout can not exceed
386,249 shares. The cash portion of the purchase price paid at closing was
principally funded through the Company's offering of convertible
debentures, as described below. RHO is a defendant in a lawsuit by its
former insurance carrier who alleges that RHO is obligated to repay to it
$1,600,000 that the carrier was required to pay in connection with a claim
settlement. The Company is defending against this claim and management
believes that the case is without substantial merit. However, in the event
of any adverse judgment in the case or if the Company determines to settle
the case, any payments relating to this pre-acquisition contingency will be
added to the purchase price of RHO.
From February 27 to March 21, 1997, the Company sold $25.2 million of its
Subordinated Convertible Debentures ("Debentures") to certain institutional
investors for cash or in exchange for shares of the Company's Series F
Preferred Stock (discussed below). The Debentures bear interest at the rate
of 8% per annum during the 180 day period following closing and thereafter
at the rate of 10% per annum continuing until fully paid or converted.
Interest on the Debentures is payable quarterly in cash or in common stock
of the Company, at the Company's option. The Debentures may be redeemed by
the Company in whole or in part at any time from the date of issuance,
within 360 days after any disbursement to the Company of net proceeds from
the sale of Debentures at a redemption price equal to the sum of (i) the
principal amount thereof, (ii) all accrued, unpaid interest thereon, and
(iii) premiums ranging from 5% (2.5% in the case of Debentures exchanged
for Series F Preferred Stock) for Debentures redeemed within 60 days after
closing increasing up to 25% for Debentures redeemed between 181 and 360
days after closing. The Company is currently seeking long-term financing to
redeem these Debentures and to provide capital for continued expansion of
its operations.
F-41
<PAGE>
Notes to Consolidated Financial Statements, Continued
From February 27 to March 21, 1997 the Company issued or agreed to issue
three year warrants ("Warrants") to purchase up to 504,000 share of its
Company's Common Stock to the Debenture holders. Warrants to purchase
100,800 shares of common stock were issued at the time of the offering and
become exercisable six months after closing. If the debt is not repaid in
60 days, the Company will issue additional warrants to purchase 100,800
shares of common stock for each additional 30 day period the debt is
outstanding up to issuing an aggregate of warrants to purchase 504,000
shares of common stock. The exercise price of the warrants issued ranges
from $6.85 to $7.65 per share. The Company is also required to issue
additional warrants ("Additional Warrants") to purchase 504,000 shares of
the Company's common stock if the Debentures are not redeemed within 180
days following closing. The Additional Warrants will have an exercise price
equal to the average closing price of the Company's common stock over the
five-day trading period ending 179 days after the closing.
On February 27, 1997, in connection with the sale of $5 million of
debentures to various holders of the Company's Common Stock purchased on
December 26, 1996, the Company issued a put option whereby, if such
debentures are not repaid by April 28, 1997, May 28, 1997, June 27, 1997 or
July 27, 1997, such stockholders will have the option to put back 115,000
shares of Common Stock at the above listed dates, at $10.00 per share
payable in cash, reduced by the value of any cash or stock issued under
payment rights.
As part of the issuance of the Debentures, the Company has also effected
the repurchase of 2,750 of the 3,250 outstanding shares of its Series F
Preferred Stock by issuing additional Debentures in the amount of 115% of
its original principal amount ($1,000 per share) for total Debentures
issued of $3,162,500. Approximately $3,900,000 of the proceeds from the
Debenture offering was utilized to repay the Company's bank debt.
F-42
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
1997
-------------
(unaudited)
ASSETS
Current assets:
Cash and equivalents $ 2,670
Restricted cash
360
Accounts receivable, net of allowance of doubtful
accounts of $501 in 1997 26,547
Prepaid expenses 1,050
Deferred income tax 2,028
Deferred financing fees 1,628
Income tax receivable 590
Other 243
-------
Total current assets 35,116
-------
Property, plant and equipment 1,937
Less: accumulated depreciation and amortization 488
-------
1,449
-------
Other assets:
Excess of cost over net assets acquired, net of
accumulated amortization of $1,425 in 1997 38,722
Other 452
-------
39,174
-------
Total Assets $75,739
=======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-43
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, Continued
(in thousands)
September 30,
1997
-------------
(unaudited)
LIABILITIES
Current liabilities:
Borrowings under revolving line of credit $16,488
Accounts payable 956
Accrued expenses 5,232
Payroll tax liabilities 3,337
Income taxes --
-------
Total current liabilities 26,013
-------
Deferred income tax 90
Long-term debt 20,000
Other liabilities 690
-------
Total liabilities 46,793
-------
Commitments and contingencies
STOCKHOLDERS EQUITY
5% Series F convertible preferred stock,
$.01 par value; 10,000 shares authorized,
500 shares issued and outstanding in 1997
Liquidation value of $1,000 per share
($500,000 in 1997) 1
Common stock, $.01 par value; 100,000,000
shares authorized, 13,744,039 shares issued
and outstanding in 1997 137
Additional paid-in capital 30,485
Retained earnings (deficit) since
January 1, 1996 (1,677)
-------
Total stockholders' equity 28,946
-------
Total liabilities and stockholders' equity $75,739
=======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-44
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except per share data)
Nine Months Ended
September 30,
-----------------------
1997 1996
--------- ---------
Net Sales $ 145,986 $ 33,514
--------- ---------
Costs and expenses:
Cost of goods sold 127,227 28,690
Selling, general and administrative 11,842 2,891
Depreciation and amortization 1,241 343
--------- ---------
140,310 31,924
--------- ---------
Operating income 5,676 1,590
--------- ---------
Other income 344 29
Interest expense:
Bridge financing costs (5,822) --
Other interest, net of interest income (2,151) (102)
--------- ---------
(7,629) (73)
--------- ---------
Income (loss) before income taxes (1,953) 1,517
Provision (credit) for income taxes (646) 610
--------- ---------
Net income (loss) (1,307) 907
Dividends on preferred stock 732 193
--------- ---------
Income (loss) available to common stockholders $ (2,039) $ 714
========= =========
Earnings (loss) per share $ (0.15) $ 0.06
========= =========
Weighted average number of shares of common
stock and common stock equivalents outstanding 13,256 12,661
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-45
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Series D Series F Retained
Common Stock Preferred Stock Preferred Stock Earnings
------------ --------------- --------------- (Deficit)
Additional Since Total
Paid-in January 1, Stockholders'
Shares Dollars Shares Dollars Shares Dollars Capital 1996 Equity
------ ------- ------ ------- ------ ------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 12,701,934 $127 7,002 $1 3,250 $1 $34,253 $362 $34,744
Exercise of stock options 124,000 1 -- -- -- -- 141 -- 142
Exercise of stock warrants 65,000 1 -- -- -- -- 170 -- 171
Redemption of Series F
preferred stock -- -- -- -- (2,750) -- (3,162) -- (3,162)
Conversion of Series D
preferred stock 583,500 6 (7,002) (1) -- -- (5) -- --
Issuance of common stock as
inducement to effect
Series D conversion 87,750 1 -- -- -- -- 492 (493) --
SEC Registration fees -- -- -- -- -- -- (619) -- (619)
Issuance of warrants in
connection with debt
placement -- -- -- -- -- -- 1,004 -- 1,004
Issuance of common stock in
connection with payment
right 385,591 4 -- -- -- -- (4) -- --
Issuance of common stock as
consideration for interest
owed on debt 118,145 1 -- -- -- -- 632 -- 633
Redemption of common
stock (321,867) (4) -- -- -- -- (2,417) -- (2,421)
Redemption of partial shares
of common stock (14) -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- (1,307) (1,307)
Dividends:
Series D preferred stock -- -- -- -- -- -- -- (195) (195)
Series F preferred stock -- -- -- -- -- -- -- (44) (44)
---------- ---- --- --- --- --- ------- ------- -------
Balance as of September 30, 1997 13,744,039 $137 0 $0 500 $1 $30,485 $(1,677) $28,946
========== ==== === === === === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-46
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited in thousands)
Nine Months Ended
September 30,
-----------------------
1997 1996
--------- ---------
Net cash flows used by operating activities $ (2,755) $ (4,321)
--------- ---------
Cash flows from investing activities:
Acquisition payments, net of cash acquired (14,355) (9,442)
Officer loans 30 (367)
Restricted cash (360) (50)
Additions to property, plant and equipment (548) (183)
--------- ---------
Net cash flows (used by) from investing activities (15,233) (10,042)
--------- ---------
Cash flows from financing activities:
Payment of note payable -- (500)
Proceeds from revolving lines of credit 52,835 4,150
Repayment on revolving lines of credit (45,481) (900)
Proceeds from short-term debt 20,628 --
Payment of short-term debt (27,930) --
Proceeds from long-term debt 20,000 --
Repurchase of common stock (2,421) --
Proceeds from issuance of Preferred Stock -- 11,052
Proceeds from exercise of stock options 142 23
Proceeds from exercise of warrants 171 1,046
Payment of registration costs (619) (100)
Dividends paid (275) (105)
--------- ---------
Net cash flows from financing activities 17,050 14,666
--------- ---------
Increase (decrease) in cash and cash equivalents (938) 303
Cash and equivalents, beginning of period 3,608 649
--------- ---------
Cash and equivalents, end of period $ 2,670 $ 952
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,044 $ 103
Income taxes paid 227 119
Supplemental schedule of noncash investing
and financing activities:
Quasi-reorganization -- (93,847)
Common stock issued to settle liabilities 633 276
Issuance of short-term debt to redeem
Series F preferred stock
3,162 --
Dividends accrued but not yet paid 102 88
Net change in ARTRA receivables and liabilities -- (2,968)
Warrants issued in connection with the sale
of convertible debentures 1,004 --
Warrants issued in connection with short-term loan 100 --
Warrants issued in connection with credit facility 170 --
Common stock issued for purchase of Force Five, Inc. -- 500
Repayment of officer loans (see note 9) 352 --
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-47
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
COMFORCE Corporation ("COMFORCE" or the "Company") currently operates in one
industry segment as a provider of telecommunications and computer technical
staffing and consulting services worldwide.
Effective January 1, 1996, the Company effected a quasi-reorganization through
the application of $93,847,000 of its $95,993,000 Additional Paid in Capital
account to eliminate its Accumulated Deficit. The Company's Board decided to
effect a quasi-reorganization given that the Company achieved profitability
following its entry into the technical staffing business and discontinuation of
its unprofitable jewelry business.
As discussed in Note 3, on February 28, 1997, the Company purchased all of the
stock of RHO Company Incorporated ("Rhotech"). Rhotech is in the business of
providing contract employees to other businesses.
The accompanying unaudited interim financial statements of COMFORCE Corporation
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and note disclosures
normally included in annual financial statements have been condensed or omitted
pursuant to those rules and regulations. In the opinion of management, all
adjustments, consisting of normal, recurring adjustments considered necessary
for a fair presentation, have been included. Although management believes that
the disclosures made are adequate to ensure that the information presented is
not misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996. The results of the nine months ended September 30, 1997 and 1996 are not
necessarily indicative of the results of operations for the entire year.
2. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"),
which establishes standards for computing and presenting earnings per share
(EPS). SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not permitted.
Management has not yet evaluated the effects of this change on the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 becomes effective in fiscal 1999. Management
has not yet evaluated the effects of this change on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which changes the way public companies report
information about segments. SFAS 131, which is based on the management approach
to segment reporting, includes requirements to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds and
reports revenues. SFAS 131 becomes effective in fiscal 1999. Management has not
yet evaluated the effect of this change on the Company's financial statements.
3. CERTAIN ACQUISITIONS AND PROPOSED ACQUISITIONS
Rhotech Acquisition
On February 28, 1997, the Company purchased all of the stock of Rhotech for
$14.8 million in cash, plus a contingent payout to be paid over three years on
future earnings of Rhotech payable in stock in an aggregate amount not to exceed
$3.3 million. The maximum number of shares issuable under the contingent payout
is 386,249 shares. The acquisition of Rhotech was accounted for under the
purchase method and, accordingly, Rhotech's operations are included in the
Company's statement of operations from the date of acquisition. The cash portion
of the purchase price paid at closing
F-48
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
was principally funded through the Company's offering of Subordinated
Convertible Debentures. (See Note 4.) Rhotech provides specialists primarily in
the technical services and information technology sectors. In connection with
the closing of the Rhotech acquisition and in recognition of the efforts of
James L. Paterek, Chairman of the Company, Christopher P. Franco, Chief
Executive Officer of the Company, and Michael Ferrentino, President of the
Company, including providing their personal guarantees on certain loans to the
Company through the pledging of their shares of Company stock, the Company paid
each of these officers $75,000.
Proposed Uniforce Acquisition and Related Financing
On August 13, 1997, the Company, Uniforce Services, Inc. ("Uniforce") and
COMFORCE Columbus, Inc., a wholly-owned subsidiary of the Company (the
"Subsidiary"), executed an Agreement and Plan of Merger (the "Merger Agreement")
which provides for the acquisition of Uniforce by the Company. Pursuant to the
Merger Agreement, on October 27, 1997, the Company caused the Subsidiary to
commence a tender offer (the "Offer") to acquire all of the outstanding Uniforce
common stock (the "Uniforce Shares") for a per share price of $28 in cash and
0.5217 shares of the Company's Common Stock (collectively the "Per Share
Amount"), or an aggregate purchase price of approximately $93.6 million in cash
and approximately 1.6 million shares of the Company's Common Stock. The Merger
Agreement also provides, subject to various conditions some of which are
described below, for a merger (the "Merger") pursuant to which all holders of
Uniforce Shares who have not tendered their stock to the Subsidiary will receive
the Per Share Amount, and Uniforce will become a wholly-owned subsidiary of
COMFORCE Operating, Inc., a newly-formed, wholly-owned subsidiary of the Company
("COI").
Pursuant to the Merger Agreement, the Company's obligation to accept for payment
and pay for shares of Uniforce Shares pursuant to the Offer is subject to the
condition that at least two-thirds of the then outstanding Uniforce Shares are
tendered or otherwise held by the Company, and to certain other conditions. In
addition, the Merger is subject to various conditions set forth in the Merger
Agreement, and may also be terminated by either party in circumstances specified
in the Merger Agreement.
The Company estimates that the total amount of funds required by the Subsidiary
to purchase all of the Uniforce Shares issued and outstanding and Uniforce
Shares issuable upon exercise of the outstanding Uniforce stock options pursuant
to the Offer and the Merger will be approximately $93.6 million. In addition,
the Company estimates that the total amount of funds required to refinance
certain existing indebtedness of the Company and Uniforce, provide for working
capital and pay fees and expenses incurred in connection with the Offer and the
Merger will be approximately $80.6 million.
The Company and COI expect to obtain debt financing in the aggregate amount of
$210 million (which includes a $75 million revolving credit facility as
discussed below), of which approximately $93.6 million will be applied to
purchase the Uniforce Shares in the Offer and effect the Merger and $80.6
million will be used to pay related fees and expenses and refinance certain
existing indebtedness of Uniforce and the Company. The Offer and the Merger are
both conditioned upon the receipt of this financing by the Company.
In August 1997, the Company engaged NatWest Capital Markets Limited ("NatWest")
to act as its exclusive financial advisor and initial purchaser or lead
placement agent in connection with certain debt offerings to fund the Uniforce
acquisition, such offerings to be conducted on a best efforts basis. No
assurance can be given that NatWest will be successful in consummating such
offerings.
In addition, in November 1997, the Company received a commitment letter from
Heller Financial, Inc. ("Heller") for a $75 million revolving credit facility
(the "New Credit Facility") to refinance the existing credit facilities of the
Company and Uniforce. This financing is subject to various conditions, and no
assurance can be given the New Credit Facility will be made available to the
Company or, if so, on terms which are acceptable to the Company.
In accordance with the foregoing, the Company expects to finance the Uniforce
acquisition and to refinance the existing credit facilities of the Company and
Uniforce through (i) the issuance of $110 million in principal amount of Senior
Notes due 2007 to be issued by COI, a wholly-owned subsidiary of the Company,
(ii) the issuance of 25,000 Units representing $25 million in principal amount
of Senior Secured PIK Debentures due 2009 with Warrants to purchase the
Company's Common Stock to be issued by the Company, (iii) an initial draw under
the New Credit Facility to be entered into by COI and Heller, together with
existing cash balances, aggregating $39.2 million (the New Credit Facility,
together with the issuance of the Senior Notes and the Units, the "New
Financings").
F-49
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
4. DEBT
At September 30, 1997, current and long-term debt (in thousands) consists of:
September 30,
1997
-------------
Current debt
Revolving line of credit, due in July 1998, with interest
payable monthly at the bank's prime rate plus .75%. At
September 30, 1997, the bank's prime rate was 8.5%. $16,488
Long-term debt
Term loan with interest payable at the bank's prime rate
plus 1.75%. At September 30, 1997, the bank's prime rate
was 8.5%. $20,000
From February 27 to March 21, 1997 (each date of sale a "Closing Date"), the
Company sold $25.2 million of its Subordinated Convertible Debentures ("Old
Debentures") to certain institutional investors for cash or in exchange for
shares of the Company's Series F Preferred Stock. In the case of the shares
exchanged, the Company effected the repurchase of 2,750 of the 3,250 outstanding
shares of its Series F Preferred Stock by issuing Old Debentures in the original
principal amount of 115% of the liquidation value of the Series F Preferred
Stock to the holders thereof (the "Series F Holders"), which premium had been
included as an accretive dividend in December 1996. The Old Debentures bore
interest at the rate of 8% per annum, and were to bear interest at the rate of
10% per annum commencing 180 days after each Closing Date. Interest on the Old
Debentures was payable quarterly in cash or in common stock of the Company, at
the Company's option. Warrants to purchase 302,400 shares of the Company's
common stock at prices ranging from $6.85 to $7.65 per share were issued in
connection with this financing, which were valued at $734,000. In connection
with this financing, the Company incurred costs of approximately $5.8 million
which were expensed during the first half of 1997.
On June 25, 1997, the Company completed a $40 million credit facility (the
"Existing Credit Facility") with Fleet National Bank, as lender and agent
("Fleet"), and U.S. Bank, Washington, as lender ("U.S. Bank") (collectively,
"Lenders"). The Existing Credit Facility consists of a revolving credit facility
of up to $20 million and a $20 million term loan.
The Company utilized all of the proceeds of the term loan and a portion of the
availability under the revolving credit facility to redeem the Company's $25.2
million in outstanding principal amount of Old Debentures issued principally to
fund the Company's acquisition of Rhotech in February 1997. Additional funds
available under the revolving credit facility were used to retire the existing
$7.5 million revolving credit facility of Rhotech with U.S. Bank. The Company
intends to use available funds under the revolving credit facility for working
capital and general corporate purposes, including for acquisitions, subject to
the satisfaction of the conditions therefore set forth in the Existing Credit
Facility. Borrowings under the revolving credit facility are subject to various
financial covenants and other conditions. At September 30, 1997, the Company was
in compliance with all covenants and conditions of the Existing Credit Facility.
The revolving credit facility and the term loan bear interest at a rate equal to
0.75% and 1.75%, respectively, in excess of Fleet's prime rate as announced from
time to time. The Company's obligations under the Existing Credit Facility are
secured by substantially all of its assets. In addition, James L. Paterek, the
Chairman of the Company, Christopher P. Franco, the Chief Executive Officer of
the Company, and Michael Ferrentino, the President of the Company, each pledged
500,000 shares of the Company's common stock held by them and all of the options
to purchase common stock held by them as additional collateral for the Company's
obligations under the Existing Credit Facility. The scheduled maturity date of
the revolving credit facility is July 10, 1998. Subject to Fleet's right to
issue a call notice requiring repayment of the term loan at any time on or after
July 10, 1998, the term loan is payable in quarterly installments as follows:
$750,000 on July 1, 1998 and at the end of each calendar quarter thereafter
through and including December 31, 1999; $1,475,000 at the end of each calendar
quarter beginning March 31, 2000 and ending March 31, 2002, and a final balloon
payment equal to the sum of unpaid principal plus accrued interest on June 30,
2002. The Company intends to restructure its financing with the New Financings
discussed in Note 3.
F-50
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
The Company incurred fees and expenses of approximately $1.7 million in
connection with obtaining the Existing Credit Facility, which will be amortized
over the term of the Existing Credit Facility, including amounts awarded to
Messrs. Paterek, Franco and Ferrentino for pledging their shares to further
collateralize the Company's obligations under the Existing Credit Facility (see
Note 9). In addition, the Company agreed to issue to Fleet warrants to purchase
(i) 100,000 shares of common stock at an exercise price of $7.30 per share
($1.50 per share in excess of the average closing price of the common stock for
the five business days ended June 24, 1997), exercisable until June 25, 2000 and
(ii) upon the occurrence of certain specified conditions, 100,000 shares of
common stock at an exercise price of $0.75 per share in excess of the average
closing price of the common stock for the five business days ending prior to the
date of the occurrence of the specified conditions, exercisable commencing on
such date and for a period of three years thereafter (see Note 5).
5. EQUITY
During the first nine months of 1997, options to purchase 124,000 shares of
common stock at a price of $1.125 per share were exercised.
During the first nine months of 1997, the Company issued warrants with a value
of $734,000 to purchase 302,400 shares of common stock at prices ranging from
$6.85 to $7.65 in connection with issuance of the Old Debentures and warrants
with a value of $170,000 to purchase 100,000 shares of common stock at a price
of $7.30 per share in connection with a long-term credit facility.
During the first nine months of 1997, the Company issued 100,000 warrants with a
value of $100,000 in connection with a short-term loan made to the Company.
During the first nine months of 1997, warrants to purchase 65,000 shares of
common stock were exercised at prices ranging from $2.00 to $3.375 per share.
During the first nine months of 1997, the Company effected the repurchase of
2,750 of the 3,250 outstanding shares of its Series F Preferred Stock with a
value of $3,162,000 through the issuance of its Old Debentures. (See Note 4.)
During the first nine months of 1997, 7,002 shares of Series D Preferred Stock
were converted into 671,250 shares of common stock under the conversion terms.
Such common shares included 87,750 shares with a market value of $493,000 given
to induce certain conversions. These additional shares have been accounted for
as a preferred stock dividend in the second quarter of 1997.
In June 1997, 118,145 shares of common stock were issued in consideration for
interest of $633,000 owed on the Old Debenture financing.
In December 1996, the Company sold 460,000 shares of its common stock, together
with a related payment right requiring the Company to make a payment to the
investors in either cash or common stock, at the Company's option, equal to the
amount by which $10.00 per share exceeded the average closing bid price for the
five trading days prior to April 1, 1997. In addition, in December 1996, the
Company sold 350,000 shares of its common stock, together with a related payment
right requiring the Company to make a payment to the investors in either cash or
common stock, at the Company's option, equal to the amount by which $12.05 per
share exceeded the average closing bid price for the five trading days prior to
April 1, 1997. On April 1, 1997, the Company satisfied these payment rights by
issuing 385,591 shares of its common stock.
In February 1997, in connection with its sale of its Old Debentures to the
investors who purchased 460,000 shares of the Company's common stock in December
1996, described above, the Company granted to such investors put options under
which the Company agreed to repurchase 115,000 of the shares on each of April
28, 1997, May 28, 1997, June 27, 1997 and July 27, 1997 made in satisfaction of
the payment right described above, subject to termination of such put options
upon earlier repayment of the Old Debentures. In the case of cash payments under
the payment right, this adjustment is effected through a reduction of the put
option price by the amount of the cash payment. In the case of payments in stock
under the payment right, this adjustment is effected through an increase in the
aggregate number of shares subject to the put option, without adjustment of the
aggregate put option price. On April 28 and May 28, 1997, the investors elected
to exercise the put option. As a result of the Company's satisfaction
F-51
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
of the payment right through its issuance of shares of common stock, the number
of shares the Company was required to repurchase was increased by 80,782 shares.
Consequently, the Company repurchased 310,782 shares of its common stock for
$2,300,000. The put options for June 27, 1997 and July 27, 1997 terminated by
their terms by reason of the Company's repayment of the Old Debentures on June
25, 1997.
6. EARNINGS PER SHARE
Earnings per common share is computed by dividing net earnings available for
common stockholders by the weighted average number of shares of common stock and
common stock equivalents (stock options and warrants), outstanding during each
period. Common stock equivalents relate to outstanding stock options and
warrants. For this computation, shares of the Series F Preferred Stock are
anti-dilutive and as such are not considered common stock equivalents and are
excluded from this calculation. The dividends of $688,000 accrued or paid on the
Series D Preferred Stock for the nine months ended September 30, 1997, and the
dividends of $44,000 accrued or paid on the Series F Preferred Stock for the
nine months ended September 30, 1997, have been deducted for computing earnings
available to common stockholders. For the nine month period ended September 30,
1997, common stock equivalents have not been included in this calculation as
their effect is antidilutive. For the nine month period ended September 30, 1997
and the nine month period ended September 30, 1996, fully diluted earnings per
share have not been presented as the result is anti-dilutive or does not differ
from primary earnings per share.
Primary earnings per share is calculated as follows (in thousands):
Nine Months Ended
September 30,
-----------------------
1997 1996
--------- ---------
Earnings (loss) available for common
stockholders $ (2,039) $ 714
--------- ---------
Weighted average number of shares 13,256 9,548
outstanding for the period
Dilutive effect of common stock equivalents -- 3,113
--------- ---------
13,256 12,661
========= =========
Primary earnings (loss) per share $ (0.15) $ 0.06
========= =========
7. INCOME TAXES
In the nine month period ended September 30, 1997, the difference between the
federal statutory income tax rate and the Company's effective tax rate relates
primarily to state income taxes and the nondeductibility of certain intangible
assets amortization.
8. LITIGATION
In January 1997, Austin A. Iodice, who served as the Company's Chief Executive
Officer, President and Vice Chairman while the Company was engaged in the
jewelry business, and Anthony Giglio, who performed the functions of the
Company's Chief Operating Officer while the Company was engaged in the jewelry
business, filed separate suits against the Company in the Connecticut Superior
Court alleging that the Company had breached the terms of management agreements
entered into with them by failing to honor options to purchase Common Stock
awarded to them in connection with the management of the jewelry business under
the terms of such management agreements and the Company's Long-Term Stock
Investment Plan. The suits allege that the plaintiffs are entitled to an
unspecified amount of damages. The Company believes that the option to purchase
370,419 shares granted to Mr. Iodice (through Nitsua, Ltd., a corporation
wholly-owned by him) and the option to purchase 185,210 shares granted to Mr.
Giglio, each having an exercise price of $1.125 per share, expired in 1996,
three months after Messrs. Giglio and Iodice ceased to be employed by the
Company. Messrs. Giglio and Iodice maintain that they were agents and not
employees of the Company and that the options continue to be exercisable. In
March 1997, the Company filed motions to dismiss each of these suits, and the
court scheduled hearings on these motions for December 1997. The Company intends
to vigorously defend these suits.
F-52
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
In a case filed in U.S. District Court, Central District of California, against
Rhotech and Technical Staff Associates, Inc. ("TSA"), which was acquired by
Rhotech in 1992, TSA's former insurance carrier has alleged that TSA and Rhotech
are obligated to repay to it approximately $1.6 million that it was required to
pay in connection with an injury and death that occurred in November 1992 to a
temporary employee of TSA. The action has been referred to Rhotech's insurance
carrier, which is defending it with a reservation of rights. Rhotech has been
granted summary judgment with respect to all claims made in the action, which
judgment is the subject of an appeal by the plaintiff. Management believes that
the case is without substantial merit and intends to vigorously defend it.
In December 1994, the Company was notified by the Federal Environmental
Protection Agency that it was a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") for the disposal of hazardous substances at a site in Gary, Indiana.
The alleged disposal occurred in the mid-1970s at a time when the Company
conducted manufacturing operations. In this connection, in December 1994, the
Company was named as one of approximately 80 defendants in a case brought in the
United States District Court for the Northern District of Indiana by a group of
14 potentially responsible parties who agreed in a consent order entered into
with the EPA to clean-up this site. In October 1997, ARTRA entered into a
settlement agreement with the plaintiffs to settle the case for a cash payment
of $50,000. Under the terms of this settlement agreement, the Company was
dismissed as a defendant in the case and released and discharged from liability
in connection with this matter.
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 maintains general liability insurance,
property insurance, automobile insurance, employee benefit liability insurance,
owner's and contractor's protective insurance and exporter's foreign operations
insurance with coverage of $1 million on a per claim basis and $2 million
aggregate (with $3 million umbrella coverage). The Company insures against
workers' compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign workers. The Company also maintains
fidelity insurance in the amount of $25,000 per claim and directors' and
officers' liability insurance in the amount of $5 million. The Company is
presently soliciting quotations to obtain errors and omissions coverage.
9. RELATED PARTY TRANSACTION
The Company paid L.H. Frishkoff & Company, a certified public accounting firm at
which Richard Barber, a Director of the Company, is a partner, approximately
$196,907 in fees during 1997 for tax-related advisory services.
As a condition to the funding of the Existing Credit Facility (see Note 4), the
Lenders required James L. Paterek, the Company's Chairman, Christopher P.
Franco, the Company's Chief Executive Officer, and Michael Ferrentino, the
Company's President, to each pledge as additional collateral to secure the
Company's obligations under the Existing Credit Facility 500,000 shares of the
Company's common stock owned by them and all of the options to purchase common
stock held by them (281,250 shares in the case of Messrs. Paterek and Ferrentino
and 112,500 shares in the case of Mr. Franco), which shares had a current market
value in excess of $12 million at the approximate time of the transaction. The
board of directors of the Company engaged an independent valuation firm to value
these pledges by the principals.
In recognition of both the substantial benefit afforded to the Company by the
pledges and the cost to the principals of making the pledges, the board of
directors authorized the issuance of an aggregate consideration of approximately
$650,000 to these principals, which amount was utilized to repay outstanding
loans of such officers due to the Company and related payroll withholding taxes.
The board of directors has deemed such consideration reasonable based on the
valuation of the pledges as determined by the appraisal performed by the
independent valuation firm. The aggregate amount of this consideration,
approximately $650,000, is included as a part of the fees and expenses incurred
in connection with the Existing Credit Facility (as described in Note 4).
10. POSSIBLE RESTRUCTURING CHARGE
The Company currently expects that it will incur a restructuring charge in the
fourth quarter of 1997, in connection with certain potential severance and other
costs related to the integration of COMFORCE and Uniforce. Management currently
believes that such restructuring charge will be approximately $2.0 million;
however, no assurance can be given that any such charge, if incurred, will not
exceed such amount.
F-53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Rho Company Incorporated:
We have audited the accompanying balance sheets of Rho Company Incorporated (a
Washington Corporation) as of December 31, 1995 and 1996, and the related
statements of income, changes in shareholders' deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 Rho Company Incorporated as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
January 24, 1997
F-54
<PAGE>
RHO COMPANY INCORPORATED
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 412 $ 287
Restricted cash 705 1,133
Escrow deposit -- 500
Accounts receivable, less allowance for doubtful accounts of
$200 and $180, respectively 8,725 7,572
Prepaid expenses 167 155
-------- --------
Total current assets 10,009 9,647
-------- --------
FURNITURE AND EQUIPMENT, less accumulated depreciation of $1,065
and $1,007 513 575
-------- --------
OTHER ASSETS 132 51
-------- --------
Total assets $ 10,654 $ 10,273
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 6,253 $ 6,223
Current portion of long-term debt, related party 130 396
Accounts payable 329 218
Wages payable 844 647
Payroll taxes and withholdings payable 1,167 630
Accrued interest 147 113
Accrued vacations, bonuses and other 605 625
-------- --------
Total current liabilities 9,475 8,852
-------- --------
LONG-TERM DEBT, RELATED PARTY 9,956 9,268
-------- --------
SHAREHOLDERS' EQUITY:
Common stock; $1.00 par value; authorized 50,000 and 1,000,000
shares, respectively, issued and outstanding 50,000 shares 50 50
Other capital -- 2,680
Deferred stock option charge -- (1,920)
Retained deficit (8,827) (8,657)
-------- --------
Total shareholders' equity (8,777) (7,847)
-------- --------
Total liabilities and shareholders' equity $ 10,654 $ 10,273
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-55
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
1994 1995 1996
------- ------- -------
REVENUES $76,170 $83,631 $85,746
COST OF OPERATIONS 69,157 74,978 76,457
------- ------- -------
Gross profit 7,013 8,653 9,289
GENERAL AND ADMINISTRATIVE EXPENSES 5,266 6,510 7,512
------- ------- -------
Income from operations 1,747 2,143 1,777
------- ------- -------
OTHER EXPENSES:
Stock option expense -- -- 260
Interest expense, net 1,435 1,643 1,317
------- ------- -------
Total other expenses 1,435 1,643 1,577
------- ------- -------
Net income $ 312 $ 500 $ 200
======= ======= =======
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Deferred
Stock Total
Common Other Option Retained Shareholders'
Stock Capital Charge Deficit Deficit
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 50 $ -- $ -- $(9,534) $(9,484)
Net income -- -- -- 312 312
------- ------- ------- ------- -------
BALANCE, December 31, 1994 50 -- -- (9,222) (9,172)
Net income -- -- -- 500 500
Dividends paid -- -- -- (105) (105)
------- ------- ------- ------- -------
BALANCE, December 31, 1995 50 -- -- (8,827) (8,777)
Net income -- -- -- 200 200
Dividends paid -- -- -- (30) (30)
Stock option granted -- 2,180 (2,180) -- --
Amortization of deferred
stock option charge -- -- 260 -- 260
Treasury stock subscribed -- (567) -- -- (567)
Common stock subscribed -- 1,067 -- -- 1,067
------- ------- ------- ------- -------
BALANCE, December 31, 1996 $ 50 $ 2,680 $(1,920) $(8,657) $(7,847)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
1994 1995 1996
------- ------- -------
OPERATING ACTIVITIES:
Net income $ 312 $ 500 $ 200
Depreciation 196 223 268
Amortization of intangible assets 4 4 35
Loss on retirement of furniture and fixtures -- 17 4
Deferred income taxes (37) -- --
Stock option expense -- -- 260
Net change in current assets and liabilities-
Accounts receivable and other (1,559) (1,778) 1,153
Prepaid expenses 214 (70) 12
Accounts payable 60 200 (111)
Wages payable 139 9 (197)
Payroll taxes and withholdings payable 72 296 (537)
Accrued interest 40 15 (34)
Accrued vacations, bonuses and other (56) 110 20
------- ------- -------
Cash flows from operating activities (615) (474) 1,073
------- ------- -------
INVESTING ACTIVITIES:
Purchase of furniture and equipment (136) (334) (334)
Decrease (increase) in other assets (8) (24) 46
------- ------- -------
Cash flows from investing activities (144) (358) (288)
------- ------- -------
FINANCING ACTIVITIES:
Increase in restricted cash (591) (35) (428)
(Decrease) increase in bank borrowings 1,482 1,302 (30)
Borrowings of long-term debt 114 168 --
Repayments of long-term debt (270) (266) (422)
Dividends paid -- (105) (30)
------- ------- -------
Cash flows from financing activities 735 1,064 (910)
------- ------- -------
(DECREASE) INCREASE IN CASH (24) 232 (125)
CASH, beginning of year 204 180 412
------- ------- -------
CASH, end of year $ 180 $ 412 $ 287
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 1,395 $ 1,628 $ 1,351
Income taxes 8 8 43
The accompanying notes are an integral part of these statements.
F-58
<PAGE>
RHO COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Dollar amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
The Company markets the services of temporary technical and clerical people to
various industries located primarily in the states of Washington and California.
Furniture and Equipment
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided using the straight-line and accelerated methods over
expected useful lives of three to seven years.
Income Taxes
The Company has elected S-corporation status for reporting taxable income. Any
income or loss from the corporation is reportable on the personal returns of the
stockholders.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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 and those
differences could be significant.
Reclassifications
Certain reclassifications have been made to the prior year statements to conform
to the current year format.
2. RESTRICTED CASH:
Collections of accounts receivable are deposited in a restricted collateral
account used for repayment of advances under the Company's bank line of credit.
The balance in the collateral account at December 31, 1995 and 1996 was $705 and
$1,133, respectively, shown in the accompanying balance sheets. The remaining
cash balance is unrestricted.
F-59
<PAGE>
3. NOTE PAYABLE - BANK:
The Company has available a line of credit for up to $7.5 million in borrowings,
bearing interest at the bank's prime rate plus .875% (9.125% at December 31,
1996), collateralized by accounts receivable. The line of credit is limited to
75% of eligible accounts receivable and requires collections to be deposited in
a restricted collateral account. The outstanding balance on the line of credit
was $6,223 at December 31, 1996. The loan agreement contains various covenants,
including minimum levels of working capital and net worth. The loan agreement
expires June 15, 1997. Although there can be no assurance, the Company
anticipates it will be able to renew the line of credit. If it were not able to
renew the line of credit or obtain other acceptable financing, it then could
have adverse consequences, including possible cessation of operations.
4. LONG-TERM DEBT:
Long-term debt as of December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Subordinated notes payable to former stockholder in monthly installments equal
to 55% of average monthly net income, as defined, or $50, whichever is
greater, with total minimum payments of $195 per quarter, including interest
at 6.6% (10.5% prior to January 1, 1996), collateralized by a stock pledge
agreement with shareholders of Rho Company Incorporated $ 6,882 $ 6,531
Subordinated note payable to former stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit. Due on demand,
but stockholder does not intend to call the note before January 1, 1998 1,548 1,548
Subordinated note payable to stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit
Due on demand, but stockholder does not intend to call the note
before January 1, 1998 1,369 1,369
Subordinated note payable to stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit
Due on demand, but stockholder does not intend to call the note
before January 1, 1998 178 178
Other 109 38
-------- --------
10,086 9,664
Less- Current portion (130) (396)
-------- --------
$ 9,956 $ 9,268
======== ========
</TABLE>
All of the notes payable agreements are with related parties. Total interest
expense related to these notes was $987, $1,038 and $744 for the years ended
December 31, 1994, 1995 and 1996.
F-60
<PAGE>
Effective as of January 1, 1996, the Company's 10.5% subordinated notes were
modified to provide for a new interest rate of 6.6% and for accelerated payments
based on net income. The noteholder was granted an option to purchase up to 25%
of the Company's common stock (after giving effect to the exercise of the
option) at a price based on a formula. The noteholder has the right to use the
interest calculated using the difference between the old interest rate and the
new lower interest rate as a credit toward the option price. The Company has
valued the option using the fair value method. The option was valued at $2,180
based on the present value of the foregone interest payments under the modified
note agreement. This amount is being amortized using the effective interest
method over the life of the note payable.
Debt maturities on these notes are as follows:
1997 $ 396
1998 3,478
1999 409
2000 436
2001 466
Thereafter 4,479
------
$9,664
======
5. LEASE COMMITMENTS:
The Company leases office and storage space and equipment under noncancelable
operating leases. Future minimum rentals are as follows:
Year ending December 31,
------------------------
1997 $ 608
1998 547
1999 389
2000 337
2001 99
------
$1,980
======
Rental expense under operating leases totaled $316, $457 and $659 for the years
ended December 31, 1994, 1995 and 1996, respectively.
6. COMMITMENTS:
The Company has covenant not-to-compete agreements with the former stockholders
of an acquired/merged company. Payments under the agreements are the greater of:
(a) $50 per year for five years; or (b) 8% of the gross margin (defined as gross
billings minus temporary employee wages) generated by the merged company's
clients.
The minimum future payment under these covenant not-to-compete agreements is $50
for the year ending December 31, 1997.
The Company expensed $236, $167 and $118 under these agreements for the years
ended December 31, 1994, 1995 and 1996, respectively.
F-61
<PAGE>
7. EMPLOYEE BENEFIT PLAN:
The Company has a qualified 401(k) profit sharing plan covering eligible
employees. The plan provides for contributions by the Company without regard to
current or accumulated earnings at the discretion of the Board of Directors. The
Company did not make any matching contributions to the plan for the years ended
December 31, 1994 and 1995. Matching contributions totaling $44 were made during
the year ended December 31, 1996.
8. MAJOR CUSTOMERS:
During the year ended December 31, 1996, the Company had two customers with
sales greater than 10% of the Company's revenues. Contracts with one customer in
the software industry accounted for approximately $22,600, $29,000 and $26,100,
of the Company's sales for the years ended December 31, 1994, 1995 and 1996,
respectively. As of December 31, 1995 and 1996, this customer's accounts
receivable balance was $1,540 and $680, respectively. Contracts with one
customer in the aerospace industry accounted for approximately $12,800 of the
Company's sales for the year ended December 31, 1996. As of December 31, 1996,
this customer's accounts receivable balance was $1,484. Contracts with these two
customers can be terminated at any time with 30 days' notice.
9. PRIOR PERIOD ADJUSTMENT:
During 1995, the Company began accruing for vacations earned but unpaid to its
permanent employees and the portion of bonuses earned but unpaid to its contract
employees. The effect of this correction on the prior year financial statements
was as follows:
Net income, year ended December 31, 1994, as
previously reported $ 364
Less: Adjustment for correction of error (52)
-------
Net income, year ended December 31, 1994, as restated $ 312
=======
Retained deficit, as previously reported for
December 31, 1993 $(9,221)
Less: Adjustment for correction of error (313)
-------
Retained deficit, as restated for December 31, 1993 $(9,534)
=======
10. CONTINGENCIES:
The Company is the defendant in litigation with a previous insurer regarding a
settlement paid by the insurer which the insurer alleges should be indemnified
by the Company in the amount of approximately $1.6 million. The Company is
vigorously defending the lawsuit and management, in consultation with legal
counsel, believes it is more likely than not that the Company will prevail. In
November 1996, the Court granted a motion for summary judgment to dismiss the
case in favor of the Company. The plaintiff may still appeal the decision.
F-62
<PAGE>
11. PURCHASE AGREEMENT:
The stockholders of the Company have signed a definitive purchase agreement
whereby the Company will repurchase their shares concurrent with issuing shares
to COMFORCE Corporation. COMFORCE would then own all of the outstanding shares
of the Company. As part of this agreement, COMFORCE has advanced, on behalf of
the Company, $567 to a shareholder as a prepayment for the purchase of his
shares, which represent 1/3 of the outstanding shares of the Company. This
amount represents treasury stock subscribed and is shown as a reduction of
shareholders' equity. COMFORCE has also placed $500 in an earnest money escrow
account. In the event the stock purchase agreement fails to close as a result of
a breach of or material representative by the Company, the Company would be
required to return the entire $1,067 to COMFORCE, which was advanced as common
stock subscribed.
F-63
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Uniforce Services, Inc.:
We have audited the accompanying consolidated balance sheets of Uniforce
Services, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniforce Services,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Jericho, New York
March 7, 1997
F-64
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,283,422 6,444,859
Accounts receivable (net of allowance for doubtful accounts of
$68,000 and $167,000, in 1996 and 1995, respectively) 17,224,885 14,827,862
Funding and service fees receivable (net of allowance for doubtful
accounts of $212,000 and $402,000 in 1996 and 1995,
respectively) 18,759,814 20,918,753
Current maturities of notes receivable from licensees (net of
allowance for possible loss of $42,000 and $67,000 in 1996 and
1995, respectively) 87,051 132,258
Prepaid expenses and other current assets 1,710,969 1,270,268
Deferred income taxes 201,149 347,149
------------ ------------
Total current assets 43,267,290 43,941,149
------------ ------------
Notes receivable from licensees (net of current maturities and allowance for
possible loss of $64,000 and $92,000
in 1996 and 1995, respectively) 136,157 182,642
Fixed assets - net 3,775,661 2,125,413
Deferred costs and other assets (net of accumulated amortization of
$2,105,777 and $1,685,970 in 1996 and 1995, respectively) 1,402,032 821,244
Cost in excess of fair value of net assets acquired (net of accumulated
amortization of $681,601 and $335,954 in 1996 and 1995, respectively) 6,388,240 3,525,741
------------ ------------
$ 54,969,380 50,596,189
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Loan payable $ 1,000,000 750,000
Payroll and related taxes payable 6,372,319 7,540,947
Payable to licensees and clients 1,484,238 2,025,563
Income taxes payable -- 351,690
Accrued expenses and other liabilities 5,408,070 4,092,058
------------ ------------
Total current liabilities 14,264,627 14,760,258
------------ ------------
Loan payable - non-current 25,750,000 11,250,000
Capital lease obligation - non-current 732,658 426,109
Stockholders' equity:
Common stock $.01 par value, authorized 10,000,000 shares; issued 5,109,788
and 4,991,213 shares in 1996 and 1995,
respectively 51,098 49,912
Additional paid-in capital 8,825,128 7,789,598
Retained earnings 27,296,463 23,990,043
------------ ------------
36,172,689 31,829,553
Treasury stock, at cost, 2,084,245 and 829,500 shares in
1996 and 1995, respectively (21,950,594) (7,669,731)
------------ ------------
Total stockholders' equity 14,222,095 24,159,822
------------ ------------
$ 54,969,380 50,596,189
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-65
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales of supplemental staffing services $ 134,437,421 126,267,842 108,485,992
Service revenues and fees 7,713,935 8,203,490 6,694,742
------------- ------------- -------------
Total revenues 142,151,356 134,471,332 115,180,734
Cost of supplemental staffing services 104,685,598 98,162,571 83,766,726
Licensees' share of gross margin 7,976,831 9,473,431 9,895,870
General and administrative 20,074,672 19,450,728 15,730,938
Litigation settlement 360,000 -- --
Depreciation and amortization 1,073,759 940,668 941,196
------------- ------------- -------------
Total costs and expenses 134,170,860 128,027,398 110,334,730
------------- ------------- -------------
Earnings from operations 7,980,496 6,443,934 4,846,004
Other income (expense):
Interest expense - net of interest and dividend
income of $105,389, $161,504 and $131,970 in
1996, 1995 and 1994, respectively (2,170,386) (727,980) (127,378)
Other income 44,621 29,439 7,125
------------- ------------- -------------
Earnings before provision for income taxes 5,854,731 5,745,393 4,725,751
Provision for income taxes 2,185,000 2,182,000 1,775,000
------------- ------------- -------------
Net earnings $ 3,669,731 3,563,393 2,950,751
============= ============= =============
Weighted average number of shares outstanding 3,257,685 4,311,358 4,553,303
============= ============= =============
Net earnings per share $ 1.13 .83 .65
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-66
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in Retained Treasury stockholders'
Shares Par value capital earnings stock equity
------ --------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,721,443 $ 47,214 $ 5,842,145 $ 18,534,895 $ (3,716,141) $ 20,708,113
Common stock issued 225,370 2,254 1,399,303 -- -- 1,401,557
Cash dividend declared ($.12 per share) -- -- -- (533,052) -- (533,052)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 152,124 -- -- 152,124
Treasury stock acquired -- -- -- -- (1,585,086) (1,585,086)
Net earnings -- -- -- 2,950,751 -- 2,950,751
---------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 4,946,813 49,468 7,411,572 20,952,594 (5,301,227) 23,112,407
Common stock issued 44,400 444 259,806 -- -- 260,250
Cash dividend declared ($.12 per share) -- -- -- (525,944) -- (525,944)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 100,220 -- -- 100,220
Treasury stock acquired -- -- -- -- (2,368,504) (2,368,504)
Net earnings -- -- -- 3,563,393 -- 3,563,393
---------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 4,991,213 49,912 7,789,598 23,990,043 (7,669,731) 24,159,822
Common stock issued 118,575 1,186 870,908 -- -- 872,094
Cash dividend declared ($.12 per share) -- -- -- (363,311) -- (363,311)
Stock option compensation expense -- -- 18,000 -- -- 18,000
Tax benefit of disqualifying dispositions -- -- 146,622 -- -- 146,622
Treasury stock acquired -- -- -- -- (14,280,863) (14,280,863)
Net earnings -- -- -- 3,669,731 -- 3,669,731
---------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 5,109,788 $ 51,098 $ 8,825,128 $ 27,296,463 $(21,950,594) $ 14,222,095
========== ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-67
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,669,731 3,563,393 2,950,751
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 1,073,759 940,668 941,196
Deferred income taxes 146,000 32,622 175,000
Provision (recovery) for possible losses on
receivables (207,361) 583,998 140,651
Provision (recovery) for possible losses on notes
receivable and other assets (245,850) 247,165 (258,599)
Stock option compensation expense 18,000 18,000 18,000
(Increase) in accounts receivable (1,480,962) (3,137,221) (1,203,381)
(Increase) decrease in funding and service fees
receivable 2,294,726 (6,907,658) (5,164,472)
(Increase) in prepaids and other assets (431,020) (769,180) (44,131)
Increase (decrease) in payroll and related taxes
payable (1,168,628) 533,026 799,426
Increase (decrease) in payable to licensees and clients (541,325) 115,452 414,379
Increase (decrease) in income taxes payable (205,068) 451,910 (217,336)
Increase in accrued expenses and other liabilities 1,211,623 843,043 1,713,010
------------ ------------ ------------
Net cash provided (used) by operating activities 4,133,625 (3,484,782) 264,494
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of certain assets in connection with
business combinations (3,783,655) -- (3,204,772)
Purchase of receivables in connection with
acquisitions (844,487) -- (1,301,595)
Notes receivable from licensees (100,325) (163,741) (391,557)
Repayments on notes receivable from licensees 244,018 548,748 638,749
(Increase) in deferred costs and other assets (178,027) (134,358) (121,950)
Purchases of fixed assets (1,464,477) (669,979) (591,796)
------------ ------------ ------------
Net cash (used) by investing activities (6,126,953) (419,330) (4,972,921)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (146,029) (15,654) --
Borrowings under loans payable 14,750,000 15,700,000 6,300,000
Principal payments on loans payable -- (10,000,000) --
Proceeds from issuance of common stock 872,094 260,250 670,307
Cash dividends paid (363,311) (525,944) (533,052)
Purchase of treasury stock (14,280,863) (2,368,504) (1,585,086)
------------ ------------ ------------
Net cash provided by financing activities 831,891 3,050,148 4,852,169
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,161,437) (853,964) 143,742
Cash and cash equivalents at beginning of year 6,444,859 7,298,823 7,155,081
------------ ------------ ------------
Cash and cash equivalents at end of year $ 5,283,422 6,444,859 7,298,823
============ ============ ============
Supplemental disclosures:
Cash paid for:
Interest $ 1,894,606 590,524 131,328
============ ============ ============
Income taxes, net of refunds $ 2,376,805 1,690,040 1,835,734
============ ============ ============
</TABLE>
Non-cash Investing and Financing Activities:
During 1994, 127,720 shares of the Company's Common Stock, with an aggregate
market value of $731,250 were issued in connection with the purchase of certain
assets of Brannon & Tully(R).
During 1996 and 1995, the Company entered into capital leases for software and
office equipment in the amounts of $556,967 and $524,909, respectively.
See accompanying notes to consolidated financial statements.
F-68
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Description of Business
Uniforce Services, Inc., together with its subsidiaries (the "Company"),
provides supplemental personnel services to businesses, educational
institutions, professional and service organizations, federal, state and
local governmental agencies and others in the United States. The Company
has selected specialized product lines within several of its licensed and
company owned offices to provide skilled Information Services ("IS")
professional employees, office automation specialists and medical office
support. The Company also supplies financial, payroll and billing support
services to independent supplemental staffing services. In addition,
subsidiaries of the Company provide temporary laboratory staffing support
to the scientific community; and provide confidential employee conversion
and consulting services which enable client companies to utilize the
services of former independent contractors and consultants. One of the
Company's customers represented 10.2% of revenues in 1996.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Uniforce
Services, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Depreciation and Amortization
Depreciation and amortization of fixed assets is computed on a
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lesser of their
estimated useful lives or the respective lease periods.
Intangible assets, which include covenants not to compete and
territorial rights acquired, are being amortized over their estimated
useful lives ranging from five to ten years using the straight-line
method. The unamortized balance is included in deferred costs and
other assets in the accompanying consolidated balance sheets.
(c) Deferred Licensee Acquisition Costs
The Company has executed contracts for affiliation with existing
supplemental staffing service companies. Such contracts require the
Company to pay an affiliation fee which is amortized on a
straight-line method over the minimum terms of the affiliation
agreements which are generally five or ten years. In addition, the
Company has paid similar fees for existing supplemental staffing
service companies acquired by the Company's licensees. Under these
arrangements, the Company has agreed to pay, on behalf of its
licensees, one-half of the acquisition cost. Such costs are amortized
on a straight-line basis over five or ten years. Amortization of
deferred licensee acquisition costs amounted to $121,796, $129,530 and
$183,649 in 1996, 1995 and 1994, respectively.
(d) Income Taxes
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes." SFAS 109 provides that income taxes
be accounted for using the asset and liability method which requires
the recognition of deferred income taxes for temporary differences
between the financial reporting basis and tax basis of assets and
liabilities.
F-69
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Earnings Per Share
Earnings per share amounts are determined using the weighted average
number of common shares and dilutive common share equivalents
(options) outstanding.
(f) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(g) Financial Instruments
The fair values of all financial instruments classified as current
assets or liabilities approximate their respective carrying values
because of the short maturity of those instruments. The fair value of
the Company's loans approximates book value since the interest rates
are variable and accordingly are adjusted for market rate
fluctuations.
(h) Long-Lived Assets
In March 1995, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was
issued. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of 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 measured by comparing the carrying amount of an asset to
the future net cash flows expected to be generated by the asset.
During 1996, the Company adopted SFAS No. 121 and determined that no
impairment loss need be recognized for applicable assets and thus, it
did not have a material impact on the Company's financial position or
results of operations.
(i) Accounting for Stock-Based Compensation
The Company records compensation expense for stock options only if the
current market price of the underlying stock exceeds the exercise
price on the date of the grant. On January 1, 1996, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company has elected not to implement the fair value based accounting
method for stock options, but has elected to disclose the pro forma
net earnings and pro forma earnings per share for employee and
director stock option and warrant grants made beginning in 1995 as if
such method had been used to account for stock-based compensation cost
as described in SFAS No. 123.
(j) Reclassifications
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 and 1996 presentation.
(3) Acquisitions
On May 17, 1996, the Company acquired certain assets of Montare
International, a provider of Information Technology ("IT") contract
professionals. The purchase price was $3,600,000 in cash. Pursuant to a
separate agreement, the Company also acquired certain accounts receivable
for $844,487. The purchase price and the accounts receivable acquired were
financed through borrowings available under the Company's credit facility.
This acquisition has been accounted for as a purchase and accordingly, the
purchase price was allocated to assets based on the estimated fair value as
of the date of the acquisition. The excess of the consideration paid over
the estimated fair value of assets acquired in the amount of $3,158,022 has
been recorded as cost in excess of fair value of net assets acquired
(goodwill) and is being amortized over 20 years on the straight-line
method. The Company assesses the recoverability of unamortized goodwill
using the undiscounted projected future earnings from the related
businesses. The operating results of Montare International have been
included in the consolidated
F-70
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
statement of earnings from the purchase date. The acquisition of Montare
did not have a material impact on the Company's results of operations.
On April 18, 1994, the Company acquired certain assets of Brannon & Tully,
a provider of IS contract professionals. The purchase price totaled
$3,881,250 and consisted of $3,150,000 in cash and the issuance of 127,720
shares of Common Stock of the Company. Pursuant to a separate agreement,
the Company also acquired certain accounts receivable, with recourse, for
$1,301,595. The cash portion of the purchase price and the accounts
receivable acquired were financed through borrowings available under the
Company's credit facility.
This acquisition has been accounted for as a purchase and accordingly, the
purchase price was allocated to assets based on the estimated fair value as
of the date of the acquisition. The excess of the consideration paid over
the estimated fair value of assets acquired in the amount of $3,781,925 has
been recorded as cost in excess of fair value of net assets acquired
(goodwill) and is being amortized over 20 years on the straight-line
method.
F-71
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The operating results of Brannon & Tully have been included in the
consolidated statements of earnings from the purchase date. The following
unaudited pro forma consolidated results of operations assume the
acquisition of Brannon & Tully occurred on January 1, 1994:
December 31,
1994
----
Revenues $118,826,683
Net earnings 3,181,632
Earnings per share $ .69
============
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisition
occurred at the beginning of the period or of results which may occur in
the future.
One of the former principals of Brannon & Tully entered into an employment
agreement with the Company. His employment agreement was for a term of five
years, but could be terminated by either party at any time after one year,
upon not less than 90 days notice. Beginning in 1995, the employment
agreement provided for incentive compensation based upon improvements in
gross profits relating to certain offices to which the officer rendered
employment services and provided active assistance. The amount of incentive
compensation earned in 1995 under the agreement was $370,172. The
employment agreement was terminated during 1995.
(4) Fixed Assets
Fixed assets are stated at cost as follows:
Dec. 31, Dec. 31, Estimated
1996 1995 useful life
---- ---- -----------
Computer equipment $2,461,249 $2,050,173 8 years
Computer software 1,451,319 670,605 3-5 years
Furniture, fixtures, office
equipment and other 1,545,706 1,480,125 5-15 years
Leasehold improvements & signs 534,878 488,099 Life of lease
---------- ----------
5,993,152 4,689,002
Less accumulated depreciation and
amortization 2,217,491 2,563,589
---------- ----------
$3,775,661 $2,125,413
========== ==========
Depreciation and amortization expense on fixed assets amounted to $403,952,
$364,025 and $291,751 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-72
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Loan Payable
On December 8, 1995, the Company entered into an agreement with a financial
institution creating a three-year $35,000,000 credit facility (the "Credit
Facility"). The Credit Facility comprises a term loan in the amount of
$3,000,000 (the "Term Loan") to be paid in monthly installments of $62,500
in 1996, $83,333 in 1997 and $104,167 in 1998, with the balance outstanding
due on December 1, 1998 and a $32,000,000 revolving credit facility (the
"Revolving Facility") which expires on December 1, 1998 . The Company may
borrow against the Revolving Facility up to 85% of eligible accounts
receivable and eligible service and funding fees receivable. The Term Loan
bears interest at the Company's election at either the lender's floating
base rate plus .25%, or LIBOR (London Interbank Offered Rate) plus 2.25%.
Borrowings under the Revolving Facility bear interest at the Company's
election at either the lender's floating base rate, or LIBOR plus 2.125%.
Borrowings under the Credit Facility are secured by a first priority
security interest in all owned and after-acquired real and personal
property of the Company.
At December 31, 1996, the Company had outstanding borrowings of $2,250,000
under the Term Loan bearing interest at an average rate of 7.8% and
$24,500,000 of borrowings under the Revolving Facility bearing interest at
an average rate of 7.7%.
The Credit Facility contains a variety of affirmative and negative
covenants of types customary in an asset-based lending facility including,
among other things, minimum net worth and profitability levels, with which
the Company is in compliance as of December 31, 1996.
The Credit Facility was used to repay existing indebtedness as described
below and to finance the offer to purchase the Company's Common Stock in
January 1996 as described in Note 9.
Prior to December 8, 1995, the Company maintained, with two banks, a
working capital credit facility and a revolving credit and term loan
facility. The working capital credit facility represented an open line of
credit of up to $12,000,000 (increased from $10,000,000, effective in
November 1995), borrowings under which were payable on demand. Outstanding
borrowings bore interest, at the Company's option, at the banks' prime rate
or at a rate 120 basis points above the banks' LIBOR Rate. This working
capital credit facility was terminated on December 8, 1995. In addition,
the Company maintained a revolving credit and term loan agreement which
provided for a two-year $6,000,000 facility, outstanding borrowings under
which, at the Company's option, could be converted at the maturity of the
revolving credit facility into a five-year term loan. Effective November
1995, in connection with the increase in the Company's working capital
facility described above, the revolving credit and term loan agreement
(under which there were no outstanding borrowings) was terminated.
F-73
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6) Income Taxes
The components of the provision for Federal and state income taxes are as
follows:
1996 1995 1994
---- ---- ----
Federal:
Current $1,756,500 $1,868,000 $1,384,000
Deferred 135,500 27,000 151,000
State:
Current 282,500 282,000 216,000
Deferred 10,500 5,000 24,000
---------- ---------- ----------
$2,185,000 $2,182,000 $1,775,000
========== ========== ==========
Income tax expense differed from that which would have resulted by applying
the statutory Federal income tax rates to earnings before provision for
income taxes as a result of the following items:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected tax on pre-tax
earnings $ 1,991,000 34.0% $ 1,953,000 34.0% $ 1,607,000 34.0%
Tax-exempt interest and
qualified dividends -- -- (5,000) (.1) (13,000) (.3)
State taxes, net of Federal
income tax benefit 193,000 3.3 189,000 3.3 158,000 3.4
Other, net 1,000 -- 45,000 .8 23,000 .5
----------- ---- ----------- ---- ----------- ----
Income tax provision $ 2,185,000 37.3% $ 2,182,000 38.0% $ 1,775,000 37.6%
=========== ==== =========== ==== =========== ====
</TABLE>
F-74
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effect of temporary differences which give rise to significant
portions of deferred tax assets and liabilities are as follows:
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
Notes receivable, due primarily to allowances
for possible loss $ 122,960 $ 142,356
Receivables, due primarily to allowances
for doubtful accounts 104,803 212,148
Accrued expenses not currently deductible 67,140 --
Accelerated depreciation and amortization for
tax purposes (164,094) (61,240)
Other 70,340 53,885
--------- ---------
$ 201,149 $ 347,149
========= =========
(7) Employment Agreements and Transactions
The Company has employment agreements with two of its officers providing
for, among other things, their continued employment through December 31,
1997. In addition, the agreements provide for incentive compensation which
is based upon the Company's pre-tax earnings. Incentive compensation earned
in 1996, 1995 and 1994, pursuant to such agreements, was $273,592, $221,298
and $263,677, respectively.
