<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission file number 0-27204
TECHFORCE CORPORATION
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(Exact Name of Registrant as Specified in Its Charter
GEORGIA 58-2082077
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(State of Incorporation) (I.R.S. Employer Identification No.)
15950 Bay Vista Drive, Clearwater, Florida 34620
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (813) 532-3600
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicated by check X 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
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As of November 11, 1996, there were 7,968,694 shares of the issuer's
common stock outstanding.
<PAGE>
TECHFORCE CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1 Financial Statements....................................... 1
. Consolidated Balance Sheet............................... 1
. Consolidated Statements of Income........................ 2
. Consolidated Statements of Cash Flows.................... 3
. Notes to Consolidated Financial Statements............... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
PART II. OTHER INFORMATION
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Item 1 Legal Proceedings......................................... 12
Item 2 Changes in Securities..................................... 12
Item 3 Defaults Upon Senior Securities........................... 12
Item 4 Submission of Matters to a Vote of Shareholders........... 12
Item 5 Other Information......................................... 12
Item 6 Exhibits and Reports on Form 8-K.......................... 12
SIGNATURES
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Signatures............................................................. 13
EXHIBIT INDEX.......................................................... 14
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<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
ASSETS September 30, 1996 December 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,794 $ 565
Investments 3,272 12,424
Accounts receivable, net of Allowance for Doubtful Accounts 11,257 12,137
of $876,000 and $200,000 at Sep 30, 1996 and Dec 31, 1995 respectively
Inventories 5,100 3,321
Prepaid expenses/Other Assets 2,133 437
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Total current assets 23,556 28,884
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PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements 569 456
Office furniture and fixtures 4,284 3,294
Replacement parts 10,335 7,606
Equipment held for rental 980 453
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16,168 11,809
Less accumulated depreciation (5,745) (3,361)
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Total property, plant and equipment, net 10,423 8,448
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NET INVESTMENT IN SALES TYPE LEASES 6,023 113
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ORGANIZATION COSTS AND OTHER ASSETS 932 861
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Total assets $ 40,934 $ 38,306
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,555 $ 1,253
Accrued expenses 2,229 3,078
Accrued contract labor 271 1,624
Current maturities of long term debt 1,646 1,615
Line of credit 1,290 -
Deferred revenue 3,274 1,894
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Total Current Liabilities 12,265 9,464
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LONG-TERM DEBT AND DEFERRED REVENUE 1,274 2,735
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STOCKHOLDERS' DEFICIT
Common stock 79 79
Additional paid in capital 27,659 27,634
Retained deficit (343) (1,606)
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27,395 26,107
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Total liabilities and stockholders' deficit $ 40,934 $ 38,306
===================== ====================
</TABLE>
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
----------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Services 8,268 9,372 24,883 25,351
Hardware 6,624 2,866 20,735 9,260
------------- ------------- ------------- -------------
Total revenues 14,892 12,238 45,618 34,611
------------- ------------- ------------- -------------
Direct costs:
Services 5,136 6,309 17,175 17,113
Hardware 4,669 1,797 14,483 6,325
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Total direct costs 9,805 8,106 31,658 23,438
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Gross Margin:
Services 3,132 3,063 7,708 8,238
Hardware 1,955 1,069 6,252 2,935
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Total gross margin 5,087 4,132 13,960 11,173
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Gross Margin:
Services 37.9% 32.7% 31.0% 32.5%
Hardware 29.5% 37.3% 30.2% 31.7%
------------- ------------- ------------- -------------
Total gross margin 34.2% 33.8% 30.6% 32.3%
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Operating costs
Selling and marketing 2,307 1,899 7,082 5,392
Research and development 364 344 1,248 772
General and administrative 999 1,035 3,211 2,709
Nonrecurring - 440 244 600
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3,670 3,718 11,785 9,473
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Operating income 1,417 414 2,175 1,700
Interest expense, net 29 279 256 853
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Income before taxes 1,388 135 1,919 847
Provision for income taxes (524) (54) (656) (342)
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Net income 864 81 1,263 505
============= ============= ============= =============
Net income per common share 0.10 0.01 0.15 0.08
============= ============= ============= =============
Weighted average common
shares outstanding 8,314,627 6,189,648 8,338,863 6,180,042
============= ============= ============= =============
</TABLE>
2
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $1,263 $505
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,384 1,506
Changes in operating assets and liabilities (1,186) 550
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Net cash provided by operating activities 2,461 2,561
Cash Flows from investing activities
Purchase of property and equipment (4,359) (1,339)
Investment in sales-type leases (5,910) 0
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Net cash used in investing activities (10,269) (1,339)
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Cash flows from financing activities
Borrowings under revolving credit facilities 1,290 482
Repayments of long-term debt (1,430) (1,131)
Issuances of Common Stock 25
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Net cash used in financing activities (115) (649)
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Net increase (decrease) in cash and cash equivalents (7,923) 573
Cash and cash equivalents, beginning of period 12,989 460
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Cash and cash equivalents, end of period $5,066 $1,033
============= ========
</TABLE>
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. NATURE OF BUSINESS
TechForce Corporation and subsidiaries (collectively, the "Company" and
formerly TechForce, a Georgia general partnership) are engaged in the sale,
design, on-site installation and maintenance, depot repair and support of
computer and data communications networking equipment.
2. BASIS OF FINANCIAL REPORTING
The condensed consolidated financial statements at September 30, 1996 and
for the three- and nine-month periods then ended are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for fair presentation of the
financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Shareholders
incorporated by reference in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
2. MAJOR CUSTOMERS
During the quarter ended September 30, 1996, the following customers
individually accounted for more than 10% of the Company's revenue:
<TABLE>
<CAPTION>
Quarter Ended September 30, 1996 Quarter Ended September 30, 1995
-------------------------------- --------------------------------
Amount ($000) Percentage Amount ($000) Percentage
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Packard Bell Electronics, Inc. $2,570 17% $4,865 40%
Federal Express Company $1,811 12% $1,424 11%
</TABLE>
The loss of one of these customers could have a severe impact on the results
of the operations of the Company in the near term.
3. LEGAL MATTERS
The Company is involved in certain litigation and claims arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
4
<PAGE>
4. In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 ("SFAS"),
"Accounting for Stock-Based Compensation", which the Company is
required to adopt in fiscal 1996. SFAS No. 123 requires companies to
estimate the value of all stock-based compensation using a recognized
pricing model. Companies have the option of recognizing this value as
an expense or of disclosing its pro forma effects on net income. The
Company's management has not yet determined its method of adoption or
the financial statement impact of adopting SFAS No. 123. Other issued
but not yet required FASB standards are not currently applicable or
material to the Company's operations.
<PAGE>
PART I. FINANCIAL INFORMATION (continued)
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The Company generates revenues from services provided under maintenance
contracts with terms ranging from one to five years and through the sale of its
channel extension hardware and the resale of various data network hardware
supplied by other manufacturers. In certain cases the Company leases hardware
when such financing facilitates increased support opportunities. Revenues from
service and maintenance contracts are either recognized ratably over the
contract period or on a per call basis, as is the case under the Packard Bell
agreement. Revenues from product sales are recognized at the time of delivery.
