SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from __________ to ___________
Commission file number
COMFORCE Corporation: 1-6081
COMFORCE Operating, Inc.: 333-43341
COMFORCE Corporation
and
COMFORCE Operating, Inc.
(Exact name of registrant as specified in its charter)
COMFORCE Corporation: 36-23262248
Delaware COMFORCE Operating, Inc.: 11-3407855
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
415 Crossways Park Drive, P.O. Box 9006, Woodbury, New York 11797
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 437-3300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
COMFORCE Corporation: Common stock, $.01 par value American Stock Exchange
COMFORCE Operating, Inc.: None
Securities registered pursuant to Section 12(g) of the Act:
COMFORCE Corporation: None
COMFORCE Operating, Inc.: None
(Cover page continued next page)
<PAGE>
(Cover page continued)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 24, 1999:
COMFORCE Corporation: $48,788,959
COMFORCE Operating, Inc.: Not Applicable
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMFORCE Corporation:
Outstanding at
Class March 24, 1999
----- --------------
Common stock, $.01 par value 16,202,080
COMFORCE Operating, Inc.: COMFORCE Corporation owns all of the 100 issued
and outstanding shares of Common Stock of COMFORCE
Operating, Inc.
Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS
Overview
COMFORCE Corporation ("COMFORCE") is a leading provider of specialty
staffing, consulting and outsourcing services primarily to Fortune 500 companies
for their information technology, telecommunications, scientific and
engineering-related needs. COMFORCE Operating, Inc. ("COI"), a wholly-owned
subsidiary of COMFORCE, was formed for the purpose of facilitating certain of
the Company's financing transactions in November 1997. Unless the context
otherwise requires, the term the "Company" refers to COMFORCE, COI and all of
their direct and indirect subsidiaries.
Through a national network of 67 offices (47 company-owned and 20
licensed), the Company recruits and places highly skilled contingent personnel
and provides financial and outsourcing services for a broad customer base of
over 2,300 companies, including Boeing Corporation, Microsoft Corporation and
Sun Microsystems. The Company's labor force includes over 8,000 billable
employees (on a full-time equivalent basis), consisting primarily of computer
programmers, systems consultants and analysts, engineers, technicians,
scientists, researchers and skilled office support personnel. Since entering the
staffing services business in 1995, COMFORCE has grown significantly through a
combination of acquisitions and internal growth.
Services
The Company provides a wide range of staffing, consulting, financial and
outsourcing 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 its Staff Augmentation business through three
divisions -- Information Technology, Telecom and Staffing Services. The
Company's outsourcing and consulting services are provided through its Financial
Services Division. A description of the types of services provided by each
division follows.
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, desktop services, Internet/Intranet and MIS. In addition to these
staffing services, the IT division also provides non-recruited payrolling
services to certain of its customers. These services consist of acting as the
employer for workers identified by the customer, preparing payrolls, withholding
taxes, and tracking hours, vacation and sick days. In addition, these employees
participate in the Company's benefit programs rather than those of the customer.
The Company's 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.
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
telecommunications industry has grown rapidly in recent years, fueled in part by
the rising demand for wireless telecommunications services.
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The Telecom division's 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.
COMFORCE Staffing Services
The Company's Staffing Services division operates in two areas, Technical
Services and Professional Services.
Technical Services. The Technical Services portion of the Company's
Staffing Services division 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 Company also
provides non-recruited payrolling services to certain Technical Services
customers.
The Company's Technical Services customers include Boeing Company,
Westinghouse Electric Corporation, McDonnell Douglas Corporation and the
National Department of Energy National Research Laboratories at Los Alamos,
Sandia and Lawrence Livermore.
Professional Services. The Company offers Professional Services through 10
Company-owned and 20 licensed locations. The Professional Services group
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 more
traditional services for medical, legal and accounting professionals.
The Company'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.
COMFORCE Financial Services
Through the Financial Services' Pro Unlimited subsidiary, the Company
provides confidential consulting and conversion services to companies that
require assistance in complying with regulations associated with the use of
independent contractors, returning retirees and consultants. The Company's
consulting services incorporate a proprietary liability and risk scoring system
to assess the likelihood of a governmental authority reclassifying a client's
independent contractors as employees. If appropriate, the Company may become the
employer of some or all of the workers of these clients (on a non-recruited
basis) and, in such cases, will provide various services for these employees,
including preparing payrolls, withholding taxes and tracking hours and vacation
and sick days. Pro Unlimited has become an industry leader, generating over $80
million in sales for the year ended December 31, 1998.
The Financial Services division also provides payroll funding services and
back office support to approximately 100 independent consulting and staffing
companies. The Company's back office services include payroll processing and
billing, 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 employed and 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. In providing payroll funding services, the Company
purchases the accounts receivable of independent staffing firms and receives
payments directly from these firms' clients. The Company pursues the collection
of those receivables; however, 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.
Customers
The Company provides staffing, consulting and outsourcing services 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, pharmaceutical companies, cosmetics
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companies, health care facilities, educational institutions and accounting
firms. Services to Fortune 500 companies represent a majority of the Company's
revenues.
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.
The Company generally invoices its customers weekly. Customers of the IT
division, the Telecom division and the Professional Services group generally
obtain the Company's services on a purchase order basis, while Technical
Services and Financial Services customers generally enter into long-term
contracts with the Company.
During the year ended December 31, 1998, Boeing Corporation accounted for
approximately 10% of the Company's revenues, and the largest four customers
represented approximately 31% of the Company's revenues.
Sales and Marketing
The Company services its customers through a network of 47 company-owned
and 20 licensed branch offices located in 25 states across the United States and
its corporate headquarters located in Woodbury, New York. The Company's sales
and marketing strategy is focused on increasing its share of existing customer
business, expanding its business with existing customers through cross-selling
to customers currently serviced by only one of the Company's divisions and by
establishing relationships with new customers. The Company solicits customers
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 strategy focuses on national accounts that are coordinated by
management at the corporate level to provide a consistent, focused strategy, but
are primarily serviced on a local level through the Company's 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.
The Company has developed several value-added marketing tools that are
available to its sales and marketing staff. 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 Company's RightSourcing(sm) program evaluates the performance level of a
customer's department, function, or project, recommends ways to increase
cost-effectiveness and workforce efficiency through specific staffing strategies
and tailors a program to meet specific staffing needs and established
performance standards. The Company's sales and marketing staff is then able to
use the Company's proprietary database and other sources to provide contingent
personnel to meet the customer's staffing needs identified through these
programs.
Information Systems
The Company is currently in the process of implementing the PeopleSoft(R)
Enterprise Resource Planning system, which the Company believes is becoming the
industry standard. When PeopleSoft(R) is fully operational, which the Company
anticipates will occur in the second quarter of 1999, the Company will have
consolidated its back office operations from three locations to one and will
also have largely integrated the management information systems of its 10
acquired companies.
The Company is also in the process of implementing the EZAccess(R)
recruiting and database software system to consolidate the resume databases of
its acquired companies. The Company believes that this software will allow
easier, faster and more accessible updating of its resume database and posting
of job openings on a national basis. As a result, the Company believes
EZAccess(R) will facilitate recruiting efforts and improve customer service and
may generate incremental revenues. This system is currently operating in certain
locations, and the Company intends to phase the rest of its locations into the
EZAccess(R) system during 1999.
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Recruiting and Training of Billable Employees
The Company's success depends on its ability to effectively and efficiently
match skilled personnel with specific customer assignments. The Company has
established an extensive national resume database of over 175,000 prospective
employees with expertise in the disciplines served by the Company. To identify
qualified personnel for inclusion in this database, the Company solicits
referrals from its existing personnel and customers, places advertisements in
local newspapers, trade magazines, its home page on the World Wide Web and other
Internet sites, and otherwise actively recruits through the Internet. 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
the employee and the assignment being staffed. The Company can search its resume
database by a number of different criteria, including specific skills or
qualifications, to match the appropriate employee with the assignment.
Management believes that the Company will be better positioned to attract
recruits by making extensive training opportunities available to its employees.
The Company frequently agrees to bear a portion of the training costs for
training contingent personnel in a particular IT discipline needed by a client.
To meet those demands, the Company employs Internet-based educational programs
to train employees in the latest developments in IT, telecommunications and
other technologies. The Company also maintains a training facility in Dallas,
Texas, where Telecom staffers are trained to install and test telecommunications
equipment, and 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.
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 financial,
technical and marketing resources than the Company and smaller, regional firms
with a strong presence in their respective local markets.
Management believes that the availability and quality of candidates, the
effective monitoring of job performance, the 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.
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.
Employees
The Company currently employs approximately 500 full-time staff employees
and has approximately 8,000 billable employees (on a full-time equivalent
basis). In addition to employees on assignment, the Company maintains a
proprietary database of over 175,000 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.
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Licensed Offices
The Company has granted licenses to operate Uniforce offices. The most
recent license for a new office was granted in July 1992, and the Company does
not presently expect to grant more licenses. 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. The
Company and the licensees share the gross profits from each licensed office.
Regulations
Contingent staffing and consulting services firms are generally subject to
one or more of the following types of government regulations: (1) registration
of the employer/employees; (2) licensing, record keeping and recording
requirements; and (3) 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 Company's
licenses are considered to be franchises, which are subject to regulation, both
by the Federal Trade Commission and a number of states.
Forward Looking Statements
Various statements made in this Item 1 and elsewhere in this Report
concerning the manner in which the Company intends to conduct its future
operations, and potential trends that may impact future results of operations,
are forward-looking statements. The Company may be unable to realize its plans
and objectives due to various important factors, including, but not limited to,
the following factors:
More than 50% of the Company's total assets are 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. This amortization results in
significant annual charges. Various factors could impact the Company's ability
to generate the earnings necessary to support this amortization schedule,
including (1) fluctuations in the economy, (2) the degree and nature of
competition, (3) demand for the Company's services and (4) the Company's ability
to recruit and place staffing professionals and maintain gross margins. If the
Company fails to generate earnings necessary to support the amortization charge,
an impairment of the asset may occur. The resulting write-off could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 business in several ways, including the
following: The Company may face the need to reduce 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; as a result, margins may decrease, particularly for the
less highly skilled personnel in that sector. Barriers to entry in the
contingent staffing business are low, and the Company could experience
competition from additional competitors entering the business.
The Company has a high level of debt, which could have important
consequences to investors, including the following: The Company will have to use
a substantial portion of its cash flow from operations to service its debt,
rather than for operations or growth. The Company could be more vulnerable to
economic downturns and less able to take advantage of significant business
opportunities and react to changes in market or industry conditions. The Company
may not be able to obtain additional financing for working capital, capital
expenditures, debt service requirements or other purposes.
The agreements governing the public debt obligations of the Company contain
restrictions that affect the Company's ability to incur debt, make
distributions, make acquisitions, create liens, make capital expenditures and
affiliate payments and pay dividends. In particular, the indenture governing the
12% Senior Notes due 2007 issued by COI (the "COI Notes") contains a covenant
which, subject to certain exceptions, permits COI to make distributions to
COMFORCE only if it meets a specified ratio of cash flow to interest expense and
then only to a limited extent pursuant to a formula permitting distribution of a
portion of net income, capital contributions to COI and certain other amounts.
In addition, the Credit Facility requires the Company to
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meet specified financial ratios and tests. Events beyond the Company's control
may affect its ability to comply with these covenants and restrictions, and the
Company may not achieve operating results that will comply with the financial
ratios and tests. A default under any of the Company's financing agreements
could have a material adverse effect on its business and financial condition if
it is not cured or waived.