In January 1996, the Company entered into arrangements with two of its
officers. Under such arrangements, the executive officers are entitled to
receive cash bonuses aggregating $1,041,018 payable to the extent of 10%
thereof three years after consummation of the tender offer described in
Note 9, to the extent of 30% thereof four years after consummation of the
offer and as to the balance thereof five years after consummation of the
offer, provided that the recipient is then employed by the Company. The
executive officers were granted options to purchase an aggregate of 92,535
shares of Common Stock, such options to vest in installments through
January 1999. The exercise price of such options was $11.25 per share. The
cash bonus installments and option installments are subject to acceleration
in the event of death, merger of the Company, sale of all or substantially
all of the Company's assets or a change in control of the Company.
(8) Stock Options
During 1991, the Board of Directors of the Company approved the 1991 Stock
Option Plan (the 1991 Plan) which provides for the issuance of up to
500,000 stock options to officers and employees of the Company. Each option
granted pursuant to the 1991 Plan shall be designated at the time of grant
as either an "incentive stock option" or as a "non-qualified stock option."
F-75
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In addition, the Company maintains two employee stock option plans, and a
non-qualified stock option plan for its Licensees. The plans (except for
options designated as non-qualified stock options) provide for options to
be granted at 100% of the fair market value of the Company's Common Stock
and provide that the exercise price of options may not be less than 110% of
such fair market value in the case of an employee owning 10% or more of the
voting power of the Company's stock. At the time options are granted, the
Company may impose a waiting period before options can be exercised.
Non-qualified stock options may not be granted at less than 75% of the fair
market value of the Company's Common Stock at the date of grant.
During 1991, non-qualified stock options with respect to 90,000 shares were
granted under the 1991 Plan at 75% of the fair market value of the
Company's Common Stock on the date of the grant. The grant resulted in
compensation expense of $180,000 to be allocated to current and future
periods as earned. Additional paid-in capital has been credited to the
extent of aggregate compensation earned since the grant of $103,500.
In 1995 the Stockholders of the Company approved the Directors' Stock
Option Plan (the "Directors' Plan") which permits the granting of a maximum
of 100,000 stock options to its outside Directors. The purpose of the plan
is to secure for the Company and its stockholders the benefits arising from
stock ownership by its outside Directors.
At December 31, 1996, an aggregate of 507,538 shares of common stock has
been reserved for issuance under the plans. Activity in stock options is
summarized as follows:
Outstanding Weighted average
options exercise price
------- --------------
December 31, 1993 534,575 $ 7.16
Options granted 41,878 11.37
Options exercised (97,650) 6.86
Options lapsed/canceled (18,800) 11.02
-------
December 31, 1994 460,003 7.45
Options granted 2,500 8.25
Options exercised (44,400) 5.86
Options lapsed/canceled (89,553) 10.74
-------
December 31, 1995 328,550 6.77
Options granted 121,035 11.31
Options exercised (118,575) 7.35
Options lapsed/canceled (500) 11.50
-------
December 31, 1996 330,510 $ 8.22
=======
F-76
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
There are 199,060 options exercisable as of December 31, 1996 at a weighted
average exercise price of $7.85.
The per share weighted average fair value of stock options granted during
1996 was $4.06 on the date of the grant using the Black Scholes
option-pricing model with the following weighted average assumptions: risk
free interest rate of 5.3%, expected stock volatility of 50% and an
expected option life of 3.5 years. The aggregate fair value of the options
granted in 1995 was not material.
The Company applies APB Opinion No. 25 in accounting for its stock option
grants and, accordingly, no compensation cost has been recognized in the
financial statements for its stock options which have an exercise price
equal to or greater than the fair value of the stock on the date of the
grant. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
1996
----
Net earnings:
As reported $3,669,731
Pro forma 3,523,089
Earnings per share:
As reported $ 1.13
Pro forma 1.08
Pro forma net earnings reflect only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior to
January 1, 1995 was not considered.
Optionees have made disqualifying dispositions of common stock which had
been acquired through the exercise of incentive and non-qualified stock
options. As a result of the disqualifying dispositions, the Company
receives a tax benefit for the difference between the option price and the
fair market value of its common stock. The benefit of $146,622, $100,220
and $152,124 in 1996, 1995 and 1994, respectively, has been reflected in
the accompanying consolidated statements of stockholders' equity.
F-77
<PAGE>
UNIFORCE SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Tender Offer
On December 11, 1995, the Company made an offer to purchase for cash up to
1,250,000 shares of its Common Stock at $11.25 net per share (the Offer).
The 1,250,000 shares that the Company offered to purchase represented
approximately 30% of the Shares outstanding. In January 1996, the Offer was
successfully completed. The total amount required to purchase the 1,250,000
shares was $14,062,500, exclusive of related fees and other expenses. The
purchase price and related expenses were funded with available borrowings
under the Credit Facility.
(10) Commitments and Contingencies
In April 1994, various prior insurance carriers and their not-for-profit
trade association filed a civil action against the Company, its officers
and various other parties. The Plaintiffs allege breach of contract and
tort causes of action for underpayment of premiums. The Company denies the
validity of the Plaintiffs' claims. The Company has asserted substantial
claims in opposition to the Plaintiffs' claims. Additionally, the Company
and its subsidiaries have filed suit against various prior worker
compensation carriers alleging claims mismanagement. Management regards as
unlikely that the outcome of those actions will have a material adverse
effect on the financial position of the Company.
In January 1996, various vendors of training films filed an action against
the Company. The plaintiffs alleged that the Company improperly used and/or
copied plaintiffs' tapes. In 1996 the Company settled this matter.
The Company is obligated under various leases for office space and
equipment through 2006. Net rental expense for the years ended December 31,
1996, 1995 and 1994 amounted to approximately $1,100,000, $871,000 and
$734,000, respectively.
Following is a schedule of total minimum lease payments under noncancelable
operating leases as of December 31, 1996:
1997 $1,153,272
1998 1,034,708
1999 857,584
2000 562,115
2001 534,847
Thereafter 2,596,140
----------
Total minimum lease payments $6,738,666
==========
F-78
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,555,275
Accounts receivable - net 20,677,331
Funding and service fees receivable - net 25,845,143
Prepaid expenses and other current assets 802,412
Deferred income taxes 201,149
------------
Total current assets 54,081,310
------------
Fixed assets - net 4,336,002
Deferred costs and other assets - net 1,252,509
Cost in excess of fair value of net assets acquired 6,122,188
------------
$ 65,792,009
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable $ 2,000,000
Payroll and related taxes payable 7,220,332
Payable to licensees and clients 1,273,888
Income taxes payable 485,147
Accrued expenses and other liabilities 2,705,757
------------
Total current liabilities 13,685,124
------------
Loan payable - non-current 34,097,655
Capital lease obligation - non-current 577,175
Stockholders' equity:
Common stock $.01 par value 51,228
Additional paid-in capital 9,027,840
Retained earnings 30,303,581
------------
39,382,649
Treasury stock, at cost, 2,084,245 shares (21,950,594)
------------
Total stockholders' equity 17,432,055
------------
$ 65,792,009
============
See accompanying notes to consolidated condensed financial statements.
F-79
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------- -------------
Sales of supplemental staffing services $ 127,265,243 $ 97,804,122
Service revenues and fees 5,687,806 5,589,180
------------- -------------
Total revenues 132,953,049 103,393,302
------------- -------------
Costs and expenses:
Cost of supplemental staffing services 100,783,201 76,214,231
Licensees' share of gross margin 6,665,450 5,832,735
General and administrative 17,100,195 14,556,306
Merger transaction costs 225,000 --
Depreciation & amortization 952,779 783,419
------------- -------------
Total costs and expenses 125,726,625 97,386,691
------------- -------------
Earnings from operations 7,226,424 6,006,611
Other income (expense):
Interest - net (1,829,458) (1,563,728)
Other - net 9,170 18,954
------------- -------------
Earnings before provision for income taxes 5,406,136 4,461,837
Provision for income taxes 2,126,000 1,695,000
------------- -------------
NET EARNINGS $ 3,280,136 $ 2,766,837
============= =============
Weighted average number of shares outstanding:
Primary 3,231,505 3,273,265
Fully Diluted 3,286,096 3,293,492
NET EARNINGS PER SHARE:
Primary $ 1.02 $ .85
============= =============
Fully Diluted $ 1.00 $ .84
============= =============
See accompanying notes to consolidated condensed financial statements.
F-80
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,280,136 $ 2,766,837
Adjustments to reconcile net earnings
to net cash (used) by operating activities:
Depreciation and amortization 952,779 783,419
(Increase) in receivables and prepaid expenses (9,542,167) (4,480,953)
Stock option compensation expense 13,500 13,500
(Decrease) in liabilities (1,424,021) (89,907)
------------ ------------
Net cash (used) by operating activities (6,719,773) (1,007,104)
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets (1,084,964) (774,916)
(Increase) in deferred costs and other assets (31,906) (410,786)
Net assets acquired from Montare -- (4,628,142)
------------ ------------
Net cash (used) by investing activities (1,116,870) (5,813,844)
------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (155,483) (195,934)
Increase in loan payable 9,347,655 17,450,609
Cash dividends paid (273,018) (272,605)
Purchase of treasury stock -- (14,280,863)
Proceeds from issuance of common stock 189,342 1,034,716
------------ ------------
Net cash provided by financing activities 9,108,496 3,735,923
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,271,853 (3,085,025)
Cash and cash equivalents at beginning of period 5,283,422 6,444,859
------------ ------------
Cash and cash equivalents at end of period $ 6,555,275 $ 3,359,834
============ ============
Supplemental disclosures:
Cash paid for:
Interest $ 1,666,718 $ 1,310,366
------------ ------------
Income taxes $ 1,433,048 $ 1,601,379
------------ ------------
</TABLE>
Non-cash financing activities:
During 1996, the Company entered into capital leases in the amount of $551,405.
See accompanying notes to consolidated condensed financial statements.
F-81
<PAGE>
UNIFORCE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts of Uniforce
Services, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Consolidated condensed financial statements
The consolidated condensed financial statements, as shown in the
accompanying index, have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1997, and for all periods presented
have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed, reclassified or omitted. It is suggested that
these consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's December 31, 1996 financial statements. The results of operations for
the periods ended September 30, 1997 are not necessarily indicative of the
operating results which may be achieved for the full year.
Tax accruals have been made based on estimated effective annual tax rates
for the periods presented.
3. Litigation Settlement
In April 1994, various insurance carriers and their not-for-profit trade
association filed an action against the Company, its officers and various other
parties; in May 1996, the Plaintiffs filed their Third Amended Complaint. The
Plaintiffs alleged breach of contract and tort causes of action for underpayment
of premiums. The Company denied liability and asserted substantial claims in
opposition to the Plaintiffs' claims. Additionally the Company and its
subsidiaries filed suit against various prior workers' compensation carriers
alleging claims mismanagement. In July 1997, both matters were settled. The
terms of the settlement are confidential by agreement. The settlement did not
have a material effect on the Company's financial condition or operating
results.
4. Agreement and Plan of Merger
On August 13, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") under which it will be acquired by COMFORCE
Corporation. Pursuant to the Merger Agreement a subsidiary of COMFORCE is to
make a tender offer (the "Tender Offer") to acquire all of the issued and
outstanding common stock of the Company for $28.00 in cash and .5217 shares of
COMFORCE common stock for each share of Uniforce common stock. The consummation
of the Tender Offer is contingent upon a number of conditions, including
COMFORCE obtaining debt financing sufficient to complete the purchase of the
Company's shares. The Merger Agreement provides that after the consummation of
the Tender Offer the COMFORCE subsidiary will be merged with and into the
Company, with the Company being the surviving corporation and becoming a
wholly-owned subsidiary of COMFORCE. On October 27, 1997 a Joint Proxy
Statement/Prospectus relating to the Merger Agreement was declared effective by
the Securities and Exchange Commission and COMFORCE commenced the Tender Offer.
The Tender Offer is expected to remain open through November 24, 1997 unless
extended.
F-82
<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
Page
----
Prospectus Summary .................................................... 6
Risk Factors........................................................... 31
Use of Proceeds........................................................ 41
Capitalization......................................................... 42
Historical Stock Prices and Dividend Policy............................ 43
Selected Unaudited Pro Forma Combined
Financial Statements ............................................. 44
Selected Historical Financial Information-
COMFORCE Corporation.............................................. 48
Selected Historical Financial Information-
Uniforce Services, Inc............................................ 51
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................... 54
The Contingent Staffing and Consulting
Industry ......................................................... 62
Business .............................................................. 64
The Transactions....................................................... 78
Management .......................................................... 79
Certain Relationships and Related
Transactions..................................................... 85
Principal Stockholders................................................. 88
The Notes Exchange Offer............................................... 91
Description of Notes................................................... 100
The Debentures Exchange Offer.......................................... 125
Description of Units................................................... 135
Description of Senior Debentures....................................... 136
Description of Warrants................................................ 162
Description of Capital Stock........................................... 164
Plan of Distribution................................................... 165
Certain United States Federal Income
Tax Consequences.................................................. 167
Book-Entry, Delivery and Form.......................................... 171
Description of Other Indebtedness...................................... 173
Legal Matters.......................................................... 173
Independent Accountants................................................ 173
Index to Consolidated Financial Statements............................. F-1
--------------
================================================================================
================================================================================
$20,000,000
15% Senior Secured
PIK
Debentures due 2009,
Series B
for
15% Senior Secured
PIK
Debentures due 2009,
Series A
COMFORCE
Corporation
--------------------
PROSPECTUS
--------------------
____________ , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Bylaws effectively provide that the Registrant, to the
full extent permitted by Section 145 of the General Corporation Law of the State
of Delaware, as amended from time to time ("Section 145"), shall indemnify all
directors and officers of the Company and may indemnify all employees,
representatives and other persons as permitted pursuant thereto.
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
COMFORCE has entered into separate indemnification agreements with each of
its outside directors which provides for indemnification of such directors to
the fullest extent permitted by law. COMFORCE may also enter into
indemnification agreements with other directors, officers or employees or with
anyone else it is permitted to indemnify under Delaware law, but has no present
intention of doing so.
COMFORCE maintains insurance against liabilities under the Securities Act
of 1933 (the "Securities Act") for the benefit of its officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling COMFORCE 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.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
2.1 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).
2.2 Purchase Agreement among COMFORCE Telecom, Inc., Williams
Communications Services, Inc. and Bruce Anderson (included as an
exhibit to the Company's Current Report on Form 8-K dated March 13,
1996 and incorporated herein by reference).
2.3 Stock Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., Project Staffing Support
Team, Inc., Raphael Rashkin and Stanley Rashkin (included as an
II-1
<PAGE>
exhibit to the Company's Amended Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996 filed May 16, 1996 and incorporated
herein by reference).
2.4 Asset Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., DataTech Technical
Services, Inc., Raphael Rashkin and Stanley Rashkin (included as an
exhibit to the Company's Amended Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996 filed May 16, 1996 and incorporated
herein by reference).
2.5 Asset Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., RRA, Inc., Raphael Rashkin
and Stanley Rashkin (included as an exhibit to the Company's Amended
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996
filed May 16, 1996 and incorporated herein by reference).
2.6 Letter Agreement dated May 6, 1996 amending Asset Purchase Agreement
effective as of May 13, 1996 among the Company, COMFORCE Technical
Services, Inc., RRA, Inc., Raphael Rashkin and Stanley Rashkin
(included as an exhibit to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended March 31, 1996 filed May 16, 1996
and incorporated herein by reference).
2.7 Letter Agreement dated April 19, 1996 among CTS Acquisition Co. I,
COMFORCE Technical Services, Inc., Project Staffing Support Team, Inc.
and RRA, Inc. (included as an exhibit to the Company's Amended
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996
filed May 16, 1996 and incorporated herein by reference).
2.8 Agreement and Plan of Reorganization dated October 22, 1996 between
AZATAR Computer Systems, Inc. and the Company (included as an exhibit
to the Company's Current Report on Form 8-K dated November 8, 1996 and
incorporated herein by reference).
2.9 Asset Purchase Agreement dated October 25, 1996 by and among
Continental Field Services Corporation, Michael Hill, Roy Hill and
COMFORCE Telecom, Inc. (included as an exhibit to the Company's
Current Report on Form 8-K dated November 19, 1996 and incorporated
herein by reference).
2.10 Asset Purchase Agreement dated October 25, 1996 between Progressive
Telecom, Inc., Beth Wilson Hill and COMFORCE Telecom, Inc. (included
as an exhibit to the Company's Current Report on Form 8-K dated
November 19, 1996 and incorporated herein by reference).
2.11 Amendment to Escrow Agreement and Purchase Agreements dated November
8, 1996 by and among Continental Field Service Corporation,
Progressive Telecom, Inc., Michael Hill, Roy Hill, Beth Wilson Hill,
McCarthy, Fingar, Donovan, Drazen & Smith, and COMFORCE Telecom, Inc.
(included as an exhibit to the Company's Current Report on Form 8-K
dated November 19, 1996 and incorporated herein by reference).
2.12 Subscription Agreement dated October 28, 1996 by and among RHO
Company, Inc., J. Scott Erbe, COMFORCE Corporation and COMFORCE
Technical Services, Inc. (included as an exhibit to the Company's
Current Report on Form 8-K dated November 19, 1996 and incorporated
herein by reference).
2.13 Stock Sale and Termination Agreement dated October 28, 1996 by and
between James R. Ratcliff and RHO Company, Inc. (included as an
exhibit to the Company's Current Report on Form 8-K dated November 19,
1996 and incorporated herein by reference).
2.14 Letter Agreement dated November 4, 1996 amending Stock Sale and
Termination Agreement between RHO Company, Inc. and James R. Ratcliff
(included as an exhibit to the Company's Current Report on Form 8-K
dated November 19, 1996 and incorporated herein by reference).
II-2
<PAGE>
2.15 Agreement and Plan of Merger, dated as of August 13, 1997, by and
among COMFORCE Corporation, COMFORCE Columbus, Inc. and Uniforce
Services, Inc. (included as an exhibit to the Company's Current Report
on Form 8-K dated August 20, 1997 and incorporated herein by
reference).
2.16 Stockholders Agreement, dated as of August 13, 1997, by and among
COMFORCE Corporation, COMFORCE Columbus, Inc., John Fanning and
Fanning Limited Partnership, L.P. (included as an exhibit to the
Company's Current Report on Form 8-K dated August 20, 1997 and
incorporated herein by reference).
2.17 Registration Rights Agreement dated as of August 13, 1997 by and among
the Company, John Fanning and Fanning Asset Partners, L.P., a Georgia
limited partnership (included as an exhibit to Amendment No. 2 to the
Registration Statement on Form S-4 of the Company filed with the
Commission on October 24, 1997 and incorporated herein by reference).
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 (included as an exhibit to
Amendment No. 1 to the Registration Statement on Form S-1 of the
Company filed with the Commission on May 10, 1996 and incorporated
herein by reference).
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
February 26, 1997 (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference)
3.4 Designation of Rights and Preferences of Series F Preferred Stock
(included as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference).
3.5 Certificate of Ownership (Merger) of AZATAR into the Company (included
as an exhibit to the Company's Current Report on Form 8-K dated
November 8, 1996 and incorporated herein by reference).
4.1 Indenture dated as of November 26, 1997 with respect to 12% Senior
Notes due 2007 between COMFORCE Operating, Inc., as issuer, and
Wilmington Trust Company, as trustee (included as an exhibit to the
Company's Current Report on Form 8-K dated December 9, 1997 and
incorporated herein by reference).
4.2 Indenture dated as of November 26, 1997 with respect to 15% Senior
Secured PIK Debentures due 2009 between COMFORCE Corporation, as
issuer, and The Bank of New York, as trustee (included as an exhibit
to the Company's Current Report on Form 8-K dated December 9, 1997 and
incorporated herein by reference).
5.1* Opinion of Doepken Keevican & Weiss Professional Corporation.
10.1 Management Agreement dated as of April 9, 1993 between the Company and
Nitsua, Ltd. (a corporation wholly-owned by Austin Iodice, formerly
Lori's Chairman and Chief Executive Officer) (included as an exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference).
II-3
<PAGE>
10.2 Letter Agreement dated June 29, 1995, 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 Amendment dated October 6, 1995 of Letter Agreement dated June 29,
1995, 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).
10.4 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).
10.5 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).
10.6 Loan and Security Agreement dated as of November 26, 1997 among
COMFORCE Corporation and specified subsidiaries thereof and Heller
Financial, Inc., as lender and agent for other lenders (included as an
exhibit to the Company's Current Report on Form 8-K dated December 9,
1997 and incorporated herein by reference).
10.7 Purchase Agreement, dated as of November 19, 1997, by and between
COMFORCE Operating, Inc. and NatWest Capital Markets Limited, as
Initial Purchaser.
10.8 Purchase Agreement, dated as of November 19, 1997, by and between
dated as of November 26, 1997, by and between the Company and NatWest
Capital Markets Limited, as Initial Purchaser.
10.9 Exchange Offer and Registration Rights Agreement, dated as of November
26, 1997, by and between COMFORCE Operating, Inc. and NatWest Capital
Markets Limited, as Initial Purchaser.
10.10 Exchange Offer and Registration Rights Agreement, dated as of November
26, 1997, by and between the Company and NatWest Capital Markets
Limited, as Initial Purchaser.
10.11 Warrant Registration Rights Agreement, dated as of November 26, 1997,
by and between the Company and NatWest Capital Markets Limited, as
Initial Purchaser.
10.12 Warrant Agreement dated November 26, 1997 by and between the Company
and The Bank of New York, as Warrant Agent.
10.13 Unit Agreement dated November 26, 1997 by and between the Company and
NatWest Capital Markets Limited.
10.14 Pledge Agreement dated November 26, 1997 by and between the Company
and The Bank of New York, as Collateral Agent.
10.15 Employment Agreement dated December 1, 1997 between the Company,
COMFORCE Operating, Inc. and Christopher Franco.
10.16 Employment Agreement dated December 1, 1997 between the Company,
COMFORCE Operating, Inc. and James L. Paterek.
II-4
<PAGE>
10.17 Employment Agreement dated December 1, 1997 between the Company,
COMFORCE Operating, Inc. and Michael Ferrentino.
21.1 List of Subsidiaries.
23.1 Consent of Doepken Keevican & Weiss Professional Corporation (included
in the opinion filed as Exhibit 5.1 to this Registration Statement).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Arthur Andersen L.L.P.
23.4 Consent of KPMG Peat Marwick LLP
24.1 Powers of Attorney (included on signature page of the Registration
Statement).
25.1 Statement of Eligibility on Form T-1 of The Bank of New York.
99.1 Form of Letter of Transmittal (New Senior Debentures).
99.2 Form of Notice of Guaranteed Delivery (New Senior Debentures).
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
Item 22. Undertakings.
The Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(3) 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
II-5
<PAGE>
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(4) 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective 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.
Provided, however, that paragraphs (5)(i) and (5)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(5) 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.
(6) 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.
II-6
<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 December 23, 1997.
COMFORCE Corporation
(Registrant)
By: /s/ Christopher P. Franco
----------------------------------------------
Christopher P. Franco, Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christopher P. Franco and Paul J. Grillo, 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.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James L. Paterek Chairman December 23, 1997
- -------------------------
James L. Paterek
/s/ Christopher P. Franco Chief Executive Officer,
- ------------------------- Secretary and Director December 23, 1997
Christopher P. Franco
/s/ Michael Ferrentino President and
- ------------------------- Director December 23, 1997
Michael Ferrentino
/s/ Paul Grillo Chief Financial Officer
- ------------------------- (Principal Financial
Paul Grillo Officer) December 23, 1997
/s/ Andrew Reiben Vice President of Finance and December 23, 1997
- ------------------------- Chief Accounting Officer
Andrew Reiben (Principal Accounting Officer)
/s/ Richard Barber Director December 23, 1997
- -------------------------
Richard Barber
/s/ Keith Goldberg Director December 23, 1997
- -------------------------
Keith Goldberg
Director
- -------------------------
Glen Miller
/s/ Marc Werner Director December 23, 1997
- -------------------------
Marc Werner
Director
- -------------------------
Michael D. Madden
$110,000,000
COMFORCE OPERATING, INC.
12% Senior Notes due 2007
PURCHASE AGREEMENT
<PAGE>
COMFORCE OPERATING, INC.
$110,000,000
12% Senior Notes due 2007
PURCHASE AGREEMENT
-----------------------
November 19, 1997
Natwest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
England
Ladies and Gentlemen:
COMFORCE Operating, Inc., a Delaware corporation (the "Company") hereby
confirms its agreement with you (the "Initial Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Initial Purchaser $110,000,000
aggregate principal amount of its 12% Senior Notes due 2007 (the "Notes"). The
Notes are to be issued under an indenture (the "Indenture") to be dated as of
November 26, 1997, by and among the Company and Wilmington Trust Company, as
trustee (the "Trustee").
The Notes will be offered and sold to the Initial Purchaser without being
registered under the Securities Act of 1933, as amended (the "Act"), in reliance
on exemptions therefrom.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum dated November 1, 1997 (the "Preliminary
Memorandum") and will prepare a final offering memorandum dated November 19,
1997 (the "Final Memorandum"; the Preliminary Memorandum and the Final
Memorandum each herein being referred to as the "Memorandum") setting forth or
including a description of the terms of the Notes, the terms of the offering of
the Notes, a description of the Company and any material developments relating
to the Company occurring after the date of the most recent historical financial
statements included therein.
The Company and the Initial Purchaser will enter into a Registration Rights
Agreement (the "Registration Rights Agreement") prior to or concurrently with
the issuance of the Notes. Pursuant to the Registration Rights Agreement, under
the circumstances and the terms set forth therein, the Company will agree to
file with the Securities and Exchange Commission (the
<PAGE>
"Commission"): (i) a registration statement on Form S-4 (the "Exchange Offer
Registration Statement") relating to a registered Exchange Offer (as defined in
the Registration Rights Agreement) for the Notes under the Act to offer to the
holders of the Notes the opportunity to exchange their Notes for an issue of
notes substantially identical to the Notes (except that (a) interest thereon
will accrue from the last date on which interest was paid on the Notes, or if no
such interest has been paid, from November 26, 1997, (b) such Notes will not
contain restrictions on transfer, and (c) such Notes will not contain provisions
relating to an increase in their interest rate under certain circumstances) that
would be registered under the Act (the "Exchange Notes"); or (ii) alternatively,
in the event that applicable interpretations of the Commission do not permit the
Company to effect the Exchange Offer or do not permit any holder of the Notes to
participate in the Exchange Offer, a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Notes by such holders who satisfy
certain conditions relating to, including the provision of information in
connection with the Shelf Registration Statement.
2. Representations and Warranties. The Company represents and warrants to,
and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor the Final
Memorandum nor any amendment or supplement thereto as of the date thereof and at
all times subsequent thereto up to the Closing Date (as defined in Section 3
below) contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section 2(a) do
not apply to statements or omissions made in reliance upon and in conformity
with information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary
Memorandum, the Final Memorandum or any amendment or supplement thereto. The
Final Memorandum conforms in all material respects to the requirements of the
Act and the rules and regulations promulgated thereunder, as if it was a
prospectus filed as part of a registration statement on Form S-3 relating to the
Notes.
(b) As of the Closing Date, the Company will have the capitalization set
forth in the Final Memorandum; all of the outstanding shares of capital stock of
the Company have been, and as of the Closing Date will be, duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights; there are no (i) options,
warrants or other rights to purchase from the Company, (ii) agreements or other
obligations of the Company to issue or (iii) other rights to convert any
obligation into, or exchange any securities for, shares of capital stock of or
ownership interests in the Company outstanding. The entities listed on Schedule
2 hereto are the only subsidiaries, direct or indirect of the Company
(collectively, the "Subsidiaries"). Except as disclosed on Schedule 2 or as
disclosed in the Final Memorandum, the Company does not own, directly or
indirectly, any capital stock or any other equity or long-term debt securities
or have any equity interest in any firm, partnership, joint venture, limited
liability company or other entity.
(c) The Company and each of the Subsidiaries has been duly incorporated, is
validly existing and is in good standing as a corporation under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own its properties and conduct its business as now conducted, and as
described in the Final Memorandum; each of the Company and the Subsidiaries
<PAGE>
is duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the Company and
the Subsidiaries, taken as a whole (any such event, a "Material Adverse
Effect").
(d) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Notes. The Notes have been duly
and validly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in accordance with the provisions of the Indenture
and, when delivered to and paid for by the Initial Purchaser in accordance with
the terms of this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(e) The Company has all requisite power and authority to execute, deliver
and perform its obligations under the Exchange Notes and the Private Exchange
Notes (as defined in the Registration Rights Agreement). The Exchange Notes and
the Private Exchange Notes have been duly and validly authorized by the Company
and, when the Exchange Notes have been duly executed and delivered by the
Company and authenticated by the Trustee in accordance with the terms of the
Registration Rights Agreement and the Indenture, will constitute valid and
legally binding obligations of the Company, entitled to the benefits of the
Indenture, and are enforceable against the Company in accordance with their
terms, except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
and the discretion of any court before which any proceeding therefor may be
brought.
(f) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Indenture. The Indenture meets the
requirements for qualification under the Trust Indenture Act of 1939, as amended
(the "TIA"). The Indenture has been duly and validly authorized by the Company
and, when executed and delivered by the Company (assuming the due authorization,
execution and delivery of the Indenture by the Trustee), will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(g) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Registration Rights Agreement. The
Registration Rights Agreement has been duly and validly authorized by the
Company and, when executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect
<PAGE>
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(h) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
authorized and has been duly executed and delivered by the Company and (assuming
the due authorization, execution and delivery of this Agreement by the Initial
Purchaser) constitutes a valid legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that the
enforcement hereof may be subject to (i) bankruptcy, insolvency, reorganization
or other similar laws now or hereafter in effect relating the creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought.
(i) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the performance of
this Agreement, the Registration Rights Agreement and the Indenture by the
Company or the consummation by the Company of the transactions contemplated
hereby and thereby that are to be completed on or before the Closing Date,
except such as have been obtained or disclosed in the Final Memorandum and such
as may be required under state securities or "Blue Sky" laws in connection with
the purchase and resale of the Notes by the Initial Purchaser. None of the
Company or the Subsidiaries is (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document), (ii) in breach or
violation of any statute, judgment, decree, order, rule or regulation applicable
to any of them or any of their respective properties or assets, or (iii) in
breach of or in default under (nor has any event occurred which, with notice or
passage of time or both, would constitute a default under) or in violation of
any of the terms or provisions of any indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit, certificate,
contract or other agreement or instrument to which any of them is a party or to
which any of them or their respective properties or assets is subject
(collectively, "Contracts") except such violations, breaches or defaults that
would not, individually or in the aggregate, have a Material Adverse Effect.
(j) The execution, delivery and performance by the Company of this
Agreement, the Indenture, and the Registration Rights Agreement and the
consummation by the Company of the transactions contemplated hereby and thereby,
and the fulfillment of the terms hereof and thereof, and the retention by
COMFORCE Corporation of NatWest Capital Markets Limited ("NatWest") pursuant to
those certain letter agreements (including the engagement and indemnity letter
agreements) dated as of August 1, 1997 (collectively, the "NatWest Engagement
Letter") and NatWest's acting as contemplated hereby and thereby, will not
conflict with or constitute or result in a breach of or a default under (or an
event which with notice or passage of time or both would constitute a default
under) or violation of any of (i) the terms or provisions of any Contract except
such conflicts, breaches, defaults or violations, that would not, individually
or in the aggregate, have a Material Adverse Effect (ii) the certificate of
incorporation or by-laws (or similar organizational document) of the Company or
any of the Subsidiaries, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of the Subsidiaries or any of their
respective properties or assets except such conflicts, breaches, defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect.
(k) The audited consolidated financial statements of the Company and the
<PAGE>
Subsidiaries and of Uniforce Services, Inc. and its subsidiaries included in the
Preliminary Memorandum and the Final Memorandum present fairly in all material
respects the financial position, results of operations and cash flows of such
entities at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, except as otherwise stated therein. The summary and selected
financial and statistical data in the Preliminary Memorandum and the Final
Memorandum present fairly in all material respects the information shown therein
and have been prepared and compiled on a basis consistent with the audited
financial statements included therein, except as otherwise stated therein. Each
of Coopers & Lybrand LLP and KPMG Peat Marwick LLP is an independent public
accounting firm within the meaning of the Act and the rules and regulations
promulgated thereunder.
(l) Except as noted in the Memorandum, the pro forma financial information
included in the Preliminary Memorandum and the Final Memorandum (i) comply as to
form in all material respects with the applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (ii) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, and (iii) have been
properly computed on the bases described therein; the assumptions used in the
preparation of the pro forma financial data and other pro forma financial
information included in the Preliminary Memorandum and the Final Memorandum are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(m) There is not pending or, to the knowledge of the Company and the
Subsidiaries, threatened any action, suit, proceeding, inquiry or investigation
to which the Company or any of the Subsidiaries is a party, or to which the
property or assets of the Company or any of the Subsidiaries are subject, before
or brought by any court, arbitrator or governmental agency or body which, if
determined adversely to the Company or any of the Subsidiaries would,
individually or in the aggregate, have a Material Adverse Effect or which seeks
to restrain, enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Notes to be sold hereunder or the consummation of the
other transactions described in the Preliminary Memorandum and the Final
Memorandum.
(n) Each of the Company and the Subsidiaries owns or possesses adequate
licenses or other rights to use all material patents, trademarks, service marks,
trade names, copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Preliminary Memorandum and the
Final Memorandum, and none of the Company or the Subsidiaries has received any
notice of infringement of or conflict with (or knows of any such infringement of
or conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how which, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(o) Each of the Company and the Subsidiaries possesses all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal, state, local
and other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, presently required or necessary to own or lease, as
the case may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in the
Preliminary Memorandum and the Final
<PAGE>
Memorandum (collectively, the "Permits"), except where the failure to obtain
such Permits would not, individually or in the aggregate, have a Material
Adverse Effect; each of the Company and the Subsidiaries has fulfilled and
performed all of its obligations with respect to such Permits and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such Permit except where such revocation, termination or
impairment would not, individually or in the aggregate, have a Material Adverse
Effect; and none of the Company or the Subsidiaries has received any notice of
any proceeding relating to revocation or modification of any such Permit, except
as described in the Final Memorandum and except where such revocation or
modification would not, individually or in the aggregate, have a Material
Adverse Effect.
(p) Since the date of the most recent financial statements appearing in the
Final Memorandum, except as described in the Final Memorandum, (i) none of the
Company or the Subsidiaries has incurred any liabilities or obligations, direct
or contingent, or entered into or agreed to enter into any transactions or
Contracts (written or oral) not in the ordinary course of business which
liabilities, obligations, transactions or Contracts could, individually or in
the aggregate, be material to the general affairs, management, business,
condition (financial or otherwise), prospects or results of operations of the
Company and the Subsidiaries, taken as a whole (a "Material Change"), (ii) none
of the Company or the Subsidiaries has purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock and (iii) other than as described in the Final
Memorandum, there shall not have been any change in the capital stock or
long-term indebtedness of the Company or the Subsidiaries which could,
individually or in the aggregate, constitute a Material Change.
(q) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and the
Subsidiaries, either individually or taken as a whole, from that set forth in
the Final Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(r) Each of the Company and the Subsidiaries has filed all necessary
federal, state, local and foreign income and franchise tax returns, and has paid
all taxes shown as due thereon; and, other than tax deficiencies which the
Company or any Subsidiary is contesting in good faith, and for which the Company
or such Subsidiary has provided adequate reserves, there is no tax deficiency
that has been asserted against the Company or any of the Subsidiaries.
(s) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which are reliable and accurate.
(t) None of the Company, the Subsidiaries or any agent acting on their
behalf has taken or will take any action that might cause this Agreement or the
sale of the Notes to violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System, in each case as in effect, or as the same may
hereafter be in effect, on the Closing Date.
(u) Each of the Company and the Subsidiaries has good and marketable title
to all real property and good title to all personal property described in the
Preliminary Memorandum and the Final Memorandum as being owned by it and good
and marketable title to any leasehold estate
<PAGE>
in the real and personal property described in the Preliminary Memorandum and
the Final Memorandum as being leased by it free and clear of all liens, charges,
encumbrances or restrictions, except as described in the Preliminary Memorandum
and the Final Memorandum or to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would not,
individually or in the aggregate, have a Material Adverse Effect. All Contracts
to which the Company or any of the Subsidiaries is a party or by which any of
them is bound are valid and enforceable against the Company or such Subsidiary,
and are valid and enforceable against the other party or parties thereto and are
in full force and effect with only such exceptions as would not, individually or
in the aggregate, have a Material Adverse Effect.
(v) There are no legal or governmental proceedings involving or affecting
the Company or any Subsidiary or any of their respective properties or assets
which would be required to be described in a prospectus pursuant to the Act that
are not described in the Preliminary Memorandum and the Final Memorandum, nor
are there any material contracts or other documents which would be required to
be described in a prospectus pursuant to the Act that are not described in the
Preliminary Memorandum and the Final Memorandum.
(w) Except as would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect (A) each of the Company and the
Subsidiaries is in compliance with and not subject to liability under applicable
Environmental Laws (as defined below), (B) each of the Company and the
Subsidiaries has made all filings and provided all notices required under any
applicable Environmental Law, and has and is in compliance with all Permits
required under any applicable Environmental Laws and each of them is in full
force and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the knowledge
of the Company or any of the Subsidiaries, threatened against the Company or any
of the Subsidiaries under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any Environmental Law with
respect to any assets, facility or property owned, operated, leased or
controlled by the Company or any of the Subsidiaries, (E) none of the Company or
the Subsidiaries has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable
state law, (F) no property or facility of the Company or any of the Subsidiaries
is (i) listed or proposed for listing on the National Priorities List under
CERCLA or is (ii) listed in the Comprehensive Environmental Response,
Compensation, Liability Information System List promulgated pursuant to CERCLA,
or on any comparable list maintained by any state or local governmental
authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable foreign and federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without limitation, law
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials, into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(ii) the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of hazardous materials, and (iii)
underground and above ground storage tanks, and related piping, and emissions,
discharges, releases or threatened releases therefrom.
<PAGE>
(x) There is no strike, labor dispute, slowdown or work stoppage with the
employees of the Company or any of the Subsidiaries which is pending or, to the
knowledge of the Company or any of the Subsidiaries, threatened.
(y) Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties. Neither the Company nor any of its Subsidiaries
has received notice from any insurer or agent of such insurer that capital
improvements or other expenditures are required or necessary to be made in order
to continue such insurance.
(z) None of the Company or the Subsidiaries has any material liability for
any prohibited transaction (within the meaning of Section 4975(c) of the Code or
Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (or an accumulated funding deficiency within the meaning of
Section 412 of the Code or Section 302 of ERISA) or any complete or partial
withdrawal liability (within the meaning of Section 4201 of ERISA) with respect
to any pension, profit sharing or other plan which is subject to ERISA, to which
the Company or any of the Subsidiaries makes or ever has made a contribution and
in which any employee of the Company or of any Subsidiary is or has ever been a
participant. With respect to such plans, the Company and each Subsidiary is in
compliance in all material respects with all applicable provisions of ERISA.
(aa) Each of the Company and the Subsidiaries (i) makes and keeps accurate
books and records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for its
assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(bb) None of the Company or the Subsidiaries will be an "investment
company" or "promoter" or "principal underwriter" for an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder.
(cc) The Notes, the Exchange Notes, the Indenture and the Registration
Rights Agreement will conform in all material respects to the descriptions
thereof in the Final Memorandum.
(dd) No holder of securities of the Company will be entitled to have such
securities registered under the registration statements required to be filed by
the Company pursuant to the Registration Rights Agreement other than as
expressly permitted thereby.
(ee) Immediately after the consummation of the transactions contemplated by
this Agreement, the fair value and present fair saleable value of the assets of
each of the Company and the Subsidiaries (each on a consolidated basis) will
exceed the sum of its stated liabilities and identified contingent liabilities;
none of the Company or the Subsidiaries (each on a consolidated basis) is, nor
will any of the Company or the Subsidiaries (each on a consolidated basis) be,
after giving effect to the execution, delivery and performance of this
Agreement, and the consummation
<PAGE>
of the transactions contemplated hereby, (a) left with unreasonably small
capital with which to carry on its business as it is currently or proposed to be
conducted, (b) unable to pay its debts (contingent or otherwise) as they mature
or otherwise become due or (c) otherwise insolvent.
(ff) None of the Company, the Subsidiaries or any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any "security" (as defined in the
Act) which is or could be integrated with the sale of the Notes in a manner that
would require the registration under the Act of the Notes or (ii) engaged in any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Notes or in
any manner involving a public offering within the meaning of Section 4(2) of the
Act. The Company has not distributed and will not distribute any offering
material in connection with the offering of the Notes other than the Final
Memorandum and any Preliminary Memorandum. No securities of the same class as
the Notes have been issued and sold by the Company within the six-month period
immediately prior to the date hereof.
(gg) Assuming the accuracy of the representations and warranties of the
Initial Purchaser in Section 8 hereof, it is not necessary in connection with
the offer, sale and delivery of the Notes to the Initial Purchaser in the manner
contemplated by this Agreement to register any of the Notes under the Act or to
qualify the Indenture under the TIA.
(hh) No securities of the Company or any Subsidiary are of the same class
(within the meaning of Rule 144A as promulgated under the Act ("Rule 144A")) as
the Notes and listed on a national securities exchange registered under Section
6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation
system.
(ii) None of the Company or the Subsidiaries has taken, nor will any of
them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Notes.
(jj) None of the Company or the Subsidiaries, or any person acting on any
of their behalf (other than the Initial Purchaser) has engaged in any directed
selling efforts (as that term is defined in Regulation S under the Act
("Regulation S")) with respect to the Notes; the Company and its respective
Affiliates and any person acting on any of their behalf (other than the Initial
Purchaser or any Affiliate of the Initial Purchaser) have complied with the
offering restrictions requirement of Regulation S.
(kk) Each of the Preliminary Memorandum and the Final Memorandum, as of its
respective date, contains all of the information that, if requested by a
prospective purchaser of the Notes, would be required to be provided to such
prospective purchaser to Rule 144A(d)(4) under the Act.
(ll) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Act.
(mm) Neither the Company nor any of its Subsidiaries nor, to the
Company'sknowledge, any officer or director purporting to act on behalf of the
Company or any of its Subsidiaries has at any time: (i) made any contributions
to anycandidate for political office, or failed
<PAGE>
to disclose fully any such contributions, in violation of law, (ii) made any
payment of funds to, or received or retained any funds from, any state, federal
or foreign governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or allowed
by applicable law, (iii) violated or is in violation of the Foreign Corrupt
Practices Act of 1977, (iv) made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment or (v) engaged in any transactions,
maintained any bank account or used any corporate funds except for transactions,
bank accounts and funds which have been and are reflected in the normally
maintained books and records of the Company and its Subsidiaries.
(nn) Except as disclosed in any Memorandum, there are no material
outstanding loans or advances or material guarantees of indebtedness by the
Company or any of its Subsidiaries to or for the benefit of any of the officers
or directors of the Company or any of its Subsidiaries or any of the members of
the families of any of them.
(oo) Neither the Company nor any affiliate of the Company does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Florida Statutes Section 517.075.
(pp) None of the Company or the Subsidiaries has engaged or retained any
person, other than NatWest as the Initial Purchaser, to act as a financial
advisor, underwriter or placement agent in connection with the issuance of the
Notes and, except for the fees and expenses payable to Unterberg, Towbin, L.P.
as the Company's financial advisor in connection with the Uniforce Acquisition
and fees and expenses payable in connection with the issuance of the Notes as
described in the Final Memorandum, no person has the right to receive a material
amount of financial advisory, underwriting, placement, finder's or similar fees
in connection with, or as a result of, the issuance of the Notes and the
purchase of the Notes by the Initial Purchaser or the consummation of the other
transactions contemplated hereby.
(qq) Each of COMFORCE Corporation and COMFORCE Columbus, Inc. has all
requisite corporate power and authority to execute, deliver and perform its
obligations under that certain Agreement and Plan of Merger dated as of August
13, 1997, by and among COMFORCE Corporation, COMFORCE Columbus, Inc. and
Uniforce Services, Inc. (the "Merger Agreement"). The Merger Agreement has been
duly and validly authorized, executed and delivered by COMFORCE Corporation and
COMFORCE Columbus, Inc. and constitutes a valid and legally binding agreement of
COMFORCE Corporation and COMFORCE Columbus, Inc. enforceable against COMFORCE
Corporation and COMFORCE Columbus, Inc. in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) to general principles of equity and the
discretion of any court before which any proceeding therefor may be brought.
(rr) On the Closing Date, the Company shall have consummated its offer to
purchase the Common Stock, par value $0.50 per share of Uniforce Services, Inc.
(the "Offer") pursuant to its tender offer statement on Schedule 14D-1 as filed
with the Commission on October 27, 1997 and such offer, and the consummation
thereof shall have complied in all material respects with all applicable laws,
including, without limitation, the Exchange Act and the rules and regulations
promulgated thereunder.
<PAGE>
Any certificate signed by any officer of the Company or any Subsidiary and
delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall
be deemed a joint and several representation and warranty by the Company and
each of the Subsidiaries to the Initial Purchaser as to the matters covered
thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company the principal amount of Notes set forth opposite its
name on Schedule 1 hereto at 97.0000% of their principal amount. One or more
certificates in definitive form for the Notes that the Initial Purchaser has
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Initial Purchaser requests upon notice
to the Company at least 36 hours prior to the Closing Date, shall be delivered
by or on behalf of the Company to the Initial Purchaser, against payment by or
on behalf of the Initial Purchaser of the purchase price therefor by wire
transfer to such account or accounts as the Company shall specify prior to the
Closing Date, or by such means as the parties hereto shall agree prior to the
Closing Date. Such delivery of and payment for the Notes shall be made at the
offices of White & Case, 1155 Avenue of the Americas, New York, New York at
10:00 A.M., New York time, on November 26, 1997, or at such other place, time or
date as the Initial Purchaser, on the one hand, and the Company, on the other
hand, may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date." The Company will make such certificate
or certificates for the Notes available for inspection and packaging by the
Initial Purchaser at such place as designated by the Initial Purchaser at least
24 hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes to
make an offering of the Notes at the price and upon the terms set forth in the
Final Memorandum, as soon as practicable after this Agreement is entered into
and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company and the Subsidiaries. The Company covenants and
agrees with the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or any
amendment or supplement thereto unless the Initial Purchaser shall previously
have been advised and furnished a copy of such amendment or supplement for a
reasonable period of time prior to the proposed amendment or supplement and as
to which the Initial Purchaser shall have consented. The Company will promptly,
upon the reasonable request of the Initial Purchaser or counsel for the Initial
Purchaser, make any amendments or supplements to the Preliminary Memorandum or
the Final Memorandum that may be necessary or advisable in connection with the
resale of the Notes by the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in arranging for
the qualification of the Notes for offering and sale under the securities or
"Blue Sky" laws of which jurisdictions as the Initial Purchaser may designate
and will continue such qualifications in effect for as long as may be necessary
to complete the resale of the Notes; provided, however, that in connection
therewith, none of the Company or any Subsidiary shall be required to qualify as
a foreign corporation or to execute a general consent to service of process in
any jurisdiction or subject
<PAGE>
itself to taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the
Initial Purchaser of the Notes or the Private Exchange Notes, any event occurs
or information becomes known as a result of which the Final Memorandum as then
amended or supplemented would, in the judgment of the Company or in the
reasonable opinion of your counsel include any untrue statement of a material
fact, or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if for any other reason it is necessary at any time to amend or supplement the
Final Memorandum to comply with applicable law, the Company will promptly notify
the Initial Purchaser thereof and will prepare, at the expense of the Company,
an amendment or supplement to the Final Memorandum that corrects such statement
or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial Purchaser and
to counsel for the Initial Purchaser as many copies of the Preliminary
Memorandum and the Final Memorandum or any amendment or supplement thereto as
the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the Notes as
set forth under "Use of Proceeds" in the Final Memorandum.
(f) From the Closing Date until the date that no Notes are outstanding
under the Indenture, the Company will furnish to the Initial Purchaser copies of
all reports and other communications (financial or otherwise) furnished by the
Company to the Trustee, or the holders of the Notes and, as soon as available,
copies of any reports or financial statements furnished to or filed by the
Company with the Commission or any national securities exchange on which any
class of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company and the Subsidiaries will
furnish to the Initial Purchaser, as soon as they have been prepared, a copy of
any unaudited interim financial statements of the Company and the Subsidiaries
for any period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum.
(h) None of the Company, the Subsidiaries or any of their Affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Act) which could be integrated with the
sale of the Notes in a manner which would require the registration under the Act
of the Notes.
(i) None of the Company or the Subsidiaries will engage in any form of
"general solicitation" or "general advertising" (as those terms are used in
Regulation D under the Act) in connection with the offering of the Notes or in
any manner involving a public offering of the Notes within the meaning of
Section 4(2) of the Act.
(j) None of the Company, the Subsidiaries or their Affiliates nor any
person acting on its or their behalf will engage, in any directed selling
efforts (as that term is defined in Regulation S) with respect to the Notes, and
will comply, and will have its Affiliates and each person acting on
<PAGE>
its or their behalf comply, with the offering restrictions requirements of
Regulation S.
(k) For so long as any of the Notes remain outstanding, the Company and the
Subsidiaries will make available, upon request, to any seller of such Notes the
information specified in Rule 144A(d)(4) under the Act, unless the Company and
the Subsidiaries are then subject to Section 13 or 15(d) of the Exchange Act.
(l) For a period of 180 days from the date of the Final Memorandum, the
Company and the Subsidiaries will not offer for sale, sell, contract to sell or
otherwise dispose of, directly or indirectly, or file a registration statement
for, or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company or any of its
subsidiaries (other than the Notes or the Exchange Notes or the Private Exchange
Notes) without the prior written consent of the Initial Purchaser;
(m) During the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchaser, the
Company and the Subsidiaries will not, and will not permit any of their
affiliates (as defined in Rule 144 under the Securities Act) to, resell any of
the Notes that have been reacquired by them, except for Notes purchased by the
Company or any of its affiliates and resold in a transaction registered under
the Securities Act;
(n) In connection with the offering of the Notes, until the Initial
Purchaser shall have notified the Company of the completion of the resale of the
Notes, the Company and the Subsidiaries will not, and will cause their
affiliated purchasers (as defined under the Exchange Act) not to, either alone
or with one or more other persons, bid for or purchase, for any account in which
it or any of its affiliated purchasers has a beneficial interest, any Notes, or
attempt to induce any person to purchase any Notes; and not to, and to cause its
affiliated purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the Notes;
(o) The Company and the Subsidiaries will not take any action prior to the
execution and delivery of the Indenture which, if taken after such execution and
delivery, would have violated any of the covenants contained in the Indenture;
(p) The Company and the Subsidiaries will not take any action prior to
Closing Date which would require the Final Memorandum to be amended or
supplemented pursuant to Section 5(c);
(q) Prior to the Closing Date, the Company and the Subsidiaries will not
issue any press release or other communication directly or indirectly or hold
any press conference with respect to the Company, its condition, financial or
otherwise, or earnings, business affairs or business prospects (except for
routine oral marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the Initial
Purchaser is notified), without the prior written consent of the Initial
Purchaser, unless in the judgment of the Company and its counsel, after
notification to the Initial Purchasers, such press release or communication is
required by law; and
(r) The Company will use its best efforts to (i) permit the Notes to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to
<PAGE>
trading in the Private Offerings, Resales and Trading through Automated Linkages
market (the "Portal Market") and (ii) permit the Notes to be eligible for
clearance and settlement through the Depository Trust Company.
6. Expenses. The Company agrees to pay all costs and expenses incident to
the performance of their obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing, word processing or other production of documents with respect to
the transactions contemplated hereby, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the
delivery to the Initial Purchaser of copies of the foregoing documents, (iii)
the fees and disbursements of counsel, accountants and any other experts or
advisors retained by the Company, (iv) preparation (including printing),
issuance and delivery to the Initial Purchaser of the Notes, (v) the
qualification of the Notes under state securities and "Blue Sky" laws, including
filing fees and fees and disbursements of counsel for the Initial Purchaser
relating thereto, (vi) the Company's expenses in connection with any meetings
with prospective investors in the Notes, (vii) fees and expenses of the Trustee
including fees and expenses of counsel, (viii) all expenses and listing fees
incurred in connection with the application for quotation of the Notes on the
PORTAL Market, (ix) any fees charged by investment rating agencies for the
rating of the Notes. If the sale of the Notes provided for herein is not
consummated because any condition to the obligations of the Initial Purchaser
set forth in Section 7 hereof is not satisfied, because this Agreement is
terminated or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on their part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Initial Purchaser of their obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith), the Company agrees to
promptly reimburse the Initial Purchaser upon demand for all out-of-pocket
expenses (including all fees, disbursements and charges of White & Case, counsel
for the Initial Purchaser) that shall have been incurred by the Initial
Purchaser in connection with the proposed purchase and sale of the Notes.
7. Conditions of the Initial Purchaser's Obligations. The obligation of the
Initial Purchaser to purchase and pay for the Notes shall, in its sole
discretion, be subject to the satisfaction or waiver of the following conditions
on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received the
opinion, dated as of the Closing Date and addressed to the Initial Purchaser, of
Doepken, Keevican & Weiss, counsel for the Company in form and substance
satisfactory to counsel for the Initial Purchaser, substantially to the effect
that:
(i) Each of the Company and the material Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Final Memorandum. Each of the Company and the material
Subsidiaries is duly qualified as a foreign corporation and is in good standing
in the jurisdictions set forth below such Subsidiaries' name on Schedule A
attached to such opinion.
(ii) The Company has the authorized and issued capital stock set forth in
the Final
<PAGE>
Memorandum. To the knowledge of Doepken Keevican & Weiss, the Subsidiaries
constitute all the subsidiaries of the Company and the Company will own the
percentage of the issued and outstanding stock (or other equity securities) of
each of the Subsidiaries set forth on Schedule 2 hereto. All of the outstanding
shares of capital stock of the Company and the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights; all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company, free and clear of all security interests perfected, or
otherwise, and free and clear of all other liens, encumbrances, equities and
claims or restrictions on transferability or voting in each case other than a
pledge of the shares of such Subsidiary pursuant to the provisions of the New
Credit Facility.
(iii) Except as set forth in the Final Memorandum, (A) to the knowledge of
such counsel no options, warrants or other rights to purchase from the Company
or any Subsidiary shares of capital stock or ownership interests in the Company
or any Subsidiary are outstanding, (B) no agreements or other obligations of the
Company or any Subsidiary to issue, or other rights to cause the Company or any
Subsidiary to convert, any obligation into, or exchange any securities for,
shares of capital stock or ownership interests in the Company or any Subsidiary
are outstanding and (C) no holder of securities of the Company or any Subsidiary
is entitled to have such securities registered under a registration statement
filed by the Company and the Subsidiaries pursuant to the Registration Rights
Agreement.
(iv) The Company has all requisite corporate power and authority to
execute, deliver and perform its respective obligations under this Agreement,
the Indenture, the Notes, the Exchange Notes and the Private Exchange Notes; the
Indenture is in sufficient form for qualification under the TIA; the Indenture
has been duly and validly authorized by the Company and, when duly executed and
delivered by the Company (assuming the due authorization, execution and delivery
thereof by the Trustee), will constitute the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(v) The Global Note (as such term is defined in the Indenture) is, and each
other Note, when issued, will be, in the form contemplated by the Indenture. The
Global Note and each other Note has been duly and validly authorized by the
Company and when duly executed and delivered by the Company and, in the case of
the Global Note, when paid for by the Initial Purchaser in accordance with the
terms of this Agreement (assuming the due authorization, execution and delivery
of the Indenture by the Trustee and due authentication and delivery of the Notes
by the Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with their terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(vi) The Exchange Notes and the Private Exchange Notes have been duly and
validly authorized by the Company, and when the Exchange Notes and the Private
Exchange Notes
<PAGE>
have been duly executed and delivered by the Company in accordance with the
terms of the Registration Rights Agreement and the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee and due
authentication and delivery of the Exchange Notes and the Private Exchange Notes
by the Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with their terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(vii) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement; the Registration Rights Agreement has been duly and validly
authorized by the Company and, when duly executed and delivered by the Company
(assuming due authorization, execution and delivery thereof by the Initial
Purchaser), will constitute the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought. No
holder of securities of the Company nor COMFORCE Corporation, nor any of the
Subsidiaries will be entitled to have such securities registered under the
registration statement required to be filed pursuant to the Registration Rights
Agreement.
(viii) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby; this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized, executed and delivered by the Company and (assuming
the due authorization, execution and delivery of this Agreement by the Initial
Purchaser) constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that the
enforcement thereof may be subject to (i) bankruptcy insolvency, reorganization
or other similar laws now or hereafter in effect relating to creditors rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought.
(ix) The Indenture, the Notes (when issued, authorized and delivered), the
Exchange Notes (when issued, authorized and delivered), Private Exchange Notes
(if and when issued, authorized and delivered) and the Registration Rights
Agreement conform in all material respects to the descriptions thereof contained
in the Final Memorandum and the Statements in the Final Memorandum under
"Description of Notes" and "Notes Exchange Offer and Registration Rights"
insofar as they describe the provisions of the documents and instruments therein
described, constitute fair summaries thereof in all material respects.
(x) No legal or governmental proceedings are pending or, to the knowledge
of such counsel, threatened to which any of the Company is a party or to which
the property or assets of the Company is subject before or brought by any court,
arbitrator or governmental agency or body which, if determined adversely to the
Company, would result, individually or in the aggregate, in a Material Adverse
Effect, or which seeks to restrain, enjoin, prevent the consummation of or
<PAGE>
otherwise challenge the issuance or sale of the Notes to be sold hereunder or
the consummation of the other transactions described in the Final Memorandum.
(xi) None of the Company or any material Subsidiary is (i) in violation of
its certificate of incorporation or bylaws (or similar organizational document)
or (ii) to the knowledge of such counsel, in breach or violation of any
judgment, decree or order of any court, arbitrator or governmental body, agency
or authority applicable to any of them or any of their respective properties or
assets.
(xii) The execution and delivery of this Agreement, the Indenture, the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
sale of the Notes to the Initial Purchaser) will not conflict with or constitute
or result in a breach or a default under (or an event which with notice or
passage of time or both would constitute a default under) or violation of any of
(i) the terms or provisions of any Contract known to such counsel, (ii) the
certificate of incorporation or bylaws (or similar organizational document) of
the Company or any material Subsidiary, or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchaser in Section 8 hereof) any
statute, judgment, decree, order, rule or regulation which, in such counsel's
experience, is normally applicable both to general business corporations which
are not engaged in regulated business activities and to transactions of the type
contemplated by the Final Memorandum.
(xiii) No consent, approval, authorization or order of any governmental
authority is required for the issuance and sale by the Company of the Notes to
the Initial Purchaser or the other transactions contemplated hereby, except such
as are disclosed in the Final Memorandum or as may be required under Blue Sky
laws, as to which such counsel need express no opinion, and those which have
previously been obtained.
(xiv) There are no legal or governmental proceedings involving or affecting
the Company or the Subsidiaries or any of their respective properties or assets
which would be required to be described in a prospectus pursuant to the Act that
are not described in the Final Memorandum nor are there any material contracts
or other documents which would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum.
(xv) The Company and each of the Subsidiaries possesses all Permits
presently required or necessary to own or lease, as the case may be, and to
operate its respective properties and to carry on its respective businesses as
now or proposed to be conducted as described in the Preliminary Memorandum and
the Final Memorandum, except where the failure to obtain such Permits would not,
individually or in the aggregate, have a Material Adverse Effect; each of the
Company and the Subsidiaries to the knowledge of Doepken, Keevican & Weiss has
fulfilled and performed all of its obligations with respect to such Permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit except where such
revocation, termination or impairment would not, individually or in the
aggregate, have a Material Adverse Effect; and to the knowledge of Doepken,
Keevican & Weiss, none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Final Memorandum and except where such
revocation or
<PAGE>
modification would not, individually or in the aggregate, have a Material
Adverse Effect.