When appropriate, revenues from leasing are accounted for as sales-type leases
where the present value of all payments, net of executory costs, are recorded
currently as revenues and the related costs of the equipment are recorded to
cost of sales. The associated interest income is recognized over the term of
the lease. Revenues derived from sales-type leases for the three months and nine
months ended September 30, 1996 were $2.4 million and $9.8 million respectively.
Amortized interest on such leases totaled $0.2 million and $0.3 for the three
month and nine month periods ended September 30, 1996.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS"), "Accounting for
Stock-Based Compensation," which the Company is required to adopt in fiscal
1996. SFAS No. 123 requires companies to estimate the value of all stock-based
compensation using a recognized pricing model. Companies have the option of
recognizing this value as an expense or of disclosing its pro forma effects on
net income. The Company's management has not yet determined its method of
adoption or the financial statement impact of adopting SFAS No. 123. Other
issued but not yet required FASB standards are not currently applicable or
material to the Company's operations.
Management anticipates that revenues from its proprietary channel extension
products and services will gradually decrease over the next few years at a rate
of less than 10% to 15% per year primarily as a result of a steady trend toward
open-systems environments. Management does not believe that this gradual decline
in revenues will have a material adverse effect on the Company's results of
operations and financial condition.
Although revenues attributable to Packard Bell grew steadily over the past
few years, the Company experienced a substantial decline in revenues from
Packard Bell during the three months and nine months ended September 30, 1996 as
compared to the same periods in 1995. Revenues from Packard Bell represented
17% of total Company revenues for the three months ended September 30, 1996
compared to 40% for the three months ended September 30, 1995. This decline in
revenue was due to the second quarter suspension of new call volumes from
Packard Bell during the Company's negotiation with Packard Bell of certain
contractual issues related to: payment of invoices, level of accounts receivable
from Packard Bell and level of consigned Packard Bell inventory held by the
Company. These negotiations culminated in an agreement between the Company and
Packard Bell whereby Packard Bell has paid the Company approximately $5.3
million of approximately $8.6 million of dated accounts receivable under
discussion at that time and the Company has returned to Packard Bell a
substantial portion of Packard Bell consigned inventory held by the Company at
that time. The agreement also calls for the parties to reconcile their
respective records relating to the amount of consigned Packard Bell inventory
held by the Company. Packard Bell has committed to pay the remaining balances
due the Company after any adjustment arising out of the reconciliation.
Operating results for the nine months ended September 30, 1996 include a
reserve taken by the Company which reflects management's assessment of possible
losses related to accounts receivable and/or consigned inventory from Packard
Bell. As of September 30, 1996, the Company was receiving call volumes at or
above 60% of previous levels.
Packard Bell is invoiced monthly and payment is due no later than 30 days
after the invoice date, with a penalty of 1.5% of the unpaid balance accruing
monthly beginning 60 days after the invoice date. The Company typically has
received payment from Packard Bell approximately 100 to 130 days after the
billing date, which is
<PAGE>
generally a longer payment cycle than experienced under the Company's other
service contracts. As of September 30, 1996, the Company's receivable from
Packard Bell for services provided after the second quarter agreement
represented approximately the most recent 60 days of revenue. In light of the
substantial amount of the Company's total revenues that are attributable to
Packard Bell, failure to receive payment in accordance with past practice under
the Packard Bell contract could have a material adverse effect on the Company's
cash flow.
Continued growth of the Company's customer base and its services can be
expected to continue to place a significant strain on its administrative,
operational and financial resources. The Company's future performance and
profitability will depend in part on its ability to successfully implement
enhancements to its business management systems and to adapt those systems as
necessary to respond to changes in its business. Furthermore, although the
Company has experienced rapid growth in total revenues and has previously been
profitable, its limited operating history makes the prediction of future
operations difficult. There can be no assurance that the Company's revenue
growth will continue in the future or that profitable operating results can be
sustained.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Total revenues. Total revenues increased 21.6% from $12.2 million for the
three months ended September 30, 1995 to $14.9 million for the three months
ended September 30, 1996 due to increased revenues from hardware sales and
leases offset by declines in service revenues from Packard Bell.
Service revenues. Revenues from services decreased 11.8% from $9.4
million (76.6% of total revenues) for the three months ended September 30, 1995
to $8.3 million (56.2% of total revenues) for the three months ended September
30, 1996. This decrease was attributable to decreases in Packard Bell service
revenues offset by increased service revenues associated with the Company's
enterprise network support services and increases in revenues from services
provided to FedEx. Revenues from Packard Bell for the three months ended
September 30, 1996 decreased by 47.2% while revenues from the enterprise network
support offerings increased by 26.1% as compared to revenues from these services
for the three months ended September 30, 1995.
Hardware revenues. Revenues from hardware products increased 124.8% from
$2.9 million (23.4% of total revenue) for the three months ended September 30,
1995 to $6.6 million (44.5% of total revenues) for the three months ended
September 30, 1996 due primarily to an increase in revenues from the resale and
lease of other manufacturers' hardware of $6.1 million.
Cost of Service. Cost of service decreased 18.6% from $6.3 million (67.3%
of service revenues) for the three months ended September 30, 1995 to $5.1
million (62.1% of service revenues) for the three months ended September 30,
1996. This decrease was caused primarily by the decline in business volumes
from Packard Bell.
Cost of Hardware. Cost of hardware increased 159.8% from $1.8 million
(62.7% of hardware revenues) for the three months ended September 30, 1995 to
$4.7 million (70.5% of hardware revenue) for the three months ended September
30, 1996. This increase was caused primarily by increased hardware sales.
Gross Margin. Overall gross margin increased 23.1% from $4.1 million, or
33.8% of total revenues, for the three months ended September 30, 1995 to $5.1
million, or 34.2% of total revenues for the three months ended September 30,
1996. Gross margin on services remained relatively constant at $3.1 million for
both the three months ended September 30, 1995 and September 30, 1996, while
increasing as a percent of revenue from 32.7% to 37.9% respectively. This
increase resulted from higher enterprise network support volumes, offset by
decreased Packard Bell service volumes. Gross margin on hardware revenues
increased 82.8% from $1.1 million for the three months ended September 30, 1995
to $2.0 million for the three months ended September 30, 1996. This increase
was caused primarily by increased revenues from resale and lease of other
manufacturers' equipment. Service margins as a percent of service revenues
increased from 32.7% for the three months ended September 30, 1995 to 37.9% for
the three months ended September 30, 1996 primarily due to improved margins on
enterprise network support revenues and on services provided to FedEx. Hardware
margins as a percentage of hardware revenues decreased from 37.3%
<PAGE>
for the three months ended September 30, 1995 to 29.5% for the three months
ended September 30, 1996 primarily as a result of the increased proportion of
total hardware revenues derived from the resale of other manufacturers'
equipment. The Company has experienced competitive pressure on resale hardware
margins and anticipates continued pressure due to increasing price competition.
Selling and Marketing Expenses. Selling and marketing expenses increased
21.5% from $1.9 million, or 15.5% of total revenues, for the three months ended
September 30, 1995 to $2.3 million, or 15.5% of total revenues, for the three
months ended September 30, 1996. This increase was due to increases in Company
resources dedicated to sales and marketing efforts combined with increased sales
costs associated with increased hardware revenues.