Additional important factors that could cause the Company to be unable to
realize its plans and objectives are described under "Risk Factors" in the
Registration Statement on Form S-3 of the Company filed with the Securities and
Exchange Commission on March 19, 1999 (Registration No. 333-74689). The
disclosure under "Risk Factors" in the Registration Statement may be accessed
through the Web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov." In addition, the Company will provide, without charge, a
copy of such "Risk Factors" disclosure to each stockholder of the Company who
requests such information. Requests for copies should be directed to the
attention of Linda Annicelli, Vice President of Administration at COMFORCE
Corporation, 415 Crossways Park Drive, P.O. Box 9006, Woodbury, New York 11797,
telephone 516-437-3300.
See also the cautionary statements regarding the forward-looking disclosure
concerning the Company's Year 2000 readiness set forth under "--Year 2000" in
Item 7.
ITEM 2. PROPERTIES
The Company leases its 47 offices. Excluding the Company's headquarters,
these leases are for office space ranging in size from approximately 150 square
feet to approximately 15,600 square feet and have remaining lease terms of from
less than one year to five years. The Company's headquarters occupies
approximately 23,500 square feet and the lease term for this space extends until
2006. The Company owns no real estate, except for an approximately 700 square
foot condominium.
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.
ITEM 3. 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
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
October 1998, plaintiffs filed motions for partial summary judgment, which
motions were denied by the court in March 1999. The parties continue to be
engaged in the discovery phase of the case. The Company intends to continue to
vigorously defend itself against these suits.
As reported in the Company's prior 10-K, Rhotech was granted summary
judgment with respect to all claims made against it in a case filed in U.S.
District Court, Central District of California, against Rhotech and Technical
Staff Associates, Inc. The judgment in Rhotech's favor was subsequently upheld
on appeal.
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,
fidelity insurance and directors' and
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officers' liability insurance. The Company is generally self-insured with
respect to workers' compensation, but maintains umbrella workers' compensation
coverage to limit its maximum exposure to such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange
(AMEX:CFS). The high and low sales prices for the Common Stock, as reported by
the American Stock Exchange in the Monthly Market Statistics for the periods
indicated, were as follows:
High Low
---- ---
1997 First Quarter.............................. $ 14 $ 6 1/8
Second Quarter............................. 7 1/2 4
Third Quarter.............................. 9 5/16 5 7/8
Fourth Quarter............................. 9 3/8 6
1998 First Quarter.............................. 9 6 9/16
Second Quarter............................. 11 7/16 7 1/8
Third Quarter.............................. 9 3/4 4 5/8
Fourth Quarter............................. 6 3/16 3 1/2
1999 First Quarter (through March 24, 1999)..... 6 1/4 3 11/16
The last reported sale price of the Common Stock of the Company on the
American Stock Exchange on March 24, 1999 was $4 1/4. As of such date, there
were approximately 5,000 shareholders of record.
The Company anticipates that it will not pay cash dividends on the Common
Stock for the foreseeable future and that it will retain its earnings to finance
future growth. The declaration and payment of dividends by the Company 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 the Company's financial condition and other factors the
Company's Board of Directors may in the future consider relevant. The revolving
credit facility entered into with Heller Financial, Inc., as lender and agent
for other participating lenders (the "Credit Facility"), prohibits the payment
of cash dividends. In addition, the terms of the COI Notes restrict COI's
payment of dividends to the Company, which is expected to be the only source of
funds from which the Company could pay dividends. No dividends were declared or
paid on the Common Stock during 1997 or 1998.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company as of and for each of the five years in the period ended December 31,
1998. The Company derived the statement of operations and balance sheet data as
of and for each of the five years in the period ended December 31, 1998 from its
audited historical consolidated financial statements. Prospective investors
should read this selected historical financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the Company's financial statements and notes beginning
on page F-2.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (1)
Net sales of services ................................... -- $ 2,387 $ 55,867 $ 216,521 $ 459,022
Cost of services ........................................ -- 1,818 47,574 186,455 372,877
--------- --------- --------- --------- ---------
Gross profit ............................................ -- 569 8,293 30,066 86,145
Selling, general and administrative expense ............. $ 966 461 5,266 19,718 55,827
Restructuring charge .................................... -- -- -- 1,600 (211)
Depreciation and amortization ........................... -- 362 614 1,883 5,605
Stock compensation charge (2) ........................... -- 3,425 -- -- --
--------- --------- --------- --------- ---------
Operating income (loss) ................................. (966) (3,679) 2,413 6,865 24,924
Other (income) expense:
Interest expense ........................................ 1,316 585 201 4,588 21,490
Bridge and financing charges ............................ -- -- -- 7,672 --
Other (income) expense, net ............................. -- 33 (40) (344) (35)
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before income taxes and extraordinary
credit ............................................... (2,282) (4,297) 2,252 (5,051) 3,469
Provision (credit) for income taxes ..................... -- 35 900 (1,351) 2,664
--------- --------- --------- --------- ---------
Income (loss) from continuing operations ................ (2,282) (4,332) 1,352 (3,700) 805
Loss from discontinued operations (3) ................... (16,220) (17,211) -- -- --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary credit ............... (18,502) (21,543) 1,352 -- 805
Extraordinary credit from net discharge of
indebtedness (4) ..................................... 8,965 6,657 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ....................................... (9,537) (14,886) 1,352 (3,700) 805
Preferred stock dividends ............................... -- -- 325 737 21
Accretive dividend on Series F preferred
stock ................................................ -- -- 665 -- --
--------- --------- --------- --------- ---------
Income (loss) available to common
stockholders ......................................... $ (9,537) $ (14,886) $ 362 $ (4,437) $ 784
========= ========= ========= ========= =========
Net income (loss) per share:
Continuing operations before accretive
dividend ............................................. $ (0.72) $ (0.95) $ 0.12 $ (0.33) $ 0.05
Discontinued operations ................................. (5.08) (3.74) -- -- --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary credit
and accretive dividend ............................... $ (5.80) $ (4.69) $ 0.12 $ (0.33) $ 0.05
Extraordinary credit .................................... 2.81 1.45 -- -- --
</TABLE>
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<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Accretive dividend on Series F preferred
stock ................................................ -- -- (0.09) -- --
--------- --------- --------- --------- ---------
Basic net income (loss) per share ....................... $ (2.99) $ (3.24) $ 0.03 $ (0.33) $ 0.05
========= ========= ========= ========= =========
Diluted net income (loss) per share ..................... $ (2.99) $ (3.24) $ 0.03 $ (0.33) $ 0.05
========= ========= ========= ========= =========
Basic weighted average shares ........................... 3,195 4,596 11,049 13,493 15,971
Plus dilutive effect of options, warrants and
convertible securities ............................... -- -- 1,984 -- 677
--------- --------- --------- --------- ---------
Diluted weighted average shares ......................... 3,195 4,596 13,033 13,493 16,648
========= ========= ========= ========= =========
Balance Sheet Data: (5)
Working capital (deficit) ............................... -- $ (1,697) $ 8,012 $ 59,762 $ 65,563
Accounts receivable ..................................... -- 1,698 12,042 72,865 81,680
Intangible assets, net .................................. -- 4,801 24,756 135,516 138,847
Total assets ............................................ -- 8,536 43,366 235,934 246,082
Total debt, including current maturities ................ -- 500 3,850 171,038 178,579
Preferred stock ......................................... -- -- 2 1 --
Stockholders' equity .................................... -- 2,238 34,744 39,402 44,334
</TABLE>
- -----------
(1) Results for the year ended December 31, 1995 represent results of COMFORCE
Telecom, Inc. 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 Communications Services, Inc. from
the acquisition date of March 3, 1996 through December 31, 1996, results of
RRA, Inc. and certain related entities from the acquisition date of May 10,
1996 through December 31, 1996, results of Force Five, Inc. from the
effective date of acquisition of July 31, 1996 through December 31, 1996,
results of AZATAR Computer Systems, Inc. from the effective date of
acquisition of November 1, 1996 through December 31, 1996, and results of
Continental Field Services Corporation and a related entity from the
effective date of acquisition of November 8, 1996 through December 31,
1996. Results for the year ended December 31, 1997 represent results of RHO
Company, Incorporated from the acquisition date of February 28, 1997
through December 31, 1997 and results of Uniforce Services, Inc. from the
acquisition date of November 26, 1997 through December 31, 1997. Results
for the year ended December 31, 1998 represent results of Camelot
Consulting Group Inc., Camelot Communications Group Inc., Camelot Control
Group Inc. and Camelot Group Inc. (collectively, "Camelot") from the
beginning of January 1998 through December 31, 1998. The Company's jewelry
operations were discontinued effective as of September 30, 1995.
Accordingly, selected financial data of the Company's jewelry operations
for each of the two 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 the Company to certain individuals to manage
the Company's entry into the technical staffing services business.
(3) 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 the Company's discontinued jewelry operations effective
September 30, 1995 operations and for the year ended December 31, 1994
includes a charge to operations of $10.8 million representing a write-off
of goodwill of the Company's former New Dimensions subsidiary.
(4) The 1995 and 1994 extraordinary credits represent gains from net discharge
of indebtedness under terms of the Company's debt settlement agreement with
its bank related to the discontinued jewelry operations.
12
<PAGE>
(5) Balance sheet data is not presented for 1994 as information is not
meaningful since the Company was not in the staffing business during such
year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion set forth below supplements the information found in the
consolidated financial statements and related notes. The matters discussed below
and elsewhere in this Report contain forward looking statements that involve
risks and uncertainties, many of which may be beyond the Company's control. See
"Forward Looking Statements" in Item 1 of this Report for a discussion of
certain of such risks and uncertainties.
Overview
Set forth below are discussions and analyses of financial condition and
results of operations of the Company. The Company believes that its future
operating results may not be directly comparable to historical operating results
because of the Company's increased size, related cost savings and marketing
synergies.
Since October 1995, the Company has completed 10 acquisitions. Each of
these acquisitions has been accounted for on a purchase basis and the results of
operations of each of the businesses acquired have been included in the
Company's historical financial statements from the date of acquisition. Certain
of these acquisitions provide for contingent payments by the Company as a part
of the purchase consideration based upon the operating results of the acquired
businesses for specified future periods. The acquisitions were financed by the
Company principally through its issuance of debt and equity securities and
borrowings under credit facilities. As a result, the Company's historical
results of operations include bridge financing costs, which are not expected to
be incurred in future periods, and preferred stock dividends. All previously
issued preferred stock has been repurchased or redeemed by the Company. In
addition, as a result of its rapid growth through acquisitions, the discussion
and comparison of the Company's historical results of operations set forth below
may not be meaningful.
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, information technology and financial services sectors.
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 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.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of services of $459.0 million for the year ended December 31,
1998 were $242.0 million, or nearly 112% higher than net sales of services for
the year ended December 31, 1997. The increase in 1998 net sales of services is
attributable principally to the Company's acquisition of Uniforce on November
26, 1997.
Cost of services for the year ended December 31, 1998 was 81.2% of net
sales of services compared to cost of services of 86.1% for the year ended
December 31, 1997. The cost of services decrease of 4.9% for 1998 is a result of
the Company's business mix in that year, which reflected the full period impact
of acquisitions completed during 1997 as well as
13
<PAGE>
growth in the Company's information technology, telecommunications and financial
services sectors. These sectors have historically generated higher gross margins
than the more mature technical staffing sector.
Selling, general and administrative expenses as a percentage of revenue was
12.1% for the year ended December 31, 1998, compared to 9.1% for the year ended
December 31, 1997. This percentage increase was principally attributable to the
operations of the Company's Uniforce subsidiary, which was acquired in 1997.