(xvi) Based on lien searches performed with respect to the Company and the
Subsidiaries, the real and personal property of the Company described in the
Preliminary Memorandum and the Final Memorandum is free and clear of all liens,
charges, encumbrances or restrictions, except as described in the Preliminary
Memorandum and the Final Memorandum or to the extent that the failure to have
such title or the existence of such liens, charges, encumbrances or restrictions
would not, individually or in the aggregate, have a Material Adverse Effect.
(xvii) None of the Company or the Subsidiaries is, or immediately after the
sale of the Notes to be sold hereunder and the application of the proceeds from
such sale (as described in the Final Memorandum under the caption "Use of
Proceeds") will be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(xviii) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Act.
(xix) No registration under the Act of the Notes is required in connection
with the sale of the Notes to the Initial Purchaser as contemplated by this
Agreement and the Final Memorandum or in connection with the initial resale of
the Notes by the Initial Purchaser in accordance with Section 8 of this
Agreement, and prior to the commencement of the Exchange Offer or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be qualified
under the TIA, in each case assuming (i) that the purchasers who buy such Notes
in the initial resale thereof are qualified institutional buyers as defined in
Rule 144A promulgated under the Act ("QIBs") or accredited investors as defined
in Rule 501(a) (1), (2), (3) or (7) promulgated under the Act ("Accredited
Investors"), (ii) the accuracy of the Initial Purchaser's representations in
Section 8 hereof and those of the Company contained in this Agreement regarding
the absence of a general solicitation in connection with the sale of such Notes
to the Initial Purchaser and the initial resale thereof and (iii) the due
performance by the Initial Purchaser of the agreements set forth in Section 8
hereof.
(xx) Neither the consummation of the transactions contemplated by this
Agreement nor the sale, issuance, execution or delivery of the Notes will
violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
(xxi) COMFORCE Corporation and COMFORCE Columbus, Inc. (the "Merger
Parties") have all requisite corporate power and authority to execute, deliver
and perform its obligations under the Merger Agreement. The Merger Agreement has
been duly and validly authorized, executed and delivered by the Merger Parties
and will constitute a valid and legally binding agreement of the Merger Parties
enforceable against the Merger Parties in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law).
At the time the foregoing opinion is delivered, Doepken, Keevican & Weiss
shall additionally state that it has participated in conferences with officers
and other representatives of the
<PAGE>
Company and the Subsidiaries, representatives of the independent public
accountants for the Company, representatives of the Initial Purchaser and
counsel for the Initial Purchaser, at which conferences the contents of the
Final Memorandum and related matters were discussed, and, although it has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the Final
Memorandum, no facts have come to its attention which lead it to believe that
the Final Memorandum, on the date thereof or at the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such firm need express no opinion with respect to the
financial statements and related notes thereto and the other financial,
statistical and accounting data included in the Final Memorandum). In rendering
such opinion, Doepken, Keevican & Weiss shall have received and may rely upon
such certificates and other documents and information as it may reasonably
request to pass on such matters. The opinion of Doepken, Keevican & Weiss
described in this Section shall be rendered to the Initial Purchaser at the
request of the Company and shall so state therein. If requested by the Trustee,
Doepken, Keevican & Weiss shall allow the Trustee to rely on its opinion and
shall expressly so state.
References to the Final Memorandum in this subsection (a) shall include any
amendment or supplement thereto prepared in accordance with the provisions of
this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received the
opinion, in form and substance satisfactory to the Initial Purchaser, dated as
of the Closing Date and addressed to the Initial Purchaser, of White & Case,
counsel for the Initial Purchaser, with respect to certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, White & Case shall
have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(c) On the Closing Date, the Initial Purchaser shall have received the
opinion, dated as of the Closing Date and addressed to the Initial Purchaser, of
Richards, Layton & Finger, counsel to the Trustee, in form and substance
satisfactory for counsel to the Initial Purchasers, dated the Closing Date,
substantially to the effect that:
(i) Wilmington Trust Company is a trust company validly existing and in
good standing under the laws of the State of Delaware.
(ii) Wilmington Trust Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Indenture.
The Indenture has been duly and validly authorized by Wilmington Trust Company
and will constitute a valid and legally binding agreement of Wilmington Trust
Company, enforceable against it in accordance with its terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization
or other similar laws applicable to trust companies established in the State of
Delaware now or hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether such enforcement
is considered in a proceeding in equity or at law).
<PAGE>
(iii) The Notes delivered to the Initial Purchasers on the Closing Date
have been duly authenticated by the Trustee in accordance with the terms of the
Indenture.
(iv) The execution, delivery and performance by the Trustee of the
Indenture does not and will not require the authorization, consent or approval
of, the giving of notice to, the filing or registration with, or the taking of
any other action in respect of, any governmental authority or agency regulating
the banking and trust activities of the Trustee.
(d) The Initial Purchaser shall have received from each of Coopers &
Lybrand LLP and KPMG Peat Marwick LLP and Arthur Andersen LLP comfort letters
dated the date hereof and the Closing Date, in form and substance satisfactory
to counsel for the Initial Purchaser.
(e) On the Closing Date, the Initial Purchaser shall have received the
Indenture and the Registration Rights Agreement, duly authorized, executed and
delivered by each of the parties thereto, in form and substance satisfactory to
counsel for the Initial Purchaser, and containing such terms and conditions that
are usual and customary in transactions similar to those contemplated hereby and
thereby, dated the Closing Date and each such agreement shall be in full force
and effect according to its terms.
(f) The Initial Purchaser shall have received good standing certificates
for the Company and each of the Subsidiaries from their respective states of
incorporation and from each of the respective jurisdictions where each of them
is qualified to do business as a foreign corporation, in each case in form and
substance satisfactory to counsel for the Initial Purchaser.
(g) The representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date; the statements of
the Company's officers made pursuant to any certificate delivered in accordance
with the provisions hereof shall be true and correct on and as of the date made
and on and as of the Closing Date; the Company shall have performed all
covenants and agreements and satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date; and, except as
described in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), subsequent to the date of the most recent
financial statements in such Final Memorandum, there shall have been no event or
development that, individually or in the aggregate, has or would be reasonably
likely to have a Material Adverse Effect.
(h) The sale of the Notes hereunder shall not be enjoined (temporarily or
permanently) on the Closing Date.
(i)The Notes shall have been approved by the NASD for trading in the PORTAL
Market.
(j) There shall not have occurred any invalidation of Rule 144A under the
Securities Act by any court or any withdrawal or proposed withdrawal of any rule
or regulation under the Securities Act or the Exchange Act by the Commission or
any amendment or proposed amendment thereof by the Commission which in the
judgment of the Initial Purchaser would materially impair the ability of the
Initial Purchaser to purchase, hold or effect resales of the Securities as
contemplated hereby.
<PAGE>
(k) There shall not have occurred any change, or any development involving
a prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, of the Company and the Subsidiaries, taken as
a whole, from that set forth in the Final Memorandum that constitutes a Material
Adverse Effect and that makes it, in the Initial Purchaser's judgment,
impracticable to market the Notes on the terms and in the manner contemplated in
the Final Memorandum.
(l) Subsequent to the date of the most recent financial statements in the
Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), the conduct of the business and operations of the Company shall
not have been interfered with by strike, fire, flood, hurricane, accident or
other calamity (whether or not insured) or by any court or governmental action,
order or decree, and, except as otherwise stated therein, the properties of the
Company shall not have sustained any loss or damage (whether or not insured) as
a result of any such occurrence, except any such interference, loss or damage
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(m) No securities of the Company shall have been downgraded or placed on
any "watch list" for possible downgrading by any nationally recognized
statistical rating organization.
(n) The Initial Purchaser shall have received certificates of the Company,
dated the Closing Date, signed by their respective Chairman of the Board,
President or any Senior Vice President and the Chief Financial Officer, to the
effect that:
(i) The representations and warranties of the Company contained in this
Agreement are true and correct as of the date hereof and as of the Closing Date,
and the Company has performed all covenants and agreements and satisfied all
conditions on their part to be performed or satisfied hereunder at or prior to
the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of the
most recent financial statements in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), no event or events have
occurred, no information has become known nor does any condition exist that,
individually or in the aggregate, would have a Material Adverse Effect;
(iii) The sale of the Notes hereunder has not been enjoined (temporarily or
permanently); and
(iv) such other information as the Initial Purchaser may reasonably
request.
(o) COMFORCE Columbus Inc.'s tender offer for any and all outstanding
shares of Uniforce Services, Inc. the "Uniforce Tender Offer") shall have
expired, without the waiver of any material condition to the consummation
thereof set forth in COMFORCE Columbus Inc.'s Offer to Purchase, as amended
through the date hereof, and COMFORCE Columbus, Inc. shall have accepted for
payment an amount of shares of the common stock of Uniforce Services, Inc. equal
to no less than two thirds of all such shares issued and outstanding.
(p) The Initial Purchaser shall have received a certificate from the
corporate secretary of the Company, dated the Closing Date, attaching certified
copies of (i) all resolutions of the Board
<PAGE>
of Directors of the Company or COMFORCE Corporation, as the case may be,
authorizing the transactions contemplated by this Agreement and (b) the Merger
Agreement, including, without limitation, approving the offering of the
Securities, the entering into this Agreement, the Indenture and the Registration
Rights Agreement, (ii) the certificate of incorporation and by-laws of the
Company, (iii) the Merger Agreement, and (iv) certifying the names and true
signatures of those officers of the Company executing any documents contemplated
by this Agreement.
(q) On or prior to the Closing Date, the Company shall have entered into a
Credit Agreement, to be dated as of November 26, 1997, among the Company, Heller
Financial, Inc., and any other financial institutions from time to time party
thereto, (the "Heller Facility") which in the sole judgment of the Initial
Purchaser, shall have been entered into on substantially the terms described in
the Final Memorandum.
(r) The Offering of 20,000 Units (the "Units") representing $20,000,000
aggregate principal amount of the 15% Senior Secured PIK Debentures due 2009 of
COMFORCE Corporation and 8.45 Warrants to purchase one share of Common Stock of
COMFORCE Corporation, in the sole judgment of the Initial Purchaser, shall have
been consummated as described in the Final Memorandum.
On or before the Closing Date, the Initial Purchaser and counsel for the
Initial Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and the Subsidiaries as
they shall have heretofore reasonably requested from the Company and the
Subsidiaries.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company and the
Subsidiaries shall furnish to the Initial Purchaser such conformed copies of
such documents, opinions, certificates, letters, schedules and instruments in
such quantities as the Initial Purchaser shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. The Initial Purchaser
agrees with the Company that (i) it has not and will not solicit offers for, or
offer or sell, the Notes by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act; and (ii) it has and will solicit offers for the Notes only from, and will
offer the Notes only to (A) in the case of offers inside the United States, (x)
persons whom the Initial Purchaser reasonably believes to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchaser to be
Accredited Investors that, prior to their purchase of the Notes, deliver to the
Initial Purchaser a letter containing the representations and agreements set
forth in Appendix A to the Final Memorandum and (B) in the case of offers
outside the United States, to persons other than U.S. persons ("foreign
purchasers," which term shall include dealers or other professional fiduciaries
in the United States acting on a
<PAGE>
discretionary basis for foreign beneficial owners (other than an estate or
trust)); provided, however, that, in the case of this clause (B), in purchasing
such Notes such persons are deemed to have represented and agreed as provided
under the caption "Transfer Restrictions" contained in the Final Memorandum.
The Initial Purchaser represents and warrants that it is a QIB, with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Notes. The
Initial Purchaser agrees to comply with the applicable provisions of Rule 144A
and Regulation S under the Act. The Initial Purchaser hereby acknowledges that
the Company and, for purposes of the opinions to be delivered to the Initial
Purchaser pursuant to Section 7(a) hereof, counsel to the Company will rely upon
the accuracy and truth of the representations contained in this Section 8 and
the Initial Purchaser hereby consents to such reliance.
9. Indemnification and Contribution. (a) The Company and the Subsidiaries
jointly and severally agree to indemnify and hold harmless the Initial Purchaser
and its respective affiliates, directors, officers, agents, representatives
general partners and employees of such Initial Purchaser or its affiliates, and
each other person, if any, who controls the Initial Purchaser or its affiliates
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the full extent lawful against any losses, claims, damages, expenses or
liabilities (or action in respect thereof, including, without, limitation,
shareholder derivative actions and arbitration proceedings) to which the Initial
Purchaser or such other person may become subject under the Act, the Exchange
Act or otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in any Memorandum or any amendment or supplement thereto or any
application or other document, or any amendment or supplement thereto, executed
by the Company or the Subsidiaries or based upon written information furnished
by or on behalf of the Company or the Subsidiaries filed in any jurisdiction in
order to qualify the Notes under the securities or "Blue Sky" laws thereof or
filed with any securities association or securities exchange (each an
"Application");
(ii) the omission or alleged omission to state, in any Memorandum or any
amendment or supplement thereto or any Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading; or
(iii) any breach of any of the representations and warranties of the
Company and the Subsidiaries set forth in this Agreement or the Registration
Rights Agreement,
and will reimburse, as incurred, the Initial Purchaser and each such other
person for any legal or other expenses incurred by the Initial Purchaser or such
other person in connection with investigating, defending against or appearing as
a third-party witness in connection with any such loss, claim, damage, liability
or action; provided, however, the Company and the Subsidiaries will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to the
<PAGE>
Company by the Initial Purchaser specifically for use therein. This indemnity
agreement will be in addition to any liabilities or obligations that the Company
and the Subsidiaries may otherwise have to the indemnified parties, including
without limitation the indemnification obligations of the Company pursuant to
the NatWest Engagement. The Company and the Subsidiaries shall not be liable
under this Section 9 for any settlement of any claim or action effected without
its prior consent, which shall not be unreasonably withheld.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, their directors, their officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any Memorandum or any amendment or supplement thereto or any
Application, or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Memorandum or any amendment or
supplement thereto or any Application, or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
concerning the Initial Purchaser, furnished to the Company or the Subsidiaries
by the Initial Purchaser specifically for use therein; and subject to the
limitation set forth immediately preceding this clause, will reimburse, as
incurred, any legal or other expenses incurred by the Company, or any such
director, officer or controlling person in connection with investigating or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Initial Purchaser may
otherwise have to the indemnified parties. The Initial Purchaser shall not be
liable under this Section 9 for any settlement of any claim or action effected
without their written consent, which shall not be unreasonably withheld. The
Company and the Subsidiaries shall not, without the prior written consent of the
Initial Purchaser, effect any settlement or compromise of any pending or
threatened proceeding in respect of which the Initial Purchaser is or could have
been a party, or indemnity could have been sought hereunder by any Initial
Purchaser, unless such settlement (A) includes an unconditional written release
of the Initial Purchaser, in form and substance reasonably satisfactory to the
Initial Purchaser, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action for which such indemnified party is
entitled to indemnification under this Section 9, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
this Section 9, notify the indemnifying party of the commencement thereof in
writing; but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and to the
extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement
<PAGE>
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if (i) the use of counsel chosen
by the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be one or
more legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, or
(iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after receipt by the indemnifying party of notice of the
institution of such action, then, in each such case, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Initial Purchaser
in the case of paragraph (a) of this Section 9 or either the Company or any of
the Subsidiaries in the case of paragraph (b) of this Section 9, representing
the indemnified parties under such paragraph (a) or paragraph (b), as the case
may be, who are parties to such action or actions) or (ii) the indemnifying
party has authorized in writing the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the prior written consent of the indemnifying
party (which consent shall not be unreasonably withheld), unless such
indemnified party waived in writing its rights under this Section 9, in which
case the indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 9 is unavailable to an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof), each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party on the other from the offering of the Notes or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one
<PAGE>
hand and the Initial Purchaser on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of commissions and
before deducting expenses) received by the Company and the Subsidiaries bear to
the total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand, or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
paragraph (d). Notwithstanding any other provision of this paragraph (d), the
Initial Purchaser shall not be obligated to make contributions hereunder that in
the aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchaser under this Agreement, less the aggregate
amount of any damages that the Initial Purchaser has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company or the Subsidiaries within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have
the same rights to contribution as the Company.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, their
respective officers and the Initial Purchaser set forth in this Agreement or
made by or on behalf of them pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of their respective officers or directors, the Initial
Purchaser or any other person referred to in Section 9 hereof and (ii) delivery
of and payment for the Notes. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6, 9 and 15 hereof shall remain in
full force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on their respective
part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Closing any of the following shall have occurred:
(i) any of the Company or the Subsidiaries shall have sustained any loss or
interference with respect to its businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any strike, labor dispute, slow down or work stoppage or any legal or
governmental proceeding, which loss or interference has had, has or could be
reasonably likely to have a Material Adverse Effect, or there shall have been,
in the sole judgment of the Initial Purchaser, any event or development that,
individually or in the aggregate, has or could
<PAGE>
be reasonably likely to have a Material Adverse Effect (including without
limitation a change in control of the Company or the Subsidiaries), except in
each case as described in the Final Memorandum (exclusive of any amendment or
supplement thereto);
(ii) there shall have occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, of the Company and the Subsidiaries, taken as
a whole, from that set forth in the Final Memorandum that is material and
adverse and that makes it, in the Initial Purchaser's judgment, impracticable to
market the Notes on the terms and in the manner contemplated in the Final
Memorandum.
(iii) trading generally shall have been suspended or materially limited on
or by, as the case may be, any of the New York Stock Exchange, the American
Stock Exchange or the National Association of Securities Dealers, Inc. or the
setting of minimum prices for trading on such exchange or market shall have
occurred or trading of any securities of the Company shall have been suspended
on any exchange or in any over-the-counter market;
(iv) a banking moratorium shall have been declared by New York or United
States authorities;
(v) there shall have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, (B) an outbreak or escalation
of any other insurrection or armed conflict involving the United States, (C) any
material change in the financial markets of the United States or (D) any other
national or international calamity or emergency which, in the case of (A), (B),
(C) or (D) above and in the sole judgment of the Initial Purchaser, makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Notes as contemplated by the Final Memorandum;
(vi) the taking of any action by any federal, state or local government or
agency in respect of its monetary or fiscal affairs that has a material adverse
effect on the financial markets in the United States, and would, in the sole
judgment of the Initial Purchaser, make it impracticable or inadvisable to
market the Notes;
(vii) the proposal, enactment, publication, decree, or other promulgation
of any federal or state statute, regulation, rule or order of any court or other
governmental authority which, in the sole judgment of the Initial Purchaser,
would have a Material Adverse Effect;
(viii) any securities of the Company shall have been downgraded or placed
on any "watch list" for possible downgrading by any nationally recognized
statistical rating organization;
(ix) the Uniforce Tender Offer shall not have been consummated within ten
days of the date hereof;
(x) it shall have become impracticable, in the sole judgment of the Initial
Purchaser, for the Company to enter into the Heller Facility on the terms
described in the Final Memorandum; or
(xi) it shall have become impractical, in the sole judgment of the Initial
Purchaser,
<PAGE>
for the Company to consummate the offering of the Units, on the terms described
in the Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Sections
6 and 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements set forth
in the last paragraph on the cover page of the Final Memorandum, the sixth
through ninth paragraphs under the heading "Note Plan of Distribution" and the
fifth through eighth paragraphs under the heading "Units Plan of Distribution,"
in the Final Memorandum (to the extent any such statements relate to the Initial
Purchaser) constitute the only information furnished by the Initial Purchaser to
the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and, if sent
to the Initial Purchaser, shall be mailed or delivered to (i) NatWest Capital
Markets Limited, 135 Bishopgate, London, England, Attention: Roger Hoit; with a
copy to White & Case, 1155 Avenue of the Americas, New York, NY 10036,
Attention: Timothy B. Goodell, Esq.; if sent to the Company, shall be mailed or
delivered to the Company at 2001 Marcus Avenue, Lake Success, New York 11042,
Attention: Paul Grillo with a copy to Doepken, Keevican & Weiss, 58th Floor, USX
Tower, Pittsburgh, Pennsylvania 15219 Attention: David G. Edwards, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; and one business day
after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the Initial Purchaser, the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company and the Subsidiaries contained in Section 9 of this Agreement shall also
be for the benefit of any person or persons who control the Initial Purchaser
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Initial Purchaser contained in Section 9 of this
Agreement shall also be for the benefit of the directors of the Company and
officers and any person or persons who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Notes
from the Initial Purchaser will be deemed a successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS
THEREOF RELATING TO CONFLICTS OF LAW.
<PAGE>
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Initial Purchaser.
Very truly yours,
COMFORCE OPERATING, INC.
/s/ Paul J. Grillo
By:_______________________
Name: Paul J. Grillo
Title: Chief Financial Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
NATWEST CAPITAL MARKETS LIMITED
By:_________________________
Name:
Title:
Exhibit 10.8
$20,000,000
COMFORCE Corporation
20,000 Units Representing
$20,000,000 Principal Amount of 15%
Senior Secured PIK Debentures due 2009
with 169,000 Warrants, each to Purchase 1 Share of Common Stock
PURCHASE AGREEMENT
November 19, 1997
<PAGE>
COMFORCE CORPORATION
20,000 Units Representing
$20,000,000 Principal Amount of 15%
Senior Secured PIK Debentures due 2009
with 8.45 Warrants, each to Purchase 1 Share of Common Stock
PURCHASE AGREEMENT
November 19, 1997
Natwest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
England
Ladies and Gentlemen:
COMFORCE Corporation, a Delaware corporation (the "Company"), hereby
confirms its agreement with you (the "Initial Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Initial Purchaser 20,000 Units
(the "Units") representing $20,000,000 principal amount of 15% Senior Secured
PIK Debentures due 2009 (the "Debentures") with 8.45 Warrants (the "Warrants"),
each to purchase 1 share of common stock of the Company, par value $0.01 per
share (the "Common Stock"), to be issued upon exercise of the Warrants (the
"Warrant Shares") representing one percent of the outstanding Common Stock on a
fully diluted basis. The Units, the Debentures and the Warrants are referred to
herein collectively as the "Securities". The Units are to be issued under a Unit
Agreement (as defined below), the Debentures are to be issued under an indenture
(the "Indenture") to be dated as of November 26, 1997 by and among the Company
and Bank of New York, as trustee (the "Trustee"), and the Warrants are to be
issued under a Warrant Agreement (as defined below).
The Units will be offered and sold to the Initial Purchaser without being
registered under the Securities Act of 1933, as amended (the "Act"), in reliance
on exemptions therefrom.
In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum dated November 1, 1997 (the "Preliminary
Memorandum") and will prepare a final offering memorandum dated November 19,
1997 (the "Final Memorandum"; the Preliminary
<PAGE>
Memorandum and the Final Memorandum each herein being referred to as the
"Memorandum") setting forth or including a description of the terms of the
Units, the Debentures, the Warrants and the Warrant Shares, the terms of the
offering of the Units, a description of the Company and any material
developments relating to the Company occurring after the date of the most recent
historical financial statements included therein.
The Company and the Initial Purchaser will enter into a Registration Rights
Agreement (the "Registration Rights Agreement") prior to or concurrently with
the issuance of the Debentures. Pursuant to the Registration Rights Agreement,
under the circumstances and the terms set forth therein, the Company will agree
to file with the Securities and Exchange Commission (the "Commission"): (i) a
registration statement on Form S-4 (the "Exchange Offer Registration Statement")
relating to a registered Exchange Offer (as defined in the Registration Rights
Agreement) for the Debentures under the Act to offer to the holders of the
Debentures the opportunity to exchange their Debentures for an issue of
debentures substantially identical to the Debentures (except that (a) interest
thereon will accrue from the last date on which interest was paid on the
Debentures, or if no such interest has been paid, from November 26, 1997, (b)
such Debentures will not contain restrictions on transfer, and (c) such
Debentures will not contain provisions relating to an increase in their interest
rate under certain circumstances) that would be registered under the Act (the
"Exchange Notes"); or (ii) alternatively, in the event that applicable
interpretations of the Commission do not permit the Company to effect the
Exchange Offer or do not permit any holder of the Debentures to participate in
the Exchange Offer, a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Debentures by such holders who satisfy certain
conditions relating to, including the provision of information in connection
with the Shelf Registration Statement.
The Company also will enter into (i) a registration rights agreement with
respect to the Warrant Shares, whereby the Company will agree to file a shelf
registration statement covering resales of the Warrant Shares (the "Warrant
Registration Rights Agreement"), (ii) a Unit Agreement (the "Unit Agreement")
and (iii) a Warrant Agreement (the "Warrant Agreement"), in each case with The
Bank of New York, as Unit Agent (the "Unit Agent") and The Bank of New York, as
Warrant Agent (the "Warrant Agent"), as the case may be, prior to, or
concurrently with, the issuance of the Units.
2. Representations and Warranties. Each of the Company and the Subsidiaries
(as defined) represents and warrants to, and agrees with the Initial Purchaser
that:
(a) Neither the Preliminary Memorandum as of the date thereof nor the Final
Memorandum nor any amendment or supplement thereto as of the date thereof and at
all times subsequent thereto up to the Closing Date (as defined in Section 3
below) contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section 2(a) do
not apply to statements or omissions made in reliance upon and in conformity
with information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary
Memorandum, the Final Memorandum or any amendment or supplement thereto. The
Final Memorandum conforms in all material respects to the requirements of the
Act and the rules
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and regulations promulgated thereunder, as if it was a prospectus filed as part
of a registration statement on Form S-3 relating to the Securities.
(b) As of the Closing Date, the Company will have the capitalization set
forth in the Final Memorandum; all of the outstanding shares of capital stock of
the Company have been, and as of the Closing Date will be, duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights; except as disclosed in the Final
Memorandum, there are no (i) options, warrants or other rights to purchase from
the Company, (ii) agreements or other obligations of the Company to issue or
(iii) other rights to convert any obligation into, or exchange any securities
for, shares of capital stock of or ownership interests in the Company
outstanding. The entities listed on Schedule 2 hereto are the only subsidiaries,
direct or indirect of the Company (collectively, the "Subsidiaries"). Except as
disclosed on Schedule 2 or as disclosed in the Final Memorandum, the Company
does not own, directly or indirectly, any capital stock or any other equity or
long-term debt securities or have any equity interest in any firm, partnership,
joint venture, limited liability company or other entity.
(c) The Company and each of the Subsidiaries has been duly incorporated, is
validly existing and is in good standing as a corporation under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own its properties and conduct its business as now conducted, and as
described in the Final Memorandum; each of the Company and the Subsidiaries is
duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not, individually or in the aggre gate, have a material
adverse effect on the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the Company and
the Subsidiaries, taken as a whole (any such event, a "Material Adverse
Effect").
(d) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Debentures. The Debentures have
been duly and validly authorized by the Company and, when executed by the
Company and authenticated by the Trustee in accordance with the provisions of
the Indenture and, when delivered to the Initial Purchaser in accordance with
the terms of this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(e) The Company has all requisite power and authority to execute, deliver
and perform its obligations under the Exchange Debentures and the Private
Exchange Debentures (as defined in the Registration Rights Agreement). The
Exchange Debentures and the Private Exchange Debentures have been duly and
validly authorized by the Company and, when the Exchange Debentures or the
Private Exchange Debentures have been duly executed and delivered by the Company
and authenticated by the Trustee in accordance with the terms of the
Registration Rights Agreement and the Indenture, will constitute valid and
legally binding obligations of the Company,
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entitled to the benefits of the Indenture, and will be enforceable against the
Company in accordance with their terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization or other similar laws
now or hereafter in effect relating to creditors' rights generally, and (ii)
general principles of equity and the discretion of any court before which any
proceeding therefor may be brought.
(f) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Indenture. The Indenture meets the
requirements for qualification under the Trust Indenture Act of 1939, as amended
(the "TIA"). The Indenture has been duly and validly authorized by the Company
and, when executed and delivered by the Company (assuming the due authorization,
execution and delivery of the Indenture by the Trustee), will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(g) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Registration Rights Agreement,
Warrant Registration Rights Agreement, the Unit Agreement and the Warrant
Agreement. Each of such agreements has been duly and validly authorized by the
Company and, when executed and delivered by the Com pany, will constitute a
valid and legally binding agreement of the Company enforceable against the
Company in accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(h) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Pledge Agreement, to be dated the
Closing Date, whereby the Company will pledge all of its Pledged Stock (as
defined in such agreement) to The Bank of New York, in its capacity as
collateral agent (the "Collateral Agent") for the benefit of the holders of the
Debentures (the "Pledge Agreement"). The Pledge Agreement has been duly and
validly authorized by the Company and, when the Pledge Agreement has been duly
executed and delivered by the Company will constitute a valid and legally
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws now or hereafter in
effect relating to creditors' rights generally, and (ii) general principles of
equity and the discretion of any court before which any proceeding therefor may
be brought.
(i) The Units have been duly authorized by the Company and, when issued and
delivered by the Company against payment therefor by the Initial Purchaser in
accordance with the terms of this Agreement, will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
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(j) The Warrants have been duly authorized by the Company and, when issued
and delivered by the Company in accordance with the terms of this Agreement and
the Warrant Agreement, will constitute valid and legally binding obligations of
the Company, enforceable in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought.
(k) The Warrant Shares have been duly and validly authorized and validly
reserved for issuance and when issued and paid for upon exercise of the Warrants
in accordance with the terms thereof, will be validly issued, fully paid,
nonassessable and free of preemptive rights.
(l) The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
authorized and has been duly executed and delivered by the Company and (assuming
the due authorization, execution and delivery of this Agreement by the Initial
Purchaser) constitutes a valid legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that the
enforcement hereof may be subject to (i) bankruptcy, insolvency, reorganization
or other similar laws now or hereafter in effect relating the creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought.
(m) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the performance of
this Agreement, the Registration Rights Agreement, the Warrant Registration
Rights Agreement, the Unit Agreement, the Warrant Agreement, the Pledge
Agreement and the Indenture by the Company or the consummation by the Company of
the transactions contemplated hereby and thereby that are to be completed on or
before the Closing Date, except such as have been obtained or disclosed in the
Final Memorandum and such as may be required under state securities or "Blue
Sky" laws in connection with the purchase and resale of the Units by the Initial
Purchaser. None of the Company or the Subsidiaries is (i) in violation of its
certificate of incorporation or bylaws (or similar organizational document),
(ii) in breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective properties or
assets, or (iii) in breach of or in default under (nor has any event occurred
which, with notice or passage of time or both, would constitute a default under)
or in violation of any of the terms or provisions of any indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise agreement,
permit, certificate, contract or other agreement or instrument to which any of
them is a party or to which any of them or their respective properties or assets
is subject (collectively, "Contracts") except such violations, breaches or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.
(n) The execution, delivery and performance by the Company of this
Agreement, the Indenture, the Warrant Registration Rights Agreement, the Unit
Agreement, the Warrant Agreement, the Pledge Agreement and the Registration
Rights Agreement and the consummation by the Company of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof and
thereof, and the retention by the Company of NatWest Capital Markets Limited
("NatWest") pursuant to those certain letter agreements (including the
engagement and indemnity
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letter agreements) dated as of August 1, 1997 (collectively, the "NatWest
Engagement Letter") and NatWest's acting as contemplated hereby and thereby,
will not conflict with or constitute or result in a breach of or a default under
(or an event which with notice or passage of time or both would constitute a
default under) or violation of any of (i) the terms or provisions of any
Contract except such conflicts, breaches, defaults or violations, that would
not, individually or in the aggregate, have a Material Adverse Effect (ii) the
certificate of incorporation or by-laws (or similar organizational document) of
the Company or any of the Subsidiaries, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company or any of the Subsidiaries
or any of their respective properties or assets except such conflicts, breaches,
defaults or violations that would not, individually or in the aggregate, have a
Material Adverse Effect.
(o) The audited consolidated financial statements of the Company, the
Subsidiaries and Uniforce Services, Inc. and its subsidiaries included in the
Preliminary Memorandum and the Final Memorandum present fairly in all material
respects the financial position, results of operations and cash flows of such
entities at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, except as otherwise stated therein. The summary and selected
financial and statistical data in the Preliminary Memorandum and the Final
Memorandum present fairly in all material respects the information shown therein
and have been prepared and compiled on a basis consistent with the audited
financial statements included therein, except as otherwise stated therein. Each
of Coopers & Lybrand LLP and KPMG Peat Marwick LLP is an independent public
accounting firm within the meaning of the Act and the rules and regulations
promulgated thereunder.
(p) Except as noted in the Memorandum, the pro forma financial information
included in the Preliminary Memorandum and the Final Memorandum (i) comply as to
form in all material respects with the applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (ii) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, and (iii) have been
properly computed on the bases described therein; the assumptions used in the
preparation of the pro forma financial data and other pro forma financial
information included in the Preliminary Memorandum and the Final Memorandum are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(q) There is not pending or, to the knowledge of the Company and the
Subsidiaries, threatened any action, suit, proceeding, inquiry or investigation
to which the Company or any of the Subsidiaries is a party, or to which the
property or assets of the Company or any of the Subsidiaries are subject, before
or brought by any court, arbitrator or governmental agency or body which, if
determined adversely to the Company or any of the Subsidiaries would,
individually or in the aggregate, have a Material Adverse Effect or which seeks
to restrain, enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Units to be sold hereunder or the consummation of the
other transactions described in the Preliminary Memorandum and the Final
Memorandum.
(r) Each of the Company and the Subsidiaries owns or possesses adequate
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licenses or other rights to use all material patents, trademarks, service marks,
trade names, copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Preliminary Memorandum and the
Final Memorandum, and none of the Company or the Subsidiaries has received any
notice of infringement of or conflict with (or knows of any such infringement of
or conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how which, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(s) Each of the Company and the Subsidiaries possesses all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal, state, local
and other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, presently required or necessary to own or lease, as
the case may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in the
Preliminary Memorandum and the Final Memorandum (collectively, the "Permits"),
except where the failure to obtain such Permits would not, individually or in
the aggregate, have a Material Adverse Effect; each of the Company and the
Subsidiaries has fulfilled and performed all of its obligations with respect to
such Permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit except where
such revocation, termination or impairment would not, individually or in the
aggregate, have a Material Adverse Effect; and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation or
modification of any such Permit, except as described in the Final Memorandum and
except where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(t) Since the date of the most recent financial statements appearing in the
Final Memorandum, except as described in the Final Memorandum, (i) none of the
Company or the Subsidiaries has incurred any liabilities or obligations, direct
or contingent, or entered into or agreed to enter into any transactions or
Contracts (written or oral) not in the ordinary course of business which
liabilities, obligations, transactions or Contracts could, individually or in
the aggregate, be material to the general affairs, management, business,
condition (financial or otherwise), prospects or results of operations of the
Company and the Subsidiaries, taken as a whole (a "Material Change"), (ii) none
of the Company or the Subsidiaries has purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock and (iii) other than as described in the Final
Memorandum, there shall not have been any change in the capital stock or
long-term indebtedness of the Company or the Subsidiaries which could,
individually or in the aggregate, constitute a Material Change.
(u) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and the
Subsidiaries, either individually or taken as a whole, from that set forth in
the Final Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(v) Each of the Company and the Subsidiaries has filed all necessary
federal, state, local and foreign income and franchise tax returns, and has paid
all taxes shown as due
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thereon; and, other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith, and for which the Company or such Subsidiary has
provided adequate reserves, there is no tax deficiency that has been asserted
against the Company or any of the Subsidiaries.
(w) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which are reliable and accurate.
(x) None of the Company, the Subsidiaries or any agent acting on their
behalf has taken or will take any action that might cause this Agreement or the
sale of the Securities to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or as the
same may hereafter be in effect, on the Closing Date.
(y) Each of the Company and the Subsidiaries has good and marketable title
to all real property and good title to all personal property described in the
Preliminary Memorandum and the Final Memorandum as being owned by it and good
and marketable title to any leasehold estate in the real and personal property
described in the Preliminary Memorandum and the Final Memorandum as being leased
by it free and clear of all liens, charges, encumbrances or restrictions, except
as described in the Preliminary Memorandum and the Final Memorandum or to the
extent the failure to have such title or the existence of such liens, charges,
encumbrances or restrictions would not, individually or in the aggregate, have a
Material Adverse Effect. All Contracts to which the Company or any of the
Subsidiaries is a party or by which any of them is bound are valid and
enforceable against the Company or such Subsidiary, and are valid and
enforceable against the other party or parties thereto and are in full force and
effect with only such exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect.
(z) There are no legal or governmental proceedings involving or affecting
the Company or any Subsidiary or any of their respective properties or assets
which would be required to be described in a prospectus pursuant to the Act that
are not described in the Preliminary Memorandum and the Final Memorandum, nor
are there any material contracts or other documents which would be required to
be described in a prospectus pursuant to the Act that are not described in the
Preliminary Memorandum and the Final Memorandum.
(aa) Except as would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect (A) each of the Company and the
Subsidiaries is in compliance with and not subject to liability under applicable
Environmental Laws (as defined below), (B) each of the Company and the
Subsidiaries has made all filings and provided all notices required under any
applicable Environmental Law, and has and is in compliance with all Permits
required under any applicable Environmental Laws and each of them is in full
force and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the knowledge
of the Company or any of the Subsidiaries, threatened against the Company or any
of the Subsidiaries under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any Environmental Law with
respect to any assets, facility or property owned, operated, leased or
controlled by the Company or any of the Subsidiaries, (E) none of the Company or
the Subsidiaries has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended
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("CERCLA") or any comparable state law, (F) no property or facility of the
Company or any of the Subsidiaries is (i) listed or proposed for listing on the
National Priorities List under CERCLA or is (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable foreign and federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without limita tion, law
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials, into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(ii) the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of hazardous materials, and (iii)
underground and above ground storage tanks, and related piping, and emissions,
discharges, releases or threatened releases therefrom.
(bb) There is no strike, labor dispute, slowdown or work stoppage with the
employees of the Company or any of the Subsidiaries which is pending or, to the
knowledge of the Company or any of the Subsidiaries, threatened.
(cc) Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties. Neither the Company nor any of its Subsidiaries
has received notice from any insurer or agent of such insurer that capital
improvements or other expenditures are required or necessary to be made in order
to continue such insurance.
(dd) None of the Company or the Subsidiaries has any material liability for
any prohibited transaction (within the meaning of Section 4975(c) of the Code or
Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) (or an accumulated funding deficiency within the meaning of
Section 412 of the Code or Section 302 of ERISA) or any complete or partial
withdrawal liability (within the meaning of Section 4201 of ERISA) with respect
to any pension, profit sharing or other plan which is subject to ERISA, to which
the Company or any of the Subsidiaries makes or ever has made a contribution and
in which any employee of the Company or of any Subsidiary is or has ever been a
participant. With respect to such plans, the Company and each Subsidiary is in
compliance in all material respects with all applicable provisions of ERISA.
(ee) Each of the Company and the Subsidiaries (i) makes and keeps accurate
books and records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for its
assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
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(ff) None of the Company or the Subsidiaries will be an "investment
company" or "promoter" or "principal underwriter" for an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder.
(gg) The Debentures, the Exchange Debentures, the Indenture, the Warrant
Registration Rights Agreement, the Units, the Unit Agreement, the Warrant
Agreement, the Warrants, the Warrant Shares and the Registration Rights
Agreement will conform in all material respects to the descriptions thereof in
the Final Memorandum.
(hh) No holder of securities of the Company will be entitled to have such
securities registered under the registration statements required to be filed by
the Company pursuant to the Registration Rights Agreement or the Warrant
Registration Rights Agreement other than as expressly permitted thereby.
(ii) Immediately after the consummation of the transactions contemplated by
this Agreement, the fair value and present fair saleable value of the assets of
each of the Company and the Subsidiaries (each on a consolidated basis) will
exceed the sum of its stated liabilities and identified contingent liabilities;
none of the Company or the Subsidiaries (each on a consolidated basis) is, nor
will any of the Company or the Subsidiaries (each on a consolidated basis) be,
after giving effect to the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, (a)
left with unreasonably small capital with which to carry on its business as it
is currently or proposed to be conducted, (b) unable to pay its debts
(contingent or otherwise) as they mature or otherwise become due or (c)
otherwise insolvent.
(jj) None of the Company, the Subsidiaries or any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any "security" (as defined in the
Act) which is or could be integrated with the sale of the Securities in a manner
that would require the registration under the Act of the Securities or (ii)
engaged in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Act) in connection with the offering of
the Securities or in any manner involving a public offering within the meaning
of Section 4(2) of the Act. The Company has not distributed and will not
distribute any offering material in connection with the offering of the
Securities other than the Final Memorandum and any Preliminary Memorandum. No
securities of the same class as the Securities have been issued and sold by the
Company within the six-month period immediately prior to the date hereof.
(kk) Assuming the accuracy of the representations and warranties of the
Initial Purchaser in Section 8 hereof, it is not necessary in connection with
the offer, sale and delivery of the Securities to the Initial Purchaser in the
manner contemplated by this Agreement to register any of the Securities under
the Act or to qualify the Indenture under the TIA.
(ll) No securities of the Company or any Subsidiary are of the same class
(within the meaning of Rule 144A as promulgated under the Act ("Rule 144A")) as
any of the Securities and listed on a national securities exchange registered
under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer
quotation system.
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(mm) None of the Company or the Subsidiaries has taken, nor will any of
them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the any of the Securities.
(nn) None of the Company or the Subsidiaries, or any person acting on any
of their behalf (other than the Initial Purchaser) has engaged in any directed
selling efforts (as that term is defined in Regulation S under the Act
("Regulation S")) with respect to the Securities; the Company and its respective
Affiliates and any person acting on any of their behalf (other than the Initial
Purchaser or any Affiliate of the Initial Purchaser) have complied with the
offering restrictions requirement of Regulation S.
(oo) Each of the Preliminary Memorandum and the Final Memorandum, as of its
respective date, contains all of the information that, if requested by a
prospective purchaser of the Notes, would be required to be provided to such
prospective purchaser to Rule 144A(d)(4) under the Act.
(pp) The Units, the Debentures and the Warrants satisfy the eligibility
requirements of Rule 144A(d)(3) under the Act.
(qq) Neither the Company nor any of its Subsidiaries nor, to the Company's
knowledge, any officer or director purporting to act on behalf of the Company or
any of its Subsidiaries has at any time: (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contributions, in violation of law, (ii) made any payment of funds to, or
received or retained any funds from, any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by applicable law, (iii)
violated or is in violation of the Foreign Corrupt Practices Act of 1977, (iv)
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment or (v) engaged in any transactions, maintained any bank account or used
any corporate funds except for transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of the
Company and its Subsidiaries.
(rr) Except as disclosed in any Memorandum, there are no material
outstanding loans or advances or material guarantees of indebtedness by the
Company or any of its Subsidiaries to or for the benefit of any of the officers
or directors of the Company or any of its Subsidiaries or any of the members of
the families of any of them.
(ss) Neither the Company nor any affiliate of the Company does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Florida Statutes Section 517.075.
(tt) None of the Company or the Subsidiaries has engaged or retained any
person, other than NatWest as the Initial Purchaser, to act as a financial
advisor, underwriter or placement agent in connection with the issuance of the
Units and, except for the fees and expenses payable to Unterburg, Towbin, L.P.,
as the Company's financial advisor in connection with the Uniforce Acquisition
and fees and expenses payable in connection with the issuance of the Units as
described in the Final Memorandum, no person has the right to receive a material
amount of financial advisory,
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underwriting, placement, finder's or similar fees in connection with, or as a
result of, the issuance of the Units and the purchase of the Units by the
Initial Purchaser or the consummation of the other transactions contemplated
hereby.
(uu) Each of the Company and COMFORCE Columbus, Inc. has all requisite
corporate power and authority to execute, deliver and perform its obligations
under that certain Agreement and Plan of Merger dated as of August 13, 1997, by
and among COMFORCE Corporation, COMFORCE Columbus, Inc. and Uniforce Services,
Inc. (the "Merger Agreement"). The Merger Agreement has been duly and validly
authorized, executed and delivered by the Company and COMFORCE Columbus, Inc.
and constitutes a valid and legally binding agreement of each of the Company and
COMFORCE Columbus, Inc., enforceable against each of them in accordance with its
terms, except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) to general principles of equity
and the discretion of any court before which any proceeding therefor may be
brought.
(vv) On the Closing Date, the Company and COMFORCE Columbus, Inc. shall
have consummated its offer to purchase the Common Stock, par value $0.50 per
share of Uniforce Services, Inc. (the "Offer") pursuant to its tender offer
statement on Schedule 14D-1 as filed with the Commission on October 27, 1997 and
such offer, and the consummation thereof shall have complied in all material
respects with all applicable laws, including, without limitation, the Exchange
Act and the rules and regulations promulgated thereunder.
Any certificate signed by any officer of the Company or any Subsidiary and
delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall
be deemed a joint and several representation and warranty by the Company and
each of the Subsidiaries to the Initial Purchaser as to the matters covered
thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company the number of Units set forth opposite its name on
Schedule 1 hereto at a price of $960 per Unit. One or more certificates in
definitive form for the Units that the Initial Purchaser has agreed to purchase
hereunder, and in such denomination or denominations and registered in such name
or names as the Initial Purchaser requests upon notice to the Company at least
36 hours prior to the Closing Date, shall be delivered by or on behalf of the
Company to the Initial Purchaser, against payment by or on behalf of the Initial
Purchaser of the purchase price therefor by wire transfer to such account or
accounts as the Company shall specify prior to the Closing Date, or by such
means as the parties hereto shall agree prior to the Closing Date. Such delivery
of and payment for the Units shall be made at the offices of White & Case, 1155
Avenue of the Americas, New York, New York at 10:00 A.M., New York time, on
November 26, 1997, or at such other place, time or date as the Initial
Purchaser, on the one hand, and the Company, on the other hand, may agree upon,
such time and date of delivery against payment being herein referred to as the
"Closing Date." The Company will make such certificate or certificates for the
Units available for inspection and packaging by the Initial Purchaser at such
place as designated by the Initial Purchaser at least 24 hours prior to the
Closing Date.
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4. Offering by the Initial Purchaser. The Initial Purchaser proposes to
make an offering of the Units at the price and upon the terms set forth in the
Final Memorandum, as soon as practicable after this Agreement is entered into
and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company and the Subsidiaries. The Company covenants and
agrees with the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or any
amendment or supplement thereto unless the Initial Purchaser shall previously
have been advised and furnished a copy of such amendment or supplement for a
reasonable period of time prior to the proposed amendment or supplement and as
to which the Initial Purchaser shall have consented. The Company will promptly,
upon the reasonable request of the Initial Purchaser or counsel for the Initial
Purchaser, make any amendments or supplements to the Preliminary Memorandum or
the Final Memorandum that may be necessary or advisable in connection with the
resale of the Securities by the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in arranging for
the qualification of the Securities for offering and sale under the securities
or "Blue Sky" laws of which jurisdictions as the Initial Purchaser may designate
and will continue such qualifications in effect for as long as may be necessary
to complete the resale of the Securities; provided, however, that in connection
therewith, none of the Company or any Subsidiary shall be required to qualify as
a foreign corporation or to execute a general consent to service of process in
any jurisdiction or subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the
Initial Purchaser of the Securities, any event occurs or information becomes
known as a result of which the Final Memorandum as then amended or supplemented
would, in the judgment of the Company or in the reasonable opinion of your
counsel include any untrue statement of a material fact, or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Final Memorandum
to comply with applicable law, the Company will promptly notify the Initial
Purchaser thereof and will prepare, at the expense of the Company, an amendment
or supplement to the Final Memorandum that corrects such statement or omission
or effects such compliance.
(d) The Company will, without charge, provide to the Initial Purchaser and
to counsel for the Initial Purchaser as many copies of the Preliminary
Memorandum and the Final Memorandum or any amendment or supplement thereto as
the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
as set forth under "Use of Proceeds" in the Final Memorandum.
(f) The Company will furnish to the Initial Purchaser copies of all reports
and
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other communications (financial or otherwise) furnished by the Company to the
Trustee, the holders of the Debentures, the Unit Agent, the Warrant Agent, the
holders of the Warrants or the holders of Warrant Shares and, as soon as
available, copies of any reports or financial statements furnished to or filed
by the Company with the Commission or any national securities exchange on which
any class of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company and the Subsidiaries will
furnish to the Initial Purchaser, as soon as they have been prepared, a copy of
any unaudited interim financial statements of the Company and the Subsidiaries
for any period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum.
(h) None of the Company, the Subsidiaries or any of their Affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Act) which could be integrated with the
sale of any of the Securities in a manner which would require the registration
under the Act of any of the Securities.
(i) None of the Company or the Subsidiaries will engage in any form of
"general solicitation" or "general advertising" (as those terms are used in
Regulation D under the Act) in connection with the offering of the Units or in
any manner involving a public offering of the Units within the meaning of
Section 4(2) of the Act.
(j) None of the Company, the Subsidiaries or their Affiliates nor any
person acting on its or their behalf will engage, in any directed selling
efforts (as that term is defined in Regulation S) with respect to the Units, and
will comply, and will have its Affiliates and each person acting on its or their
behalf comply, with the offering restrictions requirements of Regulation S.
(k) For so long as any of the Securities remain outstanding, the Company
and the Subsidiaries will make available, upon request, to any seller of such
Securities the information specified in Rule 144A(d)(4) under the Act, unless
the Company and the Subsidiaries are then subject to Section 13 or 15(d) of the
Exchange Act.
(l) For a period of 180 days from the date of the Final Memorandum, the
Company and the Subsidiaries will not offer for sale, sell, contract to sell or
otherwise dispose of, directly or indirectly, or file a registration statement
for, or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company or any of its
subsidiaries (other than the Debentures, the Exchange Debentures or the Private
Exchange Debentures, the Notes, the Exchange Notes or the Private Exchange
Notes) without the prior written consent of the Initial Purchaser;
(m) During the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchaser, the
Company and the Subsidiaries will not, and will not permit any of their
affiliates (as defined in Rule 144 under the Securities Act) to, resell any of
the Securities that have been reacquired by them, except for Securities
purchased by the Company or any of its affiliates and resold in a transaction
registered under the Securities Act;
(n) In connection with the offering of the Securities, until the Initial
Purchaser shall
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<PAGE>
have notified the Company of the completion of the resale of the Securities, the
Company and the Subsidiaries will not, and will cause their affiliated
purchasers (as defined under the Exchange Act) not to, either alone or with one
or more other persons, bid for or purchase, for any account in which it or any
of its affiliated purchasers has a beneficial interest, any Securities, or
attempt to induce any person to purchase any Securities, and not to, and to
cause its affiliated purchasers not to, make bids or purchase for the purpose of
creating actual, or apparent, active trading in or of raising the price of the
Securities;
(o) The Company and the Subsidiaries will not take any action prior to the
execution and delivery of the Indenture, the Warrant Agreement, the Pledge
Agreement or the Unit Agreement which, if taken after such execution and
delivery, would have violated any of the covenants contained in the Indenture,
the Warrant Agreement, the Pledge Agreement or the Unit Agreement;
(p) The Company and the Subsidiaries will not take any action prior to
Closing Date which would require the Final Memorandum to be amended or
supplemented pursuant to Section 5(c);
(q) Prior to the Closing Date, the Company and the Subsidiaries will not
issue any press release or other communication directly or indirectly or hold
any press conference with respect to the Company, its condition, financial or
otherwise, or earnings, business affairs or business prospects (except for
routine oral marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the Initial
Purchaser is notified), without the prior written consent of the Initial
Purchaser, unless in the judgment of the Company and its counsel, after
notification to the Initial Purchasers, such press release or communication is
required by law; and
(r) The Company will use its best efforts to (i) permit the Units,
Debentures and Warrants to be designated PORTAL securities in accordance with
the rules and regulations adopted by the NASD relating to trading in the Private
Offerings, Resales and Trading through Automated Linkages market (the "Portal
Market") and (ii) permit the Units, Debentures and Warrants to be eligible for
clearance and settlement through the Depository Trust Company.
6. Expenses. The Company agrees to pay all costs and expenses incident to
the performance of their obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing, word processing or other production of documents with respect to
the transactions contemplated hereby, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the
delivery to the Initial Purchaser of copies of the foregoing documents, (iii)
the fees and disbursements of counsel, accountants and any other experts or
advisors retained by the Company, (iv) preparation (including printing),
issuance and delivery to the Initial Purchaser of the Units, (v) the
qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and fees and disbursements of counsel for the Initial
Purchaser relating thereto, (vi) the Company's expenses in connection with any
meetings with prospective investors in the Securities, (vii) fees and expenses
of the Trustee, the Unit Agent, the Collateral Agent and the Warrant Agent
(including fees and expenses of counsel), (viii) all expenses
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<PAGE>
and listing fees incurred in connection with the application for quotation of
any of the Securities on the PORTAL Market, (ix) any fees charged by investment
rating agencies for the rating of the Debentures, and (x) all expenses incurred
in connection with the application for quotation of the Securities for
book-entry transfer by DTC. If the sale of the Units provided for herein is not
consummated because any condition to the obligations of the Initial Purchaser
set forth in Section 7 hereof is not satisfied, because this Agreement is
terminated or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on their part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Initial Purchaser of their obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith), the Company agrees to
promptly reimburse the Initial Purchaser upon demand for all out-of-pocket
expenses (including all fees, disbursements and charges of White & Case, counsel
for the Initial Purchaser) that shall have been incurred by the Initial
Purchaser in connection with the proposed purchase and sale of the Units.
7. Conditions of the Initial Purchaser's Obligations. The obligation of the
Initial Purchaser to purchase and pay for the Units shall, in its sole
discretion, be subject to the satisfaction or waiver of the following conditions
on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received the
opinion, dated as of the Closing Date and addressed to the Initial Purchaser, of
Doepken, Keevican & Weiss, counsel for the Company in form and substance
satisfactory to counsel for the Initial Purchaser, substantially to the effect
that:
(i) Each of the Company and the material Subsidiaries is duly
incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Final Memorandum. Each of the Company and
the material Subsidiaries is duly qualified as a foreign corporation and is
in good standing in the jurisdictions set forth below such Subsidiaries'
name on Schedule A attached to such opinion.
(ii) The Company has the authorized and issued capital stock set forth
in the Final Memorandum. To the knowledge of Doepken, Keevican & Weiss, the
Subsidiaries constitute all the subsidiaries of the Company and the Company
will own the percentage of the issued and outstanding stock (or other
equity securities) of each of the Subsidiaries set forth on Schedule 2
hereto. All of the outstanding shares of capital stock of the Company and
the Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and were not issued in violation of any preemptive
or similar rights; all of the outstanding shares of capital stock of the
Subsidiaries are owned, directly or indirectly, by the Company, free and
clear of all security interests perfected, or otherwise, and free and clear
of all other liens, encumbrances, equities and claims or restrictions on
transferability or voting in each case other than a pledge of each of the
shares of each of the Subsidiaries of COMFORCE Operating, Inc. pursuant to
the provisions of the New Credit Facilty.
(iii)Except as set forth in the Final Memorandum, (A) to the knowledge
of such counsel no options, warrants or other rights to purchase from the
Company or any Subsidiary shares
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of capital stock or ownership interests in the Company or any Subsidiary
are outstanding, (B) no agreements or other obligations of the Company or
any Subsidiary to issue, or other rights to cause the Company or any
Subsidiary to convert, any obligation into, or exchange any securities for,
shares of capital stock or ownership interests in the Company or any
Subsidiary are outstanding and (C) no holder of securities of the Company
or any Subsidiary is entitled to have such securities registered under a
registration statement filed by the Company and the Subsidiaries pursuant
to the Registration Rights Agreement.
(iv) The Company has all requisite corporate power and authority to
execute, deliver and perform its respective obligations under this
Agreement, the Indenture, the Debentures, the Exchange Debentures and the
Private Exchange Debentures; the Indenture is in sufficient form for
qualification under the TIA; the Indenture has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company (assuming the due authorization, execution and delivery thereof by
the Trustee), will constitute the valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought.
(v) The Global Debenture (as such term is defined in the Indenture)
is, and each other Debenture, when issued, will be, in the form
contemplated by the Indenture. The Global Debenture and each other
Debenture has been duly and validly authorized by the Company and when duly
executed and delivered by the Company and, in the case of the Global
Debenture, when paid for by the Initial Purchaser in accordance with the
terms of this Agreement (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and
delivery of the Debentures by the Trustee in accordance with the
Indenture), will constitute the valid and legally binding obligations of
the Company, entitled to the benefits of the Indenture, and enforceable
against the Company in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be
brought.
(vi) The Exchange Debentures and the Private Exchange Debentures have
been duly and validly authorized by the Company, and when the Exchange
Debentures and the Private Exchange Debentures have been duly executed and
delivered by the Company in accordance with the terms of the Registration
Rights Agreement and the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee and due
authentication and delivery of the Exchange Debentures and the Private
Exchange Debentures by the Trustee in accordance with the Indenture), will
constitute the valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture, and enforceable against the
Company in accordance with their terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought.
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<PAGE>
(vii)The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement, the Warrant Registration Rights Agreement, the Unit Agreement
and the Warrant Agreement. Each of such agreements has been duly and
validly authorized by the Company and, when duly executed and delivered by
the Company (assuming due authorization, execution and delivery thereof by
the Initial Purchaser), will constitute the valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought. No holder of securities of the
Company nor COMFORCE Operating, Inc., nor any of the Subsidiaries will be
entitled to have such securities registered under the registration
statement required to be filed pursuant to the Registration Rights
Agreement.
(viii)The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Pledge Agreement,
dated the Closing Date, whereby the Company pledges all of its Pledged
Stock to the Collateral Agent for the benefit of the holders of the
Debentures. The Pledge Agreement has been duly and validly autho rized,
executed and delivered by the Company and will constitute a valid and
legally binding agreement of the Company, enforceable against it in
accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(ix) The Units have been duly authorized by the Company and, when
issued and delivered by the Company against payment therefor by the Initial
Purchasers in accordance with the terms of this Agreement will constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except that the enforcement hereof
may be subject to (i) bankruptcy, insolvency, reorganization or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought.
(x) The Warrants have been duly authorized by the Company and, when
issued and delivered by the Company in accordance with the terms of this
Agreement, will constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except that the
enforcement hereof may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be
brought.
(xi) The Warrant Shares have been duly and validly authorized and
validly reserved for issuance, and when issued and paid for upon exercise
of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid, nonassessable and free of preemptive rights.
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(xii)The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby; this Agreement and the
consummation by the Company of the transac tions contemplated hereby have
been duly and validly authorized by the Company. This Agreement has been
duly and validly authorized, duly executed and delivered by the Company and
(assuming the due authorization, execution and delivery of this Agreement
by the Initial Purchaser) constitutes a valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its
terms, except that the enforcement thereof may be subject to (i) bankruptcy
insolvency, reorganization or other similar laws now or hereafter in effect
relating to creditors rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor
may be bought.
(xiii) The Indenture, the Debentures (when issued, authorized and
delivered), the Exchange Debentures (when issued, authorized and
delivered), the Private Exchange Debentures (if and when issued, authorized
and delivered), the Units, the Warrants, the Warrant Shares, the Unit
Agreement, the Registration Rights Agreement and the Warrant Registration
Rights Agreement conform (or will conform) in all material respects to the
descriptions thereof contained in the Final Memorandum and the Statements
in the Final Memorandum under "Description of Debentures", and "Debentures
Exchange Offer and Registration Rights" "Description of Units",
"Description of Warrants" and "Description of Capital Stock" insofar as
they describe the provisions of the documents and instruments therein
described, constitute fair summaries thereof in all material respects.
(xiv) No legal or governmental proceedings are pending or, to the
knowledge of such counsel, threatened to which any of the Company is a
party or to which the property or assets of the Company is subject before
or brought by any court, arbitrator or governmental agency or body which,
if determined adversely to the Company, would result, individually or in
the aggregate, in a Material Adverse Effect, or which seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or
sale of the Securities to be sold hereunder or the consummation of the
other transactions described in the Final Memorandum.
(xv) None of the Company or any material Subsidiary is (i) in
violation of its certificate of incorporation or bylaws (or similar
organizational document) or (ii) to the knowledge of such counsel, in
breach or violation of any judgment, decree or order of any court,
arbitrator or governmental body, agency or authority applicable to any of
them or any of their respective properties or assets.
(xvi) The execution and delivery of this Agreement, the Indenture, the
Registration Rights Agreement, the Warrant Registration Rights Agreement,
the Unit Agreement, the Warrant Agreement, the Pledge Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Units to the
Initial Purchaser) will not conflict with or constitute or result in a
breach or a default under (or an event which with notice or passage of time
or both would constitute a default under) or violation of any of (i) the
terms or provisions of any Contract known to such counsel, (ii) the
certificate of incorporation or bylaws (or similar organizational docu-
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ment) of the Company or any material Subsidiary, or (iii) (assuming
compliance with all applicable state securities or "Blue Sky" laws and
assuming the accuracy of the representations and warranties of the Initial
Purchaser in Section 8 hereof) any statute, judgment, decree, order, rule
or regulation which, in such counsel's experience, is normally applicable
both to general business corporations which are not engaged in regulated
business activities and to transactions of the type contemplated by the
Final Memorandum.