Research and Development Expenses. Research and development expenses
increased 5.8% from $0.3 million, or 2.8% of total revenues, for the three
months ended September 30, 1995 to $0.4 million, or 2.4% of total revenues, for
the three months ended September 30, 1996 due to slightly increased program
development activity.
General and Administrative Expenses. General and administrative expenses
decreased 3.5% from $1.0 million, or 8.5% of total revenues, for the three
months ended September 30, 1995 to $1.0 million, or 6.7% of total revenues, for
the three months ended September 30, 1996.
Nonrecurring Charges. The Company recognized non-recurring relocation costs
of $440,000 during three months ended September 30, 1995 as a result of the
Company's relocation of its Atlanta, Georgia headquarters to its Clearwater,
Florida facility. For the three months ended September 30, 1996, the Company
recognized no non-recurring costs.
Operating Income. Operating income increased 198.8% from $0.4 million, or
3.4% of total revenues, for the three months ended September 30, 1995 to $1.2
million, or 9.5% or total revenues, for the three months ended September 30,
1996 as a result of the factors listed above.
Interest Expense, Net. Interest expense decreased from $0.3 million, or
2.3% of total revenues, for the three months ended September 30, 1995 to
$29,000, or 0.2% of total revenues, for the three months ended September 30,
1996. The decrease in interest expense resulted from the December 1995 payment
of certain indebtedness from proceeds from the Company's initial public
offering. Interest income totaled $0.1 million for the three months ended
September 30, 1996 and was not material for the three months ended September 30,
1995.
Income Taxes. The Company's effective income tax rate was 37.8% for the
three months ended September 30, 1996, as compared to 40.0% in the same period
of the prior fiscal year. The decrease resulted from the benefit of $70,000 of
non-taxable interest income.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenues. Total revenues increased 31.8% from $34.6 million for the
nine months ended September 30, 1995 to $45.6 million for the nine months ended
September 30, 1996 primarily due to increases in enterprise network support
revenues and hardware sales and lease revenues somewhat offset by declines in
service revenues from Packard Bell.
Service revenues. Revenues from services decreased 1.8% from $25.4
million (73.2% of total revenues) for the nine months ended September 30, 1995
to $24.9 million (55.0% of total revenues) for the nine months ended September
30, 1996. This decrease was attributable to decreases in Packard Bell service
revenues somewhat offset by increased service revenues associated with the
Company's enterprise network support services. Revenues from the enterprise
network support services offerings increased by 26.1% while revenues from
Packard Bell for the nine months ended September 30, 1996 decreased by 26.3% as
compared to revenues from these services for the nine months ended September 30,
1995.
<PAGE>
Hardware revenues. Revenues from hardware products increased 120.3% from
$9.3 million (26.8% of total revenue) for the nine months ended September 30,
1995 to $20.7 million (45.5% of total revenues) for the nine months ended
September 30, 1996 due to increased revenues from the resale and lease of other
manufacturers' hardware of $18.6 million.
Cost of Service. Cost of service increased 0.4% from $17.1 million (67.5%
of service revenues) for the nine months ended September 30, 1995 to $17.2
million (69.0% of service revenues) for the nine months ended September 30,
1996. This increase was caused primarily by the increase in the enterprise
network support business offset somewhat by improved cost efficiencies related
to these revenues. Service costs related to Packard Bell did not decrease
proportionately with decreases in revenues due to the Company's decision to
leave in place certain infrastructure to support future Packard Bell business
during its second quarter negotiations with Packard Bell. Packard Bell service
costs were also impacted by second quarter reserves for losses related to
accounts receivable and/or consigned inventory taken by the Company in 1996.
Cost of Hardware. Cost of hardware increased 129.0% from $6.3 million
(68.3% of hardware revenues) for the nine months ended September 30, 1995 to
$14.5 million (69.8% of hardware revenue) for the nine months ended September
30, 1996. This increase was caused primarily by increased hardware sales and
leases.
Gross Margin. Overall gross margin increased 24.9% from $11.2 million, or
32.3% of total revenues, for the nine months ended September 30, 1995 to $14.0
million, or 30.6% of total revenues for the nine months ended September 30,
1996. Gross margin on services decreased 6.4% from $8.2 million for the nine
months ended September 30, 1995 to $7.7 million for the nine months ended
September 30, 1996. This decrease was caused by a decline in Packard Bell
service revenues combined with decreased gross margins from Packard Bell
revenues (See Cost of Service) somewhat offset by increased gross margin on
enterprise network support services and repair services provided to FedEx.
Gross margin on hardware revenues increased 113.0% from $2.9 million for the
nine months ended September 30, 1995 to $6.3 million for the nine months ended
September 30, 1996. This increase was caused by increased revenues from the
resale and lease of other manufacturers' equipment. Service margins as a
percent of service revenues decreased from 32.5% for the nine months ended
September 30, 1995 to 31.0% for the nine months ended September 30, 1996
primarily due to reductions in Packard Bell business volumes which were not
accompanied by corresponding reductions in related costs. Hardware margins as a
percentage of hardware revenues decreased from 31.7% for the nine months ended
September 30, 1995 to 30.2% for the nine months ended September 30, 1996
primarily as a result of the increased proportion of total hardware revenues
derived from the resale of other manufacturers' equipment. The Company has
experienced competitive pressure on resale hardware margins and anticipates
continued pressure due to increasing price competition.
Selling and Marketing Expenses. Selling and marketing expenses increased
31.3% from $5.4 million, or 15.6% of total revenues, for the nine months ended
September 30, 1995 to $7.1 million, or 15.5% of total revenues, for the nine
months ended September 30, 1996. This increase was due to increases in Company
resources dedicated to sales and marketing efforts combined with increased sales
costs associated with increased hardware revenues.
Research and Development Expenses. Research and development expenses
increased 61.7% from $0.8 million, or 2.2% of total revenues, for the nine
months ended September 30, 1995 to $1.2 million, or 2.7% of total revenues, for
the nine months ended September 30, 1996. This increase was due to continued
program development activity relating primarily to remote network management
tools and systems development and new product support offerings.
General and Administrative Expenses. General and administrative expenses
increased 18.5% from $2.7 million, or 7.8% of total revenues, for the nine
months ended September 30, 1995 to $3.2 million, or 7.0% of total revenues, for
the nine months ended September 30, 1996. This increase included increased
depreciation charges on fixed assets and increased legal and accounting expenses
associated with the Company's public reporting requirements.
Nonrecurring Charges. The Company recognized non-recurring relocation costs
of $600,000 during nine months ended September 30, 1995 as a result of the
Company's relocation of its Atlanta, Georgia headquarters to its
<PAGE>
Clearwater, Florida facility. For the nine months ended September 30, 1996, the
Company recognized non-recurring restructuring costs of $244,000 related to
second quarter reductions in staff. Management identified these personnel cost
savings opportunities in various areas throughout the Company in response to the
decline in Packard Bell revenues and gross margins.
Operating Income. Operating income increased 8.1% from $1.7 million, or
4.9% of total revenues, for the nine months ended September 30, 1995 to $1.8
million, or 4.8% or total revenues, for the nine months ended September 30, 1996
as a result of the factors listed above.