Uniforce's selling, general and administrative fees, which include significant
licensee costs related to its franchise operations, are substantially higher on
a percentage basis than those historically recorded by the Company. The licensee
costs included in selling, general and administrative fees were $6.9 million for
1998 and $0.5 million for 1997 (which included only one month of Uniforce's
operations).
Operating income for the year ended December 31, 1998 was $24.9 million,
compared to operating income of $6.9 million for the year ended December 31,
1997. This increase was principally attributable to the Company's completion of
the Rhotech and Uniforce acquisitions in 1997.
The Company's interest expense for 1998 is attributable to the interest on
the Credit Facility, the COI Notes and COMFORCE's 15% Senior Secured PIK
Debentures (the "PIK Debentures"), all of which obligations were incurred in
November 1997. For the year ended December 31, 1997, interest expense is
attributable to the $25.2 million principal amount of the Subordinated
Debentures issued by the Company in February and March 1997 (the "Old
Subordinated Debentures"), the Company's credit facilities outstanding during
the year and the COI Notes and PIK Debentures issued in November 1997. The
amortization of the costs payable on the Old Subordinated Debentures is
reflected in bridge and financing charges for 1997.
The income tax provision for the year ended December 31, 1998 was for $2.7
million on pretax income of $3.5 million, compared to a tax credit of $1.4
million on a loss before taxes of $5.1 million for the year ended December 31,
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 amortization expense associated with certain intangible
assets.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of services of $216.5 million for the year ended December 31,
1997 were $160.6 million, or approximately 287% higher than net sales of
services for the year ended December 31, 1996. The increase in 1997 net sales of
services is attributable principally to the Company's completion of six
acquisitions since the end of the first quarter of 1996.
Cost of services for the year ended December 31, 1997 was 86.1% of net
sales of services compared to cost of services of 85.2% for the year ended
December 31, 1996. The 1997 cost of services increase of 0.9% is a result of the
Company's business mix in 1997, which reflected the full year impact of
acquisitions completed during 1996 as well as expansion in 1997 into more mature
technical staffing sectors. These more mature technical staffing sectors
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
9.1% for the year ended December 31, 1997, compared to 9.4% for the year ended
December 31, 1996. The decrease is principally attributable to the acquisitions
completed during 1996 and 1997 which contributed increased net sales of services
with lower incremental selling, general and administrative costs.
During 1997, the Company recorded merger, integration and other
non-recurring charges totaling $1.6 million. These non-recurring charges before
taxes consist of merger and integration charges resulting from the acquisition
of Uniforce, and include severance costs of $690,000, asset write-downs of
$210,000 and integration costs of $700,000.
Operating income for the year ended December 31, 1997 was $6.9 million,
compared to operating income of $2.4 million for the year ended December 31,
1996. This increase was principally attributable to the Company's completion of
six acquisitions following the end of the first quarter of 1996 and prior to
December 31, 1997.
14
<PAGE>
For the year ended December 31, 1997, interest expense is attributable to
the Old Subordinated Debentures, the Company's credit facilities outstanding
during the year and the COI Notes and PIK Debentures issued in November 1997.
Bridge and financing charges for the year ended December 31, 1997 are
attributable principally to the amortization of bridge finance costs payable on
the Old Subordinated Debentures issued by the Company in February and March
1997, the proceeds of which were used to partially fund the acquisition of
Rhotech and for working capital purposes, and the write-off of deferred
financing fees on a prior credit facility with Fleet National Bank, which was
repaid in November 1997.
Income tax reflects a credit for the year ended December 31, 1997 for $1.4
million on a loss before income taxes of $5.1 million, compared to a tax
provision of $900,000 on pretax income of $2.3 million for the year ended
December 31, 1996. This 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 amortization expense associated with certain intangible
assets.
Financial Condition, Liquidity and Capital Resources
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 services
is normally paid by the Company prior to receiving payment from its customers.
Increases in the Company's net sales of services, resulting from expansion of
existing offices or establishment of new offices, will require the employment of
additional cash resources.
The debt service costs associated with the borrowings under the COI Notes
and the Credit Facility have significantly increased liquidity requirements. The
debt service costs associated with the PIK Debentures may be satisfied through
the issuance of new notes. To date, the Company has chosen to issue new notes to
pay these costs.
Management of the Company believes that, based on the results of operations
and anticipated growth, including growth through acquisitions, cash flow from
operations and funds anticipated to be available under the 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 or
referenced under "Forward-Looking Statements" in Item 1 could prevent the
Company from realizing these objectives.
As of December 31, 1998, the Company had outstanding $23.2 million in
principal amount of PIK Debentures bearing interest at a rate of 15%, $110.0
million in principal amount of COI Notes bearing interest at a rate of 12% and
$45.4 million outstanding under the Credit Facility bearing interest at an
average rate of 7.6% per annum. See Note 9 to the Company's consolidated
financial statements for a summary of the terms of the PIK Debentures, the COI
Notes and the Credit Facility.
As of December 31, 1998, approximately $138.8 million, or 56.4%, 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 will be amortized over a five to 40 year
period, resulting in an annual charge of approximately $4.3 million. Various
factors could impact the Company's ability to generate the earnings necessary to
support this amortization schedule, including the factors described or
referenced under "Forward-Looking Statements" in Item 1.
The Company 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. The maximum amount of the
remaining potential earn-out payments is $5.3 million in cash and $2.0 million
in stock payable in the three-year period from 1999 to 2001. The Company cannot
currently estimate whether it will be obligated to pay the maximum amount;
however, the Company 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.
During 1998, the Company's primary sources of funds to meet working capital
needs were cash from operations and borrowings under the Credit Facility.
15
<PAGE>
Cash and cash equivalents decreased $1.9 million during the year ended
December 31, 1998. Cash flows used in investing activities of $10.6 million were
in excess of cash flows provided by operating activities of $4.5 million and
cash flows provided by financing activities of $4.3 million. Cash flows used in
investing activities were principally related to the purchase of Camelot
Consulting Group, Inc. and certain affiliated companies and additions to fixed
assets. Cash flows provided by financing activities were principally
attributable to net borrowings under the Credit Facility.
Year 2000
The Company has completed a review of its potential Year 2000 issues by
examining all of its internal and third party applications, operating systems,
interfaces and hardware. Independent of its Year 2000 compliance program, the
Company initiated a major system conversion beginning in early 1998, based
principally on industry-leading PeopleSoft(R) software, in order to improve
access to business information through common, integrated computing systems
nationwide. The Company's conversion to these new systems, which are expected to
make the Company's IT systems fully Year 2000 compliant, is now approximately 85
percent complete and is expected to be completed during the second quarter of
1999.
In assessing potential Year 2000 issues, the Company has established a Year
2000 committee, a compliance program and a budget. The committee has divided the
Company's Year 2000 compliance program into four sections: (1) systems inventory
and assessment, (2) systems testing evaluation and monitoring, (3) third party
suppliers and (4) contingency planning. Systems inventory and assessment has
been completed, and the remaining sections are expected to be completed by mid
1999. The Company expects that all of its IT systems and non-IT systems will be
Year 2000 compliant prior to December 31, 1999. The Company estimates the total
Year 2000 expenditures which will be incurred in the future will be less than
$1.0 million. Not included in these costs are the costs of conversion to the new
integrated computing systems, which was undertaken independently of its Year
2000 compliance initiative.
As a part of its Year 2000 compliance program, the Company is in
communication with its third-party vendors and service providers in order to
assess their Year 2000 readiness and seek to ensure that they will be Year 2000
compliant. The Company is in the process of advising its vendors that it expects
them to provide confirmation of their Year 2000 readiness during the second
quarter of 1999. In the event the Company does not believe it has received
reasonable assurance from its vendors as to Year 2000 compliance during the
second quarter of 1999, the Company will seek to establish relationships with
vendors that are Year 2000 compliant. With respect to the purchases of computer
systems, or upgrades for existing computer systems, the Company's policy is to
receive Year 2000 certification from the vendor prior to completing the
purchase.
The statements above which express the Company's belief that Year 2000
problems will not have a material adverse effect on the Company may be
forward-looking statements. Although management believes that the Company has
acted with appropriate diligence to address potential Year 2000 issues, no
assurance can be given that Year 2000 issues will not materially affect its
business or operations. Factors which could potentially cause the Company to
suffer business interruptions or other losses include the failure of its Year
2000 project team to identify latent or other non-compliant codes or
technologies, the failure of any of the customers, vendors, service suppliers or
financial institutions with which the Company deals to address their own Year
2000 problems or the ineffectiveness of any contingency plans put in place by
the Company to mitigate the effects of interruptions in its businesses due to
Year 2000 problems.
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 in
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 net sales
of services contributed by the information technology, telecommunications and
financial services sectors continue to increase as a percentage of the Company's
consolidated net sales of services.
16
<PAGE>
Other Matters
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Company does not expect the statement to have
a significant effect on its current financial reporting and disclosure
requirements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The preponderance of the Company's borrowings are fixed rate obligations.
During 1998, only approximately 15% of the Company's interest expense was
attributable to variable rate loans, all of which were under the Credit
Facility. Consequently, management does not believe that any adjustments to the
rate under the Credit Facility are likely to have a material impact on its
results of operations in the immediate future. The Company has not entered into
any swap agreements or other hedging transactions as a means of limiting its
exposure to interest rate fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Schedules as listed on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this section will be included in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
on or before April 30, 1999 and is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this section will be included in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
on or before April 30, 1999 and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this section will be included in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
on or before April 30, 1999 and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this section will be included in the Company's
Proxy Statement which will be filed with the Securities and Exchange Commission
on or before April 30, 1999 and is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements as listed on page F-1.
2. Financial Statement Schedules as listed on page F-1.
3. Exhibits as listed on page E-1.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed by the Company during the fourth
quarter of 1998.
18
<PAGE>
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMFORCE Corporation
By: /s/ John C. Fanning
-----------------------------------------------------
John C. Fanning, Chairman and Chief Executive Officer
Date: March 24, 1999
COMFORCE Operating, Inc.