(xvii) No consent, approval, authorization or order of any
governmental authority is required for the issuance and sale by the Company
or any Subsidiary of the Units to the Initial Purchaser or the other
transactions contemplated hereby, except such as are disclosed in the Final
Memorandum or as may be required under Blue Sky laws, as to which such
counsel need express no opinion, and those which have previously been
obtained.
(xviii) There are no legal or governmental proceedings involving or
affecting the Company or the Subsidiaries or any of their respective
properties or assets which would be required to be described in a
prospectus pursuant to the Act that are not described in the Final
Memorandum nor are there any material contracts or other documents which
would be required to be described in a prospectus pursuant to the Act that
are not described in the Final Memorandum.
(xix) The Company and each of the Subsidiaries possesses all Permits
presently required or necessary to own or lease, as the case may be, and to
operate its respective properties and to carry on its respective businesses
as now or proposed to be conducted as described in the Preliminary
Memorandum and the Final Memorandum, except where the failure to obtain
such Permits would not, individually or in the aggregate, have a Material
Adverse Effect; each of the Company and the Subsidiaries, to the knowledge
of Doepken, Keevican & Weiss, has fulfilled and performed all of its
obligations with respect to such Permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such Permit except where such revocation,
termination or impairment would not, individually or in the aggregate, have
a Material Adverse Effect; and, to the knowledge of Doepken, Keevican &
Weiss, none of the Company or the Subsidiaries has received any notice of
any proceeding relating to revocation or modification of any such Permit,
except as described in the Final Memorandum and except where such
revocation or modification would not, individually or in the aggregate,
have a Material Adverse Effect.
(xx) Based on lien searches performed with respect to the Company and
the subsidiaries, the real and personal property of the Company described
in the Preliminary Memorandum and the Final Memorandum is free and clear of
all liens, charges, encumbrances or restrictions, except as described in
the Preliminary Memorandum and the Final Memorandum or to the extent that
the failure to have such title or the existence of such liens, charges,
encumbrances or restrictions would not, individually or in the aggregate,
have a Material Adverse Effect.
(xxi) None of the Company or the Subsidiaries is, or immediately after
the sale of the Units to be sold hereunder and the application of the
proceeds from such sale (as
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described in the Final Memorandum under the caption "Use of Proceeds") will
be, an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(xxii) The Units, the Debentures and the Warrants satisfy the
eligibility requirements of Rule 144A(d)(3) under the Act.
(xxiii) No registration under the Act of the Securities is required in
connection with the sale of the Securities to the Initial Purchaser as
contemplated by this Agreement and the Final Memorandum or in connection
with the initial resale of the Securities by the Initial Purchaser in
accordance with Section 8 of this Agreement, and prior to the commencement
of the Exchange Offer or the effectiveness of the Shelf Registration
Statement (as defined in the Registration Rights Agreement), the Indenture
is not required to be qualified under the TIA, in each case assuming (i)
that the purchasers who buy such Securities in the initial resale thereof
are qualified institutional buyers as defined in Rule 144A promulgated
under the Act ("QIBs") or accredited investors as defined in Rule 501(a)
(1), (2), (3) or (7) promulgated under the Act ("Accredited Investors"),
(ii) the accuracy of the Initial Purchaser's representations in Section 8
hereof and those of the Company contained in this Agreement regarding the
absence of a general solicitation in connection with the sale of such
Securities to the Initial Purchaser and the initial resale thereof and
(iii) the due performance by the Initial Purchaser of the agreements set
forth in Section 8 hereof.
(xxiv) Neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the
Securities will violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
(xxv) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Merger Agreement.
The Merger Agreement has been duly and validly authorized, executed and
delivered by the Company and will constitute a valid and legally binding
agreement of the Company enforceable against the Company in accordance with
its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(xxvi) Assuming (i) continued possession by the Collateral Agent of
certificates representing the Pledged Stock in the State of New York, (ii)
that the Collateral Agent has taken delivery of the Pledged Stock in good
faith and (iii) that neither the Collateral Agent nor the Initial Purchaser
has notice, prior to or on the date of the delivery of the Pledged Stock,
of an adverse claim within the meaning of the Uniform Commercial Code of
the State of New York (the "NY UCC"), the Pledge Agreement creates a
perfected security interest in the Pledged Stock in favor of the Collateral
Agent which security interest has priority over all other Liens, except
that priority may be subject to claims or liens in favor of the United
States of America, any State of the United States of America or any agency,
instrumentality or political subdivision of either of the foregoing.
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<PAGE>
At the time the foregoing opinion is delivered, Doepken, Keevican & Weiss
shall additionally state that it has participated in conferences with officers
and other representatives of the Company and the Subsidiaries, representatives
of the independent public accountants for the Company, representatives of the
Initial Purchaser and counsel for the Initial Purchaser, at which conferences
the contents of the Final Memorandum and related matters were discussed, and,
although it has not independently verified and is not passing upon and assumes
no responsibility for the accuracy, completeness or fairness of the statements
contained in the Final Memorandum, no facts have come to its attention which
lead it to believe that the Final Memorandum, on the date thereof or at the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading (it being understood that such firm need express no
opinion with respect to the financial statements and related notes thereto and
the other financial, statistical and accounting data included in the Final
Memorandum). In rendering such opinion, Doepken, Keevican & Weiss shall have
received and may rely upon such certificates and other documents and information
as it may reasonably request to pass on such matters. The opinion of Doepken,
Keevican & Weiss described in this Section shall be rendered to the Initial
Purchaser at the request of the Company and shall so state therein. If requested
by the Trustee, the Unit Agent, the Warrant Agent or the Collateral Agent,
Doepken, Keevican & Weiss shall allow any or all of such Persons to rely on its
opinion and shall expressly so state.
References to the Final Memorandum in this subsection (a) shall include any
amendment or supplement thereto prepared in accordance with the provisions of
this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received the
opinion, in form and substance satisfactory to the Initial Purchaser, dated as
of the Closing Date and addressed to the Initial Purchaser, of White & Case,
counsel for the Initial Purchaser, with respect to certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, White & Case shall
have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(c) On the Closing Date, the Initial Purchaser shall have received the
opinion, dated as of the Closing Date and addressed to the Initial Purchaser, of
counsel to the Trustee, in form and substance satisfactory for counsel to the
Initial Purchaser, dated the Closing Date, substantially to the effect that:
(i) The Bank of New York is a trust company validly existing and in
good standing under the laws of the State of New York.
(ii) The Bank of New York has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Indenture. The Indenture has been duly and validly authorized by The Bank
of New York and will constitute a valid and legally binding agreement of
The Bank of New York, enforceable against it in accordance with its terms,
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization or other similar laws applicable to trust
companies established in the State of
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<PAGE>
New York now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
(iii) The Units, the Debentures and the Warrants delivered to the
Initial Purchasers on the Closing Date have been duly authenticated by the
Trustee in accordance with the terms of the Indenture.
(iv) The execution, delivery and performance by the Trustee of the
Indenture does not and will not require the authorization, consent or
approval of, the giving of notice to, the filing or registration with, or
the taking of any other action in respect of, any governmental authority or
agency regulating the banking and trust activities of the Trustee.
(d) The Initial Purchaser shall have received from each of Coopers &
Lybrand LLP, KPMG Peat Marwick LLP and Arthur Andersen LLP comfort letters dated
the date hereof and the Closing Date, in form and substance satisfactory to
counsel for the Initial Purchaser.
(e) On the Closing Date, the Initial Purchaser shall have received the
Indenture, the Pledge Agreement, the Unit Agreement, the Warrant Agreement and
the Warrant Registration Rights Agreement, duly authorized, executed and
delivered by each of the parties thereto, in form and substance satisfactory to
counsel for the Initial Purchaser, and containing such terms and conditions that
are usual and customary in transactions similar to those contemplated hereby and
thereby, dated the Closing Date and each such agreement shall be in full force
and effect according to its terms.
(f) The Initial Purchaser shall have received good standing certificates
for the Company and each of the Subsidiaries from their respective states of
incorporation and from each of the respective jurisdictions where each of them
is qualified to do business as a foreign corporation, in each case in form and
substance satisfactory to counsel for the Initial Purchaser.
(g) The representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date; the statements of
the Company's officers made pursuant to any certificate delivered in accordance
with the provisions hereof shall be true and correct on and as of the date made
and on and as of the Closing Date; the Company shall have performed all
covenants and agreements and satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date; and, except as
described in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), subsequent to the date of the most recent
financial statements in such Final Memorandum, there shall have been no event or
development that, individually or in the aggregate, has or would be reasonably
likely to have a Material Adverse Effect.
(h) The sale of the Units, the Debentures and the Warrants hereunder shall
not be enjoined (temporarily or permanently) on the Closing Date.
(i) The Units, the Debentures and the Warrants shall have been approved by
the NASD for trading in the PORTAL Market.
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<PAGE>
(j) There shall not have occurred any invalidation of Rule 144A under the
Securities Act by any court or any withdrawal or proposed withdrawal of any rule
or regulation under the Securities Act or the Exchange Act by the Commission or
any amendment or proposed amendment thereof by the Commission which in the
judgment of the Initial Purchaser would materially impair the ability of the
Initial Purchaser to purchase, hold or effect resales of the Securities as
contemplated hereby.
(k) There shall not have occurred any change, or any development involving
a prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, of the Company and the Subsidiaries, taken as
a whole, from that set forth in the Final Memorandum that constitutes a Material
Adverse Effect and that makes it, in the Initial Purchaser's judgment,
impracticable to market Units on the terms and in the manner contemplated in the
Final Memorandum.
(l) Subsequent to the date of the most recent financial statements in the
Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), the conduct of the business and operations of the Company shall
not have been interfered with by strike, fire, flood, hurricane, accident or
other calamity (whether or not insured) or by any court or governmental action,
order or decree, and, except as otherwise stated therein, the properties of the
Company shall not have sustained any loss or damage (whether or not insured) as
a result of any such occurrence, except any such interference, loss or damage
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(m) No securities of the Company shall have been downgraded or placed on
any "watch list" for possible downgrading by any nationally recognized
statistical rating organization.
(n) The Initial Purchaser shall have received certificates of the Company,
dated the Closing Date, signed by their respective Chairman of the Board,
President or any Senior Vice President and the Chief Financial Officer, to the
effect that:
(i) The representations and warranties of the Company contained in
this Agreement are true and correct as of the date hereof and as of the
Closing Date, and the Company has performed all covenants and agreements
and satisfied all conditions on their part to be performed or satisfied
hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), no event or
events have occurred, no information has become known nor does any
condition exist that, individually or in the aggregate, would have a
Material Adverse Effect;
(iii) The sale of the Units hereunder has not been enjoined
(temporarily or permanently); and
(iv) such other information as the Initial Purchaser may reasonably
request.
(n) On the Closing Date, the Initial Purchaser shall have received all of
the
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<PAGE>
certificates evidencing the Pledged Stock pledged under the Pledge Agreement,
together with executed and undated stock powers.
(o) COMFORCE Columbus, Inc.'s tender offer for any and all outstanding
shares of Uniforce Services, Inc. the ("Uniforce Tender Offer") shall have
expired without the waiver of any material condition to the consummation thereof
set forth in COMFORCE Columbus Inc.'s Offer to Purchase, as amended through the
date hereof, and COMFORCE Columbus, Inc. shall have accepted for payment an
amount of shares of the common stock of Uniforce Services, Inc. equal to no less
than two thirds of all such shares issued and outstanding.
(p) The Initial Purchaser shall have received a certificate from the
corporate secretary of the Company, dated the Closing Date, attaching certified
copies of (i) all resolutions of the Board of Directors of the Company
authorizing (a) the transactions contemplated by this Agreement and (b) the
Merger Agreement, including, without limitation, approving the offering of the
Securities, the entering into this Agreement, the Indenture and the Registration
Rights Agreement, (ii) the certificate of incorporation and by-laws of the
Company, (iii) the Merger Agreement, and (iv) certifying the names and true
signatures of those officers of the Company executing any documents contemplated
by this Agreement.
(q) The offering of 12% Senior Notes due 2007 of COMFORCE Operating, Inc.,
in the sole judgment of the Initial Purchaser, shall have been consummated as
described in the Final Memorandum.
(r) On or prior to the Closing Date, COMFORCE Operating, Inc. shall have
entered into a Credit Agreement, to be dated as of November 26, 1997, among
COMFORCE Operating, Inc.,, Heller Financial, Inc., and any other financial
institutions from time to time party thereto (the "Heller Facility") which, in
the sole judgment of the Initial Purchaser, shall have been entered into on
substantially the terms described in the Offering Memorandum.
On or before the Closing Date, the Initial Purchaser and counsel for the
Initial Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and the Subsidiaries as
they shall have heretofore reasonably requested from the Company and the
Subsidiaries.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company and the
Subsidiaries shall furnish to the Initial Purchaser such conformed copies of
such documents, opinions, certificates, letters, schedules and instruments in
such quantities as the Initial Purchaser shall reasonably request.
8. Offering of Units; Restrictions on Transfer. The Initial Purchaser
agrees with the Company that (i) it has not and will not solicit offers for, or
offer or sell, the Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act; (ii) it
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<PAGE>
has and will solicit offers for the Securities only from, and will offer the
Securities only to (A) in the case of offers inside the United States, (x)
persons whom the Initial Purchaser reasonably believes to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchaser to be
Accredited Investors that, prior to their purchase of the Securities, deliver to
the Initial Purchaser a letter containing the representations and agreements set
forth in Appendix A to the Final Memorandum and (B) in the case of offers
outside the United States, to persons other than U.S. persons ("foreign
purchasers," which term shall include dealers or other professional fiduciaries
in the United States acting on a discretionary basis for foreign beneficial
owners (other than an estate or trust)); provided, however, that, in the case of
this clause (B), in purchasing such Securities such persons are deemed to have
represented and agreed as provided under the caption "Transfer Restrictions"
contained in the Final Memorandum.
The Initial Purchaser represents and warrants that it is a QIB, with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Units. The
Initial Purchaser agrees to comply with the applicable provisions of Rule 144A
and Regulation S under the Act. The Initial Purchaser hereby acknowledges that
the Company and, for purposes of the opinions to be delivered to the Initial
Purchaser pursuant to Section 7(a) hereof, counsel to the Company will rely upon
the accuracy and truth of the representations contained in this Section 8 and
the Initial Purchaser hereby consents to such reliance.
9. Indemnification and Contribution. (a) The Company and the Subsidiaries
jointly and severally agree to indemnify and hold harmless the Initial Purchaser
and its respective affiliates, directors, officers, agents, representatives
general partners and employees of such Initial Purchaser or its affiliates, and
each other person, if any, who controls the Initial Purchaser or its affiliates
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the full extent lawful against any losses, claims, damages, expenses or
liabilities (or action in respect thereof, including, without, limitation,
shareholder derivative actions and arbitration proceedings) to which the Initial
Purchaser or such other person may become subject under the Act, the Exchange
Act or otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto or
any application or other document, or any amendment or supplement thereto,
executed by the Company or the Subsidiaries or based upon written
information furnished by or on behalf of the Company or the Subsidiaries
filed in any jurisdiction in order to qualify the Securities under the
securities or "Blue Sky" laws thereof or filed with any securities
association or securities exchange (each an "Application");
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto or any Application, a material fact
required to be stated
26
<PAGE>
therein or necessary to make the statements therein not misleading; or
(iii) any breach of any of the representations and warranties of the
Company and the Subsidiaries set forth in this Agreement or the
Registration Rights Agreement, and will reimburse, as incurred, the Initial
Purchaser and each such other person for any legal or other expenses
incurred by the Initial Purchaser or such other person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action;
provided, however, the Company and the Subsidiaries will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information concerning the Initial Purchaser
furnished to the Company by the Initial Purchaser specifically for use
therein. This indemnity agreement will be in addition to any liabilities or
obligations that the Company and the Subsidiaries may otherwise have to the
indemnified parties, including without limitation the indemnification
obligations of the Company pursuant to the NatWest Engagement. The Company
and the Subsidiaries shall not be liable under this Section 9 for any
settlement of any claim or action effected without its prior consent, which
shall not be unreasonably withheld.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, their directors, their officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any Memorandum or any amendment or supplement thereto or any
Application, or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Memorandum or any amendment or
supplement thereto or any Application, or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
concerning the Initial Purchaser, furnished to the Company or the Subsidiaries
by the Initial Purchaser specifically for use therein; and subject to the
limitation set forth immediately preceding this clause, will reimburse, as
incurred, any legal or other expenses incurred by the Company, or any such
director, officer or controlling person in connection with investigating or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Initial Purchaser may
otherwise have to the indemnified parties. The Initial Purchaser shall not be
liable under this Section 9 for any settlement of any claim or action effected
without their written consent, which shall not be unreasonably withheld. The
Company and the Subsidiaries shall not, without the prior written consent of the
Initial Purchaser, effect any settlement or compromise of any pending or
threatened proceeding in respect of which the Initial Purchaser is or could have
been a party, or indemnity could have been sought hereunder by any Initial
Purchaser, unless such settlement (A) includes an unconditional written release
of the Initial Purchaser, in form and substance reasonably satisfactory to the
Initial Purchaser, from all liability on claims that are the subject matter of
such
27
<PAGE>
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action for which such indemnified party is
entitled to indemnification under this Section 9, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
this Section 9, notify the indemnifying party of the commencement thereof in
writing; but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and to the
extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Initial Purchaser in the case of
paragraph (a) of this Section 9 or either the Company or any of the Subsidiaries
in the case of paragraph (b) of this Section 9, representing the indemnified
parties under such paragraph (a) or paragraph (b), as the case may be, who are
parties to such action or actions) or (ii) the indemnifying party has authorized
in writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent shall
not be unreasonably withheld), unless such indemnified party waived in writing
its rights under this Section 9, in which
28
<PAGE>
case the indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 9 is unavailable to an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof), each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party on the other from the offering of the Units or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Initial Purchaser on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of commissions and
before deducting expenses) received by the Company and the Subsidiaries bear to
the total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand, or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of this
paragraph (d). Notwithstanding any other provision of this paragraph (d), the
Initial Purchaser shall not be obligated to make contributions hereunder that in
the aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchaser under this Agreement, less the aggregate
amount of any damages that the Initial Purchaser has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company or the Subsidiaries within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have
the same rights to contribution as the Company.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, their
respective officers and the Initial Purchaser set forth in this Agreement or
made by or on behalf of them pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of their respective officers or directors, the Initial
Purchaser or any other person referred to in Section 9 hereof and (ii) delivery
of and payment for the Units. The respective
29
<PAGE>
agreements, covenants, indemnities and other statements set forth in Sections 6,
9 and 15 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on their respective
part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Closing any of the following shall have occurred:
(i) any of the Company or the Subsidiaries shall have sustained any
loss or interference with respect to its businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any strike, labor dispute, slow down or work stoppage
or any legal or governmental proceeding, which loss or interference has
had, has or could be reasonably likely to have a Material Adverse Effect,
or there shall have been, in the sole judgment of the Initial Purchaser,
any event or development that, individually or in the aggregate, has or
could be reasonably likely to have a Material Adverse Effect (including
without limitation a change in control of the Company or the Subsidiaries),
except in each case as described in the Final Memorandum (exclusive of any
amendment or supplement thereto);
(ii) there shall have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and the
Subsidiaries, taken as a whole, from that set forth in the Final Memorandum
that is material and adverse and that makes it, in the Initial Purchaser's
judgment, impracticable to market the Units on the terms and in the manner
contemplated in the Final Memorandum.
(iii) trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange,
the American Stock Exchange or the National Association of Securities
Dealers, Inc. or the setting of minimum prices for trading on such exchange
or market shall have occurred or trading of any securities of the Company
shall have been suspended on any exchange or in any over-the-counter
market;
(iv) a banking moratorium shall have been declared by New York or
United States authorities;
(v) there shall have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, or (B) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States, (C) any material change in the financial markets of the United
States or (D) any other national or international calamity or emergency
which, in the case of (A), (B), (C) or (D) above and in the sole judgment
of the Initial Purchaser, makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Units as contemplated by
the Final Memorandum;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in
has a material adverse effect on the financial
30
<PAGE>
markets in the United States, and would, in the sole judgment of the
Initial Purchaser, make it impracticable or inadvisable to market the
Units;
(vii) the proposal, enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which, in the sole judgment of
the Initial Purchaser, would have a Material Adverse Effect;
(viii) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(ix) the Uniforce Tender Offer shall not have been consummated within
ten days of the date hereof.
(x) it shall have become impracticable, in the sole judgment of the
Initial Purchaser, to consummate the offering of 12% Senior Notes due 2007,
as described in the Final Memorandum.
(xi) it shall have become impracticable, in the sole judgment of the
Initial Purchaser, for COMFORCE Operating, Inc. to enter into the Heller
Facility described in the Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Sections
6 and 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements set forth
in the last paragraph on the cover page of the Final Memorandum, the sixth
through ninth paragraphs under the heading "Note Plan of Distribution" and the
fifth through eighth paragraphs under the heading "Units Plan of Distribution,"
in the Final Memorandum (to the extent any such statements relate to the Initial
Purchaser) constitute the only information furnished by the Initial Purchaser to
the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and, if sent
to the Initial Purchaser, shall be mailed or delivered to (i) NatWest Capital
Markets Limited, 135 Bishopgate, London, England, Attention: Roger Hoit; with a
copy to White & Case, 1155 Avenue of the Americas, New York, NY 10036,
Attention: Timothy B. Goodell, Esq.; if sent to the Company, shall be mailed or
delivered to the Company at 2001 Marcus Avenue, Lake Success, New York 11042,
Attention: Paul Grillo with a copy to Doepken, Keevican & Weiss, 58th Floor, USX
Tower, Pittsburgh, Pennsylvania 15219 Attention: David G. Edwards, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; and one business day
after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the Initial Purchaser, the Company and their respective successors and
legal representatives, and
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nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained; this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company and the
Subsidiaries contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company and officers and
any person or persons who control the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act. No purchaser of Units, Debentures
or Warrants from the Initial Purchaser will be deemed a successor because of
such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS
THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement between the Company and the
Initial Purchaser.
Very truly yours,
COMFORCE CORPORATION
By /s/ Paul J. Grillo
------------------
Name: Paul J. Grillo
Title: Chief Financial Officer
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The foregoing Agreement
is hereby confirmed and accepted
as of the date first
above
written.
NATWEST CAPITAL MARKETS LIMITED
By:_________________________
Name:
Title:
2
Exhibit 10.9
================================================================================
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of November 26, 1997
by and between
COMFORCE OPERATING, INC.
and
NATWEST CAPITAL MARKETS LIMITED
as the Initial Purchaser
================================================================================
$110,000,000
12% SENIOR NOTES DUE 2007
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement") is dated
as of November 26, 1997, by and between COMFORCE Operating, Inc., a Delaware
corporation (the "Company") and NatWest Capital Markets Limited (the "Initial
Purchaser").
This Agreement is entered into in connection with the Purchase Agreement,
dated November 19, 1997, between the Company and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchaser of $110,000,000 aggregate principal amount of the Company's 12% Senior
Notes due 2007 (the "Notes"). In order to induce the Initial Purchaser to enter
into the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement for the benefit of the Initial Purchaser and
its direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the obligations of the Initial Purchaser to purchase
the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions As used in this Agreement, the following terms shall have
the following meanings:
Additional Interest: Has the meaning provided in Section 4(a) hereof.
Advice: Has the meaning provided in the last paragraph of Section 5 hereof.
Agreement: Has the meaning provided in the first introductory paragraph
hereto.
Applicable Period: Has the meaning provided in Section 2(b) hereof.
Closing Date: Has the meaning provided in the Purchase Agreement.
Company: Has the meaning provided in the first introductory paragraph
hereto.
Effectiveness Date: The 90th day after the Issue Date.
Effectiveness Period: Has the meaning provided in Section 3(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: Has the meaning provided in Section 2(a) hereof.
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Exchange Offer: Has the meaning provided in Section 2(a) hereof.
Exchange Registration Statement: Has the meaning provided in Section 2(a)
hereof.
Filing Date: The 30th day after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: Has the meaning provided in Section 7(c) hereof.
Indemnifying Person: Has the meaning provided in Section 7(c) hereof.
Indenture: The Indenture, dated as of November 26, 1997 between the Company
and Wilmington Trust Company, as trustee, pursuant to which the Notes are being
issued, as amended or supplemented from time to time in accordance with the
terms thereof.
Initial Purchaser: Has the meaning provided in the first introductory
paragraph hereto.
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to the Initial
Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 5(s) hereof.
Notes: Has the meaning provided in the second introductory paragraph
hereto.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in Section 2(b)
hereof.
Persons: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: Has the meaning provided in Section 2(b) hereof.
Private Exchange Notes: Has the meaning provided in Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
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prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second introductory
paragraph hereto.
Records: Has the meaning provided in Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and at all
times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof
is applicable upon original issuance and at all times subsequent thereto and
each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(iv) hereof is applicable, the Exchange Registration Statement) covering
such Note, Exchange Note or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note (unless such Note was not tendered
for exchange by the Holder thereof), Exchange Note or Private Exchange Note, as
the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, is, or may be, sold in compliance with Rule 144, or (iii)
such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to
be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
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SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
Shelf Registration: Has the meaning provided in Section 3(a) hereof.
Shelf Registration Statement: shall mean a "shelf" registration statement
of the Company which covers all of the Registrable Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee(s): The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than the Filing Date
an offer to exchange (the "Exchange Offer") any and all of the Registrable Notes
(other than the Private Exchange Notes, if any) for a like aggregate principal
amount of debt securities of the Company which are identical in all material
respects to the Notes (the "Exchange Notes") (and which are entitled to the
benefits of the Indenture or a trust indenture which is identical in all
material respects to the Indenture (other than such changes to the Indenture or
any such identical trust indenture as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA) and which, in either case, has been qualified under the TIA), except
that the Exchange Notes (other than Private Exchange Notes, if any) shall have
been registered pursuant to an effective Registration Statement under the
Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer shall be registered under the Securities Act on the appropriate form (the
"Exchange Registration Statement") and shall comply with all applicable tender
offer rules and regulations under the Exchange Act. The Company agrees to use
its best efforts to (x) cause the Exchange Registration Statement to be declared
effective under the Securities Act no later than the 90th day after the Issue
Date; (y) keep the Exchange Offer open for at least 30 business days (or longer
if required by applicable law) after the date that notice of the Exchange Offer
is mailed to the Holders; and (z) consummate the Exchange Offer on or prior to
the 130th day following the Issue
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<PAGE>
Date. If after such Exchange Registration Statement is declared effective by the
SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Exchange Registration
Statement shall be deemed not to have become effective for purposes of this
Agreement until such stop order, injunction or other order or requirement is no
longer in effect. Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Notes received by it will be acquired in
the ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, and that such Holder in not an "affiliate"
of the Company within the meaning of the Securities Act. Upon consummation of
the Exchange Offer in accordance with this Section 2, the Company shall have no
further obligation to register Registrable Notes (other than Private Exchange
Notes and other than in respect of any Exchange Notes as to which clause 2(c)(v)
hereof applies) pursuant to Section 3 hereof. No securities other than the
Exchange Notes shall be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the Exchange Registration
Statement effective and to amend and supplement the Prospectus contained
therein, in order to permit such Prospectus to be lawfully delivered by any
Participating Broker-Dealer subject to the prospectus delivery requirements of
the Securities Act for such period of time as is necessary to comply with
applicable law in connection with any resale of the Exchange Notes; provided,
however, that such period shall not exceed 180 days after the consummation of
the Exchange Offer (or such longer period if extended pursuant to the last
paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Company shall, upon the request of the Initial
Purchaser, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer issue and deliver to the Initial Purchaser in exchange (the
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<PAGE>
"Private Exchange") for such Notes held by the Initial Purchaser a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same Indenture as the Exchange Notes) except
for the placement of a restrictive legend on such Private Exchange Notes. The
Private Exchange Notes shall, if permissible, bear the same CUSIP number as the
Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will accrue
from the last interest payment date on which interest was paid on the Notes
surrendered in exchange therefor or, if no interest has been paid on the Notes,
from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the Private
Exchange, as the case may be, the Company shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder Notes, Exchange Notes or Private Exchange Notes, as the case may be,
equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Notes and the Private Exchange Notes are to be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event shall provide that (1) the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture and (2)
the Private Exchange Notes shall be subject to the transfer restrictions set
forth in the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private
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<PAGE>
Exchange Notes and the Notes shall vote and consent together on all matters as
to which they have the right to vote or consent as one class and that none of
the Exchange Notes, the Private Exchange Notes or the Notes will have the right
to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 165 days
after the Issue Date, (iii) any holder of Private Exchange Notes so requests at
any time after the consummation of the Private Exchange, or (iv) any Holder
(other than the Initial Purchaser) is not eligible to participate in the
Exchange Offer, then the Company shall promptly deliver written notice thereof
(the "Shelf Notice") to the Trustee and, in the case of clauses (i) and (ii)
above, all Holders, in the case of clause (iii) above, the Holders of the
Private Exchange Notes and, in the case of clause (iv) above, the affected
Holder, and shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration If a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Company shall as promptly as reasonably
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Notes (the "Shelf Registration"). If the Company shall not have yet filed an
Exchange Registration Statement, the Company shall use its best efforts to file
with the SEC the Shelf Registration on or prior to the Filing Date. The Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them (including, without limitation, one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Notes to be included in the Shelf Registration.
The Company shall use its best efforts to cause the Shelf Registration to
be declared effective under the Securities Act by the earlier of the 90th day
after the Shelf Request or the 165th day after the Issue Date and to keep the
Shelf Registration continuously effective under the Securities Act until the
date which is two years from the Issue Date, subject to extension pursuant to
the last paragraph of Section 5 hereof, or such shorter period ending when all
Registrable Notes covered by the Shelf Registration have been sold in the manner
set forth and as contemplated in the Shelf Registration or when the Notes become
eligible for registration without volume restrictions, pursuant to Rule 144
under the Securities Act (the "Effectiveness Period").
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Company
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement
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and amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested for
such purpose by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
(a) The Company and the Initial Purchaser agree that the Holders of
Registrable Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages and as the sole and exclusive
remedy therefor, additional interest on the Notes ("Additional Interest") under
the circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed with the SEC within, in the case the Exchange Offer
Registration Statement, 30 days following the Issue Date or, in the case of
the Shelf Registration Statement, 30 days following a Shelf Request,
Additional Interest shall accrue on the Notes over and above the stated
interest at a rate of 0.50% per annum for the first 60 days commencing on
the 31st day after the Issue Date or the Shelf Request, respectively, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within, in the case of the
Exchange Offer Registration Statement, 90 days following the Issue Date or,
in the case of the Shelf Registration Statement, 90 days following a Shelf
Request, Additional Interest shall accrue on the Notes over and above the
stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the 91st day after the Issue Date or the Shelf Request,
respectively, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to 130 days
after the Issue Date or (B) the Exchange Offer Registration Statement
ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement ceases to
be effective at any time prior to the second anniversary of the Issue Date
(unless all the Notes have been sold thereunder), then Additional Interest
shall accrue on the Notes over and above the stated interest at a rate of
0.50% per annum for the first 50 days commencing on (x) the 131st day after
the Issue Date with respect to the Notes validly tendered and not exchanged
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<PAGE>
by the Company, in the case of (A) above, or (y) the day the Exchange Offer
Registration Statement ceases to be effective or usable for its intended
purpose in the case of (B) above, or (z) the day such Shelf Registration
Statement ceases to be effective in the case of (C) above, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes under clauses
(i), (ii) or (iii) above, may not exceed in the aggregate 2.0% per annum; and
provided further, that (1) upon the filing of the Exchange Offer Registration
Statement or Shelf Registration Statement (in the case of clause (i) above), (2)
upon the effectiveness of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of (ii) above), or (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) above), or
upon the effectiveness of the Exchange Offer Registration Statement which had
ceased to remain effective (in the case of clause (iii)(B) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(C) above), Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). The Company shall pay the Additional
Interest due on the transfer restricted Notes by depositing with the paying
agent (which shall not be the Company for these purposes) for the transfer
restricted Notes, in trust, for the benefit of the holders thereof, prior to
11:00 A.M. on the next interest payment date specified by the Indenture (or such
other indenture), sums sufficient to pay the Additional Interest then due. Any
amounts of Additional Interest due pursuant to clauses (a)(i), (a)(ii) or
(a)(iii) of this Section 4 will be payable to the Holders of affected Notes in
cash semi-annually on each interest payment date specified by the Indenture (or
such other indenture) to the record holders entitled to receive the interest
payment to be made on such date, commencing with the first such date occurring
after any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the affected Registrable Notes of such Holders,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months and, in the case of a
partial month, the actual number of days elapsed), and the denominator of which
is 360.
5. Registration Procedures In connection with the filing of any
Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall
effect such registration(s) to permit the sale of the securities covered thereby
in accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing Date a Registration
Statement
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<PAGE>
or Registration Statements as prescribed by Sections 2 or 3 hereof, and use
their best efforts to cause each such Registration Statement to become effective
and remain effective as provided herein; provided, however, that, if (1) such
filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company shall, if requested in writing, furnish to and afford the Holders of
the Registrable Notes covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (in each case at least
three business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders must be afforded an opportunity to review prior to
the filing of such document under the immediately preceding sentence, if the
Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement, or any such Participating Broker-Dealer,
as the case may be, their counsel, or the managing underwriters, if any, shall
object thereto in writing, which writing shall set forth a reasonable basis for
such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period or
until consummation of the Exchange Offer, as the case may be; cause the related
Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented
and with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the Company shall be
deemed not to have used its best efforts to keep a Registration Statement
effective during the Applicable Period if it voluntarily takes any action that
would result in selling Holders of the Registrable Notes covered thereby or
Participating Broker-Dealers seeking to sell Exchange Notes not being able to
sell such Registrable Notes or such Exchange Notes during that period unless
such action is required by applicable law or unless the Company complies with
this Agreement, including without limitation, the provisions of paragraph 5(k)
hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, notify the selling Holders of Registrable Notes,
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or each such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, promptly (but in any event within two
business days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole expense
of the Company, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference and exhibits), (ii) of
the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a Prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Notes or resales of
Exchange Notes by Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement), contemplated by Section 5(n) hereof cease to be true and correct,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the determination by the Company that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or exemption
from qualification) of any of the Registrable Notes or the Exchange Notes for
sale in any jurisdiction, and, if any such order is issued, to use its best
efforts to obtain the withdrawal of any such order at the earliest possible
moment.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof and if
requested by the managing underwriter or underwriters (if any), or the Holders
of a majority in aggregate principal amount of the Registrable Notes being sold
in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, or counsel for any
of them
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reasonably request to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, at the sole expense of the Company, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and schedules,
and, if requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their respective counsel,
and the underwriters, if any, at the sole expense of the Company, as many copies
of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case-may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Notes covered by, or the sale by Participating Broker-Dealers of the Exchange
Notes pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery of a
Prospectus contained in the Exchange Registration Statement by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, to
use its best efforts to register or qualify such Registrable Notes (and to
cooperate with selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the managing underwriter or underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Notes) for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters reasonably request in
writing; provided, however, that where Exchange Notes held by Participating
Broker-Dealers or Registrable Notes are offered other than through an
underwritten offering, the Company agrees to
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cause their counsel to perform Blue Sky investigations and file registrations
and qualifications required to be filed pursuant to this Section 5(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable Registration
Statement; provided, however, that the Company shall not be required to (A)
qualify generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) subject
itself to taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
thereof or the underwriter or underwriters, if any, to dispose of such
Registrable Notes, except as may be required solely as a consequence of the
nature of a selling Holder's business, in which case the Company will cooperate
in all reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the sole expense of the Company, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, that this Section 5(k) shall not be deemed to require
the Company to disclose any information that, in the good faith opinion of the
management of the Company, is not yet required to be disclosed and would
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not be in the best interests of the Company to disclose, so long as the Company
complies with all applicable laws and government regulations and the last
paragraph of this Section 5.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes or Exchange Notes, as the case may be, in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Notes or Exchange Notes, as the case may be.
(m) In connection with any underwritten offering by the Company of
Registrable Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities similar
to the Notes and take all such other actions as are reasonably requested by the
managing underwriter or underwriters in order to facilitate the registration or
the disposition of such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters with
respect to the business of the Company and its subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings of debt securities similar to
the Notes, and confirm the same in writing if and when requested; (ii) obtain
the written opinion of counsel to the Company and written updates thereof in
form, scope and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings of debt similar to the
Notes and such other matters as may be reasonably requested by the managing
underwriter or underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company or any of its direct or indirect subsidiaries for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt similar to the Notes and such other matters as
reasonably requested by the managing underwriter or underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to the Company and
Holders of a majority in aggregate principal amount of Registrable Notes covered
by such Registration Statement and the managing underwriter or underwriters or
agents) with respect to all parties to be indemnified pursuant to said Section.
The above shall be done at each closing under such underwriting agreement, or as
and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is
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<PAGE>
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period,
make available for inspection by any selling Holder of such Registrable Notes
being sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable Notes, if any,
and any attorney, accountant or other agent retained by any such selling Holder
or each such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent cor porate
documents and instruments of the Company and its direct and indirect
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Company and its direct and indirect
subsidiaries to make available for inspection all information reasonably
requested by any such Inspector in connection with such Registration Statement.
Records which the Company determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be disclosed
by the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction, (iii) disclosure of such information is,
in the opinion of counsel (a copy of which shall be delivered to the Company)
for any Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially involving
such Inspector and arising out of, based upon, relating to, or involving this
Agreement, or any transactions contemplated hereby or arising hereunder, or (iv)
the information in such Records has been made generally available to the public.
Each selling Holder of such Registrable Notes and each such Participating
Broker-Dealer will be required to agree that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the Company or
any of its affiliates unless and until such information is generally available
to the public. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company' sole expense.
(o) Provide an indenture trustee for the Registrable Notes or the Exchange
Notes, as the case may be, and cause the Indenture or the trust indenture
provided for in Section 2(a) hereof, as the case may be, to be qualified under
the TIA not later than the effective date of the Exchange Offer or the first
Registration Statement relating to the Registrable Notes; and in connection
therewith, cooperate with the trustee under any such indenture and the Holders
of the Registrable Notes, to effect such changes to such indenture as may be
required for such indenture to be so qualified in accordance with the terms of
the TIA; and execute, and use its best efforts to cause such trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
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<PAGE>
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Notes by Holders to the Company (or to such other
Person as directed by the Company) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, the Company shall mark, or cause to
be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or advisable to
effect the registration of the Registrable Notes covered by a Registration
Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which any
Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such Registration Statement the Registrable Notes of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes or
Exchange Notes, as the case may be, covered by such Registration Statement or
Prospectus to be sold by such Holder or Participating Broker-Dealer, as the case
may be, until such Holder's or Participating Broker-
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<PAGE>
Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event the Company shall give any such notice, each of the Effectiveness
Period and the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice. In the event the Company does not give any such notice within five
business days, each Holder shall return such Registration Statement or
Prospectus to the Company or destroy all copies of such Registration Statement
or Prospectus; and if so requested by the Company, shall certify that all copies
of the Registration Statement or Prospectus were destroyed.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Exchange Offer or a Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of the Company's counsel in
connection with Blue Sky qualifications of the Registrable Notes or Exchange
Notes and determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the holders
of Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing Prospectuses if
the printing of Prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or sold by any
Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company, (v)
fees and disbursements of all independent certified public accountants referred
to in Section 5(n)(iii) hereof (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, and any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vii) Securities Act
liability insurance, if the Company desires such insurance, (viii) fees and
expenses of all other Persons retained by the Company, (ix) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and
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employees of the Company performing legal or accounting duties), (x) the expense
of any annual audit, (ix) the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange or any
inter-dealer quotation system, if applicable, and (xii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Notes being
registered in a Shelf Registration for the reasonable fees and disbursements of
not more than one counsel chosen in writing by the Holders of a majority in
aggregate principal amount of the Registrable Notes to be included in such
Registration Statement. In addition, the Company shall reimburse the Initial
Purchaser for the reasonable fees and expenses of one counsel in connection with
the Exchange Offer which counsel shall be White & Case, and shall not be
required to pay any other legal expenses of the Initial Purchaser in connection
therewith.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes offered pursuant to a Shelf Registration Statement and each
Participating Broker-Dealer selling Exchange Notes during the Applicable Period,
the affiliates, directors, officers, agents, representatives and employees of
each such Person or its affiliates, and each other Person, if any, who controls
any such Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant") from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company will
not be required to indemnify a Participant if (i) such losses, claims, damages
or liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of such Participant
expressly for use therein or (ii) if such Participant sold to the person
asserting the claim the Registrable Notes or Exchange Notes which are the
subject of such claim and such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and
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<PAGE>
such Participant failed to deliver or provide a copy of the Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Notes or Exchange Notes sold to such Person if required
by applicable laws, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, their respective directors and officers and each
Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only (i) with
reference to information furnished to the Company in writing by or on behalf of
such Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made by such Participant in
writing to the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such reasonable fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all
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such Participants and any such separate firm for the Company, their directors,
their officers and such control Persons of the Company shall be designated in
writing by the Company. The Indemnifying Person shall not be liable for any
settlement of any proceeding effected without its prior written consent, but if
settled with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold
harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or com
promise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance reasonably satisfactory to such Indemnified Person, from all liability
on claims that are the subject matter of such proceeding, (B) does not include
any statement as to an admission of fault, culpability or failure to act by or
on behalf of any Indemnified Person and (C) does not impose any non-monetary
relief applicable to the Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b) hereof is
for any reason unavailable to, or insufficient to hold harmless, an Indemnified
Person in respect of any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to
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the limitations set forth above, any reasonable legal or other expenses actually
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time the Company is not required to file such reports, it will, upon
the request of any Holder of Registrable Notes, make publicly available annual
reports and such information, documents and other reports of the type specified
in Sections 13 and 15(d) of the Exchange Act. The Company further covenants for
so long as any Registrable Notes remain outstanding, to make available to any
Holder or beneficial owner of Registrable Notes in connection with any sale
thereof and any prospective purchaser of such Registrable Notes from such Holder
or beneficial owner the information required by Rule 144(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Underwritten Registrations. If any of the Registrable Notes covered by
any Shelf Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering and
reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered, as of the date
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hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. Other than as provided in
Schedule A attached hereto the Company has not entered and the Company will not
enter into any agreement with respect to any of its securities which will grant
to any Person piggyback registration rights with respect to a Registration
Statement.
(b) Adjustments Affecting Registrable Notes. Other than as provided in
Schedule B attached hereto the Company shall not, directly or indirectly, take
any action with respect to the Registrable Notes as a class that would adversely
affect the ability of the Holders of Registrable Notes to include such
Registrable Notes in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate principal amount
of the then outstanding Registrable Notes. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold by such Holders
pursuant to such Registration Statement; provided, however, that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Roger Hoit
with a copy to:
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White & Case
1155 Avenue of the Americas
New York, New York 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell
2. if to the Initial Purchaser, at the addresses specified in Section
10(d)(1);
3. if to the Company, as follows:
COMFORCE Operating, Inc.
c/o COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
Attention: Paul Grillo
with a copy to:
Doepken, Keevican & Weiss
600 Grant Street
58th Floor, USX Tower
Pittsburgh, Pennsylvania 15219
Attention: David G. Edwards, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registerable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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<PAGE>
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) Notes Held by the Company or its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registerable Notes is required
hereunder, Registerable Notes held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders of Registerable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
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IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first written above.
Issuer:
COMFORCE OPERATING, INC.
By:__________________________
Name:
Title:
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<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By:__________________________
Name:
Title:
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Exhibit 10.10
================================================================================
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of November 26, 1997
by and between
COMFORCE CORPORATION
and
NATWEST CAPITAL MARKETS LIMITED
as the Initial Purchaser
================================================================================
$20,000,000
15% SENIOR SECURED DEBENTURES DUE 2009
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement") is dated
as of November 26, 1997, by and between COMFORCE Corporation, a Delaware
corporation (the "Company"), and NatWest Capital Markets Limited (the "Initial
Purchaser").
This Agreement is entered into in connection with the Purchase Agreement,
dated November 19, 1997, between the Company and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchaser of $20,000,000 aggregate principal amount of the Company's 15% Senior
Secured Debentures due 2009 (the "Debentures"). In order to induce the Initial
Purchaser to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchaser and its direct and indirect transferees. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchaser to purchase the Debentures under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions As used in this Agreement, the following terms shall have
the following meanings:
Additional Interest: Has the meaning provided in Section 4(a) hereof.
Advice: Has the meaning provided in the last paragraph of Section 5 hereof.
Agreement: Has the meaning provided in the first introductory paragraph
hereto.
Applicable Period: Has the meaning provided in Section 2(b) hereof.
Closing Date: Has the meaning provided in the Purchase Agreement.
Company: Has the meaning provided in the first introductory paragraph
hereto.
Debentures: Has the meaning provided in the second introductory paragraph
hereto.
Effectiveness Date: The 90th day after the Issue Date.
Effectiveness Period: Has the meaning provided in Section 3(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and
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regulations of the SEC promulgated thereunder.
Exchange Debentures: Has the meaning provided in Section 2(a) hereof.
Exchange Offer: Has the meaning provided in Section 2(a) hereof.
Exchange Registration Statement: Has the meaning provided in Section 2(a)
hereof.
Filing Date: The 30th day after the Issue Date.
Holder: Any holder of a Registrable Debenture or Registrable Debentures.
Indemnified Person: Has the meaning provided in Section 7(c) hereof.
Indemnifying Person: Has the meaning provided in Section 7(c) hereof.
Indenture: The Indenture, dated as of November 26, 1997 between the Company
and Bank of New York, as trustee, pursuant to which the Debentures are being
issued, as amended or supplemented from time to time in accordance with the
terms thereof.
Initial Purchaser: Has the meaning provided in the first introductory
paragraph hereto.
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Debentures were sold to the
Initial Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 5(s) hereof.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in Section 2(b)
hereof.
Persons: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: Has the meaning provided in Section 2(b) hereof.
Private Exchange Debentures: Has the meaning provided in Section 2(b)
hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information
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<PAGE>
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, and all other amendments
and supplements to the Prospectus, with respect to the terms of the offering of
any portion of the Registrable Debentures covered by such Registration Statement
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second introductory
paragraph hereto.
Records: Has the meaning provided in Section 5(o) hereof.
Registrable Debentures: Each Debenture upon original issuance of the
Debentures and at all times subsequent thereto, each Exchange Debenture as to
which Section 2(c)(iv) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Debenture upon original
issuance thereof and at all times subsequent thereto, until in the case of any
such Debenture, Exchange Debenture or Private Exchange Debenture, as the case
may be, the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Debenture as to which Section 2(c)(iv) hereof is
applicable, the Exchange Registration Statement) covering such Debenture,
Exchange Debenture or Private Exchange Debenture, as the case may be, has been
declared effective by the SEC and such Debenture (unless such Debenture was not
tendered for exchange by the Holder thereof), Exchange Debenture or Private
Exchange Debenture, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Debenture, Exchange Debenture
or Private Exchange Debenture, as the case may be, is, or may be, sold in
compliance with Rule 144, or (iii) such Debenture, Exchange Debenture or Private
Exchange Debenture, as the case may be, ceases to be outstanding for purposes of
the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Debentures pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
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<PAGE>
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
Shelf Registration: Has the meaning provided in Section 3(a) hereof.
Shelf Registration Statement: shall mean a "shelf" registration statement
of the Company which covers all of the Registrable Debentures on an appropriate
form under Rule 415 under the 1933 Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee(s): The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Debentures and Private Exchange
Debentures (if any).
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than the Filing Date
an offer to exchange (the "Exchange Offer") any and all of the Registrable
Debentures (other than the Private Exchange Debentures, if any) for a like
aggregate principal amount of debt securities of the Company which are identical
in all material respects to the Debentures (the "Exchange Debentures") (and
which are entitled to the benefits of the Indenture or a trust indenture which
is identical in all material respects to the Indenture (other than such changes
to the Indenture or any such identical trust indenture as are necessary to
comply with any requirements of the SEC to effect or maintain the qualification
thereof under the TIA) and which, in either case, has been qualified under the
TIA), except that the Exchange Debentures (other than Private Exchange
Debentures, if any) shall have been registered pursuant to an effective
Registration Statement under the Securities Act and shall contain no restrictive
legend thereon. The Exchange Offer shall be registered under the Securities Act
on the appropriate form (the "Exchange Registration Statement") and shall comply
with all applicable tender offer rules and regulations under the Exchange Act.
The Company agrees to use its best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the
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Securities Act no later than the 90th day after the Issue Date; (y) keep the
Exchange Offer open for at least 30 business days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed to
the Holders; and (z) consummate the Exchange Offer on or prior to the 130th day
following the Issue Date. If after such Exchange Registration Statement is
declared effective by the SEC, the Exchange Offer or the issuance of the
Exchange Debentures thereunder is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental agency or
court, such Exchange Registration Statement shall be deemed not to have become
effective for purposes of this Agreement until such stop order, injunction or
other order or requirement is no longer in effect. Each Holder who participates
in the Exchange Offer will be required to represent that any Exchange Debentures
received by it will be acquired in the ordinary course of its business, that at
the time of the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Debentures in violation of the provisions of the Securities Act,
and that such Holder in not an "affiliate" of the Company within the meaning of
the Securities Act. Upon consummation of the Exchange Offer in accordance with
this Section 2, the Company shall have no further obligation to register
Registrable Debentures (other than Private Exchange Debentures and other than in
respect of any Exchange Debentures as to which clause 2(c)(v) hereof applies)
pursuant to Section 3 hereof. No securities other than the Exchange Debentures
shall be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Debentures received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
publicly disseminated by the Staff of the SEC or such positions or policies, in
the judgment of the Initial Purchaser, represent the prevailing views of the
Staff of the SEC. Such "Plan of Distribution" section shall also expressly
permit the use of the Prospectus by all Persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Debentures.
The Company shall use its best efforts to keep the Exchange Registration
Statement effective and to amend and supplement the Prospectus contained
therein, in order to permit such Prospectus to be lawfully delivered by any
Participating Broker-Dealer subject to the prospectus delivery requirements of
the Securities Act for such period of time as is necessary to comply with
applicable law in connection with any resale of the Exchange Debentures;
provided, however, that such period shall not exceed 180 days after the
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
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<PAGE>
If, prior to consummation of the Exchange Offer, the Initial Purchaser
holds any Debentures acquired by it and having the status of an unsold allotment
in the initial distribution, the Company shall, upon the request of the Initial
Purchaser, simultaneously with the delivery of the Exchange Debentures in the
Exchange Offer issue and deliver to the Initial Purchaser in exchange (the
"Private Exchange") for such Debentures held by the Initial Purchaser a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Debentures (the "Private Exchange Debentures")
(and which are issued pursuant to the same Indenture as the Exchange Debentures)
except for the placement of a restrictive legend on such Private Exchange
Debentures. The Private Exchange Debentures shall, if permissible, bear the same
CUSIP number as the Exchange Debentures.
Interest on the Exchange Debentures and the Private Exchange Debentures
will accrue from the last interest payment date on which interest was paid on
the Debentures surrendered in exchange therefor or, if no interest has been paid
on the Debentures, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Debentures at any time prior
to the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the Private
Exchange, as the case may be, the Company shall:
(1) accept for exchange all Debentures tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Debentures so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder Debentures, Exchange Debentures or Private Exchange Debentures, as
the case may be, equal in principal amount to the Debentures of such Holder
so accepted for exchange.
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<PAGE>
The Exchange Debentures and the Private Exchange Debentures are to be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture, which in either event shall provide that (1) the
Exchange Debentures shall not be subject to the transfer restrictions set forth
in the Indenture and (2) the Private Exchange Debentures shall be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Debentures, the Private Exchange
Debentures and the Debentures shall vote and consent together on all matters as
to which they have the right to vote or consent as one class and that none of
the Exchange Debentures, the Private Exchange Debentures or the Debentures will
have the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 165 days
after the Issue Date, (iii) any holder of Private Exchange Debentures so
requests at any time after the consummation of the Private Exchange, or (iv) any
Holder (other than the Initial Purchaser) is not eligible to participate in the
Exchange Offer, then the Company shall promptly deliver written notice thereof
(the "Shelf Notice") to the Trustee and, in the case of clauses (i) and (ii)
above, all Holders, in the case of clause (iii) above, the Holders of the
Private Exchange Debentures and, in the case of clause (iv) above, the affected
Holder, and shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration If a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Company shall as promptly as reasonably
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Debentures (the "Shelf Registration"). If the Company shall not have yet filed
an Exchange Registration Statement, the Company shall use its best efforts to
file with the SEC the Shelf Registration on or prior to the Filing Date. The
Shelf Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Debentures for resale by Holders in the manner
or manners designated by them (including, without limitation, one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Debentures to be included in the Shelf Registration.
The Company shall use its best efforts to cause the Shelf Registration to
be declared effective under the Securities Act by the earlier of the 90th day
after the Shelf Request or the 165th day after the Issue Date and to keep the
Shelf Registration continuously effective under the Securities Act until the
date which is two years from the Issue Date, subject to extension pursuant to
the last paragraph of Section 5 hereof, or such shorter period ending when all
Registrable Debentures covered by the Shelf Registration have been sold in the
manner set forth and as contemplated in the Shelf Registration or when the
Debentures become eligible for registration without volume restrictions,
pursuant to Rule 144 under the Securities Act (the "Effectiveness
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<PAGE>
Period").
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Company
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested for
such purpose by the Holders of a majority in aggregate principal amount of the
Registrable Debentures covered by such Registration Statement or by any
underwriter of such Registrable Debentures.
4. Additional Interest
(a) The Company and the Initial Purchaser agree that the Holders of
Registrable Debentures will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages and as the sole and exclusive
remedy therefor, additional interest on the Debentures ("Additional Interest")
under the circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed with the SEC within, in the case the Exchange Offer
Registration Statement, 30 days following the Issue Date or, in the case of
the Shelf Registration Statement, 30 days following a Shelf Request,
Additional Interest shall accrue on the Debentures over and above the
stated interest at a rate of 0.50% per annum for the first 60 days
commencing on the 31st day after the Issue Date or the Shelf Request,
respectively, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within, in the case of the
Exchange Offer Registration Statement, 90 days following the Issue Date or,
in the case of the Shelf Registration Statement, 90 days following a Shelf
Request, Additional Interest shall accrue on the Debentures over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the 91st day after the Issue Date or the Shelf Request,
respectively, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Debentures validly
tendered in
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<PAGE>
accordance with the terms of the Exchange Offer on or prior to 130 days
after the Issue Date or (B) the Exchange Offer Registration Statement
ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement ceases to
be effective at any time prior to the second anniversary of the Issue Date
(unless all the Debentures have been sold thereunder), then Additional
Interest shall accrue on the Debentures over and above the stated interest
at a rate of 0.50% per annum for the first 50 days commencing on (x) the
131st day after the Issue Date with respect to the Debentures validly
tendered and not exchanged by the Company, in the case of (A) above, or (y)
the day the Exchange Offer Registration Statement ceases to be effective or
usable for its intended purpose in the case of (B) above, or (z) the day
such Shelf Registration Statement ceases to be effective in the case of (C)
above, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Debentures under
clauses (i), (ii) or (iii) above, may not exceed in the aggregate 2.0% per
annum; and provided further, that (1) upon the filing of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of clause
(i) above), (2) upon the effectiveness of the Exchange Offer Registration
Statement or Shelf Registration Statement (in the case of (ii) above), or (3)
upon the exchange of Exchange Debentures for all Debentures tendered (in the
case of clause (iii)(A) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(B) above), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
above), Additional Interest on the Debentures as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). The Company shall pay the Additional
Interest due on the transfer restricted Debentures by depositing with the paying
agent (which shall not be the Company for these purposes) for the transfer
restricted Debentures, in trust, for the benefit of the holders thereof, prior
to 11:00 A.M. on the next interest payment date specified by the Indenture (or
such other indenture), sums sufficient to pay the Additional Interest then due.
Any amounts of Additional Interest due pursuant to clauses (a)(i), (a)(ii) or
(a)(iii) of this Section 4 will be payable to the Holders of affected Debentures
in cash semi-annually on each interest payment date specified by the Indenture
(or such other indenture) to the record holders entitled to receive the interest
payment to be made on such date, commencing with the first such date occurring
after any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the affected Registrable Debentures of such
Holders, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and
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the denominator of which is 360.
5. Registration Procedures In connection with the filing of any
Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall
effect such registration(s) to permit the sale of the securities covered thereby
in accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing Date a Registration
Statement or Registration Statements as prescribed by Sections 2 or 3 hereof,
and use their best efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided, however, that, if
(1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus con tained
in an Exchange Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Debentures during the Applicable
Period, before filing any Registration Statement or Prospectus or any amendments
or supplements thereto, the Company shall, if requested in writing, furnish to
and afford the Holders of the Registrable Debentures covered by such
Registration Statement or each such Participating Broker-Dealer, as the case may
be, their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (in each case at least three business days prior to such
filing). The Company shall not file any Registration Statement or Prospectus or
any amendments or supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such document under the
immediately preceding sentence, if the Holders of a majority in aggregate
principal amount of the Registrable Debentures covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall object thereto in writing,
which writing shall set forth a reasonable basis for such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period or
until consummation of the Exchange Offer, as the case may be; cause the related
Prospectus to be supplemented by any Prospectus supplement required by appli
cable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented
and with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the Company shall be
deemed not to have used its best efforts to keep a Registration Statement
effective during the Applicable Period if it voluntarily takes any action that
would result in selling Holders of the Registrable Debentures covered thereby or
Participating
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Broker-Dealers seeking to sell Exchange Debentures not being able to sell such
Registrable Debentures or such Exchange Debentures during that period unless
such action is required by applicable law or unless the Company complies with
this Agreement, including without limitation, the provisions of paragraph 5(k)
hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Debentures during the
Applicable Period, notify the selling Holders of Registrable Debentures, or each
such Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within two business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole expense
of the Company, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference and exhibits), (ii) of
the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a Prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Debentures or resales of
Exchange Debentures by Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement), contemplated by Section 5(n) hereof cease to be true and correct,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Debentures or the Exchange
Debentures to be sold by any Participating Broker-Dealer for offer or sale in
any jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the determination by the Company that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any order suspending
the
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effectiveness of a Registration Statement or of any order preventing or
suspending the use of a Prospectus or suspending the qualification (or exemption
from qualification) of any of the Registrable Debentures or the Exchange
Debentures for sale in any jurisdiction, and, if any such order is issued, to
use its best efforts to obtain the withdrawal of any such order at the earliest
possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof and if
requested by the managing underwriter or underwriters (if any), or the Holders
of a majority in aggregate principal amount of the Registrable Debentures being
sold in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, or counsel for any
of them reasonably request to be included therein, (ii) make all required
filings of such prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Debentures during the
Applicable Period, furnish to each selling Holder of Registrable Debentures and
to each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, at the sole expense of the Company, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and schedules,
and, if requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Debentures during the
Applicable Period, deliver to each selling Holder of Registrable Debentures, or
each such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the Company, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Debentures or each such
Participating Broker-Dealer, as the case-may be, and the underwriters or agents,
if any, and dealers (if any), in connection with the offering and sale of the
Registrable Debentures covered by, or the sale by Participating Broker-Dealers
of the Exchange Debentures pursuant to, such Prospectus and any amendment or
supplement thereto.
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<PAGE>
(h) Prior to any public offering of Registrable Debentures or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Debentures during the
Applicable Period, to use its best efforts to register or qualify such
Registrable Debentures (and to cooperate with selling Holders of Registrable
Debentures or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Debentures) for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder, Participating Broker-Dealer, or the
managing underwriter or underwriters rea sonably request in writing; provided,
however, that where Exchange Debentures held by Participating Broker-Dealers or
Registrable Debentures are offered other than through an underwritten offering,
the Company agrees to cause their counsel to perform Blue Sky investigations and
file registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Exchange Debentures held by Participating Broker-Dealers or the Registrable
Debentures covered by the applicable Registration Statement; provided, however,
that the Company shall not be required to (A) qualify generally to do business
in any jurisdiction where it is not then so qualified, (B) take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Debentures and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Debentures to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Debentures to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use its best efforts to cause the Registrable Debentures covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
thereof or the underwriter or underwriters, if any, to dispose of such
Registrable Debentures, except as may be required solely as a consequence of the
nature of a selling Holder's business, in which case the Company will cooperate
in all reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to
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<PAGE>
sell Exchange Debentures during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at
the sole expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Debentures being sold thereunder or to the purchasers of the
Exchange Debentures to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, that this Section 5(k) shall not
be deemed to require the Company to disclose any information that, in the good
faith opinion of the management of the Company, is not yet required to be
disclosed and would not be in the best interests of the Company to disclose, so
long as the Company complies with all applicable laws and government regulations
and the last paragraph of this Section 5.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Debentures, (i) provide the Trustee with
certificates for the Registrable Debentures or Exchange Debentures, as the case
may be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Debentures or Exchange
Debentures, as the case may be.