Interest Expense, Net. Interest expense decreased 69.9% from $0.9 million,
or 2.5% of total revenues, for the nine months ended September 30, 1995 to $0.3
million, or 0.6% of total revenues, for the nine months ended September 30,
1996. The decrease in interest expense resulted from the December 1995 payment
of certain indebtedness from proceeds from the Company's initial public
offering. Interest income totaled $0.2 million for the nine months ended
September 30, 1996 and was immaterial for the nine months ended September 30,
1995.
Income Taxes. The Company's effective tax rate was 34.2% for the nine
months ended September 30, 1996 as compared to 40.0% for the same period of the
prior fiscal year. The reduction in fiscal year 1996 is principally the result
of recording $182,000 of non-taxable interest income, as well as a $24,000
refund of prior year federal income tax.
Liquidity and Capital Resources
The Company's operating activities provided cash of $2.6 million and of
$2.5 million for the nine months ended September 30, 1995 and 1996,
respectively. Cash provided by operating activities for the 1995 period was
primarily due to income and increases in deferred revenue partially offset by
increases in accounts receivable and inventory. Cash provided by operating
activities for the 1996 period was primarily due to net income, decreases in
accounts receivable and increases in deferred revenue offset by increases in
inventory and other current assets.
The Company's investing activities used cash of $1.4 million and $10.3
million for the nine months ended September 30, 1995 and 1996, respectively.
Cash used in the Company's investing activities in 1995 related solely to the
purchase of property, plant and equipment. Cash used in the Company's investing
activities in 1996 related to the Company's capitalization of leases receivable
from customers pending the Company's discounting of such leases, where possible,
to third party lending institutions and the purchase of property, plant and
equipment.
Financing activities used cash of $0.6 million and $0.1 million for the
nine months ended September 30, 1995 and 1996, respectively. Cash used in the
Company's financing activities in both periods related to the repayment of long
term debt partially offset by net new short term revolving credit facility
borrowings.
The Company's cash requirements have been financed with cash flow from
operations and borrowings under its revolving credit facility with SouthTrust
Bank of Georgia, N.A., which provided for borrowings of up to $5.5 million based
on the value and aging of the Company's accounts receivable. Borrowings under
the line of credit have born interest at SouthTrust's quoted variable base
rate, which has ranged from 8.25% to 9.0.% (and was 8.25% as of September 23,
1996, the date of facility termination). In September 1996, the Company entered
into a new credit facility with First Union National Bank of Florida which
provides for borrowings of up to $15.0 million based on the value and aging of
the Company's accounts receivable. The facility further provides for acquisition
financing subject to certain conditions governing First Union's review and
approval of such financing. Finally, the facility provides for interim financing
of capitalized leases up to a limit of $3.0 million pending the Company's non-
recourse discounting of any such lease to a third party. Any outstanding
borrowings related to either acquisition or lease financing reduce the amount of
the $15.0 million credit line available for working capital borrowings. As of
September 30, 1996, the Company had outstanding borrowings of $1.3 million under
the line of credit and approximately $2.7 million was available for additional
borrowing. The borrowings at September 30, 1996 were at the First Union's
quoted variable rate of 7.0%. The Company intends to use its borrowing capacity
under its line of credit on a limited basis primarily for working capital
requirements.
<PAGE>
The Company leases hardware to customers in certain cases in which such
financing facilitates increased support opportunities. The Company believes
that leasing provides a key competitive advantage in the sale of long term
support agreements and that there are significant extended lease and used
equipment resale opportunities combined with long term support agreement renewal
opportunities at the end of the initial term of leases. In addition, the
Company views leasing as a source of low cost future replacement spares
inventories which can be deployed to reduce future capital commitments for
enterprises network support contracts. As of September 30, 1996, the Company's
investment in capital leases included $0.9 million in third quarter leases and
approximately $5.6 million related to one first quarter lease. This particular
lease involved a customer who has been the target of an acquisition for much of
1996. The acquisition was concluded in the third quarter and the Company is now
in active discussion with potential discounting sources and believes that
substantial portion of this lease will be discounted in the near future. The
Company plans to discount such leases to banks and intends to reduce its working
capital committed to this activity. From time to time this leasing activity
places demands on the Company's working capital based on the timing and
availability of discounting activities with financial institutions.
Management believes the net proceeds to the Company from its initial public
offering together with cash from operations and borrowings available under its
revolving credit facility will be sufficient to finance its working capital
needs and capital expenditure requirements for at least the next 12 months.
Although no assurance can be given, management believes that cash from
operations together with available sources of financing, including additional
bank debt, will be sufficient to fund the company's capital requirements for the
foreseeable future beyond such 12 month period. The Company does not currently
have any material commitments for capital expenditures.
The above "Management's Discussion and Analysis of Financial Condition and
Results of Operations" may contain forward-looking statements that involve risks
or uncertainties. The Company's actual results could differ materially from
those anticipated in such forward-looking statements.
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Shareholders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
----------- -----------
10.1 General Services Agreement between
TechForce Corporation and Federal
Express.
10.2(a) Loan Agreement between TechForce
Corporation and First Union National
Bank.
10.2(b) Security Agreement between TechForce
Corporation and First Union National
Bank.
10.2(c) Promissory Note between TechForce
Corporation and First Union National
Bank.
11.1 TechForce Corporation and Subsidiaries
Computation of Earnings Per Share of
Common Stock
27 Summary Financial Data
(b) No reports on Form 8-K were filed during the period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto dully authorized.
TECHFORCE CORPORATION
Date: November 11, 1996 /s/ Jerrel W. Kee
---------------------------------
Jerrel W. Kee
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
(a) Exhibit No. Description
----------- -----------
<S> <C>
10.1 General Services Agreement between TechForce Corporation and
Federal Express...................................................
10.2(a) Loan Agreement between TechForce Corporation and First Union
National Bank.....................................................
10.2(b) Security Agreement between TechForce Corporation and First Union
National Bank.....................................................
10.2(c) Promissory Note between TechForce Corporation and First Union
National Bank.....................................................
11.1 TechForce Corporation and Subsidiaries Computation of Earnings Per
Share of Common Stock.............................................
27 Summary Financial Data............................................
</TABLE>
<PAGE>
Contract No. 92-1973-005
AMENDED AND RESTATED GENERAL SERVICES AGREEMENT
-----------------------------------------------
THIS AMENDED AND RESTATED GENERAL SERVICES AGREEMENT (the "Agreement") is
made as of the first day of April, 1996, between FEDERAL EXPRESS CORPORATION
("Federal") and TECH FORCE CORPORATION ("Contractor"), and amends and restates
the General Services Agreement entered into by Federal and Contractor as of June
19, 1992 (as subsequently amended) in its entirety.
RECITALS
--------
1. Federal desires to engage a contractor to perform the services described
in this Agreement.
2. Contractor is willing and able to perform the services for Federal in
accordance with the terms of this Agreement.
3. The parties entered into a General Services Agreement as of June 19,
1992 (as subsequently amended) and now desire to amend and restate such General
Services Agreement in its entirety.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Agreement, Federal and Contractor (the"parties") agree as follows:
Section 1. Effect. This Agreement amends and restates the General Services
--------- ------
Agreement entered into by Federal and Contractor as of June 19, 1992 (as
subsequently amended) in its entirety, which such General Services Agreement
shall have no further force or effect.