By: /s/ John C. Fanning
-----------------------------------------------------
John C. Fanning, Chairman and Chief Executive Officer
Date: March 24, 1999
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of each
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John C. Fanning Chairman, Chief Executive
- --------------------------- Officer and Director
John C. Fanning (Principal Executive Officer) March 24, 1999
/s/ Harry Maccarrone Executive Vice President
- --------------------------- and Director (Principal
Harry Maccarrone Accounting Officer) March 24, 1999
/s/ Robert H.B. Baldwin, Jr. Senior Vice President and
- --------------------------- Chief Financial Officer
Robert H.B. Baldwin, Jr. (Principal Financial Officer) March 24, 1999
/s/ Michael D. Madden Vice Chairman and
- --------------------------- Director March 24, 1999
Michael D. Madden
/s/ Marc Werner Director March 24, 1999
- ---------------------------
Marc Werner
/s/ Gordon Robinett Director March 24, 1999
- ---------------------------
Gordon Robinett
/s/ Daniel Raynor Director March 29, 1999
- ---------------------------
Daniel Raynor
20
<PAGE>
COMFORCE Corporation and Subsidiaries
Index to Financial Statements
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 F-5 - F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-25
Schedule II Valuation and Qualifying Accounts F-26
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of COMFORCE Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing on page F-1, presents fairly, in all material respects, the financial
position of COMFORCE Corporation and Subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing on page F-1, presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 25, 1999
F-2
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1998 and 1997 (in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 4,599 $ 6,512
Restricted cash 1,036
Accounts receivable, less allowance of $790 and $807 in
1998 and 1997, respectively 47,727 42,262
Funding and service fees receivable, net 33,953 30,603
Prepaid expenses and other current assets 3,342 4,929
Deferred income taxes 2,306 3,829
--------- ---------
Total current assets 91,927 89,171
Property and equipment, net 9,256 4,271
Intangible assets, net 138,847 135,516
Deferred financing costs 6,052 6,580
Other assets 396
--------- ---------
Total assets $ 246,082 $ 235,934
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under revolving line of credit $ 4,000 $ 5,038
Accounts payable 4,296 2,513
Accrued expenses 18,068 21,858
--------- ---------
Total current liabilities 26,364 29,409
Long-term debt 174,579 166,000
Deferred income taxes 224
Other liabilities 581 1,123
--------- ---------
Total liabilities 201,748 196,532
--------- ---------
Commitments and contingencies
Stockholders' equity:
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) in 1997 1
Common stock, $.01 par value; 100,000,000 shares authorized, 16,129,322 shares
issued and outstanding in 1998 and 15,344,247 shares issued and outstanding
in 1997 161 153
Additional paid-in capital 47,464 43,323
Accumulated deficit, since January 1, 1996 (Note 1) (3,291) (4,075)
--------- ---------
Total stockholders' equity 44,334 39,402
--------- ---------
Total liabilities and stockholders' equity $ 246,082 $ 235,934
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Net sales of services $ 459,022 $ 216,521 $ 55,867
--------- --------- ---------
Costs and expenses:
Cost of services 372,877 186,455 47,574
Selling, general and administrative expenses 55,827 19,718 5,266
Restructuring charge (211) 1,600
Depreciation and amortization 5,605 1,883 614
--------- --------- ---------
Total costs and expenses 434,098 209,656 53,454
--------- --------- ---------
Operating income 24,924 6,865 2,413
--------- --------- ---------
Other income (expense):
Bridge and financing charges (7,672)
Interest expense (21,490) (4,588) (201)
Other income (expense), net 35 344 40
--------- --------- ---------
(21,455) (11,916) (161)
Income (loss) before income taxes 3,469 (5,051) 2,252
Provision (credit) for income taxes 2,664 (1,351) 900
--------- --------- ---------
Net income (loss) 805 (3,700) 1,352
--------- --------- ---------
Dividends on preferred stock 21 737 325
Accretive dividend on Series F preferred stock 665
--------- --------- ---------
Income (loss) available to common stockholders $ 784 $ (4,437) $ 362
========= ========= =========
Basic income (loss) per common share:
Net income $ 0.05 $ (0.33) $ 0.12
Accretive dividend on Series F preferred stock (0.09)
--------- --------- ---------
Basic net income (loss) per common share $ 0.05 $ (.33) $ .03
========= ========= =========
Average common shares outstanding, basic 15,971 13,493 11,049
========= ========= =========
Diluted income (loss) per common share:
Net income $ 0.05 $ (.33) $ 0.10
Accretive dividend on Series F preferred stock (.07)
--------- --------- ---------
Diluted net income (loss) per common share $ 0.05 $ (.33) $ 0.03
========= ========= =========
Average common shares outstanding, diluted 16,648 13,493 13,033
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
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 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 income
Dividends:
Series E preferred stock
Series D preferred stock
Series F preferred stock
Accretive dividend on Series F preferred stock
---------- --------- --------- -------- -------- -------
Balance at December 31, 1996 12,701,934 $ 127 -- -- 7,002 $ 1
========== ========= ========= ======== ======== =======
<CAPTION>
Series F Additional Total
Preferred Stock Paid-in Accumulated Retained Stockholders'
Shares Amount Capital Deficit Earnings 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 stock (8)
Issuance of Series D senior convertible
preferred stock 6,415 6,416
Issuance of Series F preferred stock 3,250 $ 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 income $ 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)
---------- --------- --------- -------- -------- -------
Balance at December 31, 1996 3,250 $ 1 $ 34,253 -- $ 362 $ 34,744
========== ========= ========= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity, Continued
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Series D
Common Stock Preferred Stock
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 12,701,934 $ 127 7,002 $ 1
Exercise of stock options 124,000 1
Exercise of stock warrants 80,000 1
Redemption of Series F preferred stock
Conversion of Series D preferred stock 583,500 6 (7,002) (1)
Issuance of common stock as inducement to
effect Series D conversion 87,750 1
SEC registration fees
Issuance of warrants in connection with debt placement
Issuance of common stock in connection with
payment right 385,591 4
Issuance of common stock as consideration for interest
owed on debt 118,145 1
Issuance of common shares in connection with the
acquisition of Uniforce Services, Inc. 1,585,208 16
Issuance of warrants in connection with the acquisition
of Uniforce Services, Inc.
Redemption of common stock (321,881) (4)
Net loss
Dividends:
Series D preferred stock
Series F preferred stock
----------- ----------- ----------- -----------
Balance at December 31, 1997 15,344,247 $ 153 -- --
=========== =========== =========== ===========
<CAPTION>
Retained
Series F Additional Earnings Total
Preferred Stock Paid-in Accumulated Stockholders'
Shares Amount Capital (Deficit) Equity
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,250 $ 1 $ 34,253 $ 362 $ 34,744
Exercise of stock options 141 142
Exercise of stock warrants 214 215
Redemption of Series F preferred stock (2,750) (3,162) (3,162)
Conversion of Series D preferred stock (5)
Issuance of common stock as inducement to
effect Series D conversion 492 (493)
SEC registration fees (625) (625)
Issuance of warrants in connection with debt placement 1,511 1,511
Issuance of common stock in connection with
payment right (4)
Issuance of common stock as consideration for interest
owed on debt 632 633
Issuance of common shares in connection with the
acquisition of Uniforce Services, Inc. 12,143 12,159
Issuance of warrants in connection with the acquisition
of Uniforce Services, Inc. 150 150
Redemption of common stock (2,417) (2,421)
Net loss
Dividends: (3,700) (3,700)
Series D preferred stock (195) (195)
Series F preferred stock (49) (49)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 500 $ 1 $ 43,323 $ (4,075) $ 39,402
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity, Continued
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series F
Common Stock Preferred Stock
Shares Amount Shares Amount
---------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 15,344,247 $ 153 500 $ 1
Exercise of stock options 80,500 1
Exercise of stock warrants 108,132 1
Conversion of Series F preferred stock 57,143 1 (500) (1)
SEC registration fees
Issuance of common stock in connection with the
acquisition of Camelot 203,307 2
Issuance of common stock in connection with acqisitions 335,993 3
Tax benefit from exercise of stock options
Net income
Dividends:
Series F preferred stock
---------- -------- ------- --------
Balance at December 31, 1998 16,129,322 $ 161 -- --
========== ======== ======= ========
<CAPTION>
Retained
Additional Earnings Total
Paid-in Accumulated Stockholders'
Capital (Deficit) Equity
-------- --------- --------
<S> <C> <C> <C>
Balance at December 31, 1997 $ 43,323 $ (4,075) $ 39,402
Exercise of stock options 137 138
Exercise of stock warrants 459 460
Conversion of Series F preferred stock (298) (298)
SEC registration fees (46) (46)
Issuance of common stock in connection with the
acquisition of Camelot 1,498 1,500
Issuance of common stock in connection with acqisitions 2,005 2,008
Tax benefit from exercise of stock options 386 386
Net income 805 805
Dividends:
Series F preferred stock (21) (21)
-------- -------- --------
Balance at December 31, 1998 $ 47,464 $ (3,291) $ 44,334
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 805 $ (3,700) $ 1,352
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation 1,255 482 139
Amortization of intangible assets 4,326 1,401 475
Amortization of deferred financing costs 836
Allowance for doubtful accounts (17) 106 212
Deferred income taxes 1,747 (578) (189)
Issuance of notes in lieu of interest 3,162
Changes in assets and liabilities, net of the effects of acquisitions of
businesses:
Accounts receivable (3,848) (1,177) (10,500)
Prepaid expenses and other current assets (746) 714 341
Income taxes receivable 2,896 (1,218)
Other noncurrent assets 2,021 (1,183)
Accounts payable and accrued expenses (5,966) (8,162) 3,637
Other liabilities (1,322) (60)
--------- --------- ---------
Net cash provided by (used in) operating activities 4,450 (11,433) (5,776)
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (3,574) (97,006) (15,834)
Purchase of property and equipment (6,182) (832) (329)
Increase in receivable from officers (373)
Payments of contingent consideration (1,912)
Decrease in restricted cash 1,036 (1,036)
Other (636)
--------- --------- ---------
Net cash used in investing activities (10,632) (99,510) (16,536)
--------- --------- ---------
Cash flows from financing activities:
Payment of note payable (500)
Net decrease in short-term debt (7,302)
Net borrowings (repayments) under line of credit agreements 4,170 (4,790) 3,850
Proceeds from issuance of equity securities 639 983 22,149
Dividends paid (21) (244) (228)
Proceeds from long-term borrowings 130,000
Debt financing costs (309) (4,800)
Reduction of capital lease obligations (210)
--------- --------- ---------
Net cash provided by financing activities 4,269 113,847 25,271
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (1,913) 2,904 2,959
Cash and cash equivalents, beginning of year 6,512 3,608 649
--------- --------- ---------
Cash and cash equivalents, end of year $ 4,599 $ 6,512 $ 3,608
========= ========= =========
</TABLE>
Continued
F-8
<PAGE>
COMFORCE Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
for the years ended December 31, 1998, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 17,068 $ 2,575 $ 157
Income taxes 1,585 347 934
Details of acquisition (Note 3):
Fair value of assets acquired 9,071 185,175 21,029
Liabilities assumed (3,855) (70,700)
Less stock issued (1,500) (12,157) (5,195)
--------- --------- ---------
Cash paid 3,716 102,318 15,834
Less cash acquired 142 5,312 --
--------- --------- ---------
Net cash paid $ 3,574 $ 97,006 $ 15,834
--------- --------- ---------
Supplemental schedule of significant noncash investing
and financing activities:
Quasi-reorganization $ (93,848)
Common stock issued in connection with acquisitions $ 3,508 $ 12,159 5,195
Tax benefit from exercise of stock options 386
Accretive dividend on preferred stock 665
Common stock issued to restructure and settle liabilities 636 550
Amounts assumed by ARTRA 3,594
Issuance of short-term debt to redeem Series F
Preferred Stock 3,162
Dividends paid through issuance of common stock 493
Warrants issued in connection with debt and acquisitions 1,931
Forgiveness of officer loans 352
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
COMFORCE Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation:
COMFORCE Corporation ("COMFORCE"), is a leading provider of staffing,
outsourcing and consulting solutions primarily to Fortune 500 companies in
the growing information technology ("IT"), telecommunications, technical,
professional and financial market sectors. COMFORCE Operating, Inc.
("COI"), a wholly owned subsidiary of COMFORCE, was incorporated as a
Delaware corporation in October 1997 for the purpose of facilitating
certain of the Company's financing transactions in November 1997 (see Note
9). Unless the context otherwise requires, the term "Company" refers to
COMFORCE, COI and all of their direct and indirect subsidiaries.
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.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of COMFORCE, COI
and their subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue for providing staffing services is recognized at the time such
services are rendered.
A portion of the Company's revenue is attributable to franchise operations.
The Company included such revenues and related direct costs in its net
sales of services and cost of services, respectively. The net distribution
to the franchisee is based on a percentage of gross profit generated and is
included in operating expenses. The licensee share in operating expenses
for fiscal 1998 was approximately $6,950,000.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with an
original maturity of three months or less to be cash and cash equivalents.
Cash equivalents consists primarily of money market funds.