(m) In connection with any underwritten offering initiated by the Company
of Registrable Debentures pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of debt
securities similar to the Debentures and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
facilitate the registration or the disposition of such Registrable Debentures
and, in such connection, (i) make such representations and warranties to, and
covenants with, the underwriters with respect to the business of the Company and
its subsidiaries and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in underwritten
offerings of debt securities similar to the Debentures, and confirm the same in
writing if and when requested; (ii) obtain the written opinion of counsel to the
Company and written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings of debt similar to the Debentures and such other matters
as may be reasonably requested by the managing underwriter or underwriters;
(iii) obtain "cold comfort" letters and updates thereof in form, scope and
substance reasonably satisfactory to the managing underwriter or underwriters
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company or any of its direct
or indirect subsidiaries for which financial statements and financial data
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<PAGE>
are, or are required to be, included or incorporated by reference in the
Registration Statement), addressed to each of the underwriters, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings of debt similar
to the Debentures and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to the Company and Holders of a majority in aggregate
principal amount of Registrable Debentures covered by such Registration
Statement and the managing underwriter or underwriters or agents) with respect
to all parties to be indemnified pursuant to said Section. The above shall be
done at each closing under such underwriting agreement, or as and to the extent
required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Debentures during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Debentures being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Debentures, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating Broker-Dealer, as
the case may be, or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and its
direct and indirect subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and its direct and indirect subsidiaries to make available for inspection all
information reasonably requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in good faith, to
be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction,
(iii) disclosure of such information is, in the opinion of counsel (a copy of
which shall be delivered to the Company) for any Inspector, necessary or
advisable in connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and arising out
of, based upon, relating to, or involving this Agreement, or any transactions
contemplated hereby or arising hereunder, or (iv) the information in such
Records has been made generally available to the public. Each selling Holder of
such Registrable Debentures and each such Participating Broker-Dealer will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or any of its
affiliates unless and until such information is generally available to the
public. Each selling Holder of such Registrable Debentures and each such
Participating Broker-Dealer will be required to further
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agree that it will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow the
Company to undertake appropriate action to prevent disclosure of the Records
deemed confidential at the Company' sole expense.
(o) Provide an indenture trustee for the Registrable Debentures or the
Exchange Debentures, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Debentures; and
in connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Debentures, to effect such changes to such
indenture as may be required for such indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its best efforts to cause such
trustee to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Debentures are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Debentures by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange Debentures
or the Private Exchange Debentures, as the case may be, the Company shall mark,
or cause to be marked, on such Registrable Debentures that such Registrable
Debentures are being cancelled in exchange for the Exchange Debentures or the
Private Exchange Debentures, as the case may be; in no event shall such
Registrable Debentures be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Registrable Debentures covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Debentures and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or advisable to
effect the registration of the Registrable Debentures covered by a Registration
Statement contemplated hereby.
The Company may require each seller of Registrable Debentures as to which
any
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Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Debentures as the Company may, from time to time, reasonably request. The
Company may exclude from such Registration Statement the Registrable Debentures
of any seller who unreasonably fails to furnish such information within a
reasonable time after receiving such request. Each seller as to which any Shelf
Registration is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such seller not materially misleading.
Each Holder of Registrable Debentures and each Participating Broker-Dealer
agrees by acquisition of such Registrable Debentures or Exchange Debentures to
be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Company of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable
Debentures or Exchange Debentures, as the case may be, covered by such
Registration Statement or Prospectus to be sold by such Holder or Participating
Broker-Dealer, as the case may be, until such Holder's or Participating
Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event the Company shall give any such notice, each of the Effectiveness
Period and the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Debentures covered by such
Registration Statement or Exchange Debentures to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice. In the event the Company does not give any such notice within five
business days, each Holder shall return such Registration Statement or
Prospectus to the Company or destroy all copies of such Registration Statement
or Prospectus; and if so requested by the Company, shall certify that all copies
of the Registration Statement or Prospectus were destroyed.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Exchange Offer or a Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of the Company's counsel in
connection with Blue Sky qualifications of the Registrable Debentures or
Exchange Debentures and determination of the eligibility of the Registrable
Debentures or Exchange Debentures for investment under the laws of such
jurisdictions (x) where the holders of Registrable Debentures are located, in
the case of the Exchange Debentures,
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or (y) as provided in Section 5(h) hereof, in the case of Registrable Debentures
or Exchange Debentures to be sold by a Participating Broker-Dealer during the
Applicable Period)), (ii) printing expenses, including, without limitation,
expenses of printing certificates for Registrable Debentures or Exchange
Debentures in a form eligible for deposit with The Depository Trust Company and
of printing Prospectuses if the printing of Prospectuses is requested by the
managing underwriter or underwriters, if any, by the Holders of a majority in
aggregate principal amount of the Registrable Debentures included in any
Registration Statement or sold by any Participating Broker-Dealer, as the case
may be, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance by or incident to
such performance), (vi) rating agency fees, if any, and any fees associated with
making the Registrable Debentures or Exchange Debentures eligible for trading
through The Depository Trust Company, (vii) Securities Act liability insurance,
if the Company desires such insurance, (viii) fees and expenses of all other
Persons retained by the Company, (ix) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (x) the expense
of any annual audit, (ix) the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange or any
inter-dealer quotation system, if applicable, and (xii) the expenses relating to
print ing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Debentures
being registered in a Shelf Registration for the reasonable fees and
disbursements of not more than one counsel chosen in writing by the Holders of a
majority in aggregate principal amount of the Registrable Debentures to be
included in such Registration Statement. In addition, the Company shall
reimburse the Initial Purchaser for the reasonable fees and expenses of one
counsel in connection with the Exchange Offer which counsel shall be White &
Case, and shall not be required to pay any other legal expenses of the Initial
Purchaser in connection therewith.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Debentures offered pursuant to a Shelf Registration Statement and
each Participating Broker-Dealer selling Exchange Debentures during the
Applicable Period, the affiliates, directors, officers, agents, representatives
and employees of each such Person or its affiliates, and each other Person, if
any, who controls any such Person or its affiliates within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant") from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any
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claim asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Debentures or
Exchange Debentures, as the case may be, is registered (or any amendment
thereto) or related Prospectus (or any amendments or supplements thereto) or any
related preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Debentures or Exchange
Debentures which are the subject of such claim and such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material fact
that was the subject matter of the related proceeding and such Participant
failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Registrable Debentures or Exchange Debentures sold to such Person if
required by applicable laws, unless such failure to deliver or provide a copy of
the Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, their respective directors and officers and each
Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only (i) with
reference to information furnished to the Company in writing by or on behalf of
such Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made by such Participant in
writing to the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure
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results in the loss or compromise of any material rights or defenses by the
Indemnifying Person). In any such proceeding, any Indemnified Person shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that, unless there exists a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any one such proceeding or
separate but substantially similar related proceeding in the same jurisdiction
arising out of the same general allegations, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such reasonable fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Debentures and Exchange Debentures sold by all such Participants and any such
separate firm for the Company, their directors, their officers and such control
Persons of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent or
if there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding, (B) does not include any statement as to
an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person and (C) does not impose any non-monetary relief applicable to
the Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b) hereof is
for any reason unavailable to, or insufficient to hold harmless, an Indemnified
Person in respect of any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Debentures
or (ii) if the
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allocation provided by the foregoing clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Debentures
or Exchange Debentures, as the case may be, exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
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8. Rules 144 and 144A. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time the Company is not required to file such reports, it will, upon
the request of any Holder of Registrable Debentures, make publicly available
annual reports and such information, documents and other reports of the type
specified in Sections 13 and 15(d) of the Exchange Act. The Company further
covenants for so long as any Registrable Debentures remain outstanding, to make
available to any Holder or beneficial owner of Registrable Debentures in
connection with any sale thereof and any prospective purchaser of such
Registrable Debentures from such Holder or beneficial owner the information
required by Rule 144(d)(4) under the Securities Act in order to permit resales
of such Registrable Debentures pursuant to Rule 144A.
9. Underwritten Registrations. If any of the Registrable Debentures covered
by any Shelf Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Debentures included in such offering and
reasonably acceptable to the Company.
No Holder of Registrable Debentures may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Debentures on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered, as of the date
hereof, and the Company shall not after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Debentures in this Agreement or
otherwise conflicts with the provisions hereof. Other than as provided in
Schedule A attached hereto the Company has not entered and the Company will not
enter into any agreement with respect to any of its securities which will grant
to any Person piggy-back registration rights with respect to a Registration
Statement.
(b) Adjustments Affecting Registrable Debentures. Other than as provided in
Schedule B attached hereto the Company shall not, directly or indirectly, take
any action with respect to the Registrable Debentures as a class that would
adversely affect the ability of the Holders of Registrable Debentures to include
such Registrable Debentures in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
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amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority in aggregate principal amount
of the then outstanding Registrable Debentures. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Debentures
whose securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect, impair, limit or compromise the rights
of other Holders of Registrable Debentures may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Debentures being sold
by such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Debentures or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Roger Hoit
with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell
2. if to the Initial Purchaser, at the addresses specified in Section
10(d)(1);
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<PAGE>
3. if to the Company, as follows:
COMFORCE Operating, Inc.
c/o COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
Attention: Paul Grillo
with a copy to:
Doepken, Keevican & Weiss
600 Grant Street
58th Floor, USX Tower
Pittsburgh, Pennsylvania 15219
Attention: David G. Edwards, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registerable Debentures.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS
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<PAGE>
OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) Debentures Held by the Company or its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registerable Debentures is
required hereunder, Registerable Debentures held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registerable Debentures and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
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IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first written above.
Issuer:
COMFORCE CORPORATION
By:__________________________
Name:
Title:
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<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By:__________________________
Name:
Title:
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Exhibit 10.11
----------
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of November 26, 1997
by and among
COMFORCE CORPORATION, INC.
and
NATWEST CAPITAL MARKETS LIMITED
----------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions................................................................1
2. Shelf Registration.........................................................3
3. Registration Procedures....................................................4
4. Registration Expenses.....................................................10
5. Indemnification...........................................................10
6. Rule 144..................................................................13
7. Underwritten Registrations................................................13
8. Miscellaneous.............................................................14
(a) No Inconsistent Agreements...........................................14
(b) Adjustments Affecting Warrant Shares.................................14
(c) Amendments and Waivers...............................................14
(d) Notices..............................................................14
(e) Successors and Assigns...............................................15
(f) Counterparts.........................................................15
(g) Headings.............................................................15
(h) Governing Law........................................................16
(i) Severability.........................................................16
(i)
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
This Warrant Registration Rights Agreement (the "Agreement") is dated as of
November 26, 1997, by and among COMFORCE Corporation, a Delaware corporation
(the "Company"), and NatWest Capital Markets Limited (the "Initial Purchaser").
This Agreement is entered into in connection with the Purchase Agreement,
dated November 19, 1997, among the Company and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchaser of 20,000 units (the "Units") consisting of $1,000 principal amount of
15% Senior Secured PIK Debentures due 2009 (the "Senior Debentures") and 8.45
Warrants (the "Warrants"), each Warrant to purchase one share of common stock.
Full exercise of the Warrants would result in the purchase of 169,000 shares of
common stock (the "Warrant Shares"), or approximately 1% of the Company's shares
on a fully diluted basis. In order to induce the Initial Purchaser to enter into
the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement for the benefit of the Initial Purchaser and
its direct and indirect transferees. The execution and delivery of this
Agreement is a condition to the obligation of the Initial Purchaser to purchase
the Units under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Advice: Has the meaning provided in the last paragraph of Section 3 hereof.
Agreement: Has the meaning provided in the first introductory paragraph
hereto.
Company: Has the meaning provided in the first introductory paragraph
hereto.
Effectiveness Date: The 130th day after the Issue Date.
Effectiveness Period: Has the meaning provided in Section 2(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
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Filing Date: The day 30 days after the Issue Date.
Holder: Any holder of Warrant Shares.
Indemnified Person: Has the meaning provided in Section 5(c) hereof.
Indemnifying Person: Has the meaning provided in Section 5(c) hereof.
Initial Purchaser: Has the meaning provided in the first introductory
paragraph hereto.
Inspectors: Has the meaning provided in Section 3(n) hereof.
Issue Date: The date on which the Warrants were sold to the Initial
Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 3(p) hereof.
Participant: Has the meaning provided in Section 5(a) hereof.
Persons: An individual, trustee, corporation, partnership, limited
liability company, limited liability partnership, joint stock company, trust,
unincorporated association, union, business association, firm or other legal
entity.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Warrant Shares covered by such Registration Statement including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second introductory
paragraph hereto.
Records: Has the meaning provided in Section 3(n) hereof.
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Registration Statement: Any registration statement of the Company,
including that covers any of the Warrant Shares pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144(k): Rule 144(k) promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
Senior Debentures: Has the meaning provided in the second introductory
paragraph.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Registration: Has the meaning provided in Section 2(a) hereof.
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
Units: Has the meaning provided in the second paragraph hereto.
Warrant Certificates: Means the Warrant Certificates as provided in the
Warrant Agreement.
Warrant Shares: Has the meaning provided in the second introductory
paragraph hereto.
Warrants: Has the meaning provided in the second introductory paragraph
hereto.
2. Shelf Registration
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(a) Shelf Registration. The Company shall file with the SEC no later than
the Filing Date a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Warrant Shares (the
"Shelf Registration"). The Shelf Registration shall be on Form S-3 or another
appropriate form permitting registration of such Warrant Shares for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Warrant Shares to be included in the Shelf
Registration.
The Company shall use its best efforts to cause the Shelf Registration to
be declared effective under the Securities Act by the Effectiveness Date and to
keep the Shelf Registration continuously effective under the Securities Act
until the date which is two years from the Issue Date (the "Effectiveness
Period"), subject to extension pursuant to the last paragraph of Section 3
hereof, or such shorter period ending when all the Warrant Shares covered by the
Shelf Registration have been sold in the manner set forth and as contemplated in
the Shelf Registration or such Warrant Shares become eligible for resale without
volume restrictions pursuant to Rule 144(k) under the Securities Act.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Company
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested for
such purpose by the Holders of a majority of the Warrant Shares covered by such
Registration Statement.
3. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Section 2 hereof, the Company shall effect such registration(s) to permit the
sale of the securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder, the Company shall:
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(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement as prescribed by Section 2 hereof, and use its best
efforts to cause such Registration Statement to become effective and remain
effective as provided herein; provided, however, that, the Company shall,
if requested in writing, furnish to and afford the Holders of the Warrant
Shares covered by such Registration Statement and their counsel, a
reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least three
business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity to
review prior to the filing of such document under the immediately preceding
sentence, if the Holders of a majority of the Warrant Shares covered by
such Registration Statement or their counsel, shall object directly to the
Company in writing, which writing shall set forth a reasonable basis for
such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to the Shelf Registration as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period,
cause the related Prospectus to be supplemented by any Prospectus
supplement required by applicable law, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities
Act and the Exchange Act applicable to it with respect to the disposition
of all securities covered by such Registration Statement as so amended or
in such Prospectus as so supplemented; the Company shall be deemed not to
have used its best efforts to keep a Registration Statement effective
during the Effectiveness Period if it voluntarily takes any action that
would result in selling Holders of the Warrant Shares covered thereby not
being able to sell such Warrant Shares during that period unless such
action is required by applicable law or unless the Company complies with
this Agreement, including, without limitation, the provisions of paragraph
3(j) hereof and the last paragraph of this Section 3.
(c) Notify the selling Holders of Warrant Shares and their counsel
promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole
expense of the Company, one
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conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or
deemed to be incorporated by reference and exhibits), (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement, (iv) of the happen ing of any
event, the existence of any condition or any information becoming known
that makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (v) of the determination by the Company
that a post-effective amendment to a Registration Statement would be
appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Warrant
Shares for sale in any jurisdiction, and, if any such order is issued, to
use its best efforts to obtain the withdrawal of any such order at the
earliest possible moment.
(e) Furnish to each selling Holder of Warrant Shares who so requests
and to such Holder's counsel, at the sole expense of the Company, one
conformed copy of the Registration Statement or Registration Statements and
each post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
(f) Deliver to each selling Holder of Warrant Shares and such Holder's
counsel, at the sole expense of the Company, as many copies of the
Prospectus or Prospectuses (including each form of preliminary Prospectus)
and each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably
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request; and, subject to the last paragraph of this Section 3, the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Warrant Shares, in
connection with the offering and sale of the Warrant Shares covered by such
Prospectus and any amendment or supplement thereto.
(g) Prior to any public offering of Warrant Shares to use its best
efforts to register or qualify such Warrant Shares (and to cooperate with
selling Holders of Warrant Shares and their counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Warrant Shares) for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any selling Holder, reason ably request in writing; provided, however,
that where Warrant Shares are offered other than through an underwritten
offering, the Company agrees to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 3(g); keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Warrant Shares covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that
would subject it to general service of process in any such jurisdiction
where it is not then so subject or (C) subject itself to taxation in excess
of a nominal dollar amount in any such jurisdiction where it is not then so
subject.
(h) Cooperate with the selling Holders of Warrant Shares, to
facilitate the timely preparation and delivery of certificates representing
Warrant Shares to be sold, which cer tificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with The
Depository Trust Company; and enable such Warrant Shares to be in such
denominations and registered in such names as the Holders may reasonably
request.
(i) Use its best efforts to cause the Warrant Shares covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or author ities as may be necessary to enable the
Holders thereof, to dispose of such Warrant Shares, except as may be
required solely as a consequence of the nature of a selling Holder's
business, in which case the Company will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of
such approvals.
-7-
<PAGE>
(j) Upon the occurrence of any event contemplated by paragraph
3(c)(iv) or 3(c)(v) hereof, as promptly as practicable prepare and (subject
to Section 3(a) hereof) file with the SEC, at the sole expense of the
Company, a supplement or post-effective amend ment to the Registration
Statement or a supplement to the related Prospectus or any docu ment
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers
of the Warrant Shares being sold thereunder any such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, that this Section 3(j) shall not be deemed to require
the Company to disclose any information that, in the good faith opinion of
the management of the Company, is not yet required to be disclosed and
would not be in the best interests of the Company to disclose, so long as
the Company complies with all applicable laws and government regulations
and the last paragraph of this Section 3.
(k) Prior to the effective date of the first Registration Statement
relating to the Warrant Shares, provide a CUSIP number for the Warrant
Shares.
(l) Cause all Warrant Shares covered by the Registration Statement to
be listed or admitted for trading in each securities exchange (including,
but not limited to, The American Stock Exchange, Inc.) or quotation system
on which the Company's common stock is then listed or admitted;
(m) In connection with any underwritten offering of Warrant Shares
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of securities similar to the Warrant
Certificates and take all such other actions as are reasonably requested by
the managing underwriter or underwriters in order to facilitate the
registration or the disposition of such Warrant Shares and, in such
connection, (i) make such representations and warranties to, and covenants
with, the underwriters with respect to the business of the Company and its
respective subsidiaries and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by Company to underwriters
in underwritten offerings of securities similar to the Warrant
Certificates, and confirm the same in writing if and when requested; (ii)
obtain the written opinion of counsel to the Company and written updates
thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily
-8-
<PAGE>
covered in opinions requested in underwritten offerings of securities
similar to the Warrant Certificates and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii)
obtain "cold comfort" letters and updates thereof in form, scope and
substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of any of the Company or of any business
acquired by any of the Company for which financial statements and financial
data are, or are required to be, included or incorporated by reference in
the Registration Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of securities similar to the Warrant Certificates
and such other matters as reasonably requested by the managing underwriter
or underwriters; and (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 5 hereof (or such other
provisions and procedures acceptable to Holders of a majority of Warrant
Shares covered by such Registration Statement and the managing underwriter
or underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent required thereunder.
(n) Make available for inspection by any selling Holder of such
Warrant Shares being sold and any attorney, accountant or other agent
retained by any such selling Holder (collectively, the "Inspectors"), at
the offices where normally kept, during reasonable busi ness hours, all
financial and other records, pertinent corporate documents and instruments
of the Company and its subsidiaries (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees
of the Company and its respective subsidiaries to make available for
inspection all information reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (iii) disclosure of such
information is, in the opinion of counsel (a copy of which shall be
delivered to the Company) for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and arising
out of, based upon, relating to,
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<PAGE>
or involving this Agreement, or any transactions contemplated hereby or
arising hereunder, or (iv) the information in such Records has been made
generally available to the public. Each selling Holder of Warrant Shares
will be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it
as the basis for any market transactions in the securities of the Company
unless and until such information is generally available to the public.
Each selling Holder of such Warrant Shares will be required to further
agree that it will, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Company and allow
the Company to undertake appropriate action to prevent disclosure of the
Records deemed confidential at the Company's sole expense.
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Warrant Shares are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(p) Cooperate with each seller of Warrant Shares covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Warrant Shares and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(q) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Warrant Shares covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Warrant Shares as to which any
Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Warrant Shares as
the Company may, from time to time, reasonably request. The Company may exclude
from such Registration Statement the Warrant Shares of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the
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<PAGE>
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such seller not materially
misleading.
Each Holder of Warrant Shares agrees by acquisition of such Warrant Shares
that, upon actual receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v)
hereof, such Holder will forthwith discontinue disposition of such Warrant
Shares covered by such Registration Statement or Prospectus to be sold by such
Holder, until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(j) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and has received copies of any amendments or supplements
thereto. In the event the Company shall give any such notice, each of the
Effectiveness Period shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Warrant Shares covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 3(j) hereof or (y) the Advice. In the event the Company
does not give any such notice within five business days, each Holder shall
return such Registration Statement or Prospectus to the Company or destroy all
copies of such Registration Statement or Prospectus; and if so requested by the
Company, shall certify that all copies of the Registration Statement or
Prospectus were destroyed.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not the Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings with the SEC, (B) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (C) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of the Company's counsel in connection with Blue Sky
qualifications of the Warrant Shares and determination of the eligibility of the
Warrant Shares for investment under the laws of such jurisdictions where the
holders of Warrant Shares are located, (ii) printing expenses, including,
without limitation, expenses of printing certificates for Warrant Shares in a
form eligible for deposit with The Depository Trust Company and of printing
Prospectuses if the printing of Prospectuses is requested by Holders of a
majority of the Warrant Shares or the managing underwriter or underwriters, if
any, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) fees and disbursements of all
independent certified public accountants referred to in Section 3(m)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance
-11-
<PAGE>
by or incident to such performance), (vi) rating agency fees, if any, (vii)
Securities Act liability insurance, if the Company desires such insurance,
(viii) fees and expenses of all other Persons retained by the Company, (ix)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees of the Company performing legal or
accounting duties), (x) the expense of any annual audit, (ix) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange or any inter-dealer quotation system, if
applicable, and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
5. Indemnification. (a) The Company agrees to indemnify and hold harmless
each Holder of Warrant Shares offered pursuant to a Registration Statement, the
affiliates, directors, officers, agents, representatives and employees of each
such Person or its affiliates, and each other Person, if any, who controls any
such Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant") from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the legal fees and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted) caused by,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement pursuant to which the
offering of such Warrant Shares is registered (or any amendment thereto) or
related Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be required to indemnify a Participant if (i) such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Warrant Shares which are the subject of
such claim and such untrue statement or omission or alleged untrue statement or
omission was contained or made in any preliminary prospectus and corrected in
the Prospectus or any amendment or supplement thereto and the Prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Warrant Shares sold to such Person if required
by applicable laws, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of
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<PAGE>
noncompliance by the Company with Section 3 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, its respective directors, officers, agents,
representatives, employees and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) with reference to information furnished to the Company in writing
by or on behalf of such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the fees and expenses actually
incurred by such counsel related to such proceeding; provided, however, that the
failure to so notify the Indemnifying Person shall not relieve it of any
obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indem nifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and, in the reasonable judgment of the
Indemnified Person, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that, unless there exists a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any one such proceeding, be
liable for the fees and expenses of more than one separate firm (in addition to
any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of Warrant
Shares sold by all such Participants and any
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<PAGE>
such separate firm for the Company, its directors, their officers and such
control Persons of the Company shall be designated in writing by the Company.
The Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent (which shall not be unreasonably
denied), but if settled with such consent or if there be a final non-appealable
judgment for the plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person agrees to
indemnify and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying Person
shall, without the prior written consent of the Indemnified Person, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which any Indemni fied Person is or could have been a party, and indemnity could
have been sought hereunder by such Indemnified Person, unless such settlement
(A) includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding, (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnified Person and (C) does not impose any
non-monetary relief applicable to the Indemnified Person.
(d) If the indemnification provided for in Sections 5(a) and 5(b) hereof is
for any reason unavailable to, or insufficient to hold harmless, an Indemnified
Person in respect of any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Preferred
Stock or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
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<PAGE>
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Warrant Shares exceeds
the amount of any damages that such Participant has otherwise been required to
pay or has paid by reason of such untrue or alleged untrue statement or omission
or alleged omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 5
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
6. Rule 144. The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner in accordance
with the requirements of the Securities Act and the Exchange Act and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder of Warrant Shares, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Company further covenants for so long as any
Warrant Shares remain outstanding, to make available to any Holder or beneficial
owner of Warrant Shares in connection with any sale thereof and any prospective
purchaser of such Warrant Shares from such Holder or beneficial owner the
information required by the Securities Act in order to permit resales of such
Warrant Shares pursuant to Rule 144.
7. Underwritten Registrations. If any of the Warrant Shares covered by any
Shelf Registration are to be sold in an underwritten offering, the investment
banker or investment bankers and manager or managers that will manage the
offering will be selected by the Holders of a majority of such Warrant Shares
included in such offering and reasonably acceptable to the Company.
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<PAGE>
No Holder of Warrant Shares may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Warrant Shares on the basis provided in any underwriting arrangements approved
by the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
8. Miscellaneous. (a) No Inconsistent Agreements. The Company has not
entered, as of the date hereof, and the Company shall not, after the date of
this Agreement, enter into any agreement with respect to any of its securities
that is inconsistent with the rights granted to the Holders of Warrant Shares in
this Agreement or otherwise conflicts with the provisions hereof. The Company
has not entered and none of the Company will enter into any agreement with
respect to any of its securities which will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Warrant Shares. The Company shall not, directly
or indirectly, take any action with respect to the Warrant Shares as a class
that would adversely affect the ability of the Holders of Warrant Shares to
include such Warrant Shares in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of the Holders of not less than a majority of the then outstanding
Warrant Shares. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Warrant Shares whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Warrant Shares may be
given by Holders of at least a majority of the Warrant Shares being sold by such
Holders pursuant to such Registration Statement; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, next-day air courier or facsimile:
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<PAGE>
1. if to a Holder of the Warrant Shares, at the most current address
of such Holder, set forth on the records of the registrar under the
Indenture, with a copy in like manner to the Initial Purchasers as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: Roger Hoit
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchasers, at the addresses specified in Section
10(d)(1);
3. if to the Company, as follows:
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
Attention: Paul Grillo
with a copy to:
Doepken, Keevican & Weiss
600 Grant Street
58th Floor, USX Tower
Pittsburgh, Pennsylvania 15219
Attention: David G. Edwards, Esq.
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<PAGE>
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registerable Preferred Stock.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first written above.
Company:
COMFORCE CORPORATION
By:__________________________
Name:
Title:
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<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By:__________________________________
Name:
Title:
-20-
Exhibit 10.12
WARRANT AGREEMENT
between
COMFORCE CORPORATION
and
THE BANK OF NEW YORK
as
Warrant Agent
----------
Dated as of November 26, 1997
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of November 26, 1997, between
COMFORCE Corporation, a Delaware corporation (together with any successors and
assigns, the "Company"), and The Bank of New York, a New York banking
corporation, as Warrant Agent (the "Warrant Agent").
WHEREAS, the Company proposes, among other things, to issue and sell
pursuant to a Purchase Agreement, dated as of November 19, 1997, among the
Company and NatWest Capital Markets Limited, as Initial Purchaser (the "Purchase
Agreement"), 25,000 Units (the "Units") representing $20,000,000 principal
amount of 15% Senior Secured PIK Debentures due 2009 (the "Debentures") with
8.45 Warrants (the "Warrants") to purchase one share of common stock of the
Company, par value $0.01 per share (the "Common Stock"), to be issued upon
exercise of the Warrants (the "Warrant Shares") representing approximately 1% of
the outstanding Common Stock of the Company on a fully diluted basis;
WHEREAS, the Company wishes the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing to act in connection with the issuance,
division, transfer, exchange and exercise of Warrants as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The Warrants will initially be issued
either in global form (the "Global Warrants") or in registered form as physical
Warrant certificates (the "Physical Warrants"). Any certificates (the "Warrant
Certificates") evidencing the Global Warrants or the Physical Warrants to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto. Warrant Certificates representing Physical
Warrants shall represent such of the outstanding Warrants as shall be specified
therein and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Warrant Certificate
to reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent in accordance
with instructions given by the Holder (as defined below) thereof. Warrant
Certificates representing Global Warrants shall represent such of the
outstanding Warrants as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Warrants from time to
time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or
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decrease in the amount of outstanding Warrants represented thereby shall be made
by the Warrant Agent and Depositary (as defined below) in accordance with
instructions given by the Holder thereof. The Depository Trust Company shall act
as the Depositary with respect to the Global Warrants until a successor shall be
appointed by the Company and the Warrant Agent. Upon written request, a Holder
may receive from the Depositary and Warrant Agent Physical Warrants as set forth
in Section 6 below.
SECTION 3. Execution of Warrant Certificates. Warrant Certificates shall be
signed on behalf of the Company by its Chairman of the Board, Vice Chairman of
the Board, Chief Executive Officer, President or a Vice President and by its
Treasurer, Secretary or an Assistant Secretary. Each such signature upon the
Warrant Certificates may be in the form of a facsimile signature of the present
or any future Chairman of the Board, Vice Chairman of the Board, President,
Chief Executive Officer, Vice President, Treasurer, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, Vice Chairman
of the Board, President, Chief Executive Officer, Vice President, Treasurer,
Secretary or Assistant Secretary, notwithstanding the fact that at the time the
Warrant Certificates shall be countersigned and delivered or disposed of he
shall have ceased to hold such office. The seal of the Company may be in the
form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificates so
signed shall have been countersigned by the Warrant Agent, or disposed of by the
Company, such Warrant Certificates nevertheless may be countersigned and
delivered or disposed of as though such person had not ceased to be such officer
of the Company; and any Warrant Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such Warrant
Certificate, although at the date of the execution of this Warrant Agreement any
such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent.
SECTION 4. Registration and Countersignature. The Warrants shall be
numbered and shall be registered on the books of the Company maintained at the
principal corporate trust office of the Warrant Agent in 101 Barclay Street,
21W, New York, New York 10286 (the "Warrant Register") as they are issued.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. The Warrant
Agent shall, upon written instructions of the Chairman of the Board, Vice
Chairman of the Board, the President, Chief Executive Officer, a Vice President,
the Treasurer, Secretary or an Assistant Secretary of the Company, initially
countersign and deliver Warrants entitling the Holders thereof to purchase not
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more than the number of Warrant Shares referred to above in the first recital
hereof and shall thereafter countersign and deliver Warrants as otherwise
provided in this Agreement.
The Company and the Warrant Agent may deem and treat the registered Holders
(the "Holders") of the Warrant Certificates as the absolute owners thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
SECTION 5. Transfer and Exchange of Warrants. The Warrant Agent shall from
time to time, subject to the limitations of Section 6, register the transfer of
any outstanding Warrants upon the records to be maintained by it for that
purpose, upon surrender thereof duly endorsed or accompanied (if so required by
it) by a written instrument or instruments of transfer in form satisfactory to
the Warrant Agent, duly executed by the registered Holder or Holders thereof or
by the duly appointed legal representative thereof or by a duly authorized
attorney. Subject to the terms of this Agreement, each Warrant Certificate may
be exchanged for another certificate or certificates entitling the Holder
thereof to purchase a like aggregate number of Warrant Shares as the certificate
or certificates surrendered then entitle each Holder to purchase. Any Holder
desiring to exchange a Warrant Certificate or Certificates shall make such
request in writing delivered to the Warrant Agent, and shall surrender, duly
endorsed or accompanied (if so required by the Warrant Agent) by a written
instrument or instruments of transfer in form satisfactory to the Warrant Agent,
the Warrant Certificate or Certificates to be so exchanged.
Upon registration of transfer, the Warrant Agent shall countersign and
deliver by mail a new Warrant Certificate or Certificates to the persons
entitled thereto. The Warrant Certificates may be exchanged at the option of the
Holder thereof, when surrendered at the office or agency of the Company
maintained for such purpose, which initially will be the principal corporate
trust office of the Warrant Agent in New York, New York for another Warrant
Certificate, or other Warrant Certificates of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number of
Warrant Shares.
No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates, but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that is
imposed in connection with any such exchange or registration of transfer.
SECTION 6. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Warrants. When Physical Warrants are
presented to the Warrant Agent with a request, and after the Warrant Agent has
had adequate time to confer and receive written instructions from the Company:
(i) to register the transfer of the Physical Warrants; or
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(ii) to exchange such Physical Warrants for an equal number of
Physical Warrants of other authorized denominations, the Warrant Agent
shall register the transfer or make the exchange as requested if the
requirements under this Agreement as set forth in this Section 6 for such
transactions are met; provided, however, that the Physical Warrants
presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Warrant Agent, duly executed
by the Holder thereof or his attorney duly authorized in writing; and
(II) in the case of Physical Warrants the offer and sale of which
have not been registered under the Securities Act of 1933, as amended
(the "Security Act"), such Physical Warrants shall be accompanied, in
the sole discretion of the Company, by the following additional
information and documents, as applicable:
(A) if such Physical Warrants are being delivered to the Warrant
Agent by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect
(in substantially the form of Exhibit B hereto); or
(B) if such Physical Warrants are being transferred to a "qualified
Institutional buyer" (as defined in Rule 144A under the
Securities Act (a "Qualified Institutional Buyer")) in accordance
with Rule 144A under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B hereto); or
(C) if such Physical Warrants are being transferred to an
institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor")) delivery of a certification
to that effect (in substantially the form of Exhibit B hereto)
and a Transferee Certificate for Institutional Accredited
Investors in substantially the form of Exhibit C hereto; or
(D) if such Physical Warrants are being transferred in reliance on
Regulation S under the Securities Act ("Regulation S"), delivery
of a certification to that effect (in substantially the form of
Exhibit B hereto) and a Transferee Certificate for Regulation S
Transfers in substantially the form of Exhibit D hereto and an
Opinion of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; or
(E) if such Physical Warrants are being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (in substantially the form of Exhibit B hereto) and
an opinion of counsel reasonably satisfactory
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to the Company to the effect that such transfer is in compliance
with the Securities Act; or
(F) if such Physical Warrants are being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially
the form of Exhibit B hereto) and an opinion of counsel
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of Physical Warrants for a Beneficial Interest
in a Global Warrant. A Physical Warrant may not be exchanged for a beneficial
interest in a Global Warrant except upon satisfaction of the requirements set
forth below. Upon receipt by the Warrant Agent of a Physical Warrant, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Warrant Agent, together with:
(A) a certification, in substantially the form of Exhibit B hereto,
that such Physical Warrant is being transferred to a Qualified
Institutional Buyer; and
(B) written instructions directing the Warrant Agent to make, or to
direct the Depositary to make, an endorsement on the Global
Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Physical Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall upon written instructions from the Company authenticate a new Global
Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and exchange of
Global Warrants or beneficial interests therein shall be effected through the
Depositary, in accordance with this Agreement (including the restrictions on
transfer set forth herein) and the procedures of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for a Physical
Warrant.
(i) Any person having a beneficial interest in a Global Warrant may
upon request exchange such beneficial interest for a Physical Warrant. Upon
receipt by the Warrant Agent of written instructions or such other form of
instructions as is customary for the Depositary from the Depositary or its
nominee on behalf of any person having a beneficial interest in a Global
Warrant and upon receipt by the Warrant Agent of a written order or such
other form
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of instructions as is customary for the Depositary or the person designated
by the Depositary as having such a beneficial interest containing
registration instructions and, in the case of any such transfer or exchange
of a beneficial interest in a Global Warrant the offer and sale of which
have not been registered under the Securities Act, the following additional
information and documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in substantially
the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A under the
Securities Act, a certification to that effect (in substantially
the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a certification to
that effect (in substantially the form of Exhibit B hereto) and a
Certificate for Institutional Accredited Investors in
substantially the form of Exhibit C hereto; or
(D) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and a Transferee
Certificate for Regulation S Transfers in substantially the form
of Exhibit D hereto and an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (in substantially the form of Exhibit B hereto) and
an opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(F) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (in substantially
the form of Exhibit B hereto) and an opinion of counsel
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act,
then the Warrant Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Warrant
Agent, the aggregate amount of the Global Warrant to be reduced and, following
such reduction, the Company will execute and, upon receipt of a written
instruction in the form of an Officers' Certificate, the Warrant Agent will
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countersign and make available for delivery to the transferee a Physical
Warrant.
(ii) Physical Warrants issued in exchange for a beneficial interest in
a Global Warrant pursuant to this Section 6(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Warrant Agent in writing. The Warrant Agent shall make
available for delivery such Physical Warrants to the persons in whose names
such Physical Warrants are so registered.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement, a Global Warrant may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of Depositary. If at
any time:
(i) the Depositary for the Warrants notifies the Company that the
Depositor is unwilling or unable to continue as Depositary for the Global
Warrants and a successor Depositary for the Global Warrants is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent
in writing that it elects to cause the issuance of Physical Warrants under
this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon written instructions
from the Company requesting the Warrant Agent to countersign and make available
for delivery Physical Warrants, will countersign and make available for delivery
Physical Warrants, in an aggregate number equal to the aggregate number of
Warrants represented by the Global Warrants, in exchange for such holder's
beneficial interest in Global Warrants.
(g) Legends.
(i) For so long as transfer of a Warrant is not permitted without
registration under the Securities Act, each Warrant Certificate evidencing
such Warrant (and all Warrants issued in exchange therefor or substitution
thereof) shall bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
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ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR) OR (C) IT
IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE WARRANT AGENT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREED THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT AN INITIAL
INVESTOR THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS
DESCRIBED IN CLAUSE (1)(B) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS
SECURITY TO AN INSTITUTIONAL ACCREDITED INVESTOR. IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
WARRANT AGENT. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE WARRANT AGENT AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT
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TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
(h) Cancellation and/or Adjustment of a Global Warrant. At such time as all
beneficial interests in a Global Warrant have either been exchanged for Physical
Warrants, redeemed, repurchased or cancelled, such Global Warrant shall be
returned to or retained and cancelled by the Warrant Agent. At any time prior to
such cancellation, if any beneficial interest in a Global Warrant is exchanged
for Physical Warrants, redeemed, repurchased or cancelled, the number of
Warrants represented by such Global Warrant shall be reduced and an endorsement
shall be made on such Global Warrant, by the Warrant Agent to reflect such
reduction.
(i) Obligations with Respect to Transfers and Exchanges of Physical
Warrants.
(i) To permit registrations of transfers and exchanges, the Company
shall execute, at the Warrant Agent's request, and the Warrant Agent shall
countersign Physical Warrants.
(ii) All Physical Warrants issued upon any registration, transfer or
exchange of Physical Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Agreement as the Physical
Warrants surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such Warrant,
and neither the Warrant Agent nor the Company shall be affected by notice
to the contrary.
SECTION 7. Separation of Warrants: Terms of Warrants, Exercise of Warrants.
The Debentures and Warrants will be separately transferable, subject to
compliance with applicable securities laws, on the earliest to occur of (i)
February 24, 1998, (ii) such earlier date as may be determined by NatWest
Capital Markets Limited as Initial Purchaser with the consent of the Company,
(iii) upon the occurrence of a Change of Control of the Company (as defined in
that certain Indenture, dated as of November 26, 1997, between the Company and
The Bank of New York, as Trustee), and (iv) the effective date of a registration
statement for a registered exchange offer for the Debentures (the "Separability
Date").
Subject to the terms of this Agreement, each Warrant Holder shall have the
right,
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which may be exercised commencing on or after the date of issuance and until
5:00 p.m., New York City time, on December 1, 2009 (the "Expiration Date"), to
receive from the Company upon the exercise of each warrant the number of fully
paid and nonassessable Warrant Shares which the Holder may at the time be
entitled to receive on exercise of such Warrants and payment of the Exercise
Price (as defined) then in effect for such Warrant Shares. Each Warrant not
exercised prior to the Expiration Date shall become void and all rights
thereunder and an rights in respect thereof under this Agreement shall cease as
of such time. No adjustments as to dividends will be made upon exercise of the
Warrants.
The initial price per share at which Warrant Shares shall be purchasable
upon exercise of Warrants (the "Exercise Price") shall be $7.55 subject to
adjustment, provided, that in no event shall the Exercise Price be less than
$.01 per share. A Warrant may be exercised upon surrender at the office or
agency of the Company maintained for such purpose, which initially will be the
principal corporate trust office of the Warrant Agent in New York, New York, of
the certificate or certificates evidencing the Warrants to be exercised with the
form of election to purchase on the reverse thereof duly filled in and signed,
which signature shall be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, as adjusted as herein provided,
for the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of the aggregate Exercise Price shall be made in cash or by
certified or official bank check to the order of the Warrant Agent on behalf of
the Company in Immediately Available Funds.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Warrant Holder may designate a
certificate or certificates for the number of Warrant Shares issuable upon the
exercise of such Warrants together with cash as provided in Section 12;
provided, however, that if any consolidation, merger or sale of assets is
proposed to be effected by the Company as described in subsection (d) of Section
12 hereof, or a tender offer or an exchange offer for shares of Common Stock of
the Company shall be made, upon such surrender of Warrants and payment of the
Exercise Price as aforesaid, the Company shall, as soon as possible, but in any
event not later than 10 days, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are not open for business
("Business Day") thereafter, issue and cause to be mailed the number of Warrant
Shares issuable upon the exercise of such Warrants in the manner described in
this sentence together with cash as provided in Section 12. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a Holder of record of such
Warrant Shares as of the date of the surrender of such Warrants and payment of
the Exercise Price.
The Warrants shall be exercisable, at the election of the Holders thereof,
either in full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date
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of expiration of the Warrants, a new certificate evidencing the remaining
Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably
authorized to countersign and to make the required new Warrant Certificate or
Certificates available for delivery pursuant to the provisions of this Section
and of Section 3 hereof, and the Company, whenever required by the Warrant
Agent, will promptly supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall then
be disposed of by the Warrant Agent in a manner consistent with the Warrant
Agent's customary procedure for such disposal and in a manner reasonably
satisfactory to the Company. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
The Company shall keep copies of this Agreement and any notices given or
received hereunder available for inspection by the Holders during normal
business hours at its office. The Company shall supply the Warrant Agent from
time to time with such numbers of copies of this Agreement as the Warrant Agent
may request.
SECTION 8. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 9. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may at its discretion issue and the Warrant Agent may countersign, in exchange
and substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity in the sole discretion of the Warrant Agent.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
SECTION 10. Reservation of Warrant Shares. The Company will at all times
reserve
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and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, for the purpose of enabling it to satisfy an obligation to
issue Warrant Shares upon exercise of Warrants, the maximum number of shares of
Common Stock which may then be deliverable upon the exercise of all outstanding
Warrants.
The Company or the transfer agent for the Common Stock (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such Transfer Agent the stock certificates required to honor
outstanding Warrants upon exercise thereof in accordance with the terms of this
Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 12. The Company will furnish
such Transfer Agent a copy of all notices of adjustments and certificates
related thereto transmitted to each Holder pursuant to Section 14 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants made in accordance with the terms of this Agreement will,
upon payment of the Exercise Price therefor and issue thereof, be validly
authorized and issued, fully paid, nonassessable, free of preemptive rights and
free from all taxes, liens, charges and security interests with respect to the
issuance thereof. The Company will take no action to increase the par value of
the Common Stock to an amount in excess of the Exercise Price, and the Company
will not enter into any agreements inconsistent with the rights of Holders
hereunder. The Company will use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Agreement. The Company shall not take any action
reasonably within its control, including the hiring of a broker to solicit
exercises, which would render unavailable an exemption from registration under
the Securities Act which might otherwise be available with respect to the
issuance of Warrant Shares upon exercise of any Warrants, unless there is an
effective registration statement with respect to such issuance.
SECTION 11. Obtaining Stock Exchange Listings. The Company will from time
to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the American Stock Exchange or such other of the principal securities exchanges,
markets and automated quotation systems within the United States of America, if
any, on which other shares of Common Stock are then listed. In the event that,
at any time during the period in which the Warrants are exercisable, the Common
Stock is not listed on any principal securities or exchanges or markets within
the United States of America, the
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Company will use its best efforts to permit the Warrant Shares to be designated
PORTAL securities in accordance with the rules and regulations adopted by the
National Association of Securities Dealers, Inc. relating to trading in the
Private Offering, Resales and Trading through Automated Linkages market.
SECTION 12. Adjustment of Number of Warrant Shares Issuable. The number of
shares of Common Stock issuable upon the exercise of each Warrant (the "Exercise
Rate") is subject to adjustment from time to time upon the occurrence of the
events enumerated in this Section 12. The Exercise Rate shall initially be 1.00.
(a) Adjustment for Change in Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock or other capital stock of the Company;
(2) subdivides, combines or reclassifies its outstanding shares of
Common Stock;
(3) makes a distribution to all Holders of its Common Stock of rights,
warrants or options to purchase Common Stock of the Company at a price per
share less than the Current Market Value (as defined in Section 12(d)) at
the Time of Determination (as defined below); and
(4) makes distributions to stockholders of Common Stock of the Company
or rights, warrants or options to purchase Common Stock of the Company;
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action; provided, however,
that notwithstanding the foregoing, upon the occurrence of an event described in
any of paragraphs (1), (3) or (4) above, which otherwise would have given rise
to an adjustment, no adjustment shall be made if the Company includes the
Holders of Warrants in such distribution pro rata to the number of shares of
Common Stock issued and outstanding (after giving effect to the Warrant Shares
as if they were issued and outstanding).
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution (the "Time of Determination") and
immediately after the effective date in the case of a subdivision, combination
or reclassification.
If after an adjustment a Holder of a Warrant upon exercise of it may
receive shares of two or more classes of capital stock of the Company, the Board
of Directors of the Company shall determine the allocation of the adjusted
Exercise Price between the classes of capital stock. After
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such allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
Such adjustment shall be made successively whenever any event listed above
shall occur.
(b) Adjustment for Certain Issuances of Common Stock.
Subject to Section 12(a), if the Company issues or sells shares of its
Common Stock or distributes any rights, options or warrants to all Holders of
its Common Stock entitling them to purchase shares of Common Stock, or
securities convertible into or exchangeable for Common Stock (other than
pursuant to (1) the exercise of the Warrants, (2) any options, warrants or
rights outstanding as of the date of this Agreement, (3) without limiting any
options, warrants or rights outstanding pursuant to the immediately preceding
clause (2), any director's plans and employee stock option or purchase plans to
the extent that the aggregate number of shares of Common Stock of the Company
(or securities convertible into or exchangeable or exercisable for the Common
Stock of the Company) distributed under all such director's plans and employee
stock option and purchase plans does not exceed 4,000,000 shares of the
Company's Common Stock at any time (of which options to purchase 2,069,030
shares are currently outstanding)), at a price per share less than the Current
Market Value at the Time of Determination, the Exercise Rate shall be adjusted
in accordance with the formula:
E(1) = E x (O + N)
--------
O + (N x P)
--------
M
where:
E(1) = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination for any such distribution.
O = the number of Fully Diluted Shares (as defined in
Section 12(m)) outstanding on the Time of Determination
for any such issuance, sale or distribution.
N = the number of additional shares of Common Stock issued,
sold or issuable upon exercise of such rights, options
or warrants.
P = the price received in the case of any issuance or sale
of Common Stock or exercise price per share of such
rights, options or warrants.
M = the Current Market Value per share of Common Stock on
the Time of
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Determination for any such issuance, sale or distribution.
The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants. If at the end of the period during which any such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant shall be immediately readjusted to what it
would have been if "N" in the above formula had been the number of shares
actually issued.
(c) Adjustment for Other Distribution.
Subject to Section 12(a), if the Company distributes to all Holders of its
Common Stock (i) any evidences of indebtedness of the Company or any of its
subsidiaries, (ii) any assets of the Company or any of its subsidiaries (other
than cash dividends or other cash distributions or distributions from current or
retained earnings other than any Extraordinary Cash Dividend), or (iii) any
rights, options or warrants to acquire any of the foregoing or to acquire any
other securities of the Company, the Exercise Rate shall be adjusted in
accordance with the formula:
E(1) = E x M
--------
M - F
where:
E1 = the adjusted Exercise Rate.
E = the current Exercise Rate on the record date mentioned
below.
M = the Current Market Value per share of Common Stock on
the record date mentioned below.
F = the fair market value on the record date mentioned below
of the indebtedness, assets, rights, options or warrants
distributable to one share of Common Stock.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. If an
adjustment is made pursuant to clause (iii) above of this subsection (c) as a
result of the issuance of rights, options or warrants and at the end of the
period during which any such rights, options or warrants are exercisable, not
all such rights, options or warrants shall have been exercised, the Warrant
shall be immediately readjusted as if "F" in the above formula was the fair
market value on the record date of the indebtedness or assets actually dis
tributed upon exercise of such rights, options or warrants divided by the number
of shares of Common Stock outstanding on the record date. Notwithstanding the
foregoing, provisions of this
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Section 12(c), (x) an event which would otherwise give rise to an adjustment
pursuant to this Section 12(c) shall not give rise to such an adjustment if the
Company includes the Holders of the Warrants in such distribution pro rata to
the number of shares of Common Stock issued and outstanding after giving effect
to the Warrant Shares as if they were issued and outstanding and (y) no
adjustment shall be made pursuant to this Section 12(c) with respect to cash
dividends other than Extraordinary Cash Dividends.
This subsection does not apply to rights, options or warrants referred to
in subsection (b) of this Section 12.
(d) Merger, Consolidation, Etc. If (x) the Company merges or consolidates
with, or sells all or substantially all of its property and assets to, another
person (other than an Affiliate of the Company) and consideration is payable to
Holders of Common Stock in exchange for their Common Stock in connection with
such merger, consolidation or sale which consists solely of cash, or (y) in the
event of the dissolution, liquidation or winding up of the Company, then the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with Holders of Common Stock (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of such
payment, if any, the rights, of a Holder shall terminate and cease and his or
her Warrants shall expire. In case of any such merger, consolidation or sale of
assets, the surviving or acquiring Person and, in the event of any dissolution,
liquidation or winding up of the Company, the Company shall deposit promptly
with the Warrant Agent the funds, if any, necessary to pay the Holders of the
Warrants. After receipt of such deposit from such Person or the Company and
after receipt of surrendered Warrant Certificates, the Warrant Agent shall make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants.
(e) Current Market Value.
"Current Market Value" per share of Common Stock or of any other security
(herein collectively referred to as a "Security") at any date shall be:
(1) if the Security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (i) the value of the Security
determined in good faith by the Board of Directors of the Company and
certified in a board resolution, based on the most recently completed arm's
length transaction between the Company and a person other than an Affiliate
of the Company in which such determination is necessary and the closing of
which occurs on such date or shall have occurred within the six months
preceding such date, (ii) if no such transaction shall have occurred on
such date or within such six-month period, the value of the Security most
recently determined as of a date within the six months preceding such date
by an Independent Financial Expert or (iii) if neither clause (i) nor (ii)
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is applicable, the value of the Security determined as of such date by an
Independent Financial Expert, or
(2) if the Security is registered under the Exchange Act, the average
of the daily market prices for each business day during the period
commencing 15 business days before such date and ending on the date one day
prior to such date or, if the Security has been registered under the
Exchange Act for less than 15 consecutive business days before such date,
then the average of the daily market prices for all of the business days
before such date for which daily market prices are available. If the market
price is not determinable for at least 10 business days in such period, the
Current Market Value of the Security shall be determined as if the Security
was not registered under the Exchange Act.
The "market price" for any Security on each business day means: (A) if such
Security is listed or admitted to trading on any securities exchange, the
closing price, regular way, on such day on the principal exchange on which such
Security is traded, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, (B) if such Security is not then
listed or admitted to trading on any securities exchange, the last reported sale
price on such day, or if there is no such last reported sale price on such day,
the average of the closing bid and the asked prices on such day, as reported by
a reputable quotation source designated by the Company, or (C) if neither clause
(A) nor (B) is applicable, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a newspaper
of general circulation in the Borough of Manhattan, City of New York,
customarily published on each business day, designated by the Company. If there
are no such prices on a business day, then the market price shall not be
determinable for such business day.
"Independent Financial Expert" shall mean (a) NatWest (or any successor) or
(b) another nationally recognized investment banking firm, a nationally
recognized regional investment banking firm or an internationally reputable
accounting firm selected by the Company reasonably acceptable to the Warrant
Agent (i) that does not (and whose directors, officers, employees and Affiliates
do not) have a direct or indirect material financial interest in the Company,
(ii) that has not been, and, at the time it is called upon to serve as an
Independent Financial Expert under this Agreement is not (and none of whose
directors, officers, employees or Affiliates is) a promoter, director or officer
of the Company, (iii) that has not been retained by the Company for any purpose,
other than to perform an equity valuation, within the preceding twelve months,
and (iv) that, in the reasonable judgement of the Board of Directors of the
Company (certified by a board resolution), is otherwise qualified to serve as an
independent financial advisor. Any such person may receive customary
compensation and indemnification by the Company for opinions or services it
provides as an Independent Financial Expert.
"Affiliate" shall mean, with respect to any person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such person. For the purposes of this definition, "control"
when used with respect to any person, means the power
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to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Extraordinary Cash Dividend" means cash dividends, subject to the sentence
below, with respect to the Common Stock the aggregate amount of which in any
fiscal year exceeds the lesser of (i) 10% of the net income of the Company and
its subsidiaries for the fiscal year immediately preceding the payment of such
dividend or (ii) $1,500,000.
(f) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the adjustment would
require an increase or decrease of at least 1.00% in the Exercise Rate.
Notwithstanding the foregoing, any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment, provided
that no such adjustment shall be deferred beyond the date on which a Warrant is
exercised.
All calculations under this Section 12 shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(g) When No Adjustment Required.
If an adjustment is made upon the establishment of a record date for a
distribution subject to subsections (a), (b) or (c) hereof and such distribution
is subsequently cancelled, the Exercise Rate then in effect shall be readjusted,
effective as of the date when the Board of Directors determines to cancel such
distribution, to that which would have been in effect if such record date had
not been fixed.
To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the amount of cash into which such Warrants are
exercisable. Interest will not accrue on the cash.
(h) Notice of Adjustment.
Whenever the Exercise Rate or Exercise Price is adjusted, the Company shall
provide the notices required by Section 14 hereof.
(i) Voluntary Reduction.
The Company from time to time may increase the Exercise Rate by any amount
for any period of time (including, without limitation, permanently) if the
period is at least 20 business days.
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An increase of the Exercise Rate under this Subsection (i) (other than a
permanent increase) does not change or adjust the Exercise Rate otherwise in
effect for purposes of subsections (a), (b) or (c) of this Section 12.
(j) When Issuance or Payment May Be Deferred.
In any case in which this Section 12 shall require that an adjustment in
the Exercise Rate be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the Holder of any Warrant exercised after such record date the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Rate prior to such
adjustment, and (ii) paying to such Holder any amount in cash in lieu of a
fractional share pursuant to Section 13; provided, however, that the Company
shall deliver to the Warrant Agent and shall cause the Warrant Agent, on behalf
of and at the expense of the Company, to deliver to such Holder a due bill or
other appropriate instrument evidencing such Holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.
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<PAGE>
(k) Reorganizations.
In case of any capital reorganization, other than in the cases referred to
in Sections 12(a), (b), (c) or (d) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock into shares of
other stock or other securities or property), or the sale of the property of the
Company as an entirety or substantially as an entirety (collectively such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares of stock or
other securities or property to which a Holder of the number of shares of Common
Stock that would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in a duly
adopted resolution certified by the Company's Secretary or Assistant Secretary,
shall be made in the application of the provisions herein set forth with respect
to the rights and interests of Holders so that the provisions set forth herein
shall thereafter be applicable, as nearly as possible, in relation to any shares
or other property thereafter deliverable upon exercise of Warrants.
The Company shall not effect any such Reorganization unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such Reorganization or the corporation
purchasing or leasing such assets or other appropriate corporation or entity
shall (i) expressly assume, by a supplemental Warrant Agreement or other
acknowledgment executed and delivered to the Warrant Agent the obligation to
deliver to the Warrant Agent and to cause the Warrant Agent to deliver to each
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder maybe entitled to purchase, and all other
obligations and liabilities under this Agreement and (ii) enter into an
agreement providing to the Holders rights and benefits substantially similar to
those enjoyed by the Holders under the Registration Rights Agreement of even
date herewith.
The foregoing provisions of this Section 12(k) shall apply to successive
Reorganization transactions.
(l) Form of Warrants.
Irrespective of any adjustments in the number or kind of shares purchasable
upon the exercise of the Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the Warrants initially issuable pursuant to this Agreement.
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(m) Miscellaneous.
For purposes of this Section 12 the term "Fully Diluted Shares" shall mean
(i) the shares of Common Stock outstanding as of a specified date, and (ii)
shares of Common Stock into or for which rights, options, warrants or other
securities outstanding as of such date are exercisable or convertible (other
than the Warrants). In the event that at any time, as a result of an adjustment
made pursuant to this Section 12, the Holders of Warrants shall become entitled
to purchase any securities of the Company other than, or in addition to, shares
of Common Stock, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in subsections (a)
through (1) of this Section 12, inclusive, and the provisions of Sections 7, 8,
10 and 13 with respect to the Warrant Shares or the Common Stock shall apply on
like terms to any such other securities.
SECTION 13. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the Current Market Value on the day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction.
SECTION 14. Notices to Warrant Holders. Upon any adjustment pursuant to
Section 12 hereof, the Company shall give prompt written notice of such
adjustment to the Warrant Agent and shall cause the Warrant Agent, on behalf of
and at the expense of the Company, within 10 days after such adjustment, to mail
by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and shall deliver to the Warrant Agent a certificate of the Chief
Financial Officer of the Company, setting forth in reasonable detail (i) the
number of Warrant Shares purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant after such adjustment(s), (ii) a brief statement
of the facts requiring such adjustment(s) and (iii) the computation by which
such adjustment(s) was made. Where appropriate, such notice may be given in
advance and included as a part of the notice required under the other provisions
of this Section 14.
In case:
(a) the Company shall authorize the issuance to all Holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all Holders of
shares of
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Common Stock of evidences of its indebtedness or assets; or
(c) of any consolidation or merger to which the Company is a part and
for which approval of any shareholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action that would require an
adjustment to the Exercise Rate or the Exercise Price pursuant to Section
12 hereof;
then the Company shall give prompt written notice to the Warrant Agent and shall
cause the Warrant Agent, on behalf of and at the expense of the Company to give
to each of the registered Holders of the Warrant Certificates at his or its
address appearing on the Warrant register, at least 30 days (or 20 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or the date of the event in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the Holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that Holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure by the Company or
the Warrant Agent to give such notice or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
The Company shall give prompt written notice to the Warrant Agent and shall
cause the Warrant Agent, on behalf of and at the expense of the Company to give
to each Holder written notice of any determination to make a distribution to the
Holders of its Common Stock of any cash dividends, assets, debt securities,
preferred stock, or any rights or warrants to purchase debt securities,
preferred stock, assets or other securities (other than Common Stock, or rights,
options, or warrants to purchase Common Stock) of the Company, which notice
shall state the nature and amount of such planned dividend or distribution and
the record date therefor, and shall be received by the Holders at least 30 days
prior to such record date therefor.
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Nothing contained in this Agreement or in any Warrant Certificate shall be
construed as conferring upon the Holders the right to vote or to consent or to
receive notice as shareholders in respect of the meetings of shareholders or the
election of Directors of the Company or any other matter, or any rights
whatsoever as shareholders of the Company.