Section 2. Scope of Work. In consideration of Federal's payments under this
--------- -------------
Agreement, Contractor shall perform in accordance with the terms of this
Agreement the services described in Exhibits A and A-1 (the "Services").
Section 3. Term and Termination. (a) The term of this Agreement (the
--------- --------------------
"Term") shall commence as of April 1, 1996 and shall expire when the Services
are completed, which shall not be later than March 31, 1999 (the "Completion
Date").
(b) Federal shall have the unlimited right to terminate this Agreement
before the Completion Date by giving written notice to Contractor. In such
event, Contractor shall be entitled only to portions of the Fee earned as of the
effective date of termination.
<PAGE>
2
Section 4. Contractor's Fee. In consideration of Contractor's complete
--------- -----------------
performance of the Services in accordance with this Agreement, Federal shall pay
Contractor a fee (the "Fee") determined in accordance with Exhibit B and Section
6, and payable as provided in Exhibit B. However, no portion of the Fee shall
be payable unless properly documented in accordance with Section 6.
Section 5. Taxes. Unless otherwise provided in Exhibit B, the Fee includes
--------- -----
the amount of any present or future sales, use, excise or other similar tax
applicable to the performance of the Work ("Tax"), and Federal shall have no
responsibility for the payment of any such Tax. Contractor shall include a
statement on its invoice that all taxes are included in the amount billed.
Section 6. Invoices and Payment. (a) Contractor shall invoice Federal for
--------- --------------------
sums payable under this Agreement as provide in Exhibit B. Contractor shall
submit to Federal an invoice for Services completed during the invoice period as
specified in Exhibit B. Contractor's invoices must be accompanied by copies of
invoices from its subcontractors (if any) and any other reasonable documentation
as may be requested by Federal for its proper review of Contractor's invoice.
Contractor's invoice shall include the statement referenced in Section 5.
(b) Federal shall promptly review Contractor's invoice and approve for
payment such amounts as Federal reasonably determines to be properly due under
the Agreement. Payment by Federal shall be made within thirty (30) days of
Federal's receipt and approval of Contractor's invoice. Federal shall state in
writing its reason for withholding any or all of the monies requested by
Contractor.
Section 7. Right of Audit. Contractor shall keep full and accurate records
--------- --------------
and documentation to substantiate the amounts claimed in any invoice, which
records shall be made available to Federal at all times. In addition,
Contractor's records shall be open to audit by Federal or any authorized
representative of Federal during the term of this Agreement and until two years
after completion of the Services or earlier termination of this Agreement,
whichever occurs first.
Section 8. Right to Withhold Payments. In addition to its right to
--------- --------------------------
withhold payments under Section 6, Federal may withhold any payment in whole or
part to protect itself from (i) defective or unsatisfactory performance of the
Services by Contractor, (ii) third-party claims filed or reasonable evidence
indicating probable filing of third-party claims arising from Contractor's
performance of the Services, (iii) failure of Contractor to make payments
properly to any of its subcontractors, or (iv) evidence of fraud, overbilling
or overpayments discovered upon audit.
Section 9. Independent Contractor Relationship. The parties intend that an
--------- -----------------------------------
independent contractor relationship will be created by this Agreement. Federal
is interested only in the results of Contractor's work and shall not exercise
any control
<PAGE>
over the conduct or supervision of the Services or the means of its
performance. Contractor shall have full responsibility for the payment of all
federal, state and local taxes and contributions, including penalties and
interest, imposed pursuant to unemployment insurance, social security, income
tax, workers' compensation or any other similar statute, and Contractor shall be
solely responsible for any liality to third parties resulting from the negligent
or intentional acts or omissions of Contractor, its agents, employees or
subcontractors arising from or occuring in the course of the Services.
Section 10. Disclosure of Information. Contractor acknowledges that certain
---------- -------------------------
of Federal's valuable, confidential and proprietary information may come into
Contractor's possession. Accordingly, Contractor agrees that all such
information furnished to Cofntractor by Federal shall remain the exclusive
property of Federal, and agrees to hold all information it obtains from or about
Federal in strictest confidence, not to use such information other than for the
performance of the Services, and to cause any of its employees or subcontractors
to whom such information is transmitted to be bound to the same obligaiton of
confidentiality to which Contractor is bound. Contractor shall not communicate
Federal's information in any form to any third party without Federal's prior
written consent. In the event of any violation of this provision, Federal shall
be entitled to preliminary and permanent injunctive relief as well as an
equitable accounting of all profits or benefits arising out of such violation,
which remedy shall be in addition to any other rights or remedies to which
Federal may be entitled.
Section 11. Indemnification. Contractor agrees to indemnify, defend and hold
---------- ---------------
harmless Federal, its directors, officers and employees from any and all
liabilities, damages, losses, expenses, demands, claims, suits or judgments,
including reasonable attorney's fees and expensses, in any way related to the
Services, including but not limited to any claim for payment made by a
subcontractor, agent or employee of Contractor, or any claim arising out of the
breach by Contractor of any covenants, warranties or representations contained
in this Agreement. Contractor's obligation to so indemnify, defend and hold
harmless Federal shall survive the expiration or ealier termination of this
Agreement.
Section 12. Insurance. Contractor shall maintain and furnish to Federal
---------- ---------
certificates evidencing the types of insurance coverage and endorsements
specified in Exhibit D. Such insurance shall be written by insurance companies
licensed to do business in the state where the Services are performed, shall be
in form and substance satisfactory to Federal, and shall provide that insurance
will not be subject to cancellation, termination, or change except after thirty
(30) days' written notice to Federal.
Section 13. Safety, Order and Security. Contractor shall enforce strict
---------- --------------------------
discipline and good order among its employees, and shall take all necessary
precautions in the performance of
<PAGE>
4
the Services to insure the safety of all persons and property. Contractor will
comply with all security rules made by Federal and, at Federal's request and
subject to applicable laws, will cooperate with Federal in the investigation of
any of Contractor's employees suspected of theft or other wrongdoing with
respect to Federal and its property.
Section 14. Standard of Performance. Contractor agrees that the Services
---------- -----------------------
will be performed by qualified, careful and efficient employees. Contractor
warrants that all Services furnished under this Agreement is of high quality and
workmanship. Contractor shall replace or reperform, as deemed necessary by
Federal, any of the Services that fail to meet Federal's technical or quality
standards set forth in the Tech Force Commitment to FedEx Customer-Supplier
Agreement executed December 21, 1995 (the "Customer-Supplier Agreement") and in
the FedEx Customer Supplier Alignment ("CSA") document (the "CSA document"),
without additional cost to Federal.
Section 15. Changes in Services. (a) Federal may order extra work or make
---------- -------------------
changes by altering, adding to or deducting from the Services by signing a
change order in the form of Exhibit C ("Change Order"). Services pursuant to a
valid Change Order shall be performed subject to the conditions of this
Agreement.
(b) Federal also by written instruction to Contractor may make changes in the
Services not involving extra cost and not inconsistent with the purposes of the
Services without execution of a Change Order, but otherwise, no extra service
shall be done or changes made unless pursuant to a Change Order, and no claim
for an addition to the Fee or an extension of the Completion Date shall be valid
unless so ordered in a signed Change Order.