Restricted Cash
At December 31, 1997, the Company had $1,036,000 of restricted cash which
was utilized to collateralize a performance bond with the State of New
York, which was redeemed during 1998.
F-10
<PAGE>
Notes to Consolidated Financial Statements, Continued
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided
primarily on a straight-line basis over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of
the life of the lease or of the improvement. Maintenance and repairs are
charged to expense as incurred and improvements that extend the useful life
are capitalized. Upon retirement or sale, the cost and accumulated
depreciation are removed from the respective accounts, and the gain or
loss, if any, is reflected in earnings.
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.
Intangible Assets
The net assets of a purchased business are recorded at their fair value at
the date of acquisition. Goodwill represents the excess of purchase price
over the fair value of identifiable net assets of companies acquired.
Goodwill is amortized on a straight-line basis over periods of 20 to 40
years. (See Note 6.)
The Company assesses the recoverability of this 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.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of differences between the tax basis 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.
F-11
<PAGE>
Notes to Consolidated Financial Statements, Continued
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.
Deferred Licensee Acquisition Costs
In connection with the Uniforce acquisition (see Note 3), the Company
acquired executed contracts for affiliations with existing supplemental
staffing service companies. Such contracts required the payment of
affiliation fees which are being amortized on a straight-line method over
the minimum terms of the affiliation agreements which range from five to
ten years. Amortization of deferred licensee acquisition costs was not
significant in fiscal 1998 and 1997.
Deferred Financing Costs
Deferred financing costs consist of costs associated with the issuance of
the Company's long-term debt (see Note 9). Such costs are being amortized
on a straight-line basis over the life of each financing source, which
ranges from 5 to 12 years.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which changes the way
public companies report information about segments. This statement is
effective for 1998 and is included in footnote 17.
Effective January 1, 1998, the Company adopted AICPA Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP No. 98-1 requires certain costs in
connection with developing or obtaining internally used software to be
capitalized that previously would have been expensed as incurred. The
adoption of SOP 98-1 did not have a material impact on the Company's
results of operations, financial position, or cash flows.
In June 1998, the FASB issued statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. The Company does not expect the statement to have a significant
effect on its current financial reporting and disclosure requirements.
Reclassification
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
F-12
<PAGE>
Notes to Consolidated Financial Statements, Continued
3. Acquisitions:
During January 1998, COMFORCE Telecom, Inc., a wholly-owned subsidiary of
the Company, purchased all of the issued and outstanding stock of Camelot
Consulting Group Inc., Camelot Communications Group Inc., Camelot Control
Group Inc. and Camelot Group Inc. (collectively, "Camelot,") for total
consideration of approximately $3.7 million in cash and 203,307 shares of
the Company's common stock. In addition, the Company issued contingent
payment certificates under which it could be required to pay up to $3.25
million in cash over a three-year period. The acquisition has been
accounted for under the purchase method and, accordingly, the results of
operations are included in the financial statements from the date of
acquisition. Camelot is in the business of selling and installing
telecommunications equipment and of providing staffing services.
On November 26, 1997, the Company completed the acquisition of Uniforce
Services, Inc. and subsidiaries ("Uniforce"). The Company purchased
Uniforce for $93,600,000 in cash and 1,585,208 of its common shares with a
value of approximately $12,200,000. The acquisition has been accounted for
under the purchase method and, accordingly, the results of operations are
included in the financial statements from the date of acquisition. The cash
portion of the purchase price paid at closing was principally funded
through the Company's offering of 12% Senior Notes (see Note 9). Uniforce
is a leading provider of staffing and consulting solutions for the
information technology, professional and office support markets.
On February 28, 1997, the Company purchased all of the stock of RHO
Company, Inc. ("Rhotech") for $14,800,000 in cash, plus a contingent payout
to be paid over three years based on future earnings of Rhotech, and
payable in stock in an aggregate amount not to exceed $3,300,000. The
maximum number of shares issuable under the contingent payout is 386,249
shares. Rhotech provides specialists primarily in the technical services
and information technology sectors.
In the year ended December 31, 1996, the Company completed the acquisitions
of the following businesses which have been accounted for under the
purchase method of accounting: Williams Communication Services, Inc.
("Williams"), Project Staffing Support Team, Inc., RRA, Inc. and Datatech
Technical Services, Inc. (collectively "RRA"), Force Five, Inc. ("Force
Five"), Azatar Computer Systems, Inc. ("Azatar"), and Continental Field
Services Corporation and its affiliate, and Progressive Telecom, Inc.
(collectively "Continental"). The aggregate purchase price of the
acquisitions in the year ended December 31, 1996 was approximately
$21,029,000, comprised of $15,834,000 in cash and approximately $5,195,000
in common stock of the Company. In addition, certain of the acquisitions
contain contingent payout provisions based on the attainment of specified
earnings. At December 31, 1998, maximum contingent payments in connection
with all acquisitions approximate $5,300,000 in cash and approximately
248,000 shares of the Company's common stock.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred on January 1, 1997 and
does not purport to be an indication of what would have occurred had the
acquisitions been made as of that date. In addition, they are not intended
to be projections of future results and do not reflect any synergies that
might be achieved from combined operations. No pro forma results are
presented for 1998 as the Camelot acquisition was consummated at the
beginning of the fiscal year.
F-13
<PAGE>
Notes to Consolidated Financial Statements, Continued
1997
(Unaudited)
Revenue $ 409,893
Net loss (17,145)
---------
Net loss per share (diluted) $ (1.07)
---------
The above pro forma data assume the issuance of Series F preferred stock,
the borrowing under the revolving line of credit and the offering of Senior
Notes to finance these transactions (see Note 9). Pro forma adjustments
include an interest cost increase of $11,408,000 in 1997, additional
goodwill amortization of $2,050,000 in 1997, and the related income tax
effect.
4. Restructuring Charges:
The Company recorded a $1.6 million restructuring charge in the fourth
quarter of 1997 related to merger and integration charges resulting from
the acquisition of Uniforce. Most of the actions under these plans are
completed and have resulted in lower costs than originally estimated. As a
result of these developments, the Company recognized a restructuring credit
of $211,000. As of December 31, 1998, the remaining restructuring charges
liabilities are $635,000. The Company expects to have its restructuring
program completed in 1999.
5. Fixed Assets:
Fixed assets consist of (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives
in Years 1998 1997
<S> <C> <C> <C>
Office equipment 3-8 $ 9,193 $ 3,446
Furniture, fixtures and vehicles 3-7 1,633 1,324
Leasehold improvements 3-7 346 162
-------- --------
11,172 4,932
Less, accumulated depreciation and amortization (1,916) (661)
-------- --------
$ 9,256 $ 4,271
-------- --------
</TABLE>
Depreciation expense was $1,255,000, $482,000 and $139,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
F-14
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Intangibles:
Intangibles as of December 31, 1998 and 1997 consisted of (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives
in Years 1998 1997
<S> <C> <C> <C>
Goodwill 20-40 $ 143,245 $ 135,828
Non-compete covenants 5 737 737
Other 5 1,130 890
--------- ---------
145,112 137,455
Less, accumulated amortization (6,265) (1,939)
--------- ---------
$ 138,847 $ 135,516
--------- ---------
</TABLE>
Amortization expense was $4,326,000, $1,401,000 and $475,000 in the years
ended December 31, 1998, 1997 and 1996, respectively.
7. Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consist of the following (in
thousands):
1998 1997
Payroll and payroll taxes $ 9,023 $ 9,228
Pension plan 546 306
Vacation 836 1,471
Professional fees 234 510
Medical insurance 563 219
Interest 1,733 1,902
Restructuring 635 1,600
Other 4,498 6,622
------- -------
$18,068 $21,858
------- -------
F-15
<PAGE>
Notes to Consolidated Financial Statements, Continued
8. Income Taxes:
The provision (benefit) for income taxes as of December 31, 1998, 1997 and
1996 consists of (in thousands):
1998 1997 1996
Current:
Federal $ 621 $ (695) $ 867
State 296 (78) 222
Deferred 1,747 (578) (189)
------- ------- -------
$ 2,664 $(1,351) $ 900
------- ------- -------
The difference between the statutory Federal income tax rate and the
effective income tax rate is reconciled as follows:
1998 1997 1996
% % %
Statutory Federal tax rate provision (benefit) 34.0 (34.0) 34.0
State and local taxes, net of Federal benefit 3.8 (3.8) 5.0
Change in deferred tax rates 2.3
Effect of non-deductible items 38.9 4.6 0.9
Alternative minimum tax 0.9
Other, individually less than 5% 3.3
---- ---- ----
76.7 (26.7) 39.9
---- ---- ----
The components of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 (in thousands) are as follows:
1998 1997
Deferred tax assets:
Reserves and allowances $1,277 $1,417
Accrued liabilities and other 1,823 672
Accrued severance 111 283
Net operating loss 1,474
Fixed assets 327
------ ------
Total deferred tax assets 3,211 4,173
------ ------
Deferred tax liability:
Intangibles 677 344
Excess depreciation 452
------ ------
Total deferred tax liabilities 1,129 344
------ ------
Net deferred tax asset $2,082 $3,829
------ ------
F-16
<PAGE>
Notes to Consolidated Financial Statements, Continued
The net deferred income tax assets are reflected in the accompanying
balance sheets as follows (in thousands):
1998 1997
Net deferred income tax assets - current $2,306 $1,710
Net deferred income tax assets - noncurrent 2,119
------ ------
Total deferred tax assets 2,306 3,829
------ ------
Net deferred income tax liability - noncurrent 224
------ ------
$2,082 $3,829
------ ------
Management has determined that, based on the history of taxable earnings
and its expectations for the future, taxable income will more likely than
not be sufficient to fully realize deferred tax assets and, accordingly,
has not reduced deferred tax assets by a valuation allowance.
9. Debt:
Notes payable and long-term debt at December 31, 1998 and 1997 (in
thousands) consisted of the following:
1998 1997
12% Senior Notes, due 2007 (a) $110,000 $110,000
15% Senior Secured PIK Debentures, due 2009 (b) 23,162 20,000
Revolving line of credit, due November 26, 2002, with
interest payable monthly at LIBOR plus up to 2.25%
At December 31, 1998, the rate was 7.53% (c) 45,417 41,038
-------- --------
178,579 171,038
Less, current portion 4,000 5,038
-------- --------
Total long-term debt $174,579 $166,000
======== ========
(a) The 12% Senior Notes (the "Notes") are senior uncollateralized
obligations of COI and rank equal 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 provide for the payment of interest semi-annually at the
rate of 12% per annum and mature on December 1, 2007.
COI may redeem the Notes, in whole or in part, at any time on or after
December 1, 2002 at a redemption price of 106% for the 12 months
commencing December 1, 2002, declining annually to 100% at any time on
or after December 1, 2005, together with accrued and unpaid interest
to the date of redemption. In addition, at any time 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% of the principal amount to be redeemed, together with accrued
and unpaid interest to the date of redemption, provided that at least
65% of the aggregate principal amount
F-17
<PAGE>
Notes to Consolidated Financial Statements, Continued
of the Notes issued through the date of redemption remains outstanding
immediately after each such redemption.
Upon the occurrence of certain specified events deemed to result in 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 to the date of repurchase.
Subject to certain qualifications and exceptions the indenture
governing the Notes 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)
investments, (iv) sales of assets and subsidiary stock, (v)
transactions with affiliates, (vi) consolidations, mergers and
transfers of all or substantially all the assets of COI, and (vii)
distributions from subsidiaries.