SECTION 15. Notices to the Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by any
Holder to or on the Company shall be sufficiently given or made when received at
the office of the Company expressly designated by the Company as its office for
purposes of this Agreement (until the Warrant Agent is otherwise notified in
accordance with this Section 15 by the Company), as follows:
COMFORCE Corporation
2001 Marcos Avenue
Lake Success, NY 11042
Facsimile: (516) 352-1953
with a copy to:
Doepken, Keevican & Weiss
58th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 15219
Attention: David G. Edwards, Esq.
Facsimile: (412) 355-2609
Any notice pursuant to this Agreement to be given by the Company or by any
Holder(s) to the Warrant Agent shall be sufficiently given when received by the
Warrant Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section by the Warrant Agent).
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Facsimile: (212) 815-5915
SECTION 16. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any Holders of Warrants in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable and which shall not in any way adversely affect
the interests of any Holder of Warrants. Any Amendment or supplement to this
Agreement that has a material
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adverse effect on the interests of the Holders shall require the written consent
of the Holders of a majority of the then outstanding Warrants. The consent of
each Holder affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the Exercise Rate decreased (other than
pursuant to adjustments provided in Section 12). In determining whether the
Holders of the required number of Warrants have concurred in any direction,
waiver or consent, Warrants owned by the Company or by any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company shall be disregarded and deemed not to be outstanding,
except that, for the purpose of determining whether the Warrant Agent shall be
protected in relying on any such direction, waiver or consent, only Warrants
which the Warrant Agent knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Warrants outstanding at the time shall be
considered in any such determination.
SECTION 17. Concerning the Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders, by their acceptance of
Warrants, shall be bound:
(a) The statements contained herein and in the Warrant Certificate
shall be taken as statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or any action taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrants
except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for and shall incur no
liability to the Company or any Holder for any failure of the Company to
comply with the covenants contained in this Agreement or in the Warrants to
be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself
(through its employees) or by or through its attorneys or agents (which
shall not include its employees) and shall not be responsible for the
misconduct of any agent appointed with due care.
(d) The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
Holder in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such
counsel.
(e) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless such evidence in respect
thereof be herein specifically prescribed) may be deemed conclusively to be
proved and established by a certificate signed by the Chairman of the
-24-
<PAGE>
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, one of the Vice Presidents, the Treasurer or the Secretary of the
Company and delivered to the Warrant Agent; and such certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon
such certificate. Without limiting the foregoing, the Company shall notify
the Warrant Agent in writing of the occurrence of the Separability Date on
the Date it occurs, and until receipt of such notice the Warrant Agent may
(but need not) be entitled to assume that any such date has not occurred.
(f) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and other charges of
any kind and nature incurred by the Warrant Agent in the performance of its
duties under this Agreement (including, without limitation, reasonable fees
and expenses of counsel), and to indemnify the Warrant Agent and its
agents, employees, directors, officers and affiliates and save it and them
harmless against any and all liabilities, losses and expenses, including,
without limitation, judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the performance of its duties under this
Agreement, except as a result of the Warrant Agent's negligence or bad
faith.
(g) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any costs and
expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may
consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Warrants may
be enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the Holders, as
their respective rights or interests may appear.
(h) The Warrant Agent and any stockholder, director, officer or
employee ("Related Parties") of the Warrant Agent may buy, sell or deal in
any of the Warrants or other securities of the Company or become
pecuniarily interested in any transactions in which the Company may be
interested, or contract with or lend money to the Company or otherwise act
as fully and freely as though it were not Warrant Agent under this
Agreement or such director, officer or employee. Nothing herein shall
preclude the Warrant Agent or any Related Party from acting in any other
capacity for the Company or for any other legal entity including, without
limitation, acting as Transfer Agent or as a lender to the Company or an
affiliate thereof.
-25-
<PAGE>
(i) The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions thereof. The Warrant
Agent shall not be liable for anything which it may do or refrain from
doing in connection with this Agreement except for its own negligence or
bad faith.
(j) The Warrant Agent will not incur any liability or responsibility
to the Company or to any Holder for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument reasonably believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(k) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant (except its countersignature thereof);
nor shall the Warrant Agent by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Warrant Shares (or other stock) to be issued pursuant to this Agreement or
any Warrant, or as to whether any Warrant Shares (or other stock) will,
when issued, be validly issued, fully paid and nonassessable, or as to the
Exercise Price or the number or amount of Warrant Shares or other
securities or other property issuable upon exercise of any Warrant.
(l) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer, any Vice President or
the Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith and without
negligence in accordance with instructions of any such officer or officers.
SECTION 18. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company 30
days' notice in writing. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company. If the Warrant Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then the Warrant Agent or any Holder
may apply to any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such court, the duties of the Warrant
Agent shall be carried out by the Company. Any successor warrant agent, whether
appointed by the Company or such a court, shall be a suitable alternate,
experienced in these duties and in good standing, incorporated under the laws of
the United States of America or any State thereof or the District of
-26-
<PAGE>
Columbia and having at the time of its appointment as warrant agent a combined
capital and surplus of at least $50,000,000. After appointment, the successor
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor warrant agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
such purpose. Failure to file any notice provided for in this Section 18,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be. In the event of such resignation or removal,
the Company or the successor warrant agent shall mail by first class mail,
postage prepaid, to each Holder, written notice of such removal or resignation
and the name and address of such successor warrant agent.
SECTION 19. Identity of Transfer Agent. Forthwith upon the appointment of
any Transfer Agent for the Common Stock, or any other shares of the Company's
capital stock issuable upon the exercise of the Warrants, the Company shall file
with the Warrant Agent a statement setting forth the name and address of such
Transfer Agent. The current Transfer Agent is American Stock Transfer & Trust
Company with offices located at 40 Wall Street, 46th Floor, New York, New York
10005.
SECTION 20. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrant Agent or any Holder of
Warrants shall bind and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 21. Termination. This Agreement shall terminate on the Expiration
Date. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date if all Warrants have been exercised or redeemed pursuant to this
Agreement.
SECTION 22. Governing Law. THIS AGREEMENT AND EACH WARRANT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
SECTION 23. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered Holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered Holders of the Warrant Certificates.
SECTION 24. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
COMFORCE CORPORATION
By:_____________________________
Name:
Title:
THE BANK OF NEW YORK,
as Warrant Agent
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
[Form of Warrant Certificate]
[Face]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED
STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH
- ----------
1 This paragraph is to be included only if the Warrant is in global form.
<PAGE>
Exhibit A
Page 2
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
WARRANT AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREED THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS
DESCRIBED IN CLAUSE (1)(B) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS
SECURITY TO AN INSTITUTIONAL ACCREDITED INVESTOR. IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT
TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
WARRANT AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
THIS WARRANT MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON (AS SUCH TERM IS
DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR FOR THE ACCOUNT OR BENEFIT
OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED IN
THE INDENTURE), AND NO TRANSFER OR EXCHANGE OF THIS WARRANT MAY BE MADE FOR AN
INTEREST IN A PHYSICAL WARRANT UNTIL AFTER THE LATER OF THE DATE OF EXPIRATION
OF THE
<PAGE>
Exhibit A
Page 3
RESTRICTED PERIOD (AS DEFINED IN THAT CERTAIN INDENTURE DATED AS OF NOVEMBER 26,
1997 BETWEEN THE COMPANY AND THE WARRANT AGENT) AND THE DATE ON WHICH THE PROPER
REQUIRED CERTIFICATION RELATING TO SUCH INTEREST HAS BEEN PROVIDED IN ACCORDANCE
WITH THE TERMS OF THE WARRANT AGREEMENT, TO THE EFFECT THAT THE BENEFICIAL OWNER
OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS.2
- ----------
2 To be included only in a Reg. S Global Warrant.
<PAGE>
Exhibit A
Page 4
EXERCISABLE ON OR AFTER THE DATE OF ISSUANCE
AND ON OR BEFORE DECEMBER 1, 2009
No. ______
Warrants
CUSIP No.:
Warrant Certificate
COMFORCE Corporation
This Warrant Certificate certifies that _____________________ or registered
assigns, is the registered Holder of Warrants expiring December 1, 2009 (the
"Warrants") to purchase shares of common stock $0.01 par value (the "Common
Stock") of COMFORCE Corporation, a Delaware corporation (the "Company"). Each
Warrant entitles the Holder upon exercise to receive from the Company on or
after the date hereof and on or before 5: 00 p.m. New York City Time on December
1, 2009 one fully paid and nonassessable share of Common Stock (each a "Warrant
Share") at the initial exercise price (the "Exercise Price") of $7.55 payable in
lawful money of the United States of America upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency of the
Warrant Agent, but only subject to the conditions set forth herein and in the
Warrant Agreement referred to on the reverse hereof. The Exercise Price and
number of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
No Warrant may be exercised after 5:00 p.m., New York City Time, on
December 1, 2009, and to the extent not exercised by such time such Warrants
shall become void.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed and construed in accordance with
the internal laws of the State of New York.
<PAGE>
Exhibit A
Page 5
IN WITNESS WHEREOF, COMFORCE Corporation has caused this Warrant
Certificate to be signed by its [________________] and by its
[________________].
Dated:
COMFORCE CORPORATION
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
Countersigned:
The Bank of New York,
as Warrant Agent
By:_____________________________
Authorized Signatory
<PAGE>
Exhibit A
Page 6
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring December 1, 2009, entitling the Holder on
exercise to receive shares of voting Common Stock, of the Company (the "Common
Stock"), $0.01 par value, and are issued or to be issued pursuant to a Warrant
Agreement dated as of November 26, 1997 (the "Warrant Agreement"), duly executed
and delivered by the Company to The Bank of New York, a bank organized under the
laws of the State of New York as warrant agent (the "Warrant Agent"), which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the Holders (the words "Holders" or "Holder" meaning the
registered Holders or registered Holder) of the Warrants. A copy of the Warrant
Agreement may be obtained by the Holder hereof upon written request to the
Company.
Warrants may be exercised at any time on or after the date hereof and on or
before December 1, 2009, subject to extension as provided in the Warrant
Agreement. The Holder of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed and executed, together
with payment of the Exercise Price in cash at the office of the Warrant Agent.
In the event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the Holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the number of Warrants set forth on the face hereof may, subject to certain
conditions, be adjusted. No fractions of a share of Common Stock will be issued
upon the exercise of any Warrant, but the Company win pay the cash value thereof
determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered Holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees in exchange
<PAGE>
Exhibit A
Page 7
for this Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
Holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
Holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any Holder hereof to any rights
of a stockholder of the Company.
<PAGE>
Exhibit A
Page 8
ELECTION TO EXERCISE
(To be executed upon exercise of the Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____ shares of Common
Stock of COMFORCE Corporation and herewith tenders in payment for such Shares
$___________ in lawful money of the United States of America. In accordance with
the terms hereof. The undersigned requests that a certificate representing such
Shares be registered and delivered as follows:
Name
Address
Delivery Address (if different)
If such number of Shares is less than the aggregate number of Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the balance of such Shares be registered and delivered as follows:
Name
Address
Delivery Address (if different)
Social Security or Signature
Other Taxpayer Identification Number of Holder
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatsoever. If the certificate
representing the Shares or any
Warrant Certificate representing
Warrants not exercised is to be
registered in a name other than
that in which this Warrant
Certificate is registered, the
signature of the holder hereof
must be guaranteed.
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the [Registrar], which
<PAGE>
Exhibit A
Page 9
requirements include membership or participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other "signature guarantee program" as may
be determined by the [Registrar] in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
<PAGE>
Exhibit A
Page 10
SCHEDULE OF EXCHANGES3
The following exchanges of a part of this Global Warrant for Physical
Warrants (or of Physical Warrants for an interest in the Global Warrant) have
been made:
Number of
Amount of Amount of Warrants of
decrease in increase in this Global
Number of Number of Warrant Signature of
Warrants of Warrants of following such authorized
Date of this Global this Global decrease (or officer of
Exchange Warrant Warrant increase) Warrant Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------
3 This is to be included only if the Warrant is in global form.
<PAGE>
Exhibit A
Page 11
ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate)
For Value Received, the undersigned registered holder hereby sells, assigns and
transfers unto
Name of Assignee
Address of Assignee
this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint
_______________________________________________attorney, to transfer the within
Warrant Certificate on the books of the Warrant Agent, with full power of
substitution.
Date Signature
Note: The above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatsoever.
Social Security or Other
Taxpayer Identification Number of Assignee
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the [Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the [Registrar] in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to purchase
Common Stock (the "Securities"), of
COMFORCE Corporation
This Certificate relates to __________ Securities held in the form of*
___________ a beneficial interest in a Global Warrant or* ____________ Physical
Warrants by ____________ (the "Transferor").
The Transferor:*
/ / has requested by written order that the Warrant Agent deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Physical Warrant or Physical Warrants in definitive, registered
form of authorized denominations and an aggregate number equal to its beneficial
interest in such Global Warrant (or the portion thereof indicated above); or
/ / has requested that the Warrant Agent by written order to exchange or
register the transfer of a Physical Warrant or Physical Warrants.
In connection with such request and in respect of each such Security, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 6 of such Warrant Agreement, and that
the transfer of these Securities does not require registration under the
Securities Act of 1933, as amended (the "Act") because*:
/ / Such Security is being acquired for the Transferor's own account,
without transfer.
/ / Such Security is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
/ / Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act.
/ / Such Security is being transferred in reliance on Regulation S under
the Act.
/ / Such Security is being transferred in reliance on Rule 144 under the
Act.
<PAGE>
Exhibit B
Page 2
/ / Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
--------------------------------
(INSERT NAME OF TRANSFEROR)
By:_____________________________
(Authorized Signatory)
Date:
- -------------------
*Check applicable box.
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: COMFORCE Corporation
(the "Company") Warrants to purchase Common
Stock (the "Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of Securities, of the Company, we
confirm that:
1. We have received such information as we deem necessary in order to make
our investment decision.
2. We understand that any subsequent transfer of the Securities is subject
to certain restrictions and conditions set forth in the Warrant Agreement and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities may not be offered
or sold within the United States or to, or for the account or benefit of, U.S.
persons except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) inside the United States in accordance
with Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (C) inside the United States to an institutional "accredited
investor" (as defined below) that, prior to such transfer, furnishes to the
Warrant Agent a signed letter substantially in the form hereof, (D) outside the
United States in accordance with Regulation S under the Securities Act, (E)
pursuant to the exemption from
<PAGE>
Exhibit C
Page 2
registration provided by Rule 144 under the Securities Act (if available), or
(F) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Securities from us a
notice advising such purchaser that resales of the Securities are restricted as
stated herein.
4. We understand that, on any proposed resale of Securities, we will be
required to furnish to the Warrant Agent and the Company, such certification,
legal opinions and other information as the Warrant Agent and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
<PAGE>
Exhibit C
Page 3
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:_____________________________
(Authorized Signatory)
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
[Date]
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: COMFORCE Corporation
Re: Corporate Trust Trustee Administration
(the "Company") Warrants to purchase Common
Stock (the "Securities")
Dear Sirs:
In connection with our proposed sale of __________ of the Securities, we
confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States, or (b) the
transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our behalf
knows that the transaction has been prearranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions applicable
to the Securities.
<PAGE>
Exhibit D
Page 2
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
(Name of Transferor)
By:_____________________________
(Authorized Signatory)
<PAGE>
EXHIBIT D
---------
TABLE OF CONTENTS
Page
----
SECTION 1. Appointment of Warrant Agent......................................1
SECTION 2. Warrant Certificates..............................................1
SECTION 3. Execution of Warrant Certificates.................................2
SECTION 4. Registration and Countersignature.................................2
SECTION 5. Transfer and Exchange of Warrants.................................3
SECTION 6. Registration of Transfers and Exchanges...........................3
SECTION 7. Separation of Warrants: Terms of Warrants, Exercise
of Warrants....................................................9
SECTION 8. Payment of Taxes.................................................10
SECTION 9. Mutilated or Missing Warrant Certificates........................10
SECTION 10. Reservation of Warrant Shares...................................11
SECTION 11. Obtaining Stock Exchange Listings...............................11
SECTION 12. Adjustment of Number of Warrant Shares Issuable.................12
(a) Adjustment for Change in Capital Stock .........................12
(b) Adjustment for Certain Issuances of Common Stock ...............13
(c) Adjustment for Other Distribution ..............................14
(d) Merger, Consolidation, Etc. ....................................15
(e) Current Market Value ...........................................15
(f) When De Minimis Adjustment May Be Deferred .....................16
(g) When No Adjustment Required ....................................17
(h) Notice of Adjustment ...........................................17
(i) Voluntary Reduction ............................................17
(j) When Issuance or Payment May Be Deferred .......................17
(1)
<PAGE>
Page
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(k) Reorganizations ................................................18
(l) Form of Warrants ...............................................18
(m) Miscellaneous ..................................................19
SECTION 13. Fractional Interests............................................19
SECTION 14. Notices to Warrant Holders......................................19
SECTION 15. Notices to the Company and Warrant Agent........................21
SECTION 16. Supplements and Amendments......................................21
SECTION 17. Concerning the Warrant Agent....................................22
SECTION 18. Change of Warrant Agent.........................................24
SECTION 19. Identity of Transfer Agent......................................25
SECTION 20. Successors......................................................25
SECTION 21. Termination.....................................................25
SECTION 22. Governing Law...................................................25
SECTION 23. Benefits of This Agreement......................................25
SECTION 24. Counterparts....................................................25
(2)
Exhibit 10.13
UNIT AGREEMENT
UNIT AGREEMENT dated as of November 26, 1997 between COMFORCE Corporation,
a Delaware corporation (the "Company"), and The Bank of New York, a New York
banking corporation.
WHEREAS, the Company proposes to issue 20,000 Units (the "Units")
representing $20,000,000 principal amount of 15% Senior Secured PIK Debentures
due 2009 (the "Debentures") with 169,000 warrants (the "Warrants") to purchase
one share of common stock of the Company, par value $0.01 per share (the "Common
Stock"), to be issued upon exercise of the Warrants (the "Warrant Shares"),
representing approximately 1% of the outstanding Common Stock of the Company on
a fully diluted basis;
WHEREAS, the Company and The Bank of New York, in its capacity as warrant
agent for the Warrants (the "Warrant Agent") and indenture trustee and registrar
for the Debentures (the "Trustee"), desire to appoint The Bank of New York to
act as their agent for the purpose of issuing certificates ("Unit Certificates")
representing the Units and registration of transfers and exchanges thereof. The
Bank of New York in such capacity is referred to herein as the "Unit Agent";
WHEREAS, the Units will be exchangeable for the Debentures and Warrants
represented thereby and will be separately transferable, subject to compliance
with applicable securities laws, on the earliest to occur of (i) February 24,
1998, (ii) such earlier date as may be determined by NatWest Capital Markets
Limited, in its capacity as the initial purchaser of the Units with the consent
of the Company, (iii) upon the occurrence of a Change of Control of the Company
(as defined in that certain Indenture dated as of November 26, 1997 between the
Company and The Bank of New York, as Trustee), and (iv) the effective date of a
registered exchange offer for the Debentures (the "Separability Date");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Unit Agent. (a) The Company hereby appoints the
Unit Agent to act as agent for the Company in accordance with the instructions
set forth hereinafter in this Agreement, and the Unit Agent hereby accepts such
appointment.
(b) The Trustee and the Company hereby appoint the Unit Agent as a
co-registrar for the Debentures for so long as the Debentures are represented by
the Units. In its capacity as a co-registrar, the Unit Agent shall have the
rights and obligations provided for a registrar in the Indenture governing the
Debentures.
(c) The Warrant Agent and the Company hereby appoint the Unit Agent as an
agent of the Warrant Agent for the purposes of maintaining a register of the
registered owners of and the registration of transfers and exchanges of the
Warrants represented by the Units.
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<PAGE>
SECTION 2. Unit Certificates. (a) The Units will initially be issued either
in global form (the "Global Units"), or in registered form as definitive Unit
certificates ("Physical Units") substantially in the form of Exhibit A attached
hereto. Any certificates evidencing the Global Units to be delivered pursuant to
this Agreement shall be substantially in the form set forth in Exhibit A
attached hereto, and shall bear the legend set forth in Exhibit B attached
hereto. Such Global Units shall represent such of the outstanding Units as shall
be specified therein and each shall provide that it shall represent the
aggregate Units from time to time endorsed thereon and that the aggregate
amounts of outstanding Units represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Unit to
reflect the amount of any increase or decrease in the amount of outstanding
Units represented thereby shall be made by the Unit Agent and Depository (as
defined blow) in accordance with instructions given by the holder thereof. The
Depository Trust Company shall act as the Depository with respect to the Global
Units until a successor shall be appointed by the Company and the Unit Agent.
Upon written request, a Unit holder may receive from the Depository and Unit
Agent Physical Units as set forth in Section 5 below.
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<PAGE>
(b) Legends. Each Unit Certificate evidencing the Units (and all Units
issued in exchange therefor or substitution thereof) shall bear a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
UNITED STATES PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE UNIT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE UNIT AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT AN INITIAL INVESTOR THAT IS AN
INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS DESCRIBED IN CLAUSE (1)(B)
ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL
ACCREDITED INVESTOR. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
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<PAGE>
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE UNIT AGENT, DEBENTURE
TRUSTEE OR THE WARRANT AGENT, AS THE CASE MAY BE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO
CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE UNIT AGENT AND THE ISSUER, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED
STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE UNIT AGENT
TO REFUSE TO REGISTER ANY TRANSFER OF THIS UNIT IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
Each Unit Certificate that is a Global Unit shall bear the following legend
in addition to any other legend required by law or this Agreement:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR UNITS IN
DEFINITIVE FORM, THIS UNIT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR DEPOSITARY OR
ANY SUCH NOMINEE, TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. TRANSFERS OF THIS GLOBAL UNIT SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED
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<PAGE>
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
The Regulation S Global Unit shall bear the following legend on the face
thereof:
THIS UNIT MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON (AS SUCH TERM IS
DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD
(AS DEFINED IN THAT CERTAIN INDENTURE DATED NOVEMBER 26, 1997, BETWEEN THE
COMPANY AND THE BANK OF NEW YORK, IN ITS CAPACITY AS TRUSTEE), AND NO
TRANSFER OR EXCHANGE OF THIS UNIT MAY BE MADE FOR AN INTEREST IN A PHYSICAL
UNIT UNTIL AFTER THE LATER OF THE DATE OF EXPIRATION OF THE RESTRICTED
PERIOD AND THE DATE ON WHICH THE PROPER REQUIRED CERTIFICATION RELATING TO
SUCH INTEREST HAS BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE UNIT
AGREEMENT, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH
INTEREST ARE NOT U.S. PERSONS.
SECTION 3. Execution of Unit Certificates. (a) Each Unit Certificate shall
be signed on behalf of the Company by its Chairman of the Board or its
President, Chief Executive Officer, Chief Operating Officer, Treasurer, Chief
Financial Officer or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Unit Certificates may be in the form of
a facsimile signature of the present or any future Chairman of the Board,
President, Vice President, Chief Financial Officer, Treasurer, Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Unit
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer, Vice President, Treasurer,
Chief Financial Officer, Secretary or Assistant Secretary, notwithstanding the
fact that at the time the Unit Certificates shall be countersigned and delivered
or disposed of he shall have ceased to hold such office.
In case any officer of the Company who shall have signed any of the Unit
Certificates shall cease to be such officer before the Unit Certificates so
signed shall have been countersigned by the Unit Agent, or disposed of by the
Company, such Unit Certificates nevertheless may be countersigned and delivered
or disposed of as though such person had not ceased to be such officer of the
Company; and any Unit Certificate may be signed on behalf of the Company by any
person who, at the actual date of the execution of such Unit Certificate, shall
be a proper officer of the
-5-
<PAGE>
Company to sign such Unit Certificate, although at the date of the execution of
this Unit Agreement any such person was not such officer.
Unit Certificates shall be dated the date of counter-signature by the Unit
Agent.
SECTION 4. Registration and Countersignature. The Unit Agent, on behalf of
the Company, shall number and register the Unit Certificates in a register as
they are issued by the Company.
Unit Certificates shall be manually countersigned by the Unit Agent and
shall not be valid for any purpose unless so countersigned. The Unit Agent
shall, upon written instructions of the Chairman of the Board, the President,
Chief Executive Officer, Chief Operating Officer, a Vice President, Chief
Financial Officer, Treasurer, the Secretary or an Assistant Secretary of the
Company, initially countersign and deliver not more than 20,000 Units and shall
thereafter countersign and deliver Units as otherwise provided in this
Agreement.
The Company and the Unit Agent may deem and treat the registered holder(s)
of the Unit Certificates as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone) for all purposes,
and neither the Company nor the Unit Agent shall be affected by any notice to
the contrary.
SECTION 5. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Units. Prior to the Separability
Date, when Physical Units are presented to the Unit Agent with a request:
(i) to register the transfer of the Physical Units; or
(ii) to exchange such Physical Units for an equal number of Physical
Units of other authorized denominations,
The Unit Agent shall register the transfer or make the exchange as
requested if the requirements under this Agreement as set forth in this Section
5 for such transactions are met; provided, however, that the Physical Units
presented or surrendered for registration of transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Unit Agent, duly executed by
the holder thereof or by his attorney, duly authorized in
writing; and
(y) in the case of Units the offer and sale of which have not been
registered under the Securities Act and are presented for
transfer or exchange prior to (x) the date which is two years
after the date of original issue and (y) such later date,
-6-
<PAGE>
if any, as may be required by any subsequent change in applicable
law (the "Resale Restriction Separation Date"), such Units shall
be accompanied by the following additional information and
documents, as applicable, however, it being understood that the
Unit Agent need not determine which clause (A) through (D) below
is applicable:
(A) if such Unit is being delivered to the Unit Agent by a
holder for registration in the name of such holder, without
transfer, a certification from such holder to that effect
(in substantially the form of Exhibit C hereto); or
(B) if such Unit is being transferred to a qualified
institutional buyer (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption for registration
in accordance with Rule 144 or Regulation S under the
Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that
effect (in substantially the form of Exhibit C hereto); or
(C) if such Unit is being transferred to an institutional
"accredited investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities Act, delivery of a Certificate of Transfer in the
form of Exhibit D hereto and an opinion of counsel and/or
other information satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
or
(D) if such Unit is being transferred in reliance on another
exemption from the registration requirements of the
Securities Act, a certification to that effect (in
substantially the form of Exhibit C hereto) and an opinion
of counsel reasonably acceptable to Company to the effect
that such transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of Physical Unit for a Beneficial Interest in
a Global Unit. A Physical Unit may not be exchanged for a beneficial interest in
a Global Unit except upon satisfaction of the requirements set forth below. Upon
receipt by the Unit Agent of a Physical Unit, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Unit Agent,
together with:
(i) certification, substantially in the form of Exhibit C hereto, that
such Physical Unit is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Securities Act) in accordance with Rule
144A under the Securities Act or in accordance
-7-
<PAGE>
with Regulation S under the Securities Act, or delivery of a Certificate of
transfer in the form of Exhibit D hereto if such Physical Unit is being
transferred to an accredited investor within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act; and
(ii) written instructions directing the Unit Agent to make, or to
direct the Depositary to make, and endorsement on the Global Unit to
reflect an increase in the aggregate amount of the Units represented by the
Global Unit,
then the Unit Agent shall cancel such Physical Unit and cause, or direct the
Depositary to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Unit Agent, the number of Units
represented by the Global Unit to be increased accordingly. If no Global Unit is
then outstanding, the Company shall issue and the Unit Agent shall authenticate
a new Global Unit in the appropriate amount.
(c) Transfer and Exchange of Global Units. The transfer and exchange of
Global Units or beneficial interests therein shall be effected through the
Depositary, in accordance with the Unit Agreement (including the restrictions on
transfer set forth herein) and the procedures of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Unit for a Physical Unit.
(i) Prior to the Separability Date, any person having a beneficial
interest in a Global Unit may upon request exchange such beneficial
interest for a Physical Unit. Upon receipt by the Unit Agent of written
instructions or such other form of instructions as is customary for the
Depositary from the Depositary or its nominee on behalf of any person
having a beneficial interest in a Global Unit and upon receipt by the Unit
Agent of a written order or such other form of instructions as is customary
for the Depositary or the person designated by the Depositary as having
such a beneficial interest containing registration instructions and, in the
case of any such transfer or exchange prior to the Resale Restriction
Separation Date, the following additional information and documents,
however, it being understood that the unit Agent need not determine which
clause (A) through (D) below is applicable:
(A) if such beneficial interest is being transferred to the
person designated by the Depositary as being the beneficial
owner, a certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a
qualified institutional buyer (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant
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<PAGE>
to an exemption from registration in accordance with Rule
144 or Regulation S under the Securities Act or pursuant to
an effective registration statement under the Securities
Act, a certification to that effect from the transferee or
transferor (in substantially the form of Exhibit C hereto);
or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor" within the meaning of
subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities act, delivery of a Certificate of
Transfer in the form of Exhibit D hereto and an opinion of
counsel and/or other information satisfactory to the Company
to the effect that such transfer is in compliance with the
Securities Act, or
(D) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act, a certification to that effect from the
transferee or transferor (in substantially the form of
Exhibit C hereto) and an opinion of counsel from the
transferee or transferor reasonably acceptable to the
Company to the effect that such transfer is in compliance
with the Securities Act,
then the Unit Agent will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Unit Agent the aggregate
amount of the Global Unit to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the form of
an Officers' Certificate (as defined in Section 5(f) below), the Unit Agent will
authenticate and deliver to the transferee a Physical Unit.
(ii) Physical Units issued in exchange for a beneficial interest in a
Global Unit pursuant to this Section 5(d) shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the unit Agent in writing. The Unit Agent shall deliver such
Physical Units to the persons in whose names such Units are so registered.
(e) Restrictions on Transfer and Exchange of Global Units. Notwithstanding
any other provisions of this Agreement (other than the provisions set forth in
subsection (f) of this Section 5), a Global Unit may not be transferred as a
whole except by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or any such nominee of such Depositary.
(f) Authentication of Physical Units in Absence of Depositary. If at any
time:
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<PAGE>
(i) the Depositary for the Units notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Unit and a successor Depositary for the Global Unit is not appointed by
Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Unit Agent in
writing that it elects to cause the issuance of Physical Units in place of
the Global Unit under this Unit Agreement,
then the Company will execute, and the Unit Agent, upon receipt of an officers'
certificate signed by two officers of the Company (one of whom must be the
principal executive officer, principal financial officer or principal accounting
officer) (an "Officer's Certificate") requesting the authentication and delivery
of Physical Units, will authenticate and deliver Physical Units, in an aggregate
number equal to the aggregate number of Units represented by the Global Unit, in
exchange for such Global Unit.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), and unless
specified in an Officer's Certificate delivered to the Unit Agent defined,
each Unit Certificate evidencing the Global Units (and all Units issued in
exchange therefor or substitution thereof) shall bear the legends required
by Section 2(b).
(ii) Upon any sale or transfer of a Unit pursuant to Rule 144 under
the Securities Act or an effective registration statement under the
Securities Act:
(A) in the case of any Unit that is a Physical Unit, the Unit
Agent shall permit the holder thereof to exchange such Unit
for a Physical Unit that does not bear the legend required
by Section 2(b) in respect of Global Units and rescind any
related restriction on the transfer of such Unit; and
(B) any such Unit represented by a Global Unit shall not be
subject to the provisions set forth in (i) above (such sales
or transfers being subject only to the provisions of Section
5(c) hereof); provided, however, that with respect to any
request for an exchange of a Unit that is represented by a
Global Unit for a Physical Unit that does not bear the
legend required by Section 2(b) in respect of Global Units,
which request is made in reliance upon Rule 144 under the
Securities Act, the holder thereof shall certify in writing
to the Unit Agent that such request is being made pursuant
to Rule 144 under the Securities Act (such certification to
be substantially in the form of Exhibit C hereto).
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<PAGE>
(h) Cancellation and/or Adjustment of a Global Unit. At such time as all
beneficial interest in a Global Unit have either been exchanged for Physical
Units, exchanged, redeemed, repurchased or cancelled, such Global Unit shall be
returned to or retained and cancelled by the Unit Agent. At any time prior to
such cancellation, if any beneficial interest in a Global Unit is exchanged for
Physical Units, redeemed, repurchased or cancelled, the number of units
represented by such Global Unit shall be reduced and an endorsement shall be
made on such Global Unit, by the Unit Agent to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of Physical Units.
(i) Prior to the Separation Date, to permit registrations of transfers
and exchanges, Company shall deliver to the Unit Agent, upon execution of
this Agreement, and from time to time thereafter, sufficient inventory of
executed Physical Units and Global Units.
(ii) All Physical Units and Global Units issued upon any registration,
transfer or exchange of Physical Units or Global Units shall be the valid
obligations of Company, entitled to the same benefits under this Unit
Agreement as the Physical Units or Global Units surrendered upon the
registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Unit, the Unit Agent and the Company may deem and treat the person in whose
name any Unit is registered as the absolute owner of such Unit, and neither
the Unit Agent nor the Company shall be affected by notice to the contrary.
(j) No Duty to Monitor Compliance. The Unit Agent shall be under no duty to
monitor compliance with any federal, state or other securities laws.
SECTION 6. Separation of the Debentures and Warrants. After the
Separability Date, the Debentures and the Warrants represented by the Units
shall be separately transferable. Upon presentation after the Separability Date
of any Unit Certificate for exchange for Debentures and Warrants or for
registration of transfer or otherwise, (i) the Unit Agent shall notify the
Trustee and the Warrant Agent of the number of Units so presented, the
registered owner thereof, such owner's registered address, the nature of any
legends or restrictive endorsements set forth on such Unit Certificate and any
other information provided by the holder thereof in connection therewith, (ii)
the Trustee, if the requirements of the Indenture with respect to the Debentures
for such transaction and any applicable legend are met, shall promptly register,
authenticate and deliver a new Debenture in aggregate principal amount equal in
number aggregate principal amount of the Debentures represented by such Unit
Certificate in accordance with the direction of such holder and (iii) the
Warrant Agent, if its requirements for such transactions are met, shall promptly
countersign, register and deliver a new Warrant Certificate for the number of
Warrants previously represented by such Unit Certificate in accordance with the
directions of such holder. The Warrant Agent and the
-11-
<PAGE>
Trustee will notify the Unit Agent of any additional requirements in connection
with a particular transfer or exchange.
Following the Separability Date, no Unit Certificates shall be issued upon
transfer or exchange of Unit Certificates, or otherwise.
SECTION 7. Rights of Unit Holders. The registered owner of a Unit
Certificate shall have all the rights and privileges of a registered owner of
the Debentures represented thereby and the number of Warrants represented
thereby and shall be treated as the registered owner thereof for all purposes.
The Company agrees that it shall be bound by all provisions of the Indenture
governing the Debentures, the Debentures, the Warrant Agreement and the Warrants
and that the Debentures and Warrants represented by each Unit Certificate shall
be deemed valid and obligatory obligations of the Company.
SECTION 8. Unit Agent. The Unit Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Units, by their acceptance thereof, shall
be bound:
(a) The statements contained herein and in the Unit Certificates shall
be taken as statements of the Company, and the Unit Agent assumes no
responsibility for the correctness of any of the same except such as
describe the Unit Agent or action taken or to be taken by it. The Unit
Agent assumes no responsibility with respect to the distribution of the
Unit Certificates except as herein otherwise provided.
(b) The Unit Agent shall not be responsible for and shall incur no
liability to the Company or any holder of the Units for any failure of the
Company to comply with any of the covenants in this Agreement or in the
Unit Certificates to be complied with by the Company.
(c) The Unit Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Unit Agent shall incur
no liability or responsibility to the Company or to any holder of any Unit
Certificate in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
such counsel provided, that the foregoing clause shall not apply if the
Unit Agent is found to have acted with willful misconduct or gross
negligence.
(d) The Unit Agent shall incur no liability or responsibility to the
Company or to any holder of any Unit Certificate for any action taken in
reliance on any unit Certificate, certificate of shares, notice,
resolution, waiver, consent, order, certificate or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties provided, that the foregoing
clause shall not apply if the Unit Agent is found to have acted with
willful misconduct or gross negligence.
-12-
<PAGE>
(e) The Company agrees to pay to the Unit Agent reasonable
compensation for all services rendered by the Unit Agent in connection with
this Agreement, to reimburse the Unit Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by
the Unit Agent in the connection with this Agreement and to indemnify the
Unit Agent and its agents, employees, directors, officers and affiliates
and save it and them harmless against any and all liabilities, losses and
expenses including, with out limitation, judgments, costs and counsel fees
and actual expenses, for anything done or omitted by the Unit Agent in
connection with this Agreement except as a result of the Unit Agent's gross
negligence or willful misconduct.
(f) The Unit Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action unless the
Company or one or more registered holders of Unit Certificates shall
furnish the Unit Agent with security and indemnity for any costs and
expenses which may be incurred acceptable to the Unit Agent. This provision
shall not affect the power of the Unit Agent to take such action as it may
consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Units my be
enforced by the Unit Agent without the possession of any of the Unit
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Unit Agent shall be brought in its name as Unit Agent and any recovery of
judgment shall be for the ratable benefit of the registered holders of the
Units, as their respective rights or interests may appear.
(g) The Unit Agent, and any stockholder, director, officer or employee
of it (the "Related Parties"), may buy, sell or deal in any of the
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Unit Agent under this Agreement. Nothing herein shall preclude the
Unit Agent or such Related Parties from acting in any other capacity for
the Company or for any other legal entity.
(h) The Unit Agent shall act hereunder solely as agent for the
Company, the Trustee and the Warrant Agent, and its duties shall be
determined solely by the provisions hereof. The Unit Agent shall not be
liable for anything which it may do or refrain from doing in connection
with this Agreement except for its own gross negligence or bad faith or
willful misconduct.
(i) Before the Unit Agent acts or refrains from acting with respect to
any matter contemplated by this Unit Agreement, it may require:
(1) an officers' certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in
this Unit Agreement relating to the proposed action have
been complied with; and
-13-
<PAGE>
(2) an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have
been complied with.
Each officers' certificate or opinion of counsel with respect to compliance
with a condition or covenant provided for in this Unit Agreement shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
The Unit Agent shall not be liable for any action it takes or omits to take
in good faith in reliance on any such certificate or opinion.
(j) In the absence of bad faith on its part, the Unit Agent may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the Unit
Agent and conforming to the requirements of this Unit Agreement. However, the
Unit Agent shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Unit Agreement.
(k) The Unit Agent may rely and shall be fully protected in relying upon
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Unit Agent need not investigate any fact or matter
stated in the document.
(l) The Unit Agent may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
SECTION 9. Notices to Company and Unit Agent, Trustee and Warrant Agent.
Any notice or demand authorized by this Agreement to be given or made to or on
the Company shall be sufficiently given or made when and if deposited in the
mail, first class or registered, postage paid, addressed
-14-
<PAGE>
If to the Company:
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, NY 11042
Attention: Paul Grillo
Telephone: (516) 328-7300
Facsimile: (516) 352-1953
with a copy to:
Doepken, Keevican & Weiss
58th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 19219
Attention: David G. Edwards, Esq.
Telephone: (412) 355-2600
Facsimile: (412) 3552609
If to the Unit Agent, Warrant Agent or the Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Facsimile: (212) 815-5715
The parties hereto by notice to the other parties may designate additional
or different addresses for subsequent communications or notice.
Any notice to be mailed to a holder of Units shall be mailed to him or her
at the address that appears on the register of Units maintained by the Unit
Agent. Copies of any such communication shall also be mailed to the Unit Agent,
Trustee and Warrant Agent. The Unit Agent shall furnish the Company, the Trustee
or the Warrant Agent promptly when requested with a list of registered holders
of Units for the purpose of mailing any notice or communication to the holders
of the Debentures or Warrants and at such other times as may be reasonably
requested.
SECTION 10. Change of Unit Agent. The Unit Agent may resign and be
discharged from its duties under this Agreement by giving to the Company 30
days' notice in writing; provided that the Unit Agent may not resign unless it
simultaneously resigns as Trustee under the Indenture governing the Debentures
and as Warrant Agent under the Warrant Agreement. The Unit Agent may be removed
by like notice to the Unit Agent from the Company. If the Unit Agent shall
resign or
-15-
<PAGE>
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Unit Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Unit Agent or by any holder of the Units (who shall with such
notice submit his Unit for inspection by the Company), then the resigning or
incapacitated Unit Agent or any such holder may apply to any court of competent
jurisdiction for the appointment of a successor to the Unit Agent. Pending
appointment of a successor to the Unit Agent, either by the Company or by such
court, the duties of the Unit Agent shall be carried out by the Company. Any
successor Unit Agent, whether appointed by the Company or such a court, shall be
a suitable alternate, experi enced in these duties and in good standing,
incorporated under the laws of the United States of America or any State thereof
or the District of Columbia and having at the time of its appointment as Unit
Agent a combined capital and surplus of at least $500,000,000. After
appointment, the successor Unit Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Unit
Agent without further act or deed; but the former Unit Agent shall deliver and
transfer to the successor Unit Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for such purpose. Failure to file any notice provided for in this
Section 9, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Unit Agent or the appointment of
the successor Unit Agent, as the case may be. In the event of such resignation
or removal, the Company or the successor Unit Agent shall mail by first class
mail, postage prepaid, to each holder of the Units, written notice of such
removal or resignation and the name and address of such successor Unit Agent.
SECTION 11. Supplements and Amendments. The Company, the Trustee, the
Warrant Agent and the Unit Agent may from time to time supplement or amend this
Agreement without the approval of any holders of Unit Certificates in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company, the Trustee, the Warrant Agent and the Unit Agent may deem
necessary or desirable and which shall not in any way adversely affect the
interests of the holders of Unit Certificates. Any amendment or supplement to
this Agreement that has a material adverse effect on the interests of the Unit
holders shall require the written consent of registered holders of a majority of
the then outstanding Units.
SECTION 12. Successors. All covenants and provisions of this Agreement by
or for the benefit of the Company, the Trustee, the Warrant Agent or the Unit
Agent shall bind and inure to the benefit of their respective successors and
assigns hereunder.
SECTION 13. Governing Law. THIS AGREEMENT AND EACH UNIT CERTIFICATE ISSUED
HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SAID STATE, WITHOUT REGARD
-16-
<PAGE>
TO THE CONFLICT OF LAW RULES THEREOF.
SECTION 14. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Trustee, the Warrant Agent, the Unit Agent and the registered holders of the
Unit Certificates any legal or equitable right, remedy or claim under this
Agreement, but this Agreement shall be for the sole and exclusive benefit of the
Company, the Trustee, the Warrant Agent, the Unit Agent and the registered
holders of the Unit Certificates.
SECTION 15. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
COMFORCE CORPORATION
By __________________________
Name:
Title:
THE BANK OF NEW YORK
as Trustee,
Warrant Agent and Unit Agent
By __________________________
Name:
Title:
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<PAGE>
EXHIBIT A
---------
[FORM OF SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR)" OR
(C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE
SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER,
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE UNIT AGENT A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE UNIT
AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT AN
INITIAL INVESTOR THAT IS AN INSTITUTIONAL ACCREDITED
INVESTOR PURCHASING AS DESCRIBED IN CLAUSE (1)(B) ABOVE
SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN
INSTITUTIONAL ACCREDITED INVESTOR, IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD
<PAGE>
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE UNIT AGENT,
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE UNIT
AGENT AND THE ISSUER, SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE UNIT AGENT TO REFUSE TO
REGISTER ANY TRANSFER OF THIS UNIT IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
<PAGE>
COMFORCE CORPORATION
Units Consisting of
$1,000 Principal Amount of 15%
Senior Secured PIK Debentures due 2009
and 8.45 Warrants, each to Purchase One Share of Common Stock
No. CUSIP No. [ ]
COMFORCE Corporation, a Delaware corporation (the "Company"), which term
includes any successor corporation, hereby certifies that [ ] is the owner
of [ ] Units as described above, transferable only on the books of the
Company by the holder thereof in person or by his or her duly authorized
attorney on surrender of this Certificate properly endorsed. Each Unit consists
of $1,000 principal amount of 15% Senior Secured PIK Debentures due 2009 (the
"Debentures") and 8.45 Warrants (the "Warrants"), each to purchase one share of
Common Stock, par value $0.01 per share, of the Company. This Unit is issued
pursuant to the Unit Agreement (the "Unit Agreement") dated as of November 26,
1997 among the Company and The Bank of New York, as Unit Agent (the "Unit
Agent"), Trustee and Warrant Agent, and is subject to the terms and provisions
contained therein, to all of which terms and provisions the holder of this Unit
Certificate consents by acceptance hereof. The terms of the Debentures are
governed by an Indenture dated as of November 26, 1997 (the "Indenture"),
between the Company and The Bank of New York, as Trustee, and are subject to the
terms and provisions contained therein, to all of which terms and provisions the
holder of this Unit Certificate consents by acceptance hereof.
Reference is made to the further provisions of this Unit Certificate
contained herein, which will for all purposes have the same effect as if set
forth at this place. Reference is also made to the Warrant Agreement (the
"Warrant Agreement") dated as of November 26, 1997 between the Company and The
Bank of New York, as Warrant Agent, which governs the terms of the Warrants, to
all of which terms and provisions the holder of this Unit Certificate consents
by acceptance hereof. Copies of the Unit Agreement, the Indenture and the
Warrant Agreement are on file at the office of the Company, available to any
holder on written request and without cost.
<PAGE>
The Debentures and Warrants of the Company represented by this Unit
Certificate shall be immediately detachable and separately transferable until
the next day after the sale by the Initial Purchasers.
Dated:
COMFORCE CORPORATION
By________________________
Name:
Title:
Countersigned:
THE BANK OF NEW YORK
as Unit Agent
By___________________________
Name:
Title:
<PAGE>
SCHEDULE OF INCREASES OR DECREASES OF DEBENTURES
The following increases or decreases in this Global Debenture have been
made:
Number of
Amount of Amount of Debentures of
decrease in increase in this Global Signature of
Number of Number of Debenture authorized
Date of Debentures of Debentures of following such signatory of
Exchange this Global this Global decrease or Trustee
Debenture Debenture increase
- --------------------------------------------------------------------------------
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
(Insert assignee's soc. sec or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this Security on the books of the
Company. The agent may substitute another to act for him.
Date:_____________________
Your Signature:__________________________
(Sign exactly as your name appears on the face of this Security)
<PAGE>
Signature Guarantee:
- ------------------------------
(Signatures must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Unit
Agent, which requirements will
include membership or
participation in the
Securities Transfer Agents
Medallion Program ("STAMP") or
such other "signature
guarantee program" as may be
determined by the Unit Agent
in addition to, or in
substitution for, STAMP, all
in accordance with the
Securities Exchange Act of
1934, as amended.)
<PAGE>
EXHIBIT B
---------
[LEGEND FORM FOR GLOBAL UNITS]
Any Global Unit authenticated and delivered hereunder shall bear a legend
which would be in addition to any other legends required in the case of a
Restricted Security) in substantially the following form:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR UNITS IN DEFINITIVE
FORM, THIS UNIT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY THE
DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE, TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF
THIS GLOBAL UNIT SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE,
AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT C
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OR TRANSFER OF UNITS
Re: Units (the "Units") of COMFORCE Corporation each consisting of $1,000
principal amounts of 15% Senior Secured PIK Debentures and 8.45
Warrants to purchase one share of Common Stock.
This Certificate relates to ____ Units held in* ____ book-entry or* ____
certificated form by ____ (the "Transferor").
The Transferor.*
_ has requested the Unit Agent by written order to deliver in exchange for
its beneficial interest in the Global Unit held by the depositary a Unit or
Units in definitive, registered form of authorized denominations and an
aggregate number equal to its beneficial interest in such Global Unit (or the
portion thereof indicated above); or
_ has requested the Unit Agent by written order to exchange or register the
transfer of a Unit or Units.
In connection with such request and in respect of each such Unit, the
Transferor does hereby certify that the Transferor is familiar with the Unit
Agreement relating to the above captioned Units and the restrictions on
transfers thereof as provided in Section 5 of such Unit Agreement, and that the
transfer of this Unit does not require registration under the Securities Act of
1933, as amended (the "Securities Act"), because[*]:
_ Such Unit is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 5(a)(y)(A) or Section 5(d)(i)(A) of the
Unit Agreement).
_ Such Unit is being transferred to a qualified institutional buyer (as
defined in Rule 144A under the Securities Act) in reliance on Rule 144A or in
accordance with Regulation S under the Securities Act.
_ Such Unit is being transferred in accordance with Rule 144 under the
Securities Act.
<PAGE>
Exhibit C
Page 2
_ Such Unit is being transferred in accordance with Regulation S under the
Securities Act.
_ Such Unit is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A or Rule 144 or Regulation S under the Securities Act. An opinion of
counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate.
----------------------------------
[INSERT NAME OF TRANSFEROR]
By:_______________________________
Date:_________________________
*Check applicable box.
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Units (the "Units") of COMFORCE Corporation each consisting of $1,000
principal amount of 15% Senior Secured PIK Debentures and 8.45 Warrants to
purchase one share of Common Stock
Ladies and Gentlemen:
In connection with our proposed purchase of Units, of the Company, we
confirm that:
1. We have received such information as we deem necessary in order to make
our investment decision.
2. We understand that any subsequent transfer of the Units is subject to
certain restrictions and conditions set forth in the Unit Agreement and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Units except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Units have not been
registered under the Securities Act, and that the Securities may not be offered
or sold within the United States or to, or for the account or benefit of, U.S.
persons except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Units, we will do so only (A) to the Company
or any subsidiary thereof, (B) inside the United States in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes to the Unit Agent a
signed letter substantially in the form hereof, (D) outside the United States in
accordance with Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing Units
from us a
<PAGE>
Exhibit D
Page 2
notice advising such purchaser that resales of the Units are restricted as
stated herein.
4. We understand that, on any proposed resale of Units, we will be required
to furnish to the Unit Agent and the Company, such certification, legal opinions
and other information as the Unit Agent and the Company may reasonably require
to confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Units purchased by us will bear a legend to the
foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Units, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or their investment, as the case may be.
6. We are acquiring the Units purchased by us for our account or for one or
more accounts (each of which is an institutional "accredited investor") as to
each of which we exercise sole investment discretion.
<PAGE>
Exhibit D
Page 3
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:_____________________________
(Authorized Signatory)
Exhibit 10.14
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of November 26, 1997, made by COMFORCE
Corporation, a Delaware corporation (the "Pledgor"), in favor of The Bank of New
York, in its capacity as collateral agent (in such capacity, the "Collateral
Agent") for the ratable benefit of the holders (the "Securityholders") of the
15% Senior Secured PIK Debentures due 2009 (the "Debentures") issued by the
Pledgor under an Indenture dated as of November 26 1997, between the Company and
The Bank of New York, in its capacity as Trustee (the "Indenture").
W I T N E S S E T H :
WHEREAS, NatWest Capital Markets Limited (the "Initial Purchaser") and the
Pledgor have entered into a Purchase Agreement dated November 19, 1997 (the
"Purchase Agreement"), pursuant to which, among other things, the Initial
Purchaser has agreed to purchase the Debentures from the Pledgor; and
WHEREAS,the Pledgor is the legal and beneficial owner of the shares of
Pledged Stock (as hereinafter defined) issued by COMFORCE Operating, Inc. (the
"Issuer"); and
WHEREAS, it is a condition precedent to the obligation of the Initial
Purchaser to purchase the Debentures under the Purchase Agreement, that the
Pledgor shall have executed and delivered this Pledge Agreement to the
Collateral Agent;
NOW, THEREFORE, in consideration of the premises and to induce the Initial
Purchaser to enter into the Purchase Agreement and to purchase the Debentures,
the Pledgor hereby agrees with the Collateral Agent, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are defined
in the Indenture and used herein are so used as so defined, and the meanings
assigned to terms defined herein or in the Indenture shall be equally applicable
to both the singular and plural forms of such terms; and the following terms
shall have the following meanings:
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" means the unpaid principal of, any premium applicable to, and
interest on the Debentures (including, without limitation, interest accruing
after the maturity of the Debentures and interest accruing after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Pledgor, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
and all other obligations and liabilities of the Pledgor to the Securityholders,
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Debentures, the Indenture or this Pledge Agreement (in each such case
as the same may be amended, supplemented or modified from time to time) and any
other document made,
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delivered or given in connection therewith or herewith, whether on account of
principal, premium, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all fees and disbursements of
counsel) or otherwise.
"Pledge Agreement" means this Pledge Agreement, as further amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the Issuer listed on
Schedule I hereto, together with all stock certificates, options or rights of
any nature whatsoever that may be issued or granted by the Issuer to the Pledgor
in respect of the Pledged Stock while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in Section 9-306(l)
of the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.
"UCC" means the Uniform Commercial Code from time to time in effect in the
State of New York.
2. Pledge; Grant of Security Interest; Endorsement. The Pledgor hereby
delivers to the Collateral Agent all the Pledged Stock and hereby grants to the
Collateral Agent a first priority security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Perfection of Security. The Pledgor authorizes the Collateral Agent to
file such financing statements and other documents and do such acts, matters and
things as the Collateral Agent may consider appropriate to perfect and continue
the Collateral Agent's security interest in the Collateral, to protect and
preserve the Collateral Agent's security interest in the Collateral and to
realize upon the Collateral Agent's security interest in the Collateral.
4. Stock Powers. Concurrently with the delivery to the Collateral Agent of
each certificate representing one or more shares of Pledged Stock to the
Collateral Agent, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank by the Pledgor, with signature guaranteed.
5. Representations and Warranties. The Pledgor represents and warrants
that:
(a) the shares of Pledged Stock listed on Schedule I constitute (i)
all the issued and outstanding shares of all classes of the capital stock
of the Issuer that are owned by the Pledgor and (ii) the percentage listed
on Schedule I of the aggregate number of the issued and outstanding
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shares of the identified class of capital stock of the Issuer owned by the
Pledgor;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(c) the Pledgor is the legal and beneficial owner of, and has good and
marketable title to, the Pledged Stock listed on Schedule I, free of any
and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Pledge Agreement; and
(d) upon delivery to the Collateral Agent of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority Lien on the
Pledged Stock, enforceable as such against all creditors of the Pledgor.
6. Covenants. The Pledgor covenants and agrees with the Collateral Agent
that, from and after the date of this Pledge Agreement until the obligations are
paid in full:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate or
any certificate or other instrument evidencing ownership of any partnership
interest (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution for, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, the Pledgor shall accept
the same as the agent of the Collateral Agent, hold the same in trust for
the Collateral Agent and deliver the same forthwith to the Collateral Agent
in the exact form received, duly indorsed by the Pledgor to the Collateral
Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with signature
guaranteed, to be held by the Collateral Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Any sums
paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the Issuer shall be paid over to the Collateral Agent, and
in case any distribution of capital shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect to
the Pledged Stock pursuant to the recapitalization or reclassification of
the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Collateral Agent to be
held by it hereunder as additional collateral security for the Obligations.
If any sums of money or property so paid or distributed in respect of the
Pledged Stock shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Collateral Agent, hold
such money or property in trust for the Securityholders, segregated from
other funds of the Pledgor, as additional collateral security for the
Obligations.
(b) Without the prior written consent of the Collateral Agent, the
Pledgor will not (i) permit the Issuer to issue any stock or other equity
securities of any nature or to issue any other securities convertible into
or granting the right to purchase or exchange for any stock or other equity
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securities of any nature of the Issuer, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral, or (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the
Collateral, or any interest therein, except for the Lien provided for by
this Pledge Agreement. The Pledgor will defend the right, title and
interest of the Collateral Agent in and to the Collateral against the
claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Pledgor, the Pledgor will
promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Collateral Agent may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein
granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall
be immediately delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to
this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by
this Pledge Agreement.
7. Cash Dividends and Distributions; Voting Rights. Unless an Event of
Default shall have occurred and be continuing, the Pledgor shall be permitted to
receive and retain all cash dividends in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock;
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which results in any violation of any provision of the
Indenture, the Notes or this Pledge Agreement.
8. Rights of the Collateral Agent. (a) If an Event of Default shall occur
and be continuing, (i) promptly upon receipt thereof by the Pledgor and without
any request therefor by the Collateral Agent, the Pledgor shall deliver to the
Collateral Agent any and all cash dividends paid in respect of the Pledged Stock
and the Collateral Agent may make application thereof to the Obligations in such
order as the Collateral Agent may determine, (ii) all shares of the Pledged
Stock shall be registered in the name of the Collateral Agent or its nominee,
and the Collateral Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights, privileges or options pertaining to such shares of
the Pledged Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the Issuer, or upon the
exercise by the Pledgor or the Collateral Agent of any right, privilege or
option pertaining to such shares of Pledged Stock, and in connection therewith,
the right
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to deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine), all without liability except to account for
property actually received by it, but the Collateral Agent shall have no duty to
the Pledgor to exercise (and, without the consent of the Collateral Agent, the
Pledgor shall not exercise) any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
(b) The rights of the Collateral Agent hereunder shall not be conditioned
or contingent upon the pursuit by the Collateral Agent of any right or remedy
against the Pledgor or the Issuer against any other Person which may be or
become liable in respect of all or any part of the Obligations or against any
collateral security therefor, guarantee therefor or right of offset with respect
thereto. The Collateral Agent shall not be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so, nor shall the Collateral Agent be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Pledgor or any other
Person or to take any other action whatsoever with regard to the Collateral or
any part thereof.
9. Remedies. If an Event of Default shall occur and be continuing, the
Collateral Agent may exercise, in addition to all other rights and remedies
granted in this Pledge Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC and under similar laws in effect in other relevant
jurisdictions. Without limiting the generality of the foregoing, the Collateral
Agent, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Pledgor, any Issuer or any other Person (all and each
of which demands, defenses, advertisements and notices are, to the extent
permitted by law, hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at a public or private sale
or sales, in the over-the-counter market, at any exchange, broker's board or
office of the Collateral Agent or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Collateral
Agent shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is, to the extent permitted by
law, hereby waived or released. The Collateral Agent shall apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all costs
and expenses of every kind incurred in respect thereof or incidental to the care
or safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Collateral Agent hereunder, including, without limitation,
reasonable attorneys' fees and disbursements of counsel to the Collateral Agent,
to the payment in whole or in
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part of the Obligations, in such order as the Collateral Agent may elect, and
only after such application and after the payment by the Collateral Agent of any
other amount required by any provision of law, including, without limitation,
Section 9-504(l)(c) of the UCC, need the Collateral Agent account for the
surplus, if any, to the Pledgor. To the extent permitted by applicable law, the
Pledgor waives all claims, damages and demands they may acquire against the
Collateral Agent arising out of the exercise by them of any rights hereunder. If
any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition. The Pledgor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Collateral Agent to collect such
deficiency.
10. Registration Rights. (a) If the Collateral Agent shall determine to
exercise its right to sell any or all of the Pledged Stock pursuant to paragraph
9 hereof, and if in the opinion of the Collateral Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Pledgor will use its best efforts to cause the Issuer to
(i) execute and deliver, and cause the directors and officers of the Issuer to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts as may be, in the opinion of the Collateral Agent,
necessary or advisable to register the Pledged Stock, or that portion thereof to
be sold, under the provisions of the Securities Act, (ii) use its best efforts
to cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii)
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Collateral Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to use
its best efforts to cause the Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Collateral
Agent shall designate and to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of Section
11(a) of the Securities Act.
(b) Upon the occurrence of an Event of Default, the Pledgor hereby
consents, and agrees to cause the issuer of any Pledged Stock to consent, to the
disclosure by the Collateral Agent to the public generally and/or to any
prospective purchaser of the Pledged Stock of any information relating to the
Pledged Stock, whether confidential or not.
(c) The Pledgor further agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this paragraph 10 valid and
binding and in compliance with any and all other applicable requirements of law.
The Pledgor further agrees that a breach of any of the covenants contained in
this paragraph 10 will cause irreparable injury to the Collateral Agent, that
the Collateral Agent has no adequate remedy at law in respect of such breach
and, as a consequence, that
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each and every covenant contained in this paragraph 10 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred under the Indenture.
11. Limitation on Duties Regarding Collateral. The Collateral Agent's sole
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall
be to deal with it in the same manner as the Collateral Agent deals with similar
securities and property for its own account. Neither the Collateral Agent nor
any of its directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
12. Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and are powers coupled
with an interest.
13. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
15. No Waiver; Cumulative Remedies. The Collateral Agent shall not by any
act (except by a written instrument pursuant to paragraph 16 hereof) be deemed
to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Collateral Agent would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
16. Waivers and Amendments; Successors and Assigns. None of the terms or
provisions of this Pledge Agreement may be amended, supplemented or otherwise
modified except by a written instrument executed by the Pledgor and the
Collateral Agent, provided that any
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provision of this Pledge Agreement may be waived by the Collateral Agent in a
letter or agreement executed by the Collateral Agent or by telecopy from the
Collateral Agent. This Pledge Agreement shall be binding upon the successors and
assigns of the Pledgor and shall inure to the benefit of the Collateral Agent
and its respective successors and assigns.