(c) Upon receipt of a written request from Federal for changes in the
Services or for extra work which would affect the Fee or the Completion Date,
Contractor shall submit a statement detailing Contractor's proposal for
accomplishing the changes proposed by Federal and the effect, if any, on the Fee
and the Completion Date. If Federal accepts Contractor's proposal, a Change
Order shall be executed by the parties to effect the Services, the Fee and
Completion Date, as agreed.
Section 16. Compliance with Laws. (a) Contractor agrees that it will comply
---------- --------------------
with all applicable federal, state and local laws, regulations, and codes in the
performance of this Agreement. To the extent applicable to Contractor, it agrees
to comply with the affirmative action requirements applicable to contacts with
government contractors, as set forth in Title 41 of the Code of Federal
Regulations and incorporated into this Agreement by reference.
(b) Contractor agrees to indemnify, defend and hold harmless Federal, its
officers, directors and employees from and against any and all claims, losses,
demands, actions, administrative proceedings, liabilities and judgments,
including reasonable attorneys' fees and expenses, arising from Contractor's or
its subcontractor's failure to comply with the provisions of this
<PAGE>
Section.
Section 17. Miscellaneous. (a) Assignment. This Agreement shall inure to
---------- ------------- ----------
the benefit of and be binding upon each of the parties and their respective
successors and assigns, but neither the rights nor the duties of either party
under this Agreement may be voluntarily assigned or delegated without the prior
written consent of the other party, except that Federal may assign all or any
part of its rights and delegate its duties under this Agreement to a
wholly-owned subsidiary.
(b) Section Headings. All section headings and captions used in this
----------------
Agreement are purely for convenience and shall not affect the interpretation of
this Agreement.
(c) Exhibits. All exhibits described in this Agreement shall be deemed to
--------
be incorporated in and made a part of this Agreement, except that if there is
any inconsistency between this Agreement and the provisions of any exhibit the
provisions of this Agreement shall control. Terms used in an exhibit and also
used in this Agreement shall have the same meaning in the exhibit as in this
Agreement.
(d) Applicable Law. This Agreement shall be governed by and interpreted in
--------------
accordance with the laws of Tennessee, and the parties submit to the
jurisdiction of any appropriate court within Tennessee for adjudication of
disputes arising from this Agreement.
(e) Modification. Except as otherwise provided, this Agreement shall not
------------
be modified except by written agreement signed on behalf of Federal and the
Contractor by their respective authorized officers.
(f) Exclusive Agreement. This Agreement supersedes all prior
-------------------
understandings, representations, negotiations and correspondence between the
parties, constitutes the entire agreement between them with respect to the
matters described, and shall not be modified or affected by any course of
dealing, course of performance or usage of trade.
(g) Severability. If any provision of this Agreement is held to be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired.
(h) Waiver. The failure of either party at any time to require performance
------
by the other of any provision of this Agreement shall in no way affect that
party's right to enforce such provision, nor shall the waiver by either party of
any breach of any provision of this Agreement be taken or held to be a waiver of
any further breach of the same provision or any other provision.
(i) Survival. The provisions of this Agreement which by their nature
--------
extend beyond the expiration or earlier termination of the Agreement will
survive and remain in effect until all obligations are satisfied. Specifically,
the Contractor's
<PAGE>
6
obligations to indemnify Federal shall survive this Agreement.
(j) Disclosure. The Contractor shall in each instance obtain the prior
----------
written approval of Federal concerning exact text and timing of news releases,
articles, brochures, advertisements, prepared speeches and other information
releases concerning this Agreement.
(k) Change of Control. In addition to such other rights as Federal may
-----------------
have, Federal shall have the right to immediately terminate this Agreement upon
any change in the majority ownership or voting control of the capital stock,
business or assets of Contractor. Contractor shall promptly notify Federal in
writing of any such change in control.
(l) Further Assurances. Each party agrees that it will take such
------------------
actions, provide such documents, do such things and provide such further
assurances as may reasonably be requested by the other party during the term of
this Agreement. Contractor agrees to provide to Federal, from time to time,
such financial information as Federal may reasonably request to determine
Contractor's ability to perform its obligations under this Agreement.
(m) Counterparts. This Agreement may be executed in any number of
------------
counterparts and each fully executed counterpart shall be deemed an original.
(n) Notices. All notices, approvals, requests, consents and other
-------
communications given pursuant to this Agreement shall be in writing and shall be
effective when received if hand-delivered, sent by facsimile, sent by Federal
Express service or sent by United States certified or registered mail, addressed
as follows:
If to Contractor: Tech Force Corporation
Attn: Steve Crowder
3783 Lamar Avenue
Memphis, Tennessee 38118
If to Federal: Federal Express Corporation
Attn: Margaret Canon
3671 MIAC Drive
Memphis, TN 38118
Section 18. Ownership of Equipment. Notwithstanding any other provision
---------- ----------------------
of this Agreement, Federal shall be deemed the owner of the Equipment
(hereinafter defined) at all times and upon the request of Federal, Contractor
shall immediately return to Federal any Equipment in the possession of
Contractor.
<PAGE>
7
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
APPROVED FEDERAL EXPRESS CORPORATION
AS TO LEGAL FORM
CHW 9/8/96
------------------ By: /s/[SIGNATURE APPEARS HERE]
LEGAL DEPT. ------------------------------
Title: Vice President
---------------------------
("Federal")
TECH FORCE CORPORATION
By: /s/[SIGNATURE APPEARS HERE]
-----------------------------
Title: President
--------------------------
("Contractor")
Note: The following exhibits to this document will be provided upon request:
Exhibit A Scope of Work
Exhibit B Fee & Payment Procedure
Exhibit C Change Order Form
Exhibit D Contractor's Insurance
<PAGE>
FIRST 10.2(c)
UNION
PROMISSORY NOTE
$15,000,000.00 September 23, 1996
TECHFORCE CORPORATION
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620
TECHFORCE UK LIMITED
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620
(Individually and collectively "Borrower")
First Union National Bank of Florida
Post Office Box 740502
Atlanta, Georgia 30374-0502
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of FIFTEEN MILLION AND NO/100------------ Dollars
($15,000,000.00) or such sum as may be advanced from time to time with interest
on the unpaid principal balance at the rate and on the terms provided in this
Promissory Note (including all renewals, extensions or modifications hereof,
this "Note").
INTEREST RATE DEFINITIONS.
LIBOR Rate. 1-month LIBOR Rate plus 1.5% (150 basis points) ("LIBOR-Based
Rate"). "LIBOR" is the rate (rounded to the next higher 1/100 of 1%) for U.S.
dollar deposits of that many months maturity as reported on Telerate page 3750
as of 11:00 a.m., London time, on the second London business day before the
relevant Interest Period begins (or if not so reported, then as determined by
Bank from another recognized source of interbank quotation), adjusted for
reserves by dividing that rate by 1.00 minus the LIBOR Reserve. "LIBOR Reserve"
is the maximum percentage reserve requirement (rounded to the next higher 1/100
of 1% and expressed as a decimal) in effect for any day during the Interest
Period under the Federal Reserve Board's Regulation D for Eurocurrency
Liabilities as defined therein.
Prime Rate. The rate of Bank's Prime Rate as that rate may change from time to
time with changes to occur on the date Bank's Prime Rate changes ("Prime-Based
Rate"). Bank's Prime Rate shall be that rate announced by Bank from time to
time as its prime rate and is one of several interest rate bases used by Bank.