(b) The 15% Senior Debentures (the "Senior Debentures") constitute direct
and unconditional senior obligations of the Company and are
collateralized by a pledge by the Company of all of the issued and
outstanding common stock of COI. The payment obligations of the
Company under the Senior Debentures must at all times rank at least
equal in priority of payment with all existing and future indebtedness
of the Company. The Senior Debentures are structurally subordinated to
all indebtedness of the Company's direct and indirect subsidiaries.
The Senior Debentures bear interest at the rate of 15% per annum,
subject to increases in certain circumstances, payable semi-annually,
and mature on December 1, 2009. Prior to December 1, 2002, interest is
payable in cash or in additional Senior Debentures paid in kind (PIK)
on each interest payment date, at the option of the Company.
Thereafter, interest is payable only in cash. During 1998, the Company
issued $3,162,000 of additional Senior Debentures in lieu of interest.
Subject to certain requirements, the Company may at any time redeem
any or all of the Senior Debentures at the price of 107.5%.
Upon the occurrence of certain specified events deemed to result in a
change of control, COI 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.
Subject to certain qualifications and exceptions, the indenture
governing the Senior Debentures 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, (vi) consolidations, mergers and
transfers of all or substantially all the assets of the Company and
(vii) distributions from subsidiaries.
(c) The Company maintains a revolving credit facility (the "Credit
Facility") providing for borrowings of up to $75 million based on a
specified percentage of the Company's eligible accounts receivable.
The Company has pledged substantially all of its assets as collateral
for the Credit Facility.
Borrowings under the credit facility bear interest, at the Company's
option, at a rate based on a
F-18
<PAGE>
Notes to Consolidated Financial Statements, Continued
margin over either prime rate or LIBOR.
The agreements evidencing the 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 Credit Facility is
November 26, 2002.
Required principal payments of debt are as follows (in thousands):
2002 $ 45,417
Thereafter 129,162
--------
$174,579
--------
10. Earnings Per Share:
Basic earnings (loss) per common share is computed by dividing net earnings
(losses) available for common shareholders by the weighted average number
of shares of common stock outstanding during each period. Diluted earnings
(loss) per share is computed assuming the conversion of stock options,
warrants and contingent shares with a market value greater than the
exercise price.
The following represents a reconciliation of the numerators and
denominators of the basic and diluted earnings (loss) per share
computations (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 805 $(3,700) $ 1,352
Preferred stock dividends (21) (737) (325)
Accretive dividend on Series F preferred stock -- -- (665)
------- ------- -------
Numerator for basic and diluted earnings (loss)
per share - income (loss) available to common
stockholders $ 784 $(4,437) $ 362
------- ------- -------
</TABLE>
F-19
<PAGE>
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares 15,971 13,493 11,049
------ ------ ------
Effect of dilutive securities:
Employee stock options 280 1,180
Contingent stock - acquisition 78
Warrants 397 726
------ ------ ------
677 -- 1,984
------ ------ ------
Dilutive potential common shares
Denominator for diluted earnings (loss) per share -
adjusted weighted-average shares and assumed
conversions 16,648 13,493 13,033
------ ------ ------
</TABLE>
Options and warrants to purchase 2,043,370, 4,826,818 and 583,477 shares of
common stock were outstanding for the years ended 1998, 1997 and 1996,
respectively, but were not included in the computation of diluted earnings
(loss) per share because their effect would be anti-dilutive.
11. Stock Options and Warrants:
Long-Term Stock Investment Plan
Effective December 16, 1993, the Company's Board of Directors approved
the Long-Term Stock Investment Plan (the "1993 Plan"), which provided
for the granting of options for the purchase of 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. All
options have generally been granted at a price equal to or greater
than the fair market value of the Company's common stock at the date
of grant. Generally, options are granted with a vesting period of up
to 4 years and expire 10 years from the date of grant. 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.
A summary of stock option transactions for the years ended December 31,
1998, 1997 and 1996 is as follows:
F-20
<PAGE>
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 2,135,775 $1.125 to 18.50 2,091,525 $1.125 to 22.75 1,541,378 $1.125 to 6.75
Granted 580,700 5.50 to 12.90 184,750 5.88 to 10.00 1,120,275 6.75 to 27.00
Exercised (95,500) 1.125 to 6.00 (124,000) 1.125 (4,500) 5.00
Forfeited/expired (55,350) 6.00 to 18.50 (16,500) 7.625 to 9.00 (565,628) 1.125
---------- --------------- ---------- --------------- ---------- ---------------
Options outstanding, end of year 2,565,625 $1.125 to 18.50 2,135,775 $1.125 to 18.50 2,091,525 $1.125 to 22.75
---------- --------------- ---------- --------------- ---------- ---------------
Options exercisable, end of year 1,964,475 1,896,293 1,537,500
---------- ---------- ----------
Options available, for grant
end of year 1,051,859 1,577,209 1,745,559
---------- ---------- ----------
Weighted average fair value of
options granted during the year $ 9.35 $ 4.13 $ 4.37
---------- ---------- ----------
</TABLE>
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 1998, 1997 and
1996, respectively: no dividend yield; expected volatility of 46%;
risk-free interest rate (ranging from 4.18% - 5.63%); and expected lives of
approximately 3 years. Weighted averages are used because of varying
assumed exercise dates.
The Company applies APB Opinion 25 and related interpretations in
accounting for stock options; accordingly, no compensation cost has been
recognized. Had compensation cost been determined based upon the fair value
of the stock options at grant date consistent with the method in SFAS
Statement 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
1998 1997 1996
(in thousands, except
per share amounts)
Net income (loss) attributable to common
shareholders as reported $ 784 $ (4,437) $ 362
-------- -------- --------
Pro forma income (loss) 538 (5,053) (1,898)
-------- -------- --------
Basic earnings (loss) per share as reported .05 (.33) .03
-------- -------- --------
Pro forma basic earnings (loss) per share .03 (.37) (.17)
-------- -------- --------
Diluted earnings (loss) per share as reported .05 (.33) .03
-------- -------- --------
Pro forma diluted earnings per share .03 (.37) (.17)
-------- -------- --------
F-21
<PAGE>
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercisable
Exercise Prices Outstanding Life Price Exercisable Price
(Years)
<S> <C> <C> <C> <C> <C>
$1 156,000 4 1.12 156,000 1.12
$5 - $7 1,731,500 7 6.77 1,604,500 6.77
$8 - $13 590,710 9 9.87 157,768 9.15
$14 - $17 20,815 8 15.18 10,408 15.18
$18 - $19 63,600 8 18.39 34,300 18.39
$22 - $27 3,000 8 27.00 1,500 27.00
--------- ------- ------ --------- -------
$1 - $27 2,565,625 7.3 7.52 1,964,476 6.77
--------- ------- ------ --------- -------
</TABLE>
Warrants
At December 31, 1998 and 1997, the Company had outstanding warrants to
purchase a total of 2,034,662 and 2,127,794 of common shares at prices
ranging from $2.00 to $24.00 per share. These warrants expire at various
dates through 2009.
13. 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 October
1998, Messrs. Giglio and Iodice filed motions for partial summary judgment,
which motions were denied by the court. The parties continue to be engaged
in the discovery stage of the case.
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
F-22
<PAGE>
Notes to Consolidated Financial Statements, Continued
carrier has alleged that TSA and Rhotech are obligated to repay to it
approximately $1,600,000 that it was required to pay in connection with an
injury and death that occurred in November 1992 to a temporary employee of
TSA. Rhotech has been granted summary judgment with respect to all claims
made in the action, which was subsequently upheld on appeal.
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.
14. 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 material contributions were
made by the Company in 1998 and 1997.
Certain employees who work for governmental agencies are required to be
covered under a separate pension plan. During 1998 and 1997, the Company
recorded approximately $1,649,000 and $1,332,000, respectively, of expense
related to these benefits.
15. 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 1998, 1997 and 1996 approximated $2,286,000,
$969,000 and $200,000, respectively.
As of December 31, 1998, 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)
1999 $ 2,621
2000 2,043
2001 1,714
2002 1,311
2003 1,164
Thereafter 1,517
-------
$10,370
-------
F-23
<PAGE>
Notes to Consolidated Financial Statements, Continued
16. 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 it is not exposed to any significant credit risk
on its cash balances. The Company believes it mitigates such risk by
investing its cash through major financial institutions.
At December 31, 1998 and 1997, the Company had one customer with accounts
receivable balances that aggregated 5.4% and 7% of the Company's total
accounts receivable, respectively. Percentages of total revenues from
significant customers for the years ended December 31, 1998, December 31,
1997 and December 31, 1996 are summarized as follows:
December 31, December 31, December 31,
1998 1997 1996
Customer 1 10.1% 14.5% 19.0%
Customer 2 * 11.6% *
*Less than 10%.
17. Industry Segment Information:
COMFORCE has determined that its reportable segments can be distinguished
principally by the types of services offered to the Company's clients.
Revenues and profits in the Staff Augmentation segment are generated by
providing temporary employees to client companies generally on a
time-and-materials basis. Staff Augmentation services are offered through
several divisions. Telecom provides telecommunications workers, primarily
to telecommunications companies; Information Technologies provides
programmers, systems consultants, software engineers and other IT workers
to a broad range of companies which outsource portions of their IT
requirements; and Staffing Services provides primarily technical workers,
including engineers, scientists and laboratory workers, to a variety of
corporations and laboratories.
Revenues and profits in the Financial Services segment are generated
through outsourcing and consulting services for client companies. Financial
Services is composed of two distinct activities: the Pro Unlimited division
provides confidential consulting and conversion services related to
clients' employment of independent contractors, and typically involves
providing non-recruited payrolling services to those clients. The Financial
Services segment also includes outsourcing services to independent
consulting and staffing companies, in which COMFORCE provides payroll
funding services and back office support to those clients.
F-24
<PAGE>
Notes to Consolidated Financial Statements, Continued
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." COMFORCE evaluates the
performance of its segments and allocates resources to them based on
operating contribution, which represents segment revenues less direct costs
of operations, excluding the allocation of corporate general and
administrative expenses. Identifiable assets of the operating segments
reflect primarily net accounts receivable associated with segment
activities; all other identifiable assets are included as Corporate assets.
The Company does not track expenditures for long-lived assets on a segment
basis.
The table below presents information on the revenues and operating
contribution for each segment for the three years ended December 31, 1998,
and items which reconcile segment operating contribution to COMFORCE's
reported pre-tax income.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Net sales of services:
Financial Services $ 91,026 $ 6,497
Staff Augmentation 367,996 210,024 $ 55,867
--------- --------- ---------
$ 459,022 $ 216,521 $ 55,867
--------- --------- ---------
Operating contribution:
Financial Services $ 12,393 $ 754
Staff Augmentation 32,374 14,319 $ 4,255
--------- --------- ---------
$ 44,767 $ 15,073 $ 4,255
--------- --------- ---------
Consolidated expenses:
Interest $ 21,455 $ 4,244 $ 161
Bridge and financing charges 7,672
Restructuring charge (211) 1,600
Depreciation and amortization 5,605 1,883 614
Corporate general and administrative 14,449 4,725 1,228
--------- --------- ---------
$ 41,298 $ 20,124 $ 2,003
--------- --------- ---------
Income (loss) before income taxes $ 3,469 $ (5,051) $ 2,252
--------- --------- ---------
Identifiable assets:
Financial Services $ 39,967 $ 36,113
Staff Augmentation 41,714 36,752
Corporate 19,502 20,973
--------- ---------
$ 101,183 $ 93,838
--------- ---------
</TABLE>
F-25
<PAGE>
COMFORCE Corporation and Subsidiaries
Schedule II Valuation and Qualifying Accounts
for the years ended December 31, 1998, 1997 and 1996 (in thousands)
<TABLE>
<CAPTION>
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
DESCRIPTION of Period Expenses Accounts (Describe) Period
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Deducted from assets to which they apply:
Allowance for doubtful accounts $ 807 $ (17) $ -- $ -- $ 790
--------- --------- --------- --------- ---------
$ 807 $ (17) $ -- $ -- $ 790
--------- --------- --------- --------- ---------
For the year ended December 31, 1997
Deducted from assets to which they apply:
Allowance for doubtful accounts $ 213 $ 79 $ 515 $ -- $ 807
--------- --------- --------- --------- ---------
$ 213 $ 79 $ 515 $ -- $ 807
--------- --------- --------- --------- ---------
For the year ended December 31, 1996
Deducted from assets to which they apply:4
Allowance for doubtful accounts $ -- $ 213 $ -- $ -- $ 213
-------- -------- --------- --------- ---------
$ -- $ 213 $ -- $ -- $ 213
-------- -------- --------- --------- ---------
</TABLE>
F-26
<PAGE>
EXHIBIT INDEX
2.1 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).