17. Termination of Security Interest; Release of Collateral. (a) Upon the
repayment in full of all Obligations, the security interest granted in the
Collateral pursuant to this Pledge Agreement shall terminate and all rights to
the Collateral shall revert to the Pledgor.
(b) Upon any such termination of the security interest granted in the
Collateral pursuant to this Agreement, the Collateral Agent will, at the expense
of the Pledgor, execute and deliver to the Pledgor such documents as the Pledgor
shall reasonably request to evidence the termination of the Security Interest
and deliver to the Pledgor all Collateral so released then in its possession.
18. Notices. All notices or other communications provided for hereunder
shall be in writing and sent by first class mail or nationwide overnight
delivery service (a) if to the Pledgor, addressed to it at its address listed
next to its name on the signature pages hereof, or at such other address as the
Pledgor shall have specified to the Collateral Agent in writing and (b) if to
the Collateral Agent, addressed to it at 101 Barclay Street, 21W, New York, New
York 10286.
19. Notices and Other Communications in Respect of Collateral. The Pledgor
shall deliver promptly to the Collateral Agent copies of all notices or other
communications received by the Pledgor in respect of the Collateral. Until the
occurrence of an Event of Default, the Collateral Agent shall deliver promptly
to the Pledgor all notices or other communications received by the Collateral
Agent or its nominee in respect of the Collateral. After the occurrence of an
Event of Default, the Pledgor waives all rights to receive any notices or
communications received by the Collateral Agent or its nominee in respect of the
Collateral.
20. Irrevocable Authorization and Instruction to Issuer. The Pledgor hereby
authorizes and instructs the Issuer to comply with any instruction received by
it from the Collateral Agent in writing that (a) states that an Event of Default
has occurred and (b) is otherwise in accordance with the terms of this Pledge
Agreement, without any or other further instructions from the Pledgor, and the
Pledgor agrees that the Issuer shall be fully protected in so complying.
21. Integration. This Pledge Agreement represents the agreement of the
Pledgor and the Collateral Agent with respect to the subject matter hereof, and
there are no promises, undertakings, representations or warranties by the
Collateral Agent relative to the subject matter hereof not expressly set forth
or referred to herein or in the Purchase Agreement.
22. GOVERNING LAW. THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PLEDGOR UNDER THIS PLEDGE AGREEMENT SHALL BE
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GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION AND THE EFFECT OF
PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, IN RESPECT
OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
23. Copy Received. The Pledgor hereby acknowledges receipt of a copy of
this Pledge Agreement.
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IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be
duly executed and delivered as of the date first above written.
Address:
2000 Marcus Avenue COMFORCE CORPORATION
Lake Success, New York 11042
Attention: Chief Financial
By_________________________
Officers Name:
Title:
Accepted and Agreed:
THE BANK OF NEW YORK
as Collateral Agent
By________________________
Name:
Title:
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ACKNOWLEDGEMENT AND CONSENT
The Issuer referred to in the foregoing Pledge Agreement hereby
acknowledges receipt of a copy thereof and agrees to be bound thereby and to
comply with the terms thereof, insofar as such terms are applicable to it. The
Issuer agrees to notify the Collateral Agent promptly in writing of the
occurrence of any of the events described in paragraph 6(a) of the Pledge
Agreement. The Issuer further agrees that the terms of paragraph 10(c) of the
Pledge Agreement shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it under or pursuant to or arising out of
paragraph 10 of the Pledge Agreement.
COMFORCE OPERATING, INC.
By_________________________
Name:
Title:
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Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of the 1st day of
December, 1997, by and between COMFORCE Corporation ("COMFORCE") a Delaware
corporation and COMFORCE Operating, Inc. ("COI"), a Delaware corporation that is
wholly-owned by COMFORCE, (COMFORCE and COI are collectively referred to as the
"Employer"), and Christopher P. Franco, a resident of the State of Connecticut
("Employee").
RECITALS:
A. COMFORCE has employed Employee prior to the date hereof as an employee
and Employer wishes to employ Employee on and after the effective date hereof on
the terms and conditions hereof.
B. Employee is willing to continue employment with Employer on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the promises and mutual obligations of
the parties contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged the parties hereto agree as
follows:
1. Employment of Employee. Employer employs Employee, and Employee accepts
employment by Employer, during the "Term of Employment," as defined in Section 2
hereof, for the consideration and on the terms and conditions provided herein.
Employee shall be employed during the Term of Employment in such capacity or
capacities, and perform such duties, as may be determined from time to time by
each Employer's Board of Directors or any officer designated by the Board of
Directors as Employee's supervising officer (a "Supervising Officer"). COMFORCE
and COI shall allocate between each other the uses of Employee and costs
hereunder. To the extent there is a conflict between the requirements of
COMFORCE and COI, Employee shall follow the directions of, and be subject to the
ultimate control of, COMFORCE. Subject to this power of the Board of Directors
and Supervising Officer of Employer to designate the position in which Employee
shall serve Employer, Employee shall maintain the title and position of Chief
Executive Officer of Employer. Employee shall have full authority and
responsibility to undertake and carry out the functions and activities of that
position in all respects, subject only to the directions of, and policies
established and communicated to Employee from time to time by, the Board of
Directors or Supervising Officer.
2. Effective Date; Term of Employment. This Agreement shall commence and be
effective for all purposes as of the date first set forth above and shall remain
in effect, unless earlier terminated as provided in Section 7 hereof, until
November 30, 2000 (the "Initial Termination Date"), which date shall be extended
to the subsequent November 30 unless no less than sixty (60) days prior to the
Initial Termination Date or subsequent extension thereof, either
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party has given the other written notice of termination hereof. The period
during which Employee is employed by Employer pursuant to this Agreement is
herein called the "Term of Employment."
3. Employee's Duties. During the Term of Employment, Employee shall: (i)
devote his full working time and attention to the business and affairs of
Employer and to the performance of his duties hereunder; (ii) serve Employer
faithfully and to the best of his ability, and use his best efforts to promote
the interests of Employer; and (iii) follow and implement the policies and
directions of the Board of Directors and Supervising Officer. Notwithstanding
the above, nothing contained in this Section 3 shall be deemed to prevent
Employee from engaging in activities relating to (a) the making of investments
for his own account or for the account of others, or (b) investment banking,
venture capital and finance activities, (c) serving as a member of the board of
directors of other corporations, or (d) engaging in charitable or public service
activities, provided that such investments, services and activities do not
interfere with Employee's performance of his duties hereunder.
Employee shall not be relocated from the Greater New York Metropolitan Area
without his prior consent.
4. Employee's Compensation.
(a) Base Salary. During the Term of Employment, as Employee's base
compensation for all services to be performed hereunder, Employer shall pay
Employee an annual salary of Two Hundred Thousand Dollars ($200,000) (the "Base
Salary"), payable in accordance with the Employer's payroll practices for its
officers. This base salary will increase annually during the Term of Employment
on each December 1, beginning December 1, 1998, by the greater of (i) seven
percent (7%) or (ii) a percentage equivalent to the percentage increase of (a)
the Price Index (as defined below) for the most recently available month at the
time of each such increase over (b) the Price Index reported for the same month
one year prior (such percentage increase calculated pursuant to this Section
4(a) is referred to herein as the "CPI Increase"). The Base Salary shall also be
increased from time to time at the discretion of the Board of Directors or any
committee thereof having authority over Employee's compensation to account for
material changes of circumstances of the Employer or of the responsibilities of
Employee.
For purposes of this Agreement, "Price Index" shall mean the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index U.S. City
Averages, all Urban Consumers, All Items, 1982-84 = 100. If the manner in which
the Price Index as determined by the Department of Labor shall be substantially
revised, or if the 1982-84 average shall no longer be used as an index of 100,
an adjustment shall be made in such revised index so that the number used shall
be that which would have been obtained if the Price Index had not been so
revised, or if said average was still in use. If the Price Index shall become
unavailable for any reason whatsoever, the parties will substitute therefor a
comparable index based upon changes in the cost of living or purchasing power of
the consumer dollar published by any other governmental agency or, if no such
index shall then be available, a comparable index published by a major bank or
other financial institution.
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(b) Reimbursement of Expenses. It is recognized that during the Term of
Employment, Employee will be required to incur ordinary and necessary business
expenses in connection with the performance of his duties hereunder. Employer
shall pay or reimburse Employee promptly in the amount of al such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with Employer's policies and procedures.
(c) Automobile. It is recognized that the services to be performed by
Employee hereunder will require the use of a suitable automobile, and Employer
shall supply Employee with an automobile of Employee's choice at a cost to
Employer of no more than $650 per month. In the event that a Severance Payment
shall become due and payable under Section 7(c) hereof, Employer shall continue
to supply Employee with an automobile during the term of the Severance Payment.
In the event that a Termination Payment shall become payable under Section 7(d)
hereof, Employer shall transfer such automobile to Employee for the aggregate
consideration of $1.00 (if such automobile is leased by Employer, Employer shall
acquire such automobile prior to its transfer to Employee).
(d) Benefit Plans.
(i) Medical, Dental and Vision Benefits.
Employer agrees to reimburse Employee for all medical, dental, vision and
hospital expenses incurred by Employee for himself and for his wife and
dependent children during the Term of Employment and during the term of any
Severance Payment payable hereunder. These benefits may be provided in whole or
in part by an insurance plan; provided that Employer will reimburse Employee for
any such expenditure (1) in payment of any co-payment amount required to be paid
by Employee by any such insurance plan and (2) for any deductible amounts paid
by Employee.
(ii) Continuation of Salary During Disability.
If Employee becomes disabled during the Term of Employment because of
sickness, physical or mental disability, or for any other reason so that he is
unable to perform his duties hereunder, Employer agrees to continue Employee's
salary during such disability throughout the Term of Employment. These benefits
may be provided in whole or in part by a policy of disability insurance.
(iii) Benefit to Heirs Upon Death of Employee.
During the Term of Employment, Employer agrees to provide, at no cost to
Employee, life insurance benefits in the amount of Five Hundred Thousand Dollars
($500,000) for the benefit of beneficiaries designated by Employee, through the
purchase of a variable life insurance policy. In the event that a Termination
Payment or Severance Payment shall become payable under Section 7 hereof,
Employer shall (A) assign and transfer such policy to Employee and (B) pay all
premiums on such policy until the date payments are no longer required to be
made
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hereunder (in the event a Severance Payment is payable hereunder) or until the
third anniversary of the date of termination of employment (in the event of a
Termination Payment is payable hereunder).
(e) Bonus. In addition to Employee's compensation as provided herein,
Employer agrees to pay to Employee a bonus, in cash or in the common stock of
Employer, during the Term of Employment, in a sum to be determined by Employer's
Board of Directors based on achievement of corporate targets set in good faith
by the Board of Directors. The amount of such bonus shall not be decreased from
the highest amount of the bonus payable (the "Mandatory Bonus Amount") with
respect to the immediately preceding year based upon achievement of the prior
year's bonus targets set in good faith by the Board of Directors. Such bonus
shall be paid no less frequently than on an annual basis. The Board of Directors
may also in its discretion award additional discretionary bonuses which, unless
otherwise directed by the Board, will not be deemed to be added to or to
increase the Mandatory Bonus Amount.
(g) Fringe Benefits. Employee shall be entitled to participate in all other
fringe benefits generally offered by Employer to its employees during the Term
of Employment.
5. Employee's Vacation. Employee shall be entitled to four weeks paid
vacation per year during the Term of Employment.
6. Confidentiality; Business Opportunities.
(a) Confidentiality of Information. Employee recognizes and acknowledges
that the business interests of Employer require a confidential relationship
between Employer and Employee and the fullest protection and confidential
treatment of the financial data, lists of customers, lists of suppliers, special
agreements with suppliers, market information, marketing and/or promotional
techniques and methods, pricing information, purchase information, sales
policies, employee lists, policy and procedure manuals, books and publications,
records, advertising methods or schemes, computer records, trade secrets, know
how, plans and programs, sources of supply, and other knowledge of the business
of Employer (all of which are hereinafter jointly termed "Confidential
Information") which may in whole or in part be conceived, learned or obtained by
Employee in the course of Employee's employment with Employer. Accordingly,
Employee agrees to keep secret and treat as confidential all Confidential
Information whether or not copyrightable or patentable, and agrees not to use or
aid others is learning of or using any Confidential Information except in the
ordinary course of business and in furtherance of Employer's interests. During
the Term of Employment and at all times thereafter, except insofar as is
necessary disclosure consistent with Employer's business interests:
(i) Employee will not, directly or indirectly, disclose any
Confidential Information to others either within or outside of the business
of Employer;
(ii) Employee will not make copies of or otherwise disclose the
contents of documents containing disclosures of Confidential Information;
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(iii) As to documents which are delivered to Employee or which are
made available to him as a necessary part of the working relationships and
duties of Employee within the business of Employer, Employee will treat
such documents confidentially and will treat such documents as proprietary
and confidential, not to be reproduced, disclosed or used without
appropriate authority of Employer; and
(iv) Employee will not advise others that the information and/or know
how included in Confidential Information is known to or used by Employer or
Employee.
During the Term of Employment and at all times thereafter, Employee will
not in any manner disclose or use Confidential Information for Employee's own
account and will not aid, assist or abet others in the use of Confidential
Information for their account or benefit, or for the account or benefit of any
person or entity other than Employer.
Employee shall have no obligations with respect to Confidential Information
which at the time of disclosure is generally available to the public or with
respect to which disclosure is required by law.
(b) Confidentiality of Customers. Employee agrees that during the Term of
Employment and for a period ending two (2) years after termination of Employee's
employment with Employer, whether such termination is voluntary or involuntary
and irrespective of which party terminates and whether such termination is for
cause or not:
(i) Employee will not, directly or indirectly, make known or divulge
names, addresses or any information concerning the customers of Employer
existing at the time Employee entered the employ of Employer or of whom
Employee learned or with whom Employee became acquainted after entering the
employ of Employer, to any person, partnership, firm, company, corporation
or other entity; and
(ii) Employee will not, either directly or indirectly, either for
himself or for any other person, partnership, firm, company, corporation or
other entity, contact, solicit, purchase from, divert, or take away any of
the customers of Employer who were contacted, dealt with or solicited by
Employee or with whom Employee became acquainted, or of whom Employee
learned or obtained information about during the Term of Employment or
during the previous employment of Employee by Employer or any predecessor
in interest.
(c) Non-Interference with Contractual Relationships. Employee agrees that
during the Term of Employment and for a period ending two (2) years after
termination of Employee's employment with Employer, whether such termination is
voluntary or involuntary and irrespective of which party terminates and whether
such termination is for cause or not, Employee will not solicit, entice or
otherwise induce any employee of Employer to leave the employ of Employer for
any reason whatsoever; nor will Employee directly or indirectly aid, assist or
abet any other person or entity in soliciting or hiring any employee of
Employer, nor will Employee
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otherwise interfere with any contractual or other business relationships between
Employer and its employees.
(d) Disclosure of Business Opportunities. During the Term of Employment,
Employee agrees to promptly and fully disclose to Employer, and not to divert to
Employee's own use or benefit or the use or benefit of others, any business
opportunities involving any existing or prospective line of business, supplier,
product or activity of Employer or any business opportunities which otherwise
should rightfully be afforded to Employer.
(e) Should a court of competent jurisdiction determine that this Section 6
or any subsection hereof are otherwise unenforceable because one or all of them
are vague or over broad, the parties agree that these subsections may and shall
be enforced to the maximum extent permitted by law. It is the intent of the
parties that each of these subsections be a separate and distinct promise and
that unenforceability of any one subsection shall have no effect on the
enforceability of another.
(f) Employee agrees that should either party seek to enforce or determine
its rights through legal or judicial proceedings because of an act of the
Employee which the Employer believes to be in contravention of this Section 6
("Covenant"), the Covenant period shall be extended for a time period equal to
the period necessary to obtain judicial enforcement of the Employer's rights
hereunder.
(h) The parties agree that in the event of Employee's violation of this
Section 6 or any subsection thereunder, that the damage to the Employer will be
irreparable and that money damages will be difficult or impossible to ascertain.
Accordingly, in addition to whatever other remedies the Employer may have at law
or in equity, the Employee recognizes and agrees that the Employer shall be
entitled to a temporary restraining order and a temporary and permanent
injunction enjoining and prohibiting any acts not permissible pursuant to this
Section 6.
7. Termination of Agreement.
(a) Employer agrees not to terminate this Agreement except for "just
cause," and agrees to promptly give Employee written notice of its belief that
acts or events constituting "just cause" exist. Employee has the right to cure
within thirty (30) days of Employer's giving of such notice, the acts, events or
conditions which led to Employer's notice, but only if such acts are capable of
being cured. For purposes of this Agreement, "just cause" shall mean (i) the
willful failure to refusal of Employee to implement or follow the reasonable
written policies or directions of Employer's Board of Directors, provided that
Employee's failure or refusal is not based upon Employee's belief in good faith,
as expressed to Employer in writing, that the implementation thereof would be
unlawful; (ii) embezzlement; (iii) material violation of any of Employee's
covenants or agreements set forth in this Agreement due to Employee's
willfulness or gross negligence; and (iv) conviction of Employee of a felony
arising from an act or acts which
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result in material harm to Employer; provided, however, that after a Change of
Control, "just cause" shall only mean the events described in clauses (ii),
(iii) and (iv) of this sentence.
(b) Employer retains the right to discharge Employee for any reason not
specified above.
(c) Employer agrees that if prior to a Change of Control it discharges
Employee for any reason other than "just cause", Employee will be entitled to
full compensation, including participation in all benefit programs set forth in
Section 4 hereof, subject to the provisions of such Section 4, for one (1) year
(the "Severance Payment"). In addition, all stock options for the stock of
employer theretofore granted to Employee will become immediately exercisable and
will remain exercisable throughout the original term of such option,
notwithstanding any provision to the contrary regarding termination of
employment in the stock option agreement issued in respect of such stock option
or any other stock option plan of Employer pursuant to which such stock option
may have been granted.
(d) Employer agrees that if at any time within three (3) years following a
Change of Control it discharges Employee or refuses to extend the Term of
Employment for any reason other than "just cause", or if within one year after a
Change of Control Employee resigns from his employment with Employer for any
reason whatsoever,
i. The Employer will pay to Employee immediately after such
termination of employment a lump-sum cash payment equal to 300%
of the aggregate of (A) his then-current annual base salary (or,
if his base salary has been reduced at any time after the Change
of Control, his base salary in effect prior to the reduction),
(B) the highest amount of cash bonus paid to Employee during the
three calendar years immediately prior to the Change of Control,
(C) the annual cost to the Employer of any benefits, other than
those provided for by Section 4(d)(iii), then provided to
Employee, included the cost of policies of insurance to fully
provide the benefits required to be provided under Section
4(d)(i) and Section 4(d)(ii) hereof, even if those benefits are
in whole or in part self-insured by Employer and (D) the amount
contributed by the Employer on behalf of the Employee for the
calendar year ending immediately prior to the termination to any
pension plan of the Employer.
ii. Employer shall pay to Employee an additional bonus immediately
after such termination of employment equal to the product of (A)
the exercise price(s) of all stock options for the stock of the
Employer granted to Employee not theretofore exercised multiplied
by (B) the number of such stock options to which such exercise
price(s) relate, increased to an amount equal to the product of
(1) such bonus multiplied by (2) the result of (x) one (1)
divided by (y) one (1) minus the maximum federal income tax rate
for individuals
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in effect on the date of such payment (such methodology for
determining the increased amount referred to as the "Gross Up
Procedure").
iii. All of Employee's outstanding stock options, restricted shares
and other similar incentive interests and rights that have not
vested or been exercised will become immediately and fully vested
and exercisable and will remain exercisable throughout the
original term of such option, notwithstanding any provision to
the contrary regarding termination of employment in the stock
option agreement issued in respect of such stock option or any
other stock option plan of Employer pursuant to which such stock
option may have been granted.
iv. Employee, together with his dependents, will continue following
such termination of employment to participate fully, with no
contribution to the cost required of him or them, in all accident
and health plans maintained or sponsored by the Employer
immediately prior to the Change of Control, or receive
substantially the equivalent coverage (or the full value thereof
in cash) from the Employer, until the third anniversary of such
termination.
v. The Employer will promptly reimburse Employee for any and all
legal fees and expenses incurred by him as a result of such
termination of employment, including without limitation all fees
and expenses incurred in connection with efforts to enforce the
provisions of this Agreement.
All compensation received by Employee pursuant to this subsection is
collectively referred to herein as the "Termination Payment."
(c) In the event that Employee becomes entitled to a Termination Payment,
if any of the Termination Payment will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code"),
Employer shall pay to Employee an additional amount (the "Gross-up Payment")
such that the net amount retained by Employee, after deduction of Excise Tax on
the Termination Payment and any federal, state and local income tax and Excise
Tax upon the payment provided for by this Section, shall be equal to the
Termination Payment. For purposes of determining whether any of the Termination
Payment will be subject to the Excise Tax and the amount of such Excise Tax, (i)
any other payments or benefits received or to be received by Employee in
connection with the Change of Control of Employer or the termination of
Employee's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, any person whose action
result in a Change of Control or any person affiliated with Employer or such
person) shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by Employer and acceptable to Employee such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent,
reasonable compensation for services actually
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rendered within the meaning of Section 280G(b)(4) of the Code, (ii) the amount
of Termination Payment which shall be treated as subject to the Excise tax shall
be equal to the lesser of (A) the total amount of the Termination Payment or (B)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
and (4) after applying clause (i) above, and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by Employer's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rates of taxation in the state and locality of Employee's residence on
the date of termination of Employee's employment, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of the termination
of Employee's employment, Employee shall repay to Employer at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Employee's employment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), Employer shall make an additional gross-up
payment in respect of such excess (plus any interest payable with respect to
such excess) at the time that the amount of such excess is finally determined.
(d) For purposes of this Agreement, a "Change of Control" of Employer shall
be deemed to have occurred if
i. any individual, corporation, partnership, company, or other
entity (a "Person"), which term shall include a "group" (within
the meaning of section 13(d) of the Securities Exchange Act of
1934 (the "Act")) who does not currently own directly or
indirectly 20% or more of the combined voting power of COMFORCE's
outstanding securities becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act) of securities of COMFORCE
representing more than 20% of the combined voting power of
COMFORCE's then-outstanding securities.
ii. the stockholders of COMFORCE approve a merger or consolidation of
COMFORCE with any other corporation, other than a merger or
consolidation which would result in the voting securities of
COMFORCE outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of COMFORCE or
such surviving entity outstanding immediately after such merger
or consolidation, or the stockholders approve a plan of complete
liquidation of COMFORCE or an agreement for the sale or
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disposition by the Employer of all or substantially all of the
Employer's assets; PROVIDED, HOWEVER, that if the merger, plan of
liquidation or sale of substantially all assets is not
consummated following such stockholder approval and the
transaction is abandoned, then the Change of Control shall be
deemed not to have occurred.
iii. the Board of Directors of COMFORCE ceases to consist of a
majority of Continuing Directors. For purposes hereof,
"Continuing Director" shall mean a member of the Board of
Directors of COMFORCE who either (A) was a member of the Board of
Directors as of the date of this agreement or (B) was nominated
or appointed (before initial election as a director) to serve as
a director by a majority of the then Continuing Directors and was
approved in writing by Employee.
(e) Except as provided in Section 7(f), if Employee shall voluntarily cease
his employment with Employer for any reason prior to a Change of Control, all
compensation and benefits payable to Employee hereunder shall thereupon, without
further writing or act, cease, lapse and be terminated; provided, however, that
Employee may continue to receive benefits under any group health care insurance
plan, at Employee's expense, to the extent required by the Consolidated Omnibus
Budget Reconciliation Act of 1985. This paragraph (e) does not affect any rights
of Employee under any stock option agreements with Employer.
(f) In the event of the Bankruptcy (as defined below) of Employer, Employee
may at his option cease his employment hereunder, whereupon all of the
obligations of the parties hereto shall be terminated. For purposes of this
Agreement, "Bankruptcy" shall mean with respect to Employee, (i) the entry of a
decree or order for relief of either Employer by a court of competent
jurisdiction in any involuntary case involving the Employer under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar agent for either Employer or for any substantial
part of the Employer's assets or property; (iii) the filing with respect to
either Employer of a petition in any such involuntary bankruptcy case, which
petition remains undismissed for a period of ninety (90) days or which is
dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy law);
(iv) the commencement by either Employer of a voluntary case under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (v) the
consent by either Employer to the entry of an order for relief in an involuntary
case under any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar agent for the Employer or for any substantial part of the Employer's
asses or property; or (vi) the making by either Employer of any general
assignment for the benefit of creditors.
(g) In the event that Employee terminates his employment with Employer
prior to a Change of Control as a result of a material breach by Employer of its
obligations under this Agreement, which breach, if it is capable of being cured,
has not been cured within 30 days
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following receipt of written notice of such breach from Employee to Employer
(such notice and opportunity to cure to apply only if such breach is capable of
being cured), such termination shall be deemed for all purposes of this
Agreement as a termination of Employee's employment by Employer without "just
cause".
8. Indemnification and Insurance. In the event that during or after the
Term of Employment, Employee is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the fact that he is
or was a director or officer, employee or agent of or is or was serving at the
request of Employer as a director or officer, employee or agent or another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, Employee shall be indemnified and held harmless by
Employer to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent such amendment permits Employer to provide
broader indemnification rights than said law permitted Employer to provide prior
to such amendment) against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by Employee in
connection therewith. Such right shall be a contract right and shall include the
right to be paid by Employer expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in his capacity as a director or officer (and not
in any other capacity in which service was or is rendered by Employee while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to Employer of an undertaking, by or on behalf of
Employee, to repay all amounts to so advanced if it should be determined
ultimately that Employee is not entitled to be indemnified under this section or
otherwise.
Employer agrees that it will maintain Directors and Officers Insurance
during the Term of Employment and for a period of three (3) years thereafter
covering Employee and the other officers and directors of Employer in the amount
of not less than Six Million Dollars ($6,000,000). In the event that such
Directors and Officers Insurance is not commercially available to Employer,
Employer will create a self-insurance reserve for all liabilities which would
otherwise be covered by Directors and Officers Insurance in the amount of Six
Million Dollars ($6,000,000), which reserve shall be maintained in a separate
escrow account and used exclusively for payment of liabilities, judgments,
settlements or claims against officers and directors of Employer, including
Employee, which would otherwise have been the subject of Directors and Officers
Insurance.
9. Effect of Reorganization. If the Employer is at any time before or after
a Change of Control merged or consolidated into or with any other corporation or
other entity (whether or not the Employer is the surviving entity), or if
substantially all of the assets thereof are transferred
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to another corporation, the provisions of this Agreement will be binding upon
and inure to the benefit of the corporation or other entity resulting from such
merger or consolidation or the acquirer of such assets, voting power or control,
and this Section 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Employee's right to participate or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Employer.
In the event of any merger, consolidation or sale of assets described
above, references to the Employer in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquirer of such assets.
10. No Duty to Mitigate. There shall be no requirement on the part of the
Employee to seek other employment or otherwise mitigate damages in order to be
entitled to the full amount of any payments and benefits to which Employee is
entitled under this Agreement, and the amount of such payments and benefits
shall not be reduced by any compensation or benefits received by Employee from
other employment.
9. Miscellaneous.
(a) All notice hereunder to the parties hereto shall be in writing sent by
certified or registered mail, return receipt requested, postage prepaid, or by
telegram, telex or telecopy, addressed to the respective parties at the
following addresses:
EMPLOYER: COMFORCE Corporation
COMFORCE Operating, Inc.
2001 Marcus Avenue
Lake Success, NY 11042
EMPLOYEE: Christopher P. Franco
14 Tyler Lane
Riverside, CT 06878
Any party may, by written notice complying with the requirements of this
section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
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(b) If the Employer fails to timely make any payment to the Employee that
is required to be made hereunder, the amount not timely paid shall bear interest
after the date it is due hereunder at the rate of 18% per annum until it is
paid. All payments required to be made by the Employer hereunder to Employee or
his dependents, beneficiaries, or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
(c) This Agreement contains the entire and only agreement of the parties
hereto respecting the matters herein set forth, supersedes all prior agreements
and understandings between the parties hereto regarding the matters hereby
contemplated, and may not be changed or terminated orally, nor shall any change,
termination or attempted waiver of any of the provisions contained in this
Agreement be binding unless in writing and signed by the party against whom the
same is sought to be enforced, nor shall this section itself be waived verbally.
This Agreement may be amended only by a written instrument duly executed by or
on behalf of the parties hereto.
(d) This Agreement and all of its provisions, rights and obligations shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors. This Agreement may be assigned by Employer to any person,
firm or corporation which shall become the owner of substantially all of the
assets of Employer or which shall succeed to the business of Employer; provided,
however, that in the event of any such assignment Employer shall obtain an
instrument in writing from the assignee in which such assignee assumes the
obligations of Employer hereunder and shall deliver an executed copy thereof to
Employee.
(e) This Agreement is made and intended to be performed principally in the
State of New York and shall take effect under, be construed and enforced
according to, and the rights and obligations of the parties shall be governed in
all respects by, the laws of the State of New York. Should any action be brought
to interpret or enforce the terms hereof, the prevailing party shall be awarded
costs and reasonable attorneys' fees.
(f) Any controversy, dispute or claim arising out of or relating to this
Agreement, or the breach hereof, shall at the option of Employee be resolved by
(i) arbitration in accordance with the then current rules of the American
Arbitration Association and all findings of fact by the arbitrators shall be
conclusive and binding on the parties or (ii) litigation before a federal or
state court of competent jurisdiction located in the State of New York. If the
Employee elects to have the matter resolved by arbitration, the controversy or
claim shall be submitted to the American Arbitration Association through its New
York, New York office, and the hearing of such dispute will be held in New York,
New York. The decision of the arbitrator(s) will be final and binding on all
parties to the arbitration and said decision may be filed as a final judgment in
any court.
(g) The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall in no way affect the interpretation of
any of the terms or conditions of this Agreement.
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(h) If any provision or part thereof of this Agreement for any reason shall
be validly held by an official body to be invalid or unenforceable, the valid
and enforceable provisions or parts thereof shall continue to be given effect
and bind the Employer and Employee.
(i) Employer shall pay Employee's reasonable legal fees and expenses
incurred in connection with the negotiation of this Agreement.
(j) No right or interest to or in any payments or benefits hereunder shall
be assignable by the Employee; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Employee's
estate.
(k) No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or to
execution, attachment, levy, or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void, and of no effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day
and year first above mentioned.
COMFORCE CORPORATION
By: /s/ James L. Paterek
-------------------------
Its:
COMFORCE OPERATING, INC.
By: /s/ James L. Paterek
-------------------------
Its:
EMPLOYEE
/s/ Christopher P. Franco
-----------------------------
Christopher P. Franco
Exhibit 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of the 1st day of
December, 1997, by and between COMFORCE Corporation ("COMFORCE") a Delaware
corporation and COMFORCE Operating, Inc. ("COI"), a Delaware corporation that is
wholly-owned by COMFORCE, (COMFORCE and COI are collectively referred to as the
"Employer"), and James L. Paterek, a resident of the State of New York
("Employee").
RECITALS:
A. COMFORCE has employed Employee prior to the date hereof as an employee
and Employer wishes to employ Employee on and after the effective date hereof on
the terms and conditions hereof.
B. Employee is willing to continue employment with Employer on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the promises and mutual obligations of
the parties contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged the parties hereto agree as
follows:
1. Employment of Employee. Employer employs Employee, and Employee accepts
employment by Employer, during the "Term of Employment," as defined in Section 2
hereof, for the consideration and on the terms and conditions provided herein.
Employee shall be employed during the Term of Employment in such capacity or
capacities, and perform such duties, as may be determined from time to time by
each Employer's Board of Directors or any officer designated by the Board of
Directors as Employee's supervising officer (a "Supervising Officer"). COMFORCE
and COI shall allocate between each other the uses of Employee and costs
hereunder. To the extent there is a conflict between the requirements of
COMFORCE and COI, Employee shall follow the directions of, and be subject to the
ultimate control of, COMFORCE. Subject to this power of the Board of Directors
and Supervising Officer of Employer to designate the position in which Employee
shall serve Employer, Employee shall maintain the title and position of
President of Employer. Employee shall have full authority and responsibility to
undertake and carry out the functions and activities of that position in all
respects, subject only to the directions of, and policies established and
communicated to Employee from time to time by, the Board of Directors or
Supervising Officer.
2. Effective Date; Term of Employment. This Agreement shall commence and be
effective for all purposes as of the date first set forth above and shall remain
in effect, unless earlier terminated as provided in Section 7 hereof, until
November 30, 2000 (the "Initial Termination Date"), which date shall be extended
to the subsequent November 30 unless no less than sixty (60) days prior to the
Initial Termination Date or subsequent extension
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thereof, either party has given the other written notice of termination hereof.
The period during which Employee is employed by Employer pursuant to this
Agreement is herein called the "Term of Employment."
3. Employee's Duties. During the Term of Employment, Employee shall: (i)
devote his full working time and attention to the business and affairs of
Employer and to the performance of his duties hereunder; (ii) serve Employer
faithfully and to the best of his ability, and use his best efforts to promote
the interests of Employer; and (iii) follow and implement the policies and
directions of the Board of Directors and Supervising Officer. Notwithstanding
the above, nothing contained in this Section 3 shall be deemed to prevent
Employee from engaging in activities relating to (a) the making of investments
for his own account or for the account of others, or (b) investment banking,
venture capital and finance activities, (c) serving as a member of the board of
directors of other corporations, or (d) engaging in charitable or public service
activities, provided that such investments, services and activities do not
interfere with Employee's performance of his duties hereunder.
Employee shall not be relocated from the Greater New York Metropolitan Area
without his prior consent.
4. Employee's Compensation.
(a) Base Salary. During the Term of Employment, as Employee's base
compensation for all services to be performed hereunder, Employer shall pay
Employee an annual salary of Two Hundred Fifty Eight Thousand Dollars ($258,000)
(the "Base Salary"), payable in accordance with the Employer's payroll practices
for its officers. This base salary will increase annually during the Term of
Employment on each December 1, beginning December 1, 1998, by the greater of (i)
seven percent (7%) or (ii) a percentage equivalent to the percentage increase of
(a) the Price Index (as defined below) for the most recently available month at
the time of each such increase over (b) the Price Index reported for the same
month one year prior (such percentage increase calculated pursuant to this
Section 4(a) is referred to herein as the "CPI Increase"). The Base Salary shall
also be increased from time to time at the discretion of the Board of Directors
or any committee thereof having authority over Employee's compensation to
account for material changes of circumstances of the Employer or of the
responsibilities of Employee.
For purposes of this Agreement, "Price Index" shall mean the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index U.S. City
Averages, all Urban Consumers, All Items, 1982-84 = 100. If the manner in which
the Price Index as determined by the Department of Labor shall be substantially
revised, or if the 1982-84 average shall no longer be used as an index of 100,
an adjustment shall be made in such revised index so that the number used shall
be that which would have been obtained if the Price Index had not been so
revised, or if said average was still in use. If the Price Index shall become
unavailable for any reason whatsoever, the parties will substitute therefor a
comparable index based upon changes in the cost of living or purchasing power of
the consumer dollar published by any other governmental agency or, if no such
index shall then
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be available, a comparable index published by a major bank or other financial
institution.
(b) Reimbursement of Expenses. It is recognized that during the Term of
Employment, Employee will be required to incur ordinary and necessary business
expenses in connection with the performance of his duties hereunder. Employer
shall pay or reimburse Employee promptly in the amount of al such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with Employer's policies and procedures.
(c) Automobile. It is recognized that the services to be performed by
Employee hereunder will require the use of a suitable automobile, and Employer
shall supply Employee with an automobile of Employee's choice at a cost to
Employer of no more than $650 per month. In the event that a Severance Payment
shall become due and payable under Section 7(c) hereof, Employer shall continue
to supply Employee with an automobile during the term of the Severance Payment.
In the event that a Termination Payment shall become payable under Section 7(d)
hereof, Employer shall transfer such automobile to Employee for the aggregate
consideration of $1.00 (if such automobile is leased by Employer, Employer shall
acquire such automobile prior to its transfer to Employee).
(d) Benefit Plans.
(i) Medical, Dental and Vision Benefits.
Employer agrees to reimburse Employee for all medical, dental, vision and
hospital expenses incurred by Employee for himself and for his wife and
dependent children during the Term of Employment and during the term of any
Severance Payment payable hereunder. These benefits may be provided in whole or
in part by an insurance plan; provided that Employer will reimburse Employee for
any such expenditure (1) in payment of any co-payment amount required to be paid
by Employee by any such insurance plan and (2) for any deductible amounts paid
by Employee.
(ii) Continuation of Salary During Disability.
If Employee becomes disabled during the Term of Employment because of
sickness, physical or mental disability, or for any other reason so that he is
unable to perform his duties hereunder, Employer agrees to continue Employee's
salary during such disability throughout the Term of Employment. These benefits
may be provided in whole or in part by a policy of disability insurance.
(iii) Benefit to Heirs Upon Death of Employee.
During the Term of Employment, Employer agrees to provide, at no cost to
Employee, life insurance benefits in the amount of Five Hundred Thousand Dollars
($500,000) for the benefit of beneficiaries designated by Employee, through the
purchase of a variable life insurance policy. In the event that a Termination
Payment or Severance
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Payment shall become payable under Section 7 hereof, Employer shall (A) assign
and transfer such policy to Employee and (B) pay all premiums on such policy
until the date payments are no longer required to be made hereunder (in the
event a Severance Payment is payable hereunder) or until the third anniversary
of the date of termination of employment (in the event of a Termination Payment
is payable hereunder).
(e) Bonus. In addition to Employee's compensation as provided herein,
Employer agrees to pay to Employee a bonus, in cash or in the common stock of
Employer, during the Term of Employment, in a sum to be determined by Employer's
Board of Directors based on achievement of corporate targets set in good faith
by the Board of Directors. The amount of such bonus shall not be decreased from
the highest amount of the bonus payable (the "Mandatory Bonus Amount") with
respect to the immediately preceding year based upon achievement of the prior
year's bonus targets set in good faith by the Board of Directors. Such bonus
shall be paid no less frequently than on an annual basis. The Board of Directors
may also in its discretion award additional discretionary bonuses which, unless
otherwise directed by the Board, will not be deemed to be added to or to
increase the Mandatory Bonus Amount.
(f) Fringe Benefits. Employee shall be entitled to participate in all other
fringe benefits generally offered by Employer to its employees during the Term
of Employment.
5. Employee's Vacation. Employee shall be entitled to four weeks paid
vacation per year during the Term of Employment.
6. Confidentiality; Business Opportunities.
(a) Confidentiality of Information. Employee recognizes and acknowledges
that the business interests of Employer require a confidential relationship
between Employer and Employee and the fullest protection and confidential
treatment of the financial data, lists of customers, lists of suppliers, special
agreements with suppliers, market information, marketing and/or promotional
techniques and methods, pricing information, purchase information, sales
policies, employee lists, policy and procedure manuals, books and publications,
records, advertising methods or schemes, computer records, trade secrets, know
how, plans and programs, sources of supply, and other knowledge of the business
of Employer (all of which are hereinafter jointly termed "Confidential
Information") which may in whole or in part be conceived, learned or obtained by
Employee in the course of Employee's employment with Employer. Accordingly,
Employee agrees to keep secret and treat as confidential all Confidential
Information whether or not copyrightable or patentable, and agrees not to use or
aid others is learning of or using any Confidential Information except in the
ordinary course of business and in furtherance of Employer's interests. During
the Term of Employment and at all times thereafter, except insofar as is
necessary disclosure consistent with Employer's business interests:
(i) Employee will not, directly or indirectly, disclose any
Confidential Information to others either within or outside of the business
of Employer;
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(ii) Employee will not make copies of or otherwise disclose the
contents of documents containing disclosures of Confidential Information;
(iii) As to documents which are delivered to Employee or which are
made available to him as a necessary part of the working relationships and
duties of Employee within the business of Employer, Employee will treat
such documents confidentially and will treat such documents as proprietary
and confidential, not to be reproduced, disclosed or used without
appropriate authority of Employer; and
(iv) Employee will not advise others that the information and/or know
how included in Confidential Information is known to or used by Employer or
Employee.
During the Term of Employment and at all times thereafter, Employee will
not in any manner disclose or use Confidential Information for Employee's own
account and will not aid, assist or abet others in the use of Confidential
Information for their account or benefit, or for the account or benefit of any
person or entity other than Employer.
Employee shall have no obligations with respect to Confidential Information
which at the time of disclosure is generally available to the public or with
respect to which disclosure is required by law.
(b) Confidentiality of Customers. Employee agrees that during the Term of
Employment and for a period ending two (2) years after termination of Employee's
employment with Employer, whether such termination is voluntary or involuntary
and irrespective of which party terminates and whether such termination is for
cause or not:
(i) Employee will not, directly or indirectly, make known or divulge
names, addresses or any information concerning the customers of Employer
existing at the time Employee entered the employ of Employer or of whom
Employee learned or with whom Employee became acquainted after entering the
employ of Employer, to any person, partnership, firm, company, corporation
or other entity; and
(ii) Employee will not, either directly or indirectly, either for
himself or for any other person, partnership, firm, company, corporation or
other entity, contact, solicit, purchase from, divert, or take away any of
the customers of Employer who were contacted, dealt with or solicited by
Employee or with whom Employee became acquainted, or of whom Employee
learned or obtained information about during the Term of Employment or
during the previous employment of Employee by Employer or any predecessor
in interest.
(c) Non-Interference with Contractual Relationships. Employee agrees that
during the Term of Employment and for a period ending two (2) years after
termination of Employee's employment with Employer, whether such termination is
voluntary or involuntary and irrespective of which party terminates and whether
such termination is for cause or not, Employee will not solicit, entice or
otherwise induce any employee of Employer to leave the employ of Employer for
any reason whatsoever; nor will Employee
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directly or indirectly aid, assist or abet any other person or entity in
soliciting or hiring any employee of Employer, nor will Employee otherwise
interfere with any contractual or other business relationships between Employer
and its employees.
(d) Disclosure of Business Opportunities. During the Term of Employment,
Employee agrees to promptly and fully disclose to Employer, and not to divert to
Employee's own use or benefit or the use or benefit of others, any business
opportunities involving any existing or prospective line of business, supplier,
product or activity of Employer or any business opportunities which otherwise
should rightfully be afforded to Employer.
(e) Should a court of competent jurisdiction determine that this Section 6
or any subsection hereof are otherwise unenforceable because one or all of them
are vague or over broad, the parties agree that these subsections may and shall
be enforced to the maximum extent permitted by law. It is the intent of the
parties that each of these subsections be a separate and distinct promise and
that unenforceability of any one subsection shall have no effect on the
enforceability of another.
(f) Employee agrees that should either party seek to enforce or determine
its rights through legal or judicial proceedings because of an act of the
Employee which the Employer believes to be in contravention of this Section 6
("Covenant"), the Covenant period shall be extended for a time period equal to
the period necessary to obtain judicial enforcement of the Employer's rights
hereunder.
(g) The parties agree that in the event of Employee's violation of this
Section 6 or any subsection thereunder, that the damage to the Employer will be
irreparable and that money damages will be difficult or impossible to ascertain.
Accordingly, in addition to whatever other remedies the Employer may have at law
or in equity, the Employee recognizes and agrees that the Employer shall be
entitled to a temporary restraining order and a temporary and permanent
injunction enjoining and prohibiting any acts not permissible pursuant to this
Section 6.
7. Termination of Agreement.
(a) Employer agrees not to terminate this Agreement except for "just
cause," and agrees to promptly give Employee written notice of its belief that
acts or events constituting "just cause" exist. Employee has the right to cure
within thirty (30) days of Employer's giving of such notice, the acts, events or
conditions which led to Employer's notice, but only if such acts are capable of
being cured. For purposes of this Agreement, "just cause" shall mean (i) the
willful failure to refusal of Employee to implement or follow the reasonable
written policies or directions of Employer's Board of Directors, provided that
Employee's failure or refusal is not based upon Employee's belief in good faith,
as expressed to Employer in writing, that the implementation thereof would be
unlawful; (ii) embezzlement; (iii) material violation of any of Employee's
covenants or agreements set forth in this Agreement due to Employee's
willfulness or gross negligence; and (iv) conviction of Employee of a felony
arising from an act or acts which result in material harm to Employer; provided,
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however, that after a Change of Control, "just cause" shall only mean the events
described in clauses (ii), (iii) and (iv) of this sentence.
(b) Employer retains the right to discharge Employee for any reason not
specified above.
(c) Employer agrees that if prior to a Change of Control it discharges
Employee for any reason other than "just cause", Employee will be entitled to
full compensation, including participation in all benefit programs set forth in
Section 4 hereof, subject to the provisions of such Section 4, for one (1) year
(the "Severance Payment"). In addition, all stock options for the stock of
employer theretofore granted to Employee will become immediately exercisable and
will remain exercisable throughout the original term of such option,
notwithstanding any provision to the contrary regarding termination of
employment in the stock option agreement issued in respect of such stock option
or any other stock option plan of Employer pursuant to which such stock option
may have been granted.
(d) Employer agrees that if at any time within three (3) years following a
Change of Control it discharges Employee or refuses to extend the Term of
Employment for any reason other than "just cause", or if within one year after a
Change of Control Employee resigns from his employment with Employer for any
reason whatsoever,
i. The Employer will pay to Employee immediately after such termination
of employment a lump-sum cash payment equal to 300% of the aggregate
of (A) his then-current annual base salary (or, if his base salary has
been reduced at any time after the Change of Control, his base salary
in effect prior to the reduction), (B) the highest amount of cash
bonus paid to Employee during the three calendar years immediately
prior to the Change of Control, (C) the annual cost to the Employer of
any benefits, other than those provided for by Section 4(d)(iii), then
provided to Employee, included the cost of policies of insurance to
fully provide the benefits required to be provided under Section
4(d)(i) and Section 4(d)(ii) hereof, even if those benefits are in
whole or in part self-insured by Employer and (D) the amount
contributed by the Employer on behalf of the Employee for the calendar
year ending immediately prior to the termination to any pension plan
of the Employer.
ii. Employer shall pay to Employee an additional bonus immediately after
such termination of employment equal to the product of (A) the
exercise price(s) of all stock options for the stock of the Employer
granted to Employee not theretofore exercised multiplied by (B) the
number of such stock options to which such exercise price(s) relate,
increased to an amount equal to the product of (1) such bonus
multiplied by (2) the result of (x) one (1) divided by (y) one (1)
minus the maximum federal income tax rate for individuals in effect on
the
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date of such payment (such methodology for determining the increased
amount referred to as the "Gross Up Procedure").
iii. All of Employee's outstanding stock options, restricted shares and
other similar incentive interests and rights that have not vested or
been exercised will become immediately and fully vested and
exercisable and will remain exercisable throughout the original term
of such option, notwithstanding any provision to the contrary
regarding termination of employment in the stock option agreement
issued in respect of such stock option or any other stock option plan
of Employer pursuant to which such stock option may have been granted.
iv. Employee, together with his dependents, will continue following such
termination of employment to participate fully, with no contribution
to the cost required of him or them, in all accident and health plans
maintained or sponsored by the Employer immediately prior to the
Change of Control, or receive substantially the equivalent coverage
(or the full value thereof in cash) from the Employer, until the third
anniversary of such termination.
v. The Employer will promptly reimburse Employee for any and all legal
fees and expenses incurred by him as a result of such termination of
employment, including without limitation all fees and expenses
incurred in connection with efforts to enforce the provisions of this
Agreement.
All compensation received by Employee pursuant to this subsection is
collectively referred to herein as the "Termination Payment."
(c) In the event that Employee becomes entitled to a Termination Payment,
if any of the Termination Payment will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code"),
Employer shall pay to Employee an additional amount (the "Gross-up Payment")
such that the net amount retained by Employee, after deduction of Excise Tax on
the Termination Payment and any federal, state and local income tax and Excise
Tax upon the payment provided for by this Section, shall be equal to the
Termination Payment. For purposes of determining whether any of the Termination
Payment will be subject to the Excise Tax and the amount of such Excise Tax, (i)
any other payments or benefits received or to be received by Employee in
connection with the Change of Control of Employer or the termination of
Employee's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, any person whose action
result in a Change of Control or any person affiliated with Employer or such
person) shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax
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counsel selected by Employer and acceptable to Employee such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent, reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code, (ii) the amount of Termination Payment which shall be
treated as subject to the Excise tax shall be equal to the lesser of (A) the
total amount of the Termination Payment or (B) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) and (4) after applying clause
(i) above, and (iii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by Employer's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Employee shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of Employee's residence on the date of termination of Employee's
employment, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of the termination of Employee's employment,
Employee shall repay to Employer at the time that the amount of such reduction
in Excise Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the termination of Employee's employment (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), Employer shall make an additional gross-up payment in respect
of such excess (plus any interest payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(d) For purposes of this Agreement, a "Change of Control" of Employer shall
be deemed to have occurred if
i. any individual, corporation, partnership, company, or other entity (a
"Person"), which term shall include a "group" (within the meaning of
section 13(d) of the Securities Exchange Act of 1934 (the "Act")) who
does not currently own directly or indirectly 20% or more of the
combined voting power of COMFORCE's outstanding securities becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act) of
securities of COMFORCE representing more than 20% of the combined
voting power of COMFORCE's then-outstanding securities.
ii. the stockholders of COMFORCE approve a merger or consolidation of
COMFORCE with any other corporation, other than a merger or
consolidation which would result in the voting securities of COMFORCE
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
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voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of COMFORCE or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders approve a plan of complete
liquidation of COMFORCE or an agreement for the sale or disposition by
the Employer of all or substantially all of the Employer's assets;
PROVIDED, HOWEVER, that if the merger, plan of liquidation or sale of
substantially all assets is not consummated following such stockholder
approval and the transaction is abandoned, then the Change of Control
shall be deemed not to have occurred.
iii. the Board of Directors of COMFORCE ceases to consist of a majority of
Continuing Directors. For purposes hereof, "Continuing Director" shall
mean a member of the Board of Directors of COMFORCE who either (A) was
a member of the Board of Directors as of the date of this agreement or
(B) was nominated or appointed (before initial election as a director)
to serve as a director by a majority of the then Continuing Directors
and was approved in writing by Employee.
(e) Except as provided in Section 7(f), if Employee shall voluntarily cease
his employment with Employer for any reason prior to a Change of Control, all
compensation and benefits payable to Employee hereunder shall thereupon, without
further writing or act, cease, lapse and be terminated; provided, however, that
Employee may continue to receive benefits under any group health care insurance
plan, at Employee's expense, to the extent required by the Consolidated Omnibus
Budget Reconciliation Act of 1985. This paragraph (e) does not affect any rights
of Employee under any stock option agreements with Employer.
(f) In the event of the Bankruptcy (as defined below) of Employer, Employee
may at his option cease his employment hereunder, whereupon all of the
obligations of the parties hereto shall be terminated. For purposes of this
Agreement, "Bankruptcy" shall mean with respect to Employee, (i) the entry of a
decree or order for relief of either Employer by a court of competent
jurisdiction in any involuntary case involving the Employer under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar agent for either Employer or for any substantial
part of the Employer's assets or property; (iii) the filing with respect to
either Employer of a petition in any such involuntary bankruptcy case, which
petition remains undismissed for a period of ninety (90) days or which is
dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy law);
(iv) the commencement by either Employer of a voluntary case under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (v) the
consent by either Employer to the entry of an order for relief in an involuntary
case under any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar agent for the
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Employer or for any substantial part of the Employer's asses or property; or
(vi) the making by either Employer of any general assignment for the benefit of
creditors.
(g) In the event that Employee terminates his employment with Employer
prior to a Change of Control as a result of a material breach by Employer of its
obligations under this Agreement, which breach, if it is capable of being cured,
has not been cured within 30 days following receipt of written notice of such
breach from Employee to Employer (such notice and opportunity to cure to apply
only if such breach is capable of being cured), such termination shall be deemed
for all purposes of this Agreement as a termination of Employee's employment by
Employer without "just cause".
8. Indemnification and Insurance. In the event that during or after the
Term of Employment, Employee is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the fact that he is
or was a director or officer, employee or agent of or is or was serving at the
request of Employer as a director or officer, employee or agent or another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, Employee shall be indemnified and held harmless by
Employer to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent such amendment permits Employer to provide
broader indemnification rights than said law permitted Employer to provide prior
to such amendment) against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by Employee in
connection therewith. Such right shall be a contract right and shall include the
right to be paid by Employer expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in his capacity as a director or officer (and not
in any other capacity in which service was or is rendered by Employee while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to Employer of an undertaking, by or on behalf of
Employee, to repay all amounts to so advanced if it should be determined
ultimately that Employee is not entitled to be indemnified under this section or
otherwise.
Employer agrees that it will maintain Directors and Officers Insurance
during the Term of Employment and for a period of three (3) years thereafter
covering Employee and the other officers and directors of Employer in the amount
of not less than Six Million Dollars ($6,000,000). In the event that such
Directors and Officers Insurance is not commercially available to Employer,
Employer will create a self-insurance reserve for all liabilities which would
otherwise be covered by Directors and Officers Insurance in the amount of Six
Million Dollars ($6,000,000), which reserve shall be maintained in a separate
escrow account and used exclusively for payment of liabilities, judgments,
settlements or claims against
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officers and directors of Employer, including Employee, which would otherwise
have been the subject of Directors and Officers Insurance.
9. Effect of Reorganization. If the Employer is at any time before or after
a Change of Control merged or consolidated into or with any other corporation or
other entity (whether or not the Employer is the surviving entity), or if
substantially all of the assets thereof are transferred to another corporation,
the provisions of this Agreement will be binding upon and inure to the benefit
of the corporation or other entity resulting from such merger or consolidation
or the acquirer of such assets, voting power or control, and this Section 9 will
apply in the event of any subsequent merger or consolidation or transfer of
assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Employee's right to participate or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Employer.
In the event of any merger, consolidation or sale of assets described
above, references to the Employer in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquirer of such assets.
10. No Duty to Mitigate. There shall be no requirement on the part of the
Employee to seek other employment or otherwise mitigate damages in order to be
entitled to the full amount of any payments and benefits to which Employee is
entitled under this Agreement, and the amount of such payments and benefits
shall not be reduced by any compensation or benefits received by Employee from
other employment.
11. Miscellaneous.
(a) All notice hereunder to the parties hereto shall be in writing sent by
certified or registered mail, return receipt requested, postage prepaid, or by
telegram, telex or telecopy, addressed to the respective parties at the
following addresses:
EMPLOYER: COMFORCE Corporation
COMFORCE Operating, Inc.
2001 Marcus Avenue
Lake Success, NY 11042
EMPLOYEE: James L. Paterek
c/o COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
Any party may, by written notice complying with the requirements of this
section, specify
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another or different person or address for the purpose of notification
hereunder. All notices shall be deemed to have been given and received on the
next day following the sending of such telegram, telex or telecopy, or if
mailed, on the third business day following such mailing.
(b) If the Employer fails to timely make any payment to the Employee that
is required to be made hereunder, the amount not timely paid shall bear interest
after the date it is due hereunder at the rate of 18% per annum until it is
paid. All payments required to be made by the Employer hereunder to Employee or
his dependents, beneficiaries, or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
(c) This Agreement contains the entire and only agreement of the parties
hereto respecting the matters herein set forth, supersedes all prior agreements
and understandings between the parties hereto regarding the matters hereby
contemplated, and may not be changed or terminated orally, nor shall any change,
termination or attempted waiver of any of the provisions contained in this
Agreement be binding unless in writing and signed by the party against whom the
same is sought to be enforced, nor shall this section itself be waived verbally.
This Agreement may be amended only by a written instrument duly executed by or
on behalf of the parties hereto.
(d) This Agreement and all of its provisions, rights and obligations shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors. This Agreement may be assigned by Employer to any person,
firm or corporation which shall become the owner of substantially all of the
assets of Employer or which shall succeed to the business of Employer; provided,
however, that in the event of any such assignment Employer shall obtain an
instrument in writing from the assignee in which such assignee assumes the
obligations of Employer hereunder and shall deliver an executed copy thereof to
Employee.
(e) This Agreement is made and intended to be performed principally in the
State of New York and shall take effect under, be construed and enforced
according to, and the rights and obligations of the parties shall be governed in
all respects by, the laws of the State of New York. Should any action be brought
to interpret or enforce the terms hereof, the prevailing party shall be awarded
costs and reasonable attorneys' fees.
(f) Any controversy, dispute or claim arising out of or relating to this
Agreement, or the breach hereof, shall at the option of Employee be resolved by
(i) arbitration in accordance with the then current rules of the American
Arbitration Association and all findings of fact by the arbitrators shall be
conclusive and binding on the parties or (ii) litigation before a federal or
state court of competent jurisdiction located in the State of New York. If the
Employee elects to have the matter resolved by arbitration, the controversy or
claim shall be submitted to the American Arbitration Association through its New
York, New York office, and the hearing of such dispute will be held in New York,
New York. The decision of the arbitrator(s) will be final and binding on all
parties to the arbitration and said decision may be filed as a final judgment in
any court.
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(g) The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall in no way affect the interpretation of
any of the terms or conditions of this Agreement.
(h) If any provision or part thereof of this Agreement for any reason shall
be validly held by an official body to be invalid or unenforceable, the valid
and enforceable provisions or parts thereof shall continue to be given effect
and bind the Employer and Employee.
(i) Employer shall pay Employee's reasonable legal fees and expenses
incurred in connection with the negotiation of this Agreement.
(j) No right or interest to or in any payments or benefits hereunder shall
be assignable by the Employee; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Employee's
estate.
(k) No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or to
execution, attachment, levy, or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void, and of no effect.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day
and year first above mentioned.
COMFORCE CORPORATION
By: /s/ Michael Ferrentino
-----------------------------------
Its: President
COMFORCE OPERATING, INC.
By: /s/ Michael Ferrentino
-----------------------------------
Its: President
EMPLOYEE
/s/ James L. Paterek
-----------------------------------
James L. Paterek
Exhibit 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of the 1st day of
December, 1997, by and between COMFORCE Corporation ("COMFORCE") a Delaware
corporation and COMFORCE Operating, Inc. ("COI"), a Delaware corporation that is
wholly-owned by COMFORCE, (COMFORCE and COI are collectively referred to as the
"Employer"), and Michael Ferrentino, a resident of the State of New York
("Employee").
RECITALS:
A. COMFORCE has employed Employee prior to the date hereof as an employee
and Employer wishes to employ Employee on and after the effective date hereof on
the terms and conditions hereof.
B. Employee is willing to continue employment with Employer on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the promises and mutual obligations of
the parties contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged the parties hereto agree as
follows:
1. Employment of Employee. Employer employs Employee, and Employee accepts
employment by Employer, during the "Term of Employment," as defined in Section 2
hereof, for the consideration and on the terms and conditions provided herein.
Employee shall be employed during the Term of Employment in such capacity or
capacities, and perform such duties, as may be determined from time to time by
each Employer's Board of Directors or any officer designated by the Board of
Directors as Employee's supervising officer (a "Supervising Officer"). COMFORCE
and COI shall allocate between each other the uses of Employee and costs
hereunder. To the extent there is a conflict between the requirements of
COMFORCE and COI, Employee shall follow the directions of, and be subject to the
ultimate control of, COMFORCE. Subject to this power of the Board of Directors
and Supervising Officer of Employer to designate the position in which Employee
shall serve Employer, Employee shall maintain the title and position of
President of Employer. Employee shall have full authority and responsibility to
undertake and carry out the functions and activities of that position in all
respects, subject only to the directions of, and policies established and
communicated to Employee from time to time by, the Board of Directors or
Supervising Officer.
2. Effective Date; Term of Employment. This Agreement shall commence and be
effective for all purposes as of the date first set forth above and shall remain
in effect, unless earlier terminated as provided in Section 7 hereof, until
November 30, 2000 (the "Initial Termination Date"), which date shall be extended
to the subsequent November 30 unless no less than sixty (60) days prior to the
Initial Termination Date or subsequent extension thereof, either
<PAGE>
party has given the other written notice of termination hereof. The period
during which Employee is employed by Employer pursuant to this Agreement is
herein called the "Term of Employment."