Bank lends at rates both above and below Bank's Prime Rate, and Borrower
acknowledges that Bank's Prime Rate is not represented or intended to be the
lowest or most favorable rate of interest offered by Bank.
INTEREST RATE TO BE APPLIED. Interest Rate. Subject to the provisions hereof,
the unpaid principal balance of this Note shall bear interest from the date
hereof at the LIBOR-Based Rate, as determined by Bank prior to the commencement
of each consecutive interest period of 1 month; (each an "Interest Period")
during the term of the Note ("Interest Rate"). Upon determination by Bank of
the Interest Rate for any Interest Period, such Interest Rate shall remain in
effect, subject to the provisions hereof, for the entire Interest Period until
redetermined as provided above for the next successive Interest Period.
51
<PAGE>
Default Rate. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Prime-Based Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INDEMNIFICATION AND ADDITIONAL COSTS.
Indemnification. Borrower indemnifies Bank against Bank's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note or (b) any payment, prepayment or conversion of
any loan on a date other than the last day of the Interest Period ("Indemnified
Loss or Expense").
Additional Costs. If, at any time, a new, or a revision in any existing law or
interpretation or administration (including reversals) thereof by any government
authority, central bank or comparable agency imposes, increases or modifies any
reserve or similar requirement against assets, deposits or credit extended by
Bank, or subjects Bank to any tax, duty or other charge (except tax on Bank's
net income), and any of the foregoing increase the cost to Bank of maintaining
its commitment or reduce the amount of any sum received or receivables by Bank
under this Note, within 15 days after demand by Bank, Borrower agrees to pay
Bank such additional amounts as will compensate Bank for such increased costs or
reductions ("Additional Costs").
Match Funding. The amount of such (a) Indemnified Loss or Expense or (b)
Additional Costs outlined above shall be determined, in Bank's sole discretion,
based upon the assumption that Bank funded 100% that portion of the loan to
which the LIBOR-Based Rate or CD-Based Rate applies respectively in the
applicable London interbank or domestic certificate of deposit market.
Unavailability of Interest Rate. If, at any time, (a) Bank shall determine
that, by reasons of circumstances affecting foreign exchange and interbank
markets generally, LIBOR or CD deposits in the applicable amounts are not being
offered to Bank; or (b) a new, or a revision in any existing law or
interpretation or administration (including reversals) thereof by any government
authority, central bank or comparable agency shall make it unlawful or
impossible for Bank to honor its obligations under this Note, (i) Bank's
obligation to make, maintain or convert into a LIBOR-Based Rate shall be
suspended; and (ii) the applicable LIBOR-Based Rate shall immediately be
converted to the Prime-Based Rate for the remainder of the Interest Period.
INTEREST COMPUTATION. (Actual/360). Interest shall be computed on the basis of
a 360-day year for the actual number of days in the interest period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the interest period. Application of the Actual/360
Computation produces an annualized effective interest rate exceeding that of the
nominal rate.
REPAYMENT TERMS. This Note shall be due and payable as set forth hereinbelow.
All remaining principal and interest shall be due and payable on or before two
(2) years from the date of this Note, without notice or demand. Provided,
advances related to acquisition may be amortized up to five (5) years from the
date of the advancement.
Interest shall be payable monthly, commencing the first day of the second month
following the date of the Note and on the same day of each month thereafter
until the principal is fully paid.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. If a Default
Page 2
<PAGE>
occurs, monies may be applied to the Obligations in any manner or order deemed
appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and may include, without limitation, a commitment
letter that survives closing, a loan agreement, this Note, security agreements,
security instruments, financing statements, debentures, mortgage instruments,
letters of credit and any renewals or modifications, but however, does not
include swap agreements as defined in 11 U.S.C. (S) 101 whenever executed.
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. (S) 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note, or if permitted under the law of that state, 5% of each payment past
due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations under this Note or any other Loan Documents.
False Warranty. A warranty or representation made in the Loan Documents or
furnished Bank in connection with the loan evidenced by this Note
Page 3
<PAGE>
proves materially false, or if of a continuing nature, becomes materially false.
Cross Default. At Bank's option, any default in payment or performance of any
obligation under any other loans, contracts or agreements of Borrower, any
Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of
the majority ownership interests of Borrower with Bank or its affiliates
("Affiliate" shall have the meaning as defined in 11 U.S.C. (S) 101, except that
the term "debtor" therein shall be substituted by the term "Borrower" herein;
"Subsidiary" shall mean any corporation of which more than 50% of the issued and
outstanding voting stock is owned directly or indirectly by Borrower).
Cessation; Bankruptcy. The death of, appointment of guardian for, dissolution
of, termination of existence of, loss of good standing status by, appointment of
a receiver for, assignment for the benefit of creditors of, or commencement of
any bankruptcy or insolvency proceeding by or against the Borrower, its
Subsidiaries or Affiliates, if any, or any general partner of or the holder(s)
of the majority ownership interests of Borrower, or any party to the Loan
Documents. Material Capital Structure or Business Alteration. Without prior
written consent of Bank, (i) a material alteration in the kind or type of
Borrower's business or that of its Subsidiaries or Affiliates, if any; (ii) the
acquisition of substantially all of Borrower's, any Subsidiary's, or any
Affiliate's business or assets, or a material portion (10% or more) of such
business or assets if such a sale is outside Borrower's, any Subsidiary's, or
any Affiliate's, ordinary course of business, or more than 50% of its
outstanding stock or voting power in a single transaction or a series of
transactions; (iii) the acquisition of substantially all of the business or
assets or more than 50% of the outstanding stock or voting power of any other
entity; or (iv) should any Borrower, Subsidiary, or Affiliate enter into any
merger or consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: Bank
Lien and Set-off. Exercise its right of set-off or to foreclose its security
interest or lien against any account of any nature or maturity of Borrower with
Bank without notice. Acceleration Upon Default. Accelerate the maturity of
this Note and all other Obligations, and all of the Obligations shall be
immediately due and payable. Cumulative. Exercise any rights and remedies as
provided under the Note and other Loan Documents, or as provided by law or
equity.
FINANCIAL COVENANTS. Borrower, on a consolidated basis, agrees to the following
provisions from the date of this Note and until final payment in full of the
Obligations, unless Bank shall otherwise consent in writing: Working Capital
Advances. The maximum amount outstanding under this note shall be the lesser of
85% of capital Eligible Accounts Receivable plus 90% of the net present value
of Eligible Leases (capped in the aggregate at $3,000,000.00), or
$15,000,000.00. Eligible Accounts Receivable. Eligible Accounts Receivable
shall be defined as accounts receivable aged ninety (90) days or less, as
evidenced by a monthly Borrowing Base Certificate and Accounts Receivable Aging
Summary. AT&T Paradyne contra accounts and foreign accounts (excepting Canadian
accounts, UK accounts and accounts backed by letters of credit) are considered
ineligible accounts. No portion of an account shall be defined as eligible if
50% or more of that account is aged ninety-one (91) days or more. Such Eligible
Account shall be an Account Receivable not more than 90 days from the date of
the original invoice that arises in the ordinary course of Borrower's business
and meets the following eligibility requirements: (a) the sale of goods or
services reflected in such account is final and such goods and services have
been delivered or provided and accepted by the account debtor and payment for
such is owing; (b) the invoices comprising an account are not subject to any
claims, returns or disputes of any kind; (c) the account debtor is not
insolvent; (d) the account debtor has its principal place of business in the
United States (excepting Canadian accounts, UK account and accounts backed by
letters of credit); (e) the account debtor is not an affiliate of Borrower and
is not a supplier to Borrower and the account is not otherwise exposed to risk
of set-off; (f) not more than thirty percent of the original invoices owing
Borrower by the account debtor are more than ninety days from the date of the
original invoice. Eligible Leases. Eligible Leases shall be defined as leases
aged one hundred eighty (180) days or less and on which payment is thirty (30)
days or less past due, as evidenced by a monthly Borrowing Base Certificate and
Aging Summary for leases. Leases with a term exceeding thirty-six (36) months
are considered
Page 4
<PAGE>
ineligible leases unless preapproved by the Bank. Senior Debt/EBITDA. Beginning
December 31, 1996, and measured quarterly thereafter, Senior Debt at quarter end
shall not exceed 2.50 times EBITDA for the most recent twelve (12) month period.