2.2 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).
2.3 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 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).
10.1 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).
10.2 Purchase Agreement, dated as of November 19, 1997, by and between
COMFORCE Operating, Inc. and NatWest Capital Markets Limited, as
Initial Purchaser (included as an exhibit to the Registration Statement
on Form S-4 of the Company filed with the Commission on December 24,
1997 and incorporated herein by reference).
10.3 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 (included as an exhibit to the
Registration Statement on Form S-4 of the Company filed with the
Commission on December 24, 1997 and incorporated herein by reference).
E-1
<PAGE>
10.4 Warrant Agreement dated November 26, 1997 by and between the Company
and The Bank of New York, as Warrant Agent (included as an exhibit to
the Registration Statement on Form S-4 of the Company filed with the
Commission on December 24, 1997 and incorporated herein by reference).
10.5 Pledge Agreement dated November 26, 1997 by and between the Company and
The Bank of New York, as Collateral Agent (included as an exhibit to
the Registration Statement on Form S-4 of the Company filed with the
Commission on December 24, 1997 and incorporated herein by reference).
10.6* Employment Agreement dated as of January 1, 1999 between the Company,
COMFORCE Operating, Inc. and John C. Fanning.
10.7* Employment Agreement dated as of January 1, 1999 between the Company,
COMFORCE Operating, Inc. and Harry Maccarrone.
21.1* List of Subsidiaries.
23.1* Consent of PricewaterhouseCoopers LLP
27.1* Financial Data Schedule of COMFORCE Corporation.
27.2* Financial Data Schedule of COMFORCE Operating, Inc.
- --------------------------
* Filed herewith.
E-2
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of the 1st day of
January, 1999, 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 John Fanning, a resident of the State of Florida ("Employee").
RECITALS:
A. COMFORCE and/or a subsidiary 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. COMFORCE, COI and/or a subsidiary shall
allocate between each other the uses of Employee and costs hereunder. Subject to
this power of the Board of Directors of Employer to designate the position in
which Employee shall serve Employer, Employee shall maintain the title and
position of Chairman of the Board & 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
directions of, and policies established and communicated to Employee from time
to time by, the Board of Directors.
2. Effective Date: Term of Employment. This Agreement shall commence and be
effective for all purposes as of the date first seen set forth above and shall
remain in effect, unless earlier terminated as provided in Section 7 hereof,
until December 31, 2001 (the "Initial Termination Date"), which date shall be
extended to the subsequent December 31 unless no less than sixty (60) days prior
to the Initial Termination Date or subsequent extension 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 and Restrictions.
(a) 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. 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 or conflict with Employee's performance
of his duties hereunder.
(b) During the Term of Employment, Employee shall not engage either
directly or indirectly on Employee's own account or as agent, stockholder,
owner, employee, employer or otherwise, in a business which is the same as or
substantially similar to that of the Employer or its subsidiaries, parent or
affiliates (collectively the "Group"),
E-3
<PAGE>
(i) within the United States or (ii) within any country in which the Group
conducts any business. Notwithstanding the foregoing, Employee may during the
period in which this paragraph is in effect own stock or other interests in
corporations or other entities that engage in businesses the same or
substantially similar to those engaged in by the Group provided that Employee
does not, directly or indirectly (including without limitation as the result of
ownership or control of another corporation or other entity), individually or as
part of a group [as that term is defined in Section 13 (d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder] (a) control or have the ability to control the corporation or other
entity, (b) provide to the corporation or entity, whether as an employee,
consultant or otherwise, advice or consultation, (c) provide to the corporation
or entity any confidential or proprietary information regarding the Group or its
businesses or regarding the conduct of businesses similar to those of the Group,
(d) hold or have the right by contract or arrangement or understanding with
other parties to hold a position on the board of directors or other governing
body of the corporation or entity or have the right by contract or arrangement
or understanding with other parties to elect one or more persons to any such
position, (e) hold a position as an officer of the corporation or entity, (f)
have the purpose to change or influence the control of the corporation or entity
(other than solely by the voting of his shares or ownership interest) or (g)
have a business or other relationship, by contract or otherwise, with the
corporation or entity other than as a passive investor in it; provided, however,
that Employee may vote his shares or ownership interest in such manner as he
chooses provided that such action does not otherwise violate the prohibitions
set forth in this sentence.
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 Three Hundred Eighty Five Thousand Dollars
($385,000) (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 January 1, beginning January 1, 2000, 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, and may be increased by the
Board or such committee from time to time in its discretion for any other reason
whatsoever.
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 an other governmental agency or, if no such
index shall then 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 all such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with Employer's policies and procedures. In addition the Employee
will be given an annual non-accountable expense allowance of $15,000.
(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(e)
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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 Pension Benefits.
Employee shall receive such incidental benefits of employment, such as
medical and dental insurance, and pension plan participation as are provided
generally to the Employer's other executive officers.
(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.
(e) Incentive Compensation. In addition to Employee's compensation as
provided herein, Employer shall pay incentive compensation for each year during
the Term of Employment in an amount equal to 5% of the Employer's pre-tax
operating income in excess of $2,500,000, but not in excess of $3,000,000 plus
3.5% of such income in excess of $3,000,000. For this purpose, "pre-tax
operating income" shall mean the consolidated earnings of the Employer and its
subsidiaries before (i) deduction of, or allowance or provision for, taxes based
on income, (ii) deduction of, or allowance or provision for, the incentive
compensation payable pursuant to this Agreement or incentive compensation based
upon consolidated income or profits of the Employer payable pursuant to any
other employment agreement or arrangement between the Employer and any employee
thereof, or as from time to time hereafter amended, or any successor agreement
thereto, and (iii) any extraordinary gain or loss.
(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 in 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:
(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, 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 otherwise interfere with any contractual
or other business relationships between Employer and its employees. The only
exception to this provision is that upon termination Employee may solicit and/or
offer employment to and subsequently employ Harry Maccarrone.
(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.
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(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 or 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,
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) The employment of Employee shall automatically terminate upon the death
of the Employee. Upon such termination, Employee's estate shall receive only
such amounts as are earned and due to Employee under this agreement as the
result of Employee's activities prior to Employee's death, and thereafter no
further consideration or compensation shall be owed by Employer to Employee or
to Employee's estate.
(c) Employer agrees that if prior to a Change of Control it gives notice of
termination pursuant to Section 2 that this contract will not be extended: (i.)
Employee will be entitled to full compensation, including incentive compensation
as set forth below, and including participation in all benefit programs set
forth in Section 4 hereof, subject to the provisions of such Section 4, for one
(1) year, except that reimbursement for the costs of COBRA or health insurance
(in lieu of participation in Employer's health plan) shall be continued for 36
months as provided in this Section 7 (c) (the "Severance Payment"). In the event
of such Severance Payment, the incentive compensation provided for in Section 4
(e) shall be amended to the highest amount of cash bonus and incentive
compensation paid to the Employee in any one (1) year during the three (3) years
prior to such notice of termination. 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; and (ii.) Employer agrees to reimburse the Employee for
Employee's cost of COBRA coverage if such coverage is: (a.) available; and (b.)
elected by Employee for a period not to exceed thirty six (36) months. If such
COBRA coverage is not available then Employer shall reimburse Employee for the
cost of such other medical insurance that Employee chooses to obtain by paying
Employee monthly for the period set forth above the lesser of: (x.) the cost of
such other insurance; or (y.) the cost of COBRA insurance had it been available.
(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 and incentive compensation paid
to Employee in any one (1) year during the three (3) 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), then provided to
Employee, and (D) the amount contributed by the Employer on behalf of the
Employee for the calendar year ending immediately prior to the termination of
any pension plan of the Employer.
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(ii) 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.
(iii) The Employer will promptly reimburse Employee for any and all legal
fees and expenses reasonably 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."
(e) 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 term 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 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 that imposes such tax 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.
(f) 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.
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(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 disposition by the Employer of all 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.
(g) 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 (g) does not affect any rights of
Employee under any stock option agreements with Employer.
(h) 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
assets or property; or (vi) the making by either Employer of any general
assignment for the benefit of creditors.
(i) 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
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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.
Promptly after receipt by the Employee of notice of the commencement of any
action, suit or proceeding for which the Employee may be entitled to be
indemnified, the Employee shall notify the Employer in writing of the
commencement thereof (but the failure to notify the Employer shall not relieve
it from any liability which it may have under this Section 8 unless and to the
extent that it has been prejudiced in a material respect by such failure or from
the forfeiture of substantial rights and defenses). If any such action, suit or
proceeding is brought against the Employee and he notifies the Employer of the
commencement thereof, the Employer will be entitled to participate therein, and,
to the extent it may elect by written notice delivered to the Employee promptly
after receiving the aforesaid notice from the Employee, to assume the defense
thereof with counsel reasonably satisfactory to the Employee, which may be the
same counsel as counsel to the Employer. Notwithstanding the foregoing, the
Employee shall have the right to employ his own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of the Employee
unless (i) the employment of such counsel shall have been authorized in writing
by the Employer, (ii) the Employer shall not have employed counsel reasonably
satisfactory to the Employee to take charge of the defense of such action within
a reasonable time after notice of commencement of the action or (iii) the
Employee shall have reasonably concluded, after consultation with counsel to the
Employee, that a conflict of interest exists which makes representation by
counsel chosen by the Employer not advisable (in which case the Employer shall
not have the right to direct the defense of such action on behalf of the
Employee), in any of which events such fees and expenses of one additional
counsel shall be borne by the Employer. Anything in this Section 8 to the
contrary notwithstanding, the Employer shall not be liable for any settlement of
any claim or action effected without its written consent.
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 Ten Million Dollars ($10,000,000). 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 Ten
Million Dollars ($10,000,000), 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 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.
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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.
415 Crossways Park Drive
Woodbury, NY 11797
EMPLOYEE: John Fanning
3505 South Ocean Boulevard
Apt. 5N
Highland Beach, FL 33487
Any party may, by written notice complying with the requirements of this
section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
(b) 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 by 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 shall 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.
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(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.
(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 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:_______________________________
Its:
COMFORCE OPERATING, INC.
By:_______________________________
Its:
EMPLOYEE
----------------------------------
John Fanning
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of the 1st day of
January, 1999, 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 Harry V. Maccarrone ("Employee").
RECITALS:
A. COMFORCE and/or a subsidiary 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 Chairman of the Board. COMFORCE, COI and/or a subsidiary shall
allocate between each other the uses of Employee and costs hereunder. Subject to
this power the Chairman of the Board of Employer shall designate the position in
which Employee shall serve Employer, Employee shall maintain the title and
position of Executive Vice 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 directions of, and
policies established and communicated to Employee from time to time by, the
Chairman of the Board of Employer.