3. Employee's Duties. During the Term of Employment, Employee shall: (i)
devote his full working time and attention to the business and affairs of
Employer and to the performance of his duties hereunder; (ii) serve Employer
faithfully and to the best of his ability, and use his best efforts to promote
the interests of Employer; and (iii) follow and implement the policies and
directions of the Board of Directors and Supervising Officer. Notwithstanding
the above, nothing contained in this Section 3 shall be deemed to prevent
Employee from engaging in activities relating to (a) the making of investments
for his own account or for the account of others, or (b) investment banking,
venture capital and finance activities, (c) serving as a member of the board of
directors of other corporations, or (d) engaging in charitable or public service
activities, provided that such investments, services and activities do not
interfere with Employee's performance of his duties hereunder.
Employee shall not be relocated from the Greater New York Metropolitan Area
without his prior consent.
4. Employee's Compensation.
(a) Base Salary. During the Term of Employment, as Employee's base
compensation for all services to be performed hereunder, Employer shall pay
Employee an annual salary of Two Hundred Thousand Dollars ($200,000) (the "Base
Salary"), payable in accordance with the Employer's payroll practices for its
officers. This base salary will increase annually during the Term of Employment
on each December 1, beginning December 1, 1998, by the greater of (i) seven
percent (7%) or (ii) a percentage equivalent to the percentage increase of (a)
the Price Index (as defined below) for the most recently available month at the
time of each such increase over (b) the Price Index reported for the same month
one year prior (such percentage increase calculated pursuant to this Section
4(a) is referred to herein as the "CPI Increase"). The Base Salary shall also be
increased from time to time at the discretion of the Board of Directors or any
committee thereof having authority over Employee's compensation to account for
material changes of circumstances of the Employer or of the responsibilities of
Employee.
For purposes of this Agreement, "Price Index" shall mean the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index U.S. City
Averages, all Urban Consumers, All Items, 1982-84 = 100. If the manner in which
the Price Index as determined by the Department of Labor shall be substantially
revised, or if the 1982-84 average shall no longer be used as an index of 100,
an adjustment shall be made in such revised index so that the number used shall
be that which would have been obtained if the Price Index had not been so
revised, or if said average was still in use. If the Price Index shall become
unavailable for any reason whatsoever, the parties will substitute therefor a
comparable index based upon changes in the cost of living or purchasing power of
the consumer dollar published by any other governmental agency or, if no such
index shall then be available, a comparable index published by a major bank or
other financial institution.
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<PAGE>
(b) Reimbursement of Expenses. It is recognized that during the Term of
Employment, Employee will be required to incur ordinary and necessary business
expenses in connection with the performance of his duties hereunder. Employer
shall pay or reimburse Employee promptly in the amount of al such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with Employer's policies and procedures.
(c) Automobile. It is recognized that the services to be performed by
Employee hereunder will require the use of a suitable automobile, and Employer
shall supply Employee with an automobile of Employee's choice at a cost to
Employer of no more than $650 per month. In the event that a Severance Payment
shall become due and payable under Section 7(c) hereof, Employer shall continue
to supply Employee with an automobile during the term of the Severance Payment.
In the event that a Termination Payment shall become payable under Section 7(d)
hereof, Employer shall transfer such automobile to Employee for the aggregate
consideration of $1.00 (if such automobile is leased by Employer, Employer shall
acquire such automobile prior to its transfer to Employee).
(d) Benefit Plans.
(i) Medical, Dental and Vision Benefits.
Employer agrees to reimburse Employee for all medical, dental, vision and
hospital expenses incurred by Employee for himself and for his wife and
dependent children during the Term of Employment and during the term of any
Severance Payment payable hereunder. These benefits may be provided in whole or
in part by an insurance plan; provided that Employer will reimburse Employee for
any such expenditure (1) in payment of any co-payment amount required to be paid
by Employee by any such insurance plan and (2) for any deductible amounts paid
by Employee.
(ii) Continuation of Salary During Disability.
If Employee becomes disabled during the Term of Employment because of
sickness, physical or mental disability, or for any other reason so that he is
unable to perform his duties hereunder, Employer agrees to continue Employee's
salary during such disability throughout the Term of Employment. These benefits
may be provided in whole or in part by a policy of disability insurance.
(iii) Benefit to Heirs Upon Death of Employee.
During the Term of Employment, Employer agrees to provide, at no cost to
Employee, life insurance benefits in the amount of Five Hundred Thousand Dollars
($500,000) for the benefit of beneficiaries designated by Employee, through the
purchase of a variable life insurance policy. In the event that a Termination
Payment or Severance Payment shall become payable under Section 7 hereof,
Employer shall (A) assign and transfer such policy to Employee and (B) pay all
premiums on such policy until the date payments are no longer required to be
made
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<PAGE>
hereunder (in the event a Severance Payment is payable hereunder) or until the
third anniversary of the date of termination of employment (in the event of a
Termination Payment is payable hereunder).
(e) Bonus. In addition to Employee's compensation as provided herein,
Employer agrees to pay to Employee a bonus, in cash or in the common stock of
Employer, during the Term of Employment, in a sum to be determined by Employer's
Board of Directors based on achievement of corporate targets set in good faith
by the Board of Directors. The amount of such bonus shall not be decreased from
the highest amount of the bonus payable (the "Mandatory Bonus Amount") with
respect to the immediately preceding year based upon achievement of the prior
year's bonus targets set in good faith by the Board of Directors. Such bonus
shall be paid no less frequently than on an annual basis. The Board of Directors
may also in its discretion award additional discretionary bonuses which, unless
otherwise directed by the Board, will not be deemed to be added to or to
increase the Mandatory Bonus Amount.
(g) Fringe Benefits. Employee shall be entitled to participate in all other
fringe benefits generally offered by Employer to its employees during the Term
of Employment.
5. Employee's Vacation. Employee shall be entitled to four weeks paid
vacation per year during the Term of Employment.
6. Confidentiality; Business Opportunities.
(a) Confidentiality of Information. Employee recognizes and acknowledges
that the business interests of Employer require a confidential relationship
between Employer and Employee and the fullest protection and confidential
treatment of the financial data, lists of customers, lists of suppliers, special
agreements with suppliers, market information, marketing and/or promotional
techniques and methods, pricing information, purchase information, sales
policies, employee lists, policy and procedure manuals, books and publications,
records, advertising methods or schemes, computer records, trade secrets, know
how, plans and programs, sources of supply, and other knowledge of the business
of Employer (all of which are hereinafter jointly termed "Confidential
Information") which may in whole or in part be conceived, learned or obtained by
Employee in the course of Employee's employment with Employer. Accordingly,
Employee agrees to keep secret and treat as confidential all Confidential
Information whether or not copyrightable or patentable, and agrees not to use or
aid others is learning of or using any Confidential Information except in the
ordinary course of business and in furtherance of Employer's interests. During
the Term of Employment and at all times thereafter, except insofar as is
necessary disclosure consistent with Employer's business interests:
(i) Employee will not, directly or indirectly, disclose any
Confidential Information to others either within or outside of the business
of Employer;
(ii) Employee will not make copies of or otherwise disclose the
contents of documents containing disclosures of Confidential Information;
4
<PAGE>
(iii) As to documents which are delivered to Employee or which are
made available to him as a necessary part of the working relationships and
duties of Employee within the business of Employer, Employee will treat
such documents confidentially and will treat such documents as proprietary
and confidential, not to be reproduced, disclosed or used without
appropriate authority of Employer; and
(iv) Employee will not advise others that the information and/or know
how included in Confidential Information is known to or used by Employer or
Employee.
During the Term of Employment and at all times thereafter, Employee will
not in any manner disclose or use Confidential Information for Employee's own
account and will not aid, assist or abet others in the use of Confidential
Information for their account or benefit, or for the account or benefit of any
person or entity other than Employer.
Employee shall have no obligations with respect to Confidential Information
which at the time of disclosure is generally available to the public or with
respect to which disclosure is required by law.
(b) Confidentiality of Customers. Employee agrees that during the Term of
Employment and for a period ending two (2) years after termination of Employee's
employment with Employer, whether such termination is voluntary or involuntary
and irrespective of which party terminates and whether such termination is for
cause or not:
(i) Employee will not, directly or indirectly, make known or divulge
names, addresses or any information concerning the customers of Employer
existing at the time Employee entered the employ of Employer or of whom
Employee learned or with whom Employee became acquainted after entering the
employ of Employer, to any person, partnership, firm, company, corporation
or other entity; and
(ii) Employee will not, either directly or indirectly, either for
himself or for any other person, partnership, firm, company, corporation or
other entity, contact, solicit, purchase from, divert, or take away any of
the customers of Employer who were contacted, dealt with or solicited by
Employee or with whom Employee became acquainted, or of whom Employee
learned or obtained information about during the Term of Employment or
during the previous employment of Employee by Employer or any predecessor
in interest.
(c) Non-Interference with Contractual Relationships. Employee agrees that
during the Term of Employment and for a period ending two (2) years after
termination of Employee's employment with Employer, whether such termination is
voluntary or involuntary and irrespective of which party terminates and whether
such termination is for cause or not, Employee will not solicit, entice or
otherwise induce any employee of Employer to leave the employ of Employer for
any reason whatsoever; nor will Employee directly or indirectly aid, assist or
abet any other person or entity in soliciting or hiring any employee of
Employer, nor will Employee
5
<PAGE>
otherwise interfere with any contractual or other business relationships between
Employer and its employees.
(d) Disclosure of Business Opportunities. During the Term of Employment,
Employee agrees to promptly and fully disclose to Employer, and not to divert to
Employee's own use or benefit or the use or benefit of others, any business
opportunities involving any existing or prospective line of business, supplier,
product or activity of Employer or any business opportunities which otherwise
should rightfully be afforded to Employer.
(e) Should a court of competent jurisdiction determine that this Section 6
or any subsection hereof are otherwise unenforceable because one or all of them
are vague or over broad, the parties agree that these subsections may and shall
be enforced to the maximum extent permitted by law. It is the intent of the
parties that each of these subsections be a separate and distinct promise and
that unenforceability of any one subsection shall have no effect on the
enforceability of another.
(f) Employee agrees that should either party seek to enforce or determine
its rights through legal or judicial proceedings because of an act of the
Employee which the Employer believes to be in contravention of this Section 6
("Covenant"), the Covenant period shall be extended for a time period equal to
the period necessary to obtain judicial enforcement of the Employer's rights
hereunder.
(h) The parties agree that in the event of Employee's violation of this
Section 6 or any subsection thereunder, that the damage to the Employer will be
irreparable and that money damages will be difficult or impossible to ascertain.
Accordingly, in addition to whatever other remedies the Employer may have at law
or in equity, the Employee recognizes and agrees that the Employer shall be
entitled to a temporary restraining order and a temporary and permanent
injunction enjoining and prohibiting any acts not permissible pursuant to this
Section 6.
7. Termination of Agreement.
(a) Employer agrees not to terminate this Agreement except for "just
cause," and agrees to promptly give Employee written notice of its belief that
acts or events constituting "just cause" exist. Employee has the right to cure
within thirty (30) days of Employer's giving of such notice, the acts, events or
conditions which led to Employer's notice, but only if such acts are capable of
being cured. For purposes of this Agreement, "just cause" shall mean (i) the
willful failure to refusal of Employee to implement or follow the reasonable
written policies or directions of Employer's Board of Directors, provided that
Employee's failure or refusal is not based upon Employee's belief in good faith,
as expressed to Employer in writing, that the implementation thereof would be
unlawful; (ii) embezzlement; (iii) material violation of any of Employee's
covenants or agreements set forth in this Agreement due to Employee's
willfulness or gross negligence; and (iv) conviction of Employee of a felony
arising from an act or acts which
6
<PAGE>
result in material harm to Employer; provided, however, that after a Change of
Control, "just cause" shall only mean the events described in clauses (ii),
(iii) and (iv) of this sentence.
(b) Employer retains the right to discharge Employee for any reason not
specified above.
(c) Employer agrees that if prior to a Change of Control it discharges
Employee for any reason other than "just cause", Employee will be entitled to
full compensation, including participation in all benefit programs set forth in
Section 4 hereof, subject to the provisions of such Section 4, for one (1) year
(the "Severance Payment"). In addition, all stock options for the stock of
employer theretofore granted to Employee will become immediately exercisable and
will remain exercisable throughout the original term of such option,
notwithstanding any provision to the contrary regarding termination of
employment in the stock option agreement issued in respect of such stock option
or any other stock option plan of Employer pursuant to which such stock option
may have been granted.
(d) Employer agrees that if at any time within three (3) years following a
Change of Control it discharges Employee or refuses to extend the Term of
Employment for any reason other than "just cause", or if within one year after a
Change of Control Employee resigns from his employment with Employer for any
reason whatsoever,
i. The Employer will pay to Employee immediately after such termination
of employment a lump-sum cash payment equal to 300% of the aggregate
of (A) his then-current annual base salary (or, if his base salary has
been reduced at any time after the Change of Control, his base salary
in effect prior to the reduction), (B) the highest amount of cash
bonus paid to Employee during the three calendar years immediately
prior to the Change of Control, (C) the annual cost to the Employer of
any benefits, other than those provided for by Section 4(d)(iii), then
provided to Employee, included the cost of policies of insurance to
fully provide the benefits required to be provided under Section
4(d)(i) and Section 4(d)(ii) hereof, even if those benefits are in
whole or in part self-insured by Employer and (D) the amount
contributed by the Employer on behalf of the Employee for the calendar
year ending immediately prior to the termination to any pension plan
of the Employer.
ii. Employer shall pay to Employee an additional bonus immediately after
such termination of employment equal to the product of (A) the
exercise price(s) of all stock options for the stock of the Employer
granted to Employee not theretofore exercised multiplied by (B) the
number of such stock options to which such exercise price(s) relate,
increased to an amount equal to the product of (1) such bonus
multiplied by (2) the result of (x) one (1) divided by (y) one (1)
minus the maximum federal income tax rate for individuals
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<PAGE>
in effect on the date of such payment (such methodology for
determining the increased amount referred to as the "Gross Up
Procedure").
iii. All of Employee's outstanding stock options, restricted shares and
other similar incentive interests and rights that have not vested or
been exercised will become immediately and fully vested and
exercisable and will remain exercisable throughout the original term
of such option, notwithstanding any provision to the contrary
regarding termination of employment in the stock option agreement
issued in respect of such stock option or any other stock option plan
of Employer pursuant to which such stock option may have been granted.
iv. Employee, together with his dependents, will continue following such
termination of employment to participate fully, with no contribution
to the cost required of him or them, in all accident and health plans
maintained or sponsored by the Employer immediately prior to the
Change of Control, or receive substantially the equivalent coverage
(or the full value thereof in cash) from the Employer, until the third
anniversary of such termination.
v. The Employer will promptly reimburse Employee for any and all legal
fees and expenses incurred by him as a result of such termination of
employment, including without limitation all fees and expenses
incurred in connection with efforts to enforce the provisions of this
Agreement.
All compensation received by Employee pursuant to this subsection is
collectively referred to herein as the "Termination Payment."
(c) In the event that Employee becomes entitled to a Termination Payment,
if any of the Termination Payment will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code"),
Employer shall pay to Employee an additional amount (the "Gross-up Payment")
such that the net amount retained by Employee, after deduction of Excise Tax on
the Termination Payment and any federal, state and local income tax and Excise
Tax upon the payment provided for by this Section, shall be equal to the
Termination Payment. For purposes of determining whether any of the Termination
Payment will be subject to the Excise Tax and the amount of such Excise Tax, (i)
any other payments or benefits received or to be received by Employee in
connection with the Change of Control of Employer or the termination of
Employee's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, any person whose action
result in a Change of Control or any person affiliated with Employer or such
person) shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by Employer and acceptable to Employee such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent,
reasonable compensation for services actually
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rendered within the meaning of Section 280G(b)(4) of the Code, (ii) the amount
of Termination Payment which shall be treated as subject to the Excise tax shall
be equal to the lesser of (A) the total amount of the Termination Payment or (B)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
and (4) after applying clause (i) above, and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by Employer's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rates of taxation in the state and locality of Employee's residence on
the date of termination of Employee's employment, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of the termination
of Employee's employment, Employee shall repay to Employer at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Employee's employment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), Employer shall make an additional gross-up
payment in respect of such excess (plus any interest payable with respect to
such excess) at the time that the amount of such excess is finally determined.
(d) For purposes of this Agreement, a "Change of Control" of Employer shall
be deemed to have occurred if
i. any individual, corporation, partnership, company, or other entity (a
"Person"), which term shall include a "group" (within the meaning of
section 13(d) of the Securities Exchange Act of 1934 (the "Act")) who
does not currently own directly or indirectly 20% or more of the
combined voting power of COMFORCE's outstanding securities becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act) of
securities of COMFORCE representing more than 20% of the combined
voting power of COMFORCE's then-outstanding securities.
ii. the stockholders of COMFORCE approve a merger or consolidation of
COMFORCE with any other corporation, other than a merger or
consolidation which would result in the voting securities of COMFORCE
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the combined voting power of
the voting securities of COMFORCE or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders
approve a plan of complete liquidation of COMFORCE or an agreement for
the sale or
9
<PAGE>
disposition by the Employer of all or substantially all of the
Employer's assets; PROVIDED, HOWEVER, that if the merger, plan of
liquidation or sale of substantially all assets is not consummated
following such stockholder approval and the transaction is abandoned,
then the Change of Control shall be deemed not to have occurred.
iii. the Board of Directors of COMFORCE ceases to consist of a majority of
Continuing Directors. For purposes hereof, "Continuing Director" shall
mean a member of the Board of Directors of COMFORCE who either (A) was
a member of the Board of Directors as of the date of this agreement or
(B) was nominated or appointed (before initial election as a director)
to serve as a director by a majority of the then Continuing Directors
and was approved in writing by Employee.
(e) Except as provided in Section 7(f), if Employee shall voluntarily cease
his employment with Employer for any reason prior to a Change of Control, all
compensation and benefits payable to Employee hereunder shall thereupon, without
further writing or act, cease, lapse and be terminated; provided, however, that
Employee may continue to receive benefits under any group health care insurance
plan, at Employee's expense, to the extent required by the Consolidated Omnibus
Budget Reconciliation Act of 1985. This paragraph (e) does not affect any rights
of Employee under any stock option agreements with Employer.
(f) In the event of the Bankruptcy (as defined below) of Employer, Employee
may at his option cease his employment hereunder, whereupon all of the
obligations of the parties hereto shall be terminated. For purposes of this
Agreement, "Bankruptcy" shall mean with respect to Employee, (i) the entry of a
decree or order for relief of either Employer by a court of competent
jurisdiction in any involuntary case involving the Employer under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar agent for either Employer or for any substantial
part of the Employer's assets or property; (iii) the filing with respect to
either Employer of a petition in any such involuntary bankruptcy case, which
petition remains undismissed for a period of ninety (90) days or which is
dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code
(or any corresponding provision of any future United States bankruptcy law);
(iv) the commencement by either Employer of a voluntary case under any
bankruptcy, insolvency or other similar law now or hereafter in effect; (v) the
consent by either Employer to the entry of an order for relief in an involuntary
case under any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar agent for the Employer or for any substantial part of the Employer's
asses or property; or (vi) the making by either Employer of any general
assignment for the benefit of creditors.
(g) In the event that Employee terminates his employment with Employer
prior to a Change of Control as a result of a material breach by Employer of its
obligations under this Agreement, which breach, if it is capable of being cured,
has not been cured within 30 days
10
<PAGE>
following receipt of written notice of such breach from Employee to Employer
(such notice and opportunity to cure to apply only if such breach is capable of
being cured), such termination shall be deemed for all purposes of this
Agreement as a termination of Employee's employment by Employer without "just
cause".
8. Indemnification and Insurance. In the event that during or after the
Term of Employment, Employee is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the fact that he is
or was a director or officer, employee or agent of or is or was serving at the
request of Employer as a director or officer, employee or agent or another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, Employee shall be indemnified and held harmless by
Employer to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent such amendment permits Employer to provide
broader indemnification rights than said law permitted Employer to provide prior
to such amendment) against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by Employee in
connection therewith. Such right shall be a contract right and shall include the
right to be paid by Employer expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in his capacity as a director or officer (and not
in any other capacity in which service was or is rendered by Employee while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to Employer of an undertaking, by or on behalf of
Employee, to repay all amounts to so advanced if it should be determined
ultimately that Employee is not entitled to be indemnified under this section or
otherwise.
Employer agrees that it will maintain Directors and Officers Insurance
during the Term of Employment and for a period of three (3) years thereafter
covering Employee and the other officers and directors of Employer in the amount
of not less than Six Million Dollars ($6,000,000). In the event that such
Directors and Officers Insurance is not commercially available to Employer,
Employer will create a self-insurance reserve for all liabilities which would
otherwise be covered by Directors and Officers Insurance in the amount of Six
Million Dollars ($6,000,000), which reserve shall be maintained in a separate
escrow account and used exclusively for payment of liabilities, judgments,
settlements or claims against officers and directors of Employer, including
Employee, which would otherwise have been the subject of Directors and Officers
Insurance.
9. Effect of Reorganization. If the Employer is at any time before or after
a Change of Control merged or consolidated into or with any other corporation or
other entity (whether or not the Employer is the surviving entity), or if
substantially all of the assets thereof are transferred
11
<PAGE>
to another corporation, the provisions of this Agreement will be binding upon
and inure to the benefit of the corporation or other entity resulting from such
merger or consolidation or the acquirer of such assets, voting power or control,
and this Section 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Employee's right to participate or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization, or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Employer.
In the event of any merger, consolidation or sale of assets described
above, references to the Employer in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such merger or
consolidation or the acquirer of such assets.
10. No Duty to Mitigate. There shall be no requirement on the part of the
Employee to seek other employment or otherwise mitigate damages in order to be
entitled to the full amount of any payments and benefits to which Employee is
entitled under this Agreement, and the amount of such payments and benefits
shall not be reduced by any compensation or benefits received by Employee from
other employment.
9. Miscellaneous.
(a) All notice hereunder to the parties hereto shall be in writing sent by
certified or registered mail, return receipt requested, postage prepaid, or by
telegram, telex or telecopy, addressed to the respective parties at the
following addresses:
EMPLOYER: COMFORCE Corporation
COMFORCE Operating, Inc.
2001 Marcus Avenue
Lake Success, NY 11042
EMPLOYEE: Michael Ferrentino
956 Cedar Swamp Road
Glen Head, NY 11545
Any party may, by written notice complying with the requirements of this
section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
12
<PAGE>
(b) If the Employer fails to timely make any payment to the Employee that
is required to be made hereunder, the amount not timely paid shall bear interest
after the date it is due hereunder at the rate of 18% per annum until it is
paid. All payments required to be made by the Employer hereunder to Employee or
his dependents, beneficiaries, or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
(c) This Agreement contains the entire and only agreement of the parties
hereto respecting the matters herein set forth, supersedes all prior agreements
and understandings between the parties hereto regarding the matters hereby
contemplated, and may not be changed or terminated orally, nor shall any change,
termination or attempted waiver of any of the provisions contained in this
Agreement be binding unless in writing and signed by the party against whom the
same is sought to be enforced, nor shall this section itself be waived verbally.
This Agreement may be amended only by a written instrument duly executed by or
on behalf of the parties hereto.
(d) This Agreement and all of its provisions, rights and obligations shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors. This Agreement may be assigned by Employer to any person,
firm or corporation which shall become the owner of substantially all of the
assets of Employer or which shall succeed to the business of Employer; provided,
however, that in the event of any such assignment Employer shall obtain an
instrument in writing from the assignee in which such assignee assumes the
obligations of Employer hereunder and shall deliver an executed copy thereof to
Employee.
(e) This Agreement is made and intended to be performed principally in the
State of New York and shall take effect under, be construed and enforced
according to, and the rights and obligations of the parties shall be governed in
all respects by, the laws of the State of New York. Should any action be brought
to interpret or enforce the terms hereof, the prevailing party shall be awarded
costs and reasonable attorneys' fees.
(f) Any controversy, dispute or claim arising out of or relating to this
Agreement, or the breach hereof, shall at the option of Employee be resolved by
(i) arbitration in accordance with the then current rules of the American
Arbitration Association and all findings of fact by the arbitrators shall be
conclusive and binding on the parties or (ii) litigation before a federal or
state court of competent jurisdiction located in the State of New York. If the
Employee elects to have the matter resolved by arbitration, the controversy or
claim shall be submitted to the American Arbitration Association through its New
York, New York office, and the hearing of such dispute will be held in New York,
New York. The decision of the arbitrator(s) will be final and binding on all
parties to the arbitration and said decision may be filed as a final judgment in
any court.
(g) The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall in no way affect the interpretation of
any of the terms or conditions of this Agreement.
13
<PAGE>
(h) If any provision or part thereof of this Agreement for any reason shall
be validly held by an official body to be invalid or unenforceable, the valid
and enforceable provisions or parts thereof shall continue to be given effect
and bind the Employer and Employee.
(i) Employer shall pay Employee's reasonable legal fees and expenses
incurred in connection with the negotiation of this Agreement.
(j) No right or interest to or in any payments or benefits hereunder shall
be assignable by the Employee; provided, however, that this provision shall not
preclude him from designating one or more beneficiaries to receive any amount
that may be payable after his death and shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries" as used in this Agreement shall mean a
beneficiary or beneficiaries so designated to receive any such amount, or if no
beneficiary has been so designated, the legal representative of the Employee's
estate.
(k) No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or to
execution, attachment, levy, or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void, and of no effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day
and year first above mentioned.
COMFORCE CORPORATION
By: /s/ James L. Paterek
------------------------------------
Its:
COMFORCE OPERATING, INC.
By: /s/ James L. Paterek
------------------------------------
Its:
EMPLOYEE
/s/ Michael Ferrentino
------------------------------------
Michael Ferrentino
14
Exhibit 21.1
Subsidiaries of COMFORCE Corporation
The following is a complete list of all of the subsidiaries of COMFORCE
Corporation.
1. COMFORCE Operating, Inc.
2. COMFORCE Technical Services, Inc.
3. COMFORCE Information Technologies, Inc.
4. COMFORCE Telecom, Inc.
5. Project Staffing Support Team, Inc.
6. RHO Acquisition Company
7. RHO Company Incorporated
8. COMFORCE IT Acquisition Corp., Inc.
9. Force Five, Inc.
10. SUMTEC Corporation
11. Uniforce Services, Inc.
12. PrO Unlimited, Inc.
13. E.O. Operations Corp.
14. E.O. Servicing Co., Inc.
15. Uniforce Staffing Services, Inc.
16. PrO N.E., Inc.
17. USSI-N.E. Corp.
18. Uniforce Information Services, Inc.
19. Uniforce Payrolling Services, Inc.
20. USI Inc. of California
21. UTS Corp. of Minnesota
22. UTS of Delaware, Inc.
23. LabForce of America, Inc.
24. Uniforce MIS Services of Georgia, Inc.
d/b/a Brannon & Tully, Inc.
25. Uniforce Medical Office Support, Inc.
26. Uniforce Information Services of Texas, Inc.
27. Temporary Help Industry Servicing Co., Inc.
28. Montare International, Inc.
29. Brannon & Tully, Inc.
30. Staffing Industry Funding & Support, Inc.
31. Professional Staffing Funding & Support, Inc.
32. Brentwood Service Group, Inc.
33. Tempfunds International, Inc.
34. Computer Consultants Funding & Support, Inc.
35. Thisco of Canada, Inc.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated January 30, 1997, except as to Note 20 for which the date is
March 21, 1997, on our audits of the consolidated financial statements of
COMFORCE Corporation as of December 31, 1996 and 1995 and for the years ended
December 31, 1996, 1995 and 1994. We also consent to the reference to our firm
under the caption "Independent Accountants."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Melville, New York
December 23, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 24, 1997, on the financial statements of RHO Company
Incorporated, as of December 31, 1995 and December 31, 1996, and for each of the
years in the three years ended December 31, 1996, and to all references to our
firm included in this Registration Statement on Form S-4.
/s/ Arthur Andersen LLP
Seattle, Washington
December 19, 1997
Exhibit 23.4
The Board of Directors
Uniforce Services, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KMPG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
December 23, 1997
Exhibit 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------------
COMFORCE Corporation
(Exact name of obligor as specified in its charter)
Delaware 36-2262248
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, New York 11042
(Address of principal executive offices) (Zip code)
---------------------------
15% Senior Payment In-Kind Debentures due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 17th day of December, 1997.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
--------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
3
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a
member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 7,769,502
Interest-bearing balances .......... 1,472,524
Securities:
Held-to-maturity securities ........ 1,080,234
Available-for-sale securities ...... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell...... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ........................... 35,352,045
LESS: Allowance for loan and
lease losses ..................... 625,042
LESS: Allocated transfer risk
reserve........................... 429
Loans and leases, net of unearned
income, allowance, and reserve 34,726,574
Assets held in trading accounts ...... 1,611,096
Premises and fixed assets (including
capitalized leases) ................ 676,729
Other real estate owned .............. 22,460
Investments in unconsolidated
subsidiaries and associated
companies .......................... 209,959
Customers' liability to this bank on
acceptances outstanding ............ 1,357,731
Intangible assets .................... 720,883
Other assets ......................... 1,627,267
-----------
Total assets ......................... $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ................ $26,875,596
Noninterest-bearing ................ 11,213,657
Interest-bearing ................... 15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 16,334,270
Noninterest-bearing ................ 596,369
Interest-bearing ................... 15,737,901
<PAGE>
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury ........................... 303,000
Trading liabilities .................. 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,383,570
With remaining maturity of more than
one year through three years....... 0
With remaining maturity of more than
three years ....................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,377,244
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 1,732,792
-----------
Total liabilities .................... 52,937,421
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 1,948
Cumulative foreign currency transla-
tion adjustments .................. (12,272)
-----------
Total equity capital ................ 4,577,537
-----------
Total liabilities and equity
capital ........................... $57,514,958
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
-
Alan R. Griffith |
J. Carter Bacot |
Thomas A. Renyi | Directors
-
Exhibit 99.1
LETTER OF TRANSMITTAL
COMFORCE CORPORATION
Offer to Exchange its 15% Senior Secured PIK Debentures due 2009, Series B ("New
Senior Debentures"), which have been registered under the Securities Act, for
any and all of its outstanding 15% Senior Secured PIK Debentures due 2009,
Series A ("Senior Debentures"), pursuant to the Prospectus dated January __,
1998.
THE DEBENTURES EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ____________________ , 1998 OR SUCH LATER DATE AND TIME TO WHICH THE
DEBENTURES EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
To:
The Bank of New York, Debentures Exchange Agent
By Registered or Certified Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, NY 10286 Corporate Trust Services Window
Attention: Reorganization Section, Ground Level
New York, NY 10286
Attention: Reorganization Section,
By Facsimile: For Information Call:
(212) 571-3080 (212) 815-6333
(For Eligible Institutions Only)
----------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
List below the Old Senior Debentures to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate number(s)
and aggregate principal of Old Senior Debentures should be listed on a separate
signed schedule affixed hereto.
<PAGE>
DESCRIPTION OF OLD SENIOR DEBENTURES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF (1) (2) (3) (4)
REGISTERED HOLDER(S), EXACTLY CERTIFICATE AGGREGATE AGGREGATE AGGREGATE
AS NAME(S) NUMBER(S) OF PRINCIPAL OF OLD PRINCIPAL PRINCIPAL
APPEAR(S) ON OLD SENIOR OLD SENIOR SENIOR AMOUNT OF AMOUNT OF
DEBENTURES CERTIFICATE (PLEASE DEBENTURES* DEBENTURES OLD SENIOR OLD SENIOR
FILL IN, IF REPRESENTED BY DEBENTURES DEBENTURES
BLANK) CERTIFICATE TENDERED** TENDERED IN
EXCHANGE FOR
CERTIFICATED
NEW SENIOR
DEBENTURES***
<S> <C> <C> <C> <C>
</TABLE>
* Need not be completed if Old Senior Debentures are being tendered by
book-entry transfer in accordance with DTC's ATOP procedures for transfer.
** Unless otherwise indicated in this column, the aggregate principal amount
represented by all Old Senior Debentures Certificates identified in Column 1 or
delivered to the Debentures Exchange Agent shall be deemed tendered.
*** Unless otherwise indicated, the holder will be deemed to have tendered the
aggregate principal amount of Old Senior Debentures in exchange for a beneficial
interest in one or more fully registered global certificates, which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., its nominee.
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated January __ , 1998 (the "Prospectus"), of COMFORCE
Corporation. a Delaware corporation (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the
Company's offer (the "Debentures Exchange Offer") to exchange its 15% Senior
Secured PIK Debentures due 2009, Series B (the "New Senior Debentures"), for an
equal principal amount of its 15% Senior Secured PIK Debentures due 2009, Series
A (the "Old Senior Debentures"). The New Senior Debentures and the Old Senior
Debentures are collectively referred to as the "Senior Debentures." Capitalized
terms used but not defined herein have the meanings ascribed to them in the
Prospectus.
The undersigned has completed the appropriate boxes above and below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Debentures Exchange Offer.
<PAGE>
This Letter of Transmittal is to be used by holders of Old Senior
Debentures to accept the Debentures Exchange Offer if: (i) tender of Old Senior
Debentures is to be made according to the Automated Tender Offer Program
("ATOP") of the Depository Trust Company ("DTC"), for which the transaction is
eligible, pursuant to the procedures set forth in the Prospectus under the
caption "Debentures Exchange Offer--Procedures for Tendering--Unregistered
Senior Debentures held through DTC"; (ii) certificates representing Old Senior
Debentures are to be physically delivered to the Debentures Exchange Agent
herewith by such holders, pursuant to the procedures set forth in the Prospectus
under the caption "Debentures Exchange Offer--Procedures for
Tendering--Unregistered Senior Debentures held by Holders"; or (iii) tender of
Old Senior Debentures is to be made according to the guaranteed delivery
procedures set forth in the Prospectus under the caption "Debentures Exchange
Offer--Guaranteed Delivery Procedures." NOTWITHSTANDING THE FOREGOING, VALID
ACCEPTANCE OF THE TERMS OF THE DEBENTURES EXCHANGE OFFER MAY BE EFFECTED BY A
PARTICIPANT IN DTC (A "DTC PARTICIPANT") TENDERING OLD SENIOR DEBENTURES THROUGH
ATOP WHERE THE DEBENTURES EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (AS DEFINED
IN THE PROSPECTUS) PRIOR TO THE EXPIRATION DATE. ACCORDINGLY, SUCH DTC
PARTICIPANT MUST ELECTRONICALLY TRANSMIT ITS ACCEPTANCE TO DTC THOUGH ATOP, AND
THEN DTC WILL EDIT AND VERIFY THE ACCEPTANCE, EXECUTE A BOOK-ENTRY DELIVERY TO
THE DEBENTURES EXCHANGE AGENT'S ACCOUNT AT DTC AND SEND AN AGENT'S MESSAGE TO
THE DEBENTURES EXCHANGE AGENT FOR ITS ACCEPTANCE. BY TENDERING THROUGH ATOP, DTC
PARTICIPANTS WILL EXPRESSLY ACKNOWLEDGE RECEIPT OF THIS LETTER OF TRANSMITTAL
AND AGREE TO BE BOUND BY ITS TERMS AND THE COMPANY WILL BE ABLE TO ENFORCE SUCH
AGREEMENT AGAINST SUCH DTC PARTICIPANTS.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE DEBENTURES
EXCHANGE AGENT.
DTC Participants who wish to cause their Old Senior Debentures to be
tendered, but who cannot transmit their acceptances through ATOP prior to the
Expiration Date, may effect a tender in accordance with the guaranteed delivery
procedures set forth in the Prospectus under the caption "Debentures Exchange
Offer--Guaranteed Delivery Procedures--Unregistered Senior Debentures held
through DTC." Holders who wish to tender their Old Senior Debentures but (i)
whose Old Senior Debentures are not immediately available and will not be
available for tendering prior to the Expiration Date, or (ii) who cannot deliver
their Old Senior Debentures, the Letter of Transmittal, or any other required
documents to the Debentures Exchange Agent prior to the Expiration Date, may
effect a tender in accordance with the guaranteed delivery procedures set forth
in the Prospectus under the caption "Debentures Exchange Offer--Guaranteed
Delivery Procedures--Unregistered Senior Debentures held by Holders."
The undersigned must complete the appropriate boxes above and below and
sign this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Debentures Exchange Offer.
/ / CHECK HERE IF TENDERED OLD SENIOR DEBENTURES ARE BEING DELIVERED TO THE
DEBENTURES EXCHANGE AGENT IN EXCHANGE FOR CERTIFICATED NEW SENIOR DEBENTURES.
Unless the undersigned (i) has completed item (4) in the box entitled
"Description of Old Senior Debentures Tendered" and (ii) has checked the box
above, the undersigned will be deemed to have tendered Old Senior Debentures in
exchange for a beneficial interest in one or more fully registered global
certificates, which will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., its nominee. Beneficial interests in such registered
global certificates will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. See "Book-Entry;
Delivery and Form" as set forth in the Prospectus.
/ / CHECK HERE IF TENDERED OLD SENIOR DEBENTURES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEBENTURES EXCHANGE
AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
The Depository Trust Company Account Number ____________________________________
Transaction Code Number _______________________________________________________.
<PAGE>
/ / CHECK HERE IF TENDERED OLD SENIOR DEBENTURES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEBENTURES EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):________________________________________________
Window Ticket Number (if any):__________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Eligible Institution that Guaranteed Delivery:__________________________
If delivered by book-entry transfer:
Account Number ______________________ Transaction Code Number __________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Debentures Exchange Offer,
the undersigned hereby tenders to the Company the Old Senior Debentures
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Senior Debentures tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Debentures Exchange Agent, as agent
of the Company, all right, title and interest in and to such Old Senior
Debentures as are being tendered hereby, and irrevocably constitutes and
appoints the Debentures Exchange Agent as the agent and attorney-in-fact of the
undersigned to cause the Old Senior Debentures tendered hereby to be transferred
and exchanged.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the Old
Senior Debentures tendered hereby and to acquire the New Senior Debentures
issuable upon the exchange of such tendered Old Senior Debentures, and that the
Debentures Exchange Agent, as agent of the Company, will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Debentures Exchange Agent, as agent of the Company. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
or the Debentures Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Senior Debentures tendered
hereby.
The undersigned also acknowledges that this Debentures Exchange Offer is
being made in reliance on the interpretation of the staff of the Securities and
Exchange Commission (the "SEC"), as set forth in Exxon Capital Holdings
Corporation (available May 13, 1988) or similar no-action letters issued to
third parties. Based on such interpretation of the staff of the SEC set forth in
such no-action letters, the Company believes that the New Senior Debentures
issued in exchange for the Old Senior Debentures pursuant to the Debentures
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder thereof (other than any (i) a broker-dealer who purchases such New Senior
Debentures from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (i) such New Senior Debentures are acquired in the ordinary course of such
holder's business, (ii) at the time of the commencement of the Debentures
Exchange Offer such holder has no arrangement with any person to participate in
a distribution of the New Senior Debentures and (iii) such holder is not engaged
in, and does not intend to engage, in a distribution of the New Senior
Debentures. By tendering Old Senior Debentures in exchange for New Senior
Debentures, each holder will represent to the Company that: (i) it is not such
an affiliate of the Company, (ii) any New Senior Debentures to be received by it
will be acquired in the ordinary course of business and (iii) at the time of the
commencement of the Debentures Exchange Offer it had no arrangement with any
person to participate in a distribution of the New Senior Debentures. If the
undersigned is not a broker-dealer or is a broker-dealer but will not receive
New Senior Debentures for its own account in exchange for Old Senior Debentures,
the undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Senior Debentures.
If the undersigned is a broker-dealer that will receive New Senior
Debentures for its own account in exchange for Old Senior Debentures, where such
Old Senior Debentures were acquired as a result of market-making activities or
other trading activities, it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Senior Debentures; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Nevertheless a
broker-dealer may be deemed to be an underwriter under the Securities Act
notwithstanding such disclaimer. The SEC has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the New Senior Debentures (other than a resale of New Senior Debentures
received in exchange for an unsold allotment from the original sale of the Old
Senior Debentures) with the Prospectus. The Prospectus, as it may be amended or
supplemented from time to time, may be used by such broker-dealers for a period
of time, starting on the Expiration Date and ending on the close of business 180
days after the date the Registration Statement relating to the Debentures
Exchange Offer has become effective. The Company has agreed that for such period
of time, it will make the Prospectus (as it may be amended or supplemented)
available to each broker-dealer which, with the Company's prior written consent,
makes a market in the Old Senior Debentures and receives New Senior Debentures
pursuant to the
<PAGE>
Debentures Exchange Offer (each a "Participating Broker-Dealer") for use in
connection with any resale of such New Senior Debentures. By acceptance of the
Debentures Exchange Offer, each broker-dealer that receives New Senior
Debentures pursuant to the Debentures Exchange Offer hereby acknowledges and
agrees to notify the Company prior to using the Prospectus in connection with
the sale or transfer of New Senior Debentures and that, upon receipt of notice
from the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not
misleading, such broker-dealer will suspend use of the Prospectus until (i) the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and (ii) either the Company has furnished copies of the amended or
supplemented Prospectus to such broker-dealer or, if the Company has not
otherwise agreed to furnish such copies and declines to do so after such
broker-dealer so requests, such broker-dealer has obtained a copy of such
amended or supplemented Prospectus as filed with the SEC. The Company agrees to
deliver such notice and such amended or supplemented Prospectus promptly to any
Participating Broker-Dealer that has so notified the Company. Except as
described above, the Prospectus may not be used for or in connection with an
offer to resell, a resale or any other retransfer of New Senior Debentures.
The undersigned represents that (i) the New Senior Debentures acquired
pursuant to the Debentures Exchange Offer are being obtained in the ordinary
course of such holder's business, (ii) such holder has no arrangements with any
person to participate in the distribution of such New Senior Debentures or, if
such holder intends to participate in the Debentures Exchange Offer for the
purpose of distributing the New Senior Debentures, such holder will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable and (iii) (x) such holder is not (a) a broker-dealer that
will receive New Senior Debentures for its own account in exchange for Old
Senior Debentures that were acquired as a result of market-making activities or
other trading activities, or (b) an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company or (y) if such holder is such a broker-dealer
or an affiliate, such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of the Old Senior Debentures
pursuant to any one of the procedures described under "The Debentures Exchange
Offer--Procedures for Tendering" in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company in accordance with the terms and subject to the conditions of the
Debentures Exchange Offer.
The undersigned understands that if its Old Senior Debentures are accepted
for exchange, interest on the New Senior Debentures will accumulate from the
last interest payment date on which interest was paid on the Old Senior
Debentures surrendered in exchange thereof, or if no interest has been paid,
from the original date of issuance of the Old Senior Debentures.
The undersigned recognizes that unless the holder of Old Senior Debentures
(i) completes item (4) of the Box entitled "Description of Old Senior Debentures
Tendered" above and (ii) checks the box entitled "Check here if tendered shares
of Old Senior Debentures are being delivered to the Debentures Exchange Agent in
exchange for certificated New Senior Debentures" above, such holder, when
tendering such Old Senior Debentures, will be deemed to have tendered such Old
Senior Debentures in exchange for a beneficial interest in one or more fully
registered global certificates, which will be deposited with, or on behalf of,
DTC and registered in the name of Cede & Co., its nominee. Beneficial interests
in such registered global certificates will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its participants.
See "Book-Entry; Delivery and Form" in the Prospectus.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Debentures Exchange Offer--Conditions," the Company
may not be required to accept for exchange any of the Old Senior Debentures
tendered. Old Senior Debentures not accepted for exchange or withdrawn will be
returned to the undersigned at the address set forth below unless otherwise
indicated under "Special Delivery Instructions" below.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by the Company, in
its sole discretion, and such determination will be final and
<PAGE>
binding. Unless waived by the Company, irregularities and defects must be cured
by the Expiration Date. The Company shall not be obligated to give notice of any
defects or irregularities in tenders and shall not incur any liability for
failure to give any such notice.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby requests that the New Senior
Debentures (and, if applicable, substitute certificates representing Old Senior
Debentures for any Old Senior Debentures not exchanged) be issued in the name of
the undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, the undersigned hereby requests that the
New Senior Debentures (and, if applicable, substitute certificates representing
Old Senior Debentures for any Old Senior Debentures not exchanged) be sent to
the undersigned at the address shown above in the box entitled "Description of
Old Senior Debentures Tendered."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SENIOR
DEBENTURES TENDERED" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD SENIOR DEBENTURES AS SET FORTH IN SUCH BOX(ES) ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X _______________________________________ _______________________________
X _______________________________________ _______________________________
SIGNATURE(S) OF OWNER(S) DATE
Area Code and Telephone Number__________________________________________________
If a holder is tendering any Old Senior Debentures, this Letter of Transmittal
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Senior Debentures or by any person(s) authorized to
become registered holder(s) by endorsements and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set forth
full title below. See Instruction 3.
Name(s):________________________________________________________________________
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
________________________________________________________________________________
(AUTHORIZED SIGNATURE)
________________________________________________________________________________
(TITLE)
________________________________________________________________________________
(NAME OF FIRM)
Dated: _________________________________________________________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New Senior Debentures (and, if applicable, substitute
certificates representing Old Senior Debentures for any Old Senior Debentures
not exchanged) are to be issued in the name of and sent to someone other than
the person or persons whose signature(s) appear(s) on this Letter of Transmittal
above.
Issue New Senior Debentures to:
Name(s):______________________________________________________________________
(PLEASE TYPE OR PRINT)
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:________________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for New Senior Debentures (and, if
applicable, substitute certificates representing Old Senior Debentures for any
Old Senior Debentures not exchanged) are to be sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above or to such person or persons at an address other than shown in the box
entitled "Description of Old Senior Debentures Tendered" on this Letter of
Transmittal above.
Mail New Senior Debentures to:
Name(s):________________________________________________________________________
(PLEASE TYPE OR PRINT)
________________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:________________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
IMPORTANT: EITHER (1) (A) THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF)
TOGETHER WITH CERTIFICATES REPRESENTING OLD SENIOR DEBENTURES OR (B) A
BOOK-ENTRY CONFIRMATION INCLUDING BY MEANS OF AN AGENT'S MESSAGE, MUST BE
RECEIVED BY THE DEBENTURES EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS, OR (2)
THE TENDERING HOLDER MUST COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES SET
FORTH HEREIN. BY TENDERING THROUGH ATOP, DTC PARTICIPANTS WILL EXPRESSLY
ACKNOWLEDGE RECEIPT OF THIS LETTER OF TRANSMITTAL AND AGREE TO BE BOUND BY ITS
TERMS AND THE ISSUER WILL BE ABLE TO ENFORCE SUCH AGREEMENT AGAINST SUCH DTC
PARTICIPANTS.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: COMFORCE CORPORATION
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I--Taxpayer Identification Number
FORM W-9 Enter your taxpayer identification number in ____________________________
the appropriate box. For most individuals, Social Security Number
this is your social security number. If you OR
do not have a number, see how to obtain a ____________________________
"TIN" in the enclosed Guidelines. Employer Identification Number
DEPARTMENT OF
THE TREASURY
INTERNAL REVENUE
SERVICE
PAYOR'S REQUEST NOTE: If the account is in more than one
FOR TAXPAYER name, see the chart on page 2 of the
IDENTIFICATION enclosed Guidelines to determine what
NUMBER ("TIN") AND number to give.
CERTIFICATION
PART II--FOR PAYEES EXEMPT FROM PART 3--Awaiting TIN / /
BACKUP WITHHOLDING (See enclosed
Guidelines)
Certification--Under the penalties of perjury, I
certify that: (1) The number shown on this form is
my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), and (2)
I am not subject to backup withholding either
because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or the IRS has notified me
that I am no longer subject to backup withholding.
SIGNATURE_______________________________________________________________________
DATE____________________________________________________________________________
CERTIFICATION GUIDELINES--You must cross out Item (2) of the above
certification if you have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out item (2).
</TABLE>
<PAGE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the New Senior Debentures shall be retained
until I provide a Taxpayer Identification Number to the payer and that, if I do
not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31 percent of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
Signature________________________________ Date_________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW
SENIOR DEBENTURES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Debentures Exchange Offer
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD SENIOR DEBENTURES;
GUARANTEED DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by
holders of Old Senior Debentures to accept the Debentures Exchange Offer if: (i)
tender of Old Senior Debentures is to be made by DTC Participants through ATOP,
for which the transaction is eligible, pursuant to the procedures set forth in
the Prospectus under the caption "Debentures Exchange Offer--Unregistered Senior
Debentures held through DTC"; (ii) certificates representing Old Senior
Debentures are to be physically delivered to the Debentures Exchange Agent
herewith by such holders, pursuant to the procedures set forth in the Prospectus
under the caption "Debentures Exchange Offer--Unregistered Senior Debentures
held by Holders"; or (iii) tender of Old Senior Debentures is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "Debentures Exchange Offer--Guaranteed Delivery Procedures."
Notwithstanding the foregoing, valid acceptance of the terms of the Debentures
Exchange Offer may be effected by a DTC Participant tendering Old Senior
Debentures through ATOP where the Debentures Exchange Agent receives an Agent's
Message prior to the Expiration Date. Accordingly, such DTC Participant must
electronically transmit its acceptance to DTC through ATOP, and then DTC will
edit and verify the acceptance, execute a book-entry delivery to the Debentures
Exchange Agent's account at DTC and send an Agent's Message to the Debentures
Exchange Agent for its acceptance. By tendering through ATOP, DTC Participants
will expressly acknowledge receipt of this Letter of Transmittal and agree to be
bound by its terms and the Company will be able to enforce such agreement
against such DTC Participants.
In order to validly tender Old Senior Debentures pursuant the Debentures
Exchange Offer, either (i) (A) this Letter of Transmittal, or a facsimile
hereof, together with certificates representing Old Senior Debentures or (B) a
Book-Entry Confirmation, including by means of an Agent's Message, of the
transfer into the Debentures Exchange Agent's account at DTC of all Old Senior
Debentures delivered electronically must be received by the Debentures Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date, together with all other required documents, or (ii) the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Delivery of documents to DTC does not constitute delivery to the
Debentures Exchange Agent.
If a holder or DTC Participant desires to tender Old Senior Debentures
pursuant to the Debentures Exchange Offer and time will not permit this Letter
of Transmittal, certificates representing such Old Senior Debentures and all
other required documents to reach the Debentures Exchange Agent, or the
procedures for book-entry transfer, including those with respect to tenders
through ATOP, cannot be completed, prior to the Expiration Date, such holder or
DTC Participant, as the case may be, must tender such Old Senior Debentures
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "Debentures Exchange Offer--Guaranteed Delivery Procedures."
Pursuant to such procedures (i) such tender must be made by or through an
Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by the Company, must be
received by the Debentures Exchange Agent either by hand delivery, mail,
facsimile transmission or overnight courier, prior to the Expiration Date; and
(iii) within three NYSE trading days after the date of the execution of the
Notice of Guaranteed Delivery, (A) holders must deliver to the Debentures
Exchange Agent a properly completed and duly executed Letter of Transmittal, as
well as the certificate(s) representing all tendered Old Senior Debentures in
proper form for transfer, and all other documents required by the Letter of
Transmittal or (B) DTC Participants must effect a Book-Entry Confirmation,
including through ATOP by means of an Agent's Message, of the transfer of such
Old Senior Debentures into the Debentures Exchange Agent's account at DTC as set
forth in the Prospectus.
The method of delivery of this Letter of Transmittal, the shares of Old
Senior Debentures and all other required documents, including delivery through
DTC and any acceptance or Agent's Message transmitted through ATOP, is at the
option and risk of the tendering holder. If delivery is by mail, registered mail
with return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed for such documents to reach the Debentures
Exchange Agent prior to the Expiration Date. Except as otherwise provided in
this Instruction 1, delivery will be deemed made only when actually received by
the Debentures Exchange Agent.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders, by execution of this Letter of Transmittal (or a facsimile
hereof), waive any right to receive any notice of the acceptance of their Old
Senior Debentures for exchange.
See "The Debentures Exchange Offer" in the Prospectus.
<PAGE>
2. WITHDRAWALS. Tenders of Old Senior Debentures may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. For a
withdrawal of a tender of Old Senior Debentures to be effective, a letter,
telex, telegram or facsimile transmission notice of withdrawal must be received
by the Debentures Exchange Agent at its address set forth above prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
by a DTC Participant must contain the name and number of the DTC Participant,
the aggregate principal amount of Old Senior Debentures to which such withdrawal
relates and the signature of the DTC Participant. Any such notice of withdrawal
by a holder of Old Senior Debentures must (i) specify the name of the person who
tendered the Old Senior Debentures to be withdrawn, (ii) contain a description
of the Old Senior Debentures to be withdrawn (including the certificate number
or numbers and aggregate liquidation preference of such Old Senior Debentures)
and (iii) be signed by the holder of such Old Senior Debentures in the same
manner as the original signature on this Letter of Transmittal (including any
required signature guaranties), or be accompanied by (x) documents of transfer
in a form acceptable to the Company, in its sole discretion and (y) a properly
completed irrevocable proxy that authorized such person to effect such
revocation on behalf of such holder. Any Old Senior Debentures so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
Debentures Exchange Offer. Any Old Senior Debentures which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the Debentures Exchange
Offer. Properly withdrawn Old Senior Debentures may be retendered by following
the procedures described above at any time on or prior to 5:00 p.m., New York
City time, on the Expiration Date.
See "The Debentures Exchange Offer--Withdrawal of Tenders" in the
Prospectus.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder of the Old Senior Debentures tendered hereby, the signature
must correspond exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Old Senior Debentures are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Senior Debentures are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any Old Senior Debentures or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should indicate when signing, and unless
waived by the Company, proper evidence satisfactory to the Company of their
authority so to act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Senior Debentures surrendered
for exchange pursuant thereto are tendered (i) by a registered holder of the Old
Senior Debentures who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in this Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that the
signatures in this Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or by a commercial bank or
trust company having an office or correspondent in the United States, or an
"eligible institution" within the meaning of Rule l7Ad-l5 of the Securities
Exchange Act of 1934, as amended (each an "Eligible Institution"). If Old Senior
Debentures are registered in the name of a person other than the signer of this
Letter of Transmittal, the Old Senior Debentures surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Senior Debentures should indicate in the applicable box the name and address to
which New Senior Debentures issued pursuant to the Debentures Exchange Offer are
to be issued or sent, if different from the name or address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated. If no such instructions are
<PAGE>
given, any New Senior Debentures will be issued in the name of, and delivered
to, the name or address of the person signing this Letter of Transmittal and any
Old Senior Debentures not accepted for exchange will be returned to the name or
address of the person signing this Letter of Transmittal.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
federal income tax laws, payments that may be made by the Company on account of
New Senior Debentures issued pursuant to the Debentures Exchange Offer may be
subject to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter of Transmittal and either (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the "IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or (ii) the IRS has
notified the holder that the holder is no longer subject to backup withholding;
or (b) provide an adequate basis for exemption. If the tendering holder has not
been issued a TIN and has applied for one, or intends to apply for one in the
near future, such holder should write "Applied For" in the space provided for
the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form
W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number.
If "Applied For" is written in Part I, the Company (or the Trustee with respect
to the New Senior Debentures or a broker or custodian) may still withhold 31% of
the amount of any payments made on account of the New Senior Debentures until
the holder furnishes the Company or the Trustee with respect to the New Senior
Debentures, broker or custodian with its TIN. In general, if a holder is an
individual, the taxpayer identification number is the Social Security number of
such individual. If the Debentures Exchange Agent or the Company is not provided
with the correct TIN, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Debentures Exchange Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number if
you do not have one and how to complete the Substitute Form W-9 if Old Senior
Debentures are registered in more than one name), consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Senior Debentures to be deemed invalidly tendered, but may require the Company
or the Trustee with respect to the New Senior Debentures, broker or custodian to
withhold 31% of the amount of any payments made on account of the New Senior
Debentures. Backup withholding is not an additional federal income tax. Rather,
the federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Senior Debentures to it or its order pursuant
to the Debentures Exchange Offer. If, however, New Senior Debentures and/or
substitute Old Senior Debentures not exchanged are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Old Senior Debentures tendered hereby, or if tendered Old Senior
Debentures are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Old Senior Debentures to the Company or its
order pursuant to the Debentures Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered holder or any other person) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Senior Debentures specified in this
Letter of Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Senior
Debentures, by execution of this Letter of Transmittal, shall waive any right to
receive notice of the acceptance of their Old Senior Debentures for exchange.
<PAGE>
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of Old Senior Debentures being tendered and the
certificate number or numbers (if available) should be listed on a separate
schedule attached hereto and separately signed by all parties required to sign
this Letter of Transmittal.
10. MUTILATED, LOST, STOLEN OR DESTROYED OLD SENIOR DEBENTURES. Any holder
whose Old Senior Debentures have been mutilated, lost, stolen or destroyed
should contact the Debentures Exchange Agent at the address indicated above for
further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Debentures
Exchange Agent at the address and telephone number indicated above.
<PAGE>
COMFORCE CORPORATION
All tendered Old Senior Debentures, executed Letters of Transmittal and
other related documents should be directed to the Debentures Exchange Agent.
Requests for assistance and additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Debentures
Exchange Agent.
THE DEBENTURES EXCHANGE AGENT FOR THE DEBENTURES EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Facsimile:
(212) 571-3080
(For Eligible Institutions Only)
By Telephone:
(212) 815-6333
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, 7E
New York, NY 10286
Attn.: Reorganization Section
By Hand or Overnight Delivery
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, NY 10286
Attention: Reorganization Section
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
COMFORCE CORPORATION
15% SENIOR SECURED PIK DEBENTURES DUE 2009
This form or a form substantially similar hereto must be used by a holder
of the 15% Senior Secured PIK Debentures due 2009, Series A (the "Old Senior
Debentures") of COMFORCE Corporation, a Delaware corporation ("COMFORCE"), that
wishes to tender Old Senior Debentures to the Debentures Exchange Agent pursuant
to the guaranteed delivery procedures described in "The Debentures Exchange
Offer--Guaranteed Delivery Procedures" of the Prospectus dated January __ , 1998
(the "Prospectus") and in Instruction 1 to the accompanying BLUE Letter of
Transmittal. Any holder that wishes to tender Old Senior Debentures pursuant to
such guaranteed delivery procedures must ensure that the Debentures Exchange
Agent receives this Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date of the Debentures Exchange Offer. Capitalized
terms not defined herein have the meaning ascribed to them in the Prospectus or
the BLUE Letter of Transmittal.
To: The Bank of New York, Debentures Exchange Agent
By Registered or Certified Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, NY 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Level
New York, NY 10286
Attention: Reorganization Section
By Facsimile: For Information Call:
(212) 571-3080 (212) 815-6333
(For Eligible Institutions Only)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Please read the accompanying instructions carefully.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to COMFORCE, upon the terms and subject to
the conditions set forth in the Prospectus and the related BLUE Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Senior Debentures specified below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and in Instruction 1 of the BLUE Letter
of Transmittal. The undersigned hereby tenders the Old Senior Debentures listed
below:
CERTIFICATE NUMBER(S)(IF KNOWN) OF AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
OLD SENIOR DEBENTURES OR AMOUNT REPRESENTED AMOUNT TENDERED
ACCOUNT NUMBER AT THE BOOK- BY CERTIFICATES
ENTRY FACILITY
2
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
SIGN HERE
Name of Registered or Acting Holder: ___________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Associates of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Debentures Exchange Agent of the BLUE
Letter of Transmittal (or facsimile thereof), together with the Old Senior
Debentures tendered hereby in proper form for transfer (or confirmation of the
book-entry transfers of such Old Senior Debentures into the Debentures Exchange
Agent's account at the book-entry transfer facility described in the Prospectus
under the caption "The Debentures Exchange Offer--Procedures for Tendering" and
in the BLUE Letter of Transmittal) and any other required documents, within
three New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery.
SIGN HERE
Name of firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name (please print): ___________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED
BLUE LETTER OF TRANSMITTAL.
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the
Debentures Exchange Agent at its address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date. The method of delivery of this
Notice of Guaranteed Delivery and any other required documents to the Debentures
Exchange Agent is at the election and risk of the holder and the delivery will
be deemed made only when actually received by the Debentures Exchange Agent. If
delivery is by mail, registered or certified mail properly insured, with return
receipt requested, is recommended. In all cases sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed delivery
procedure, see Instruction 1 of the BLUE Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Senior
Debentures referred to herein, the signature must correspond with the name(s)
written on the face of the Old Senior Debentures without alteration,
enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is
signed by a participant of the book-entry transfer facility whose name appears
on a security position listing as the owner of Old Senior Debentures, the
signature must correspond with the name shown on the security position listing
as the owner of the Old Senior Debentures.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Senior Debentures listed or a participant of the
book-entry transfer facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate powers of attorney to transfer securities, signed as
the name of the registered holder(s) appears on the Old Senior Debentures or
signed as the name of the participant shown on the book-entry transfer
facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Debentures Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Debentures Exchange Offer.
4