2. Effective Date: Term of Employment. This Agreement shall commence and be
effective for all purposes as of the date first seen set forth above and shall
remain in effect, unless earlier terminated as provided in Section 7 hereof,
until December 31, 2001 (the "Initial Termination Date"), which date shall be
extended to the subsequent December 31 unless no less than sixty (60) days prior
to the Initial Termination Date or subsequent extension 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. 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 or conflict with Employee's performance
of his duties hereunder.
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 One Hundred Eighty Three Thousand, One Hundred
Forty Nine Dollars and Eighty Two Cents ($183,149.82) (the "Base Salary"),
payable in accordance with the
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Employer's payroll practices for its officers. This base salary will increase
annually during the Term of Employment on each January 1, beginning January 1,
2000, 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 Chairman 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, and may be
increased by the Board or Chairman or such committee from time to time in its
discretion for any other reason whatsoever.
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 an other governmental agency or, if no such
index shall then 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 all such expenses upon
presentation of itemized vouchers or other evidence of those expenditures in
accordance with Employer's policies and procedures. In addition, the Employee
will be given an annual non-accountable expense allowance of $10,000.
(c) Benefit Plans
(i) Medical, Dental and Pension Benefits.
Employee shall receive such incidental benefits of employment, such as
medical and dental insurance, and pension plan participation as are provided
generally to the Employer's other executive officers.
(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.
(d) 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. Non-Solicitation.
The Employee recognizes that the methods employed in the Employer's
business are such as have placed and would place the Employee in close business
and personal relationship with the Employer's clients and customers. It is
therefore agreed that in the event of a termination of this Agreement for any
reason whatsoever, the Employee will not for a period of one (1) year from the
date of termination of this Agreement, either directly or indirectly on
Employee's own account or as agent, stockholder, owner, employer, employee, or
otherwise, solicit any business from the then Clients of the Employer or from
potential Clients of the Employer that Employee may have contacted or been
assigned to at any time during Employee's period of employment. Nothing herein
shall be deemed to preclude Employee from taking a position in accordance with
the last sentence of Section 7 hereof, as long as he is not directly involved in
actions or conduct prohibited by this Section 6.
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7. Non-Compete.
The Employee further agrees that during the Term of Employment and for a
period of one (1) year from the date of termination, Employee shall not engage
either directly or indirectly on Employee's own account or as agent,
stockholder, owner, employee, employer or otherwise, in a business which is the
same as or substantially similar to that of the Employer or its subsidiaries,
parent or affiliates (collectively the "Group"), (i) within the United States or
(ii) within any country in which the Group conducts any business.
Notwithstanding the foregoing, Employee may during the period in which this
Section 7 is in effect own stock or other interests in corporations or other
entities that engage in businesses the same or substantially similar to those
engaged in by the Group provided that Employee does not, directly or indirectly
(including without limitation as the result of ownership or control of another
corporation or other entity), individually or as part of a group [as that term
is defined in Section 13 (d) of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder] (a) control or have the
ability to control the corporation or other entity, (b) provide to the
corporation or entity, whether as an employee, consultant or otherwise, advice
or consultation other than as set forth below, (c) provide to the corporation or
entity any confidential or proprietary information regarding the Group or its
businesses or regarding the conduct of businesses similar to those of the Group,
(d) have the purpose to change or influence the control of the corporation or
entity (other than solely by the voting of his shares or ownership interest) or
(e) have a business or other relationship, by contract or otherwise, with the
corporation or entity other than as a passive investor in it; provided, however,
that Employee may vote his shares or ownership interest in such manner as he
chooses provided that such action does not otherwise violate the prohibitions
set forth in this sentence. In addition, notwithstanding the prior provisions of
this Section 7, after the termination of Employee's employment with Employer,
Employee may take a position: (x.) as an employee with a business that is
similar to Employer provided that such position is a position, such as chief
financial officer or controller, that solely relates to financial and accounting
aspects of the business, that such position does not involve the management,
oversight or direction of any operations other than accounting and financial
functions and does not include involvement in, and Employee is not involved in
and does not give any advise or services with respect to sales or marketing,
other than such advice as is incidental to providing financial and accounting
services; or (y.) as an employee working for any corporation or venture John
Fanning is either employed by or has substantial involvement in. 8. 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 or 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,
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) The employment of Employee shall automatically terminate upon the death
of the Employee. Upon such termination, Employee's estate shall receive only
such amounts as are earned and due to Employee under this agreement as the
result of Employee's activities prior to Employee's death, and thereafter no
further consideration or compensation shall be owed by Employer to Employee or
to Employee's estate.
(c) Employer agrees that if prior to a Change of Control it gives notice of
termination pursuant to Section 2 that this contract will not be extended: (i.)
Employee will be entitled to full compensation, including incentive compensation
if any, and including participation in all benefit programs set forth in Section
4 hereof, subject to the provisions of such Section 4, for one (1) year, except
that reimbursement for the costs of COBRA or health insurance (in lieu of
participation in Employer's health plan beyond the COBRA period) shall be
continued for thirty-six (36) months as provided in this Section 8 (c) (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; and (ii.) Employer agrees to reimburse the Employee for Employee's cost
of COBRA coverage if such coverage is: (a.) available; and (b.) elected by
Employee for a period not to exceed thirty-six (36) months. If such COBRA
coverage is not available then Employer shall reimburse Employee for the cost of
such other medical insurance that Employee chooses to obtain
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by paying Employee monthly for the period set forth above the lesser of: (x.)
the cost of such other insurance; or (y.) the cost of COBRA insurance had it
been available.
(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 and incentive compensation paid
to Employee in any one (1) year during the three (3) 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(c), then provided to
Employee, and (D) the amount contributed by the Employer on behalf of the
Employee for the calendar year ending immediately prior to the termination of
any pension plan of the Employer.
(ii) 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.
(iii) The Employer will promptly reimburse Employee for any and all legal
fees and expenses reasonably 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."
(e) 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 term 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 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 that imposes such tax 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
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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.
(f) 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 disposition by the Employer of all 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.
(g) 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 (g) does not affect any rights of
Employee under any stock option agreements with Employer.
(h) 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
assets or property; or (vi) the making by either Employer of any general
assignment for the benefit of creditors.
(i) 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 thirty (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".
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9. 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.
Promptly after receipt by the Employee of notice of the commencement of any
action, suit or proceeding for which the Employee may be entitled to be
indemnified, the Employee shall notify the Employer in writing of the
commencement thereof (but the failure to notify the Employer shall not relieve
it from any liability which it may have under this Section 9 unless and to the
extent that it has been prejudiced in a material respect by such failure or from
the forfeiture of substantial rights and defenses). If any such action, suit or
proceeding is brought against the Employee and he notifies the Employer of the
commencement thereof, the Employer will be entitled to participate therein, and,
to the extent it may elect by written notice delivered to the Employee promptly
after receiving the aforesaid notice from the Employee, to assume the defense
thereof with counsel reasonably satisfactory to the Employee, which may be the
same counsel as counsel to the Employer. Notwithstanding the foregoing, the
Employee shall have the right to employ his own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of the Employee
unless (i) the employment of such counsel shall have been authorized in writing
by the Employer, (ii) the Employer shall not have employed counsel reasonably
satisfactory to the Employee to take charge of the defense of such action within
a reasonable time after notice of commencement of the action or (iii) the
Employee shall have reasonably concluded, after consultation with counsel to the
Employee, that a conflict of interest exists which makes representation by
counsel chosen by the Employer not advisable (in which case the Employer shall
not have the right to direct the defense of such action on behalf of the
Employee), in any of which events such fees and expenses of one additional
counsel shall be borne by the Employer. Anything in this Section 9 to the
contrary notwithstanding, the Employer shall not be liable for any settlement of
any claim or action effected without its written consent.
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 Ten Million Dollars ($10,000,000). 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 Ten
Million Dollars ($10,000,000), 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.
10. 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 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 10 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
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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.
11. 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.
12. 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.
415 Crossways Park Drive
Woodbury, NY 11797
EMPLOYEE: Harry V. Maccarrone
49 Riviera Drive South
Massapequa, NY 11758
Any party may, by written notice complying with the requirements of this
section, specify another or different person or address for the purpose of
notification hereunder. All notices shall be deemed to have been given and
received on the next day following the sending of such telegram, telex or
telecopy, or if mailed, on the third business day following such mailing.
(b) 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 by 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 shall 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.
E-19
<PAGE>
(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.
(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 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:_______________________________
Its:
COMFORCE OPERATING, INC.
By:_______________________________
Its:
EMPLOYEE
----------------------------------
Harry V. Maccarrone
E-20
Exhibit 21.1
Subsidiaries of COMFORCE Corporation
The following is a complete list of all of the subsidiaries of COMFORCE
Corporation with jurisdiction of incorporation indicated thereby.
1. COMFORCE Operating, Inc. (Delaware)
2. COMFORCE Technical Services, Inc. (Delaware)
3. COMFORCE Information Technologies, Inc. (Delaware)
4. COMFORCE Telecom, Inc. (Delaware)
5. Project Staffing Support Team, Inc. (Arizona)
6. RHO Acquisition Company (Delaware)
7. RHO Company Incorporated (Washington)
8. COMFORCE IT Acquisition Corp., Inc. (Delaware)
9. Force Five, Inc. (Texas)
10. SUMTEC Corporation (Delaware)
11. Uniforce Services, Inc. (New York)
12. PrO Unlimited, Inc. (New York)
13. E.O. Operations Corp. (New York)
14. E.O. Servicing Co., Inc. (New York)
15. Uniforce Staffing Services, Inc. (New York)
16. PrO N.E., Inc. (New York)
17. USSI-NE Corp. (New York)
18. Uniforce Information Services, Inc. (New York)
19. Uniforce Payrolling Services, Inc. (New York)
20. USI Inc. of California (California)
21. UTS Corp. of Minnesota (Minnesota)
22. UTS of Delaware, Inc. (Delaware)
23. LabForce of America, Inc. (New York)
24. Uniforce MIS Services of Georgia, Inc. (Georgia)
25. Uniforce Medical Office Support, Inc. (New York)
26. Uniforce Information Services of Texas, Inc. (New York)
27. Temporary Help Industry Servicing Co., Inc. (New York)
28. Montare International, Inc. (Texas)
29. Brannon & Tully, Inc. (Georgia)
30. Staffing Industry Funding & Support, Inc. (New York)
31. Professional Staffing Funding & Support, Inc. (New York)
32. Brentwood Service Group, Inc. (New York)
33. Tempfunds International, Inc. (New York)
34. Computer Consultants Funding & Support, Inc. (New York)
35. Thisco of Canada, Inc. (New York)
36. Camelot Consulting Group, Inc. (New Jersey)
37. Camelot Communications Group, Inc. (New Jersey)
38. Camelot Control Group, Inc. (New Jersey)
39. Camelot Group, Inc. (New Jersey)
40. RHO Services, Inc. (Washington)
41. PrO Services, Inc. (Delaware)
42. PrO Unlimited Services, Inc. (Delaware)
43. COMFORCE Technical Administrative Services, Inc. (New York)
E-21
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
COMFORCE Corporation on Form S-3 (Registration Nos. 033-60403, 333-31167,
333-43321, 333-44351, 333-47941, 333-61789 and 333-74689) and Form S-8
(Registration Nos. 333-32271 and 333-46787) of our report dated February 25,
1999 on our audits of the consoldiated financial statements and financial
statement schedule of COMFORCE Corporation and Subsidiaries as of December 31,
1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996, which
report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Melville, New York
February 25, 1999
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