Limitation on debt. Borrower shall not create, assume or become liable for any
debt, except for purchase money security interests. Loans and Advances. Borrower
shall not make loans or advances, excepting ordinary course of business travel
and expense advances, to any person or entity, which total more than $50,000.00
in the aggregate.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules, a report on Form 10-K, an inventory report and a budget for the
coming year; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be examined by an independent certified public accountant
acceptable to Bank. The opinion of such independent certified public accountant
shall not be acceptable to Bank if qualified due to any limitations in scope
imposed by Borrower or its Subsidiaries, if any. Any other qualification of the
opinion by the accountant shall render the acceptability of the financial
statements subject to Bank's approval.
MONTHLY FINANCIAL INFORMATION. Borrower shall deliver to the Bank, monthly, a
Borrowing Base Certificate, Summary Aging Reports and Aging Summary for Leases,
which Certificate and Reports shall be due by the fifteenth (15th) of the
following month.
QUARTERLY FINANCIAL INFORMATION. Borrower shall deliver to the Bank, quarterly,
a Covenant Compliance Certificate, certified by the Comptroller, and Accounts
Receivable Detailed Aged Trial Balance, both of which shall be due by the
fifteenth (15th) of the month following the end of the quarter. The Borrower
shall deliver to the Bank its reports on Form 10-Q, which shall be due within
fifteen (15) days of its filing.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Borrower's
financial condition. Such information shall be true, complete, and accurate.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default shall operate as a waiver of
any other Default or the same Default on a future occasion. Neither the failure
nor any delay on the part of Bank in exercising any right, power, or remedy
under this Note and other Loan Documents shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any Borrower or any person
liable under this Note or other Loan Documents, all without notice to or consent
of any Borrower or any person who may be liable under this Note or other Loan
Documents and without affecting the liability of Borrower or any person who may
be liable under this Note or other Loan Documents.
Page 5
<PAGE>
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. Borrower shall not assign its rights and interest
hereunder without the prior written consent of Bank, and any attempt by Borrower
to assign without Bank's prior written consent is null and void. Any assignment
shall not release Borrower from the Obligations. Applicable Law; Conflict
Between Documents. This Note and other Loan Documents shall be governed by and
construed under the laws of the State of Florida without regard to that state's
conflict of laws principles. If the terms of this Note should conflict with the
terms of the loan agreement or any commitment letter that survives closing, the
terms of this Note shall control. Jurisdiction. Borrower irrevocably agrees to
non-exclusive personal jurisdiction in the State of Florida. Severability. If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. Notices. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address at 410 Central Avenue, St. Petersburg,
Florida 33701 or such other address as Bank may specify in writing from time to
time. In the event that Borrower changes Borrower's address at any time prior
to the date the Obligations are paid in full, Borrower agrees to promptly give
written notice of said change of address by registered or certified mail, return
receipt requested, all charges prepaid. Plural; Captions. All references in the
Loan Documents to Borrower, guarantor, person, document or other nouns of
reference mean both the singular and plural form, as the case may be, and the
term "person" shall mean any individual, person or entity. The captions
contained in the Loan Documents are inserted for convenience only and shall not
affect the meaning or interpretation of the Loan Documents. Binding Contract.
Borrower by execution of and Bank by acceptance of this Note agree that each
party is bound to all terms and provisions of this Note. Advances. Bank in its
sole discretion may make other advances and readvances under this Note pursuant
hereto. Posting of Payments. All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day. Joint and Several
Obligations. Each Borrower is jointly and severally obligated under this Note.
Fees and Taxes. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq. of the
-------
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed
Page 6
<PAGE>
attorney. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
DELIVERY AND ACCEPTANCE. This Note was executed, delivered and accepted between
the Borrower and the Bank at Atlanta, Georgia
----------------------------------------------------
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
TECHFORCE CORPORATION
Taxpayer Identification Number:
CORPORATE By: /s/ Jerrel W. Kee
SEAL --------------------------------------
, President
TECHFORCE UK LIMITED
Taxpayer Identification Number:
CORPORATE By: /s/ Mark Henderson
SEAL --------------------------------------
, President
Page 7
<PAGE>
10.2(6)
[FIRST UNION LOGO
APPEARS HERE]
SECURITY AGREEMENT
September 23, 1996
TECHFORCE CORPORATION
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620 Tax I.D. Number 58-2082077______________
TECHFORCE UK LIMITED
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620
(Individually and collectively "Debtor")
First Union National Bank of Florida
Post Office Box 740502
Atlanta, Georgia 30374-0502
(Hereinafter referred to as the "Bank")
For value received and to secure payment and performance of the
Promissory Note executed by the Debtor dated Sept 23, 1996, in the original
principal amount of $15,000,000.00, payable to Bank, and any extensions,
renewals, modifications or novations thereof (the "Note"), this Security
Agreement and the other Loan Documents, and any other obligations of Debtor to
Bank however created, arising or evidenced, whether direct or indirect, absolute
or contingent, now existing or hereafter arising or acquired, including swap
agreements (as defined in 11 U.S.C. (S) 101), future advances, and all costs and
expenses incurred by Bank to obtain, preserve, perfect and enforce the security
interest granted herein and to maintain, preserve and collect the property
subject to the security interest (collectively, "Obligations"), Debtor hereby
grants to Bank a continuing security interest in and lien upon the following
described property, now owned or hereafter acquired, any additions, accessions,
or substitutions thereof and thereto, and all proceeds and products thereof,
including cash or non-cash dividends (collectively, "Collateral"):
All Accounts, Chattel Paper, Contracts, Contract Rights, Documents,
General Intangibles, Goods, Leasehold Improvements, Instruments, Deposit
Accounts, Equipment, Fixtures, Inventory, all as generally defined in the
Uniform Commercial Code, of the State of Florida, and all other assets of the
Debtor, of whatever nature or kind and wherever located, including, but not
limited to, furniture, furnishings, patents, trademarks, licenses (including
licenses on patents and trademarks), rights as seller of Goods and rights to
return or repossess Goods, partnership interests or joint ventures and all
records pertaining to the Collateral. Notwithstanding the foregoing, Collateral
does not and shall not include any Discounted Leases or the equipment which is
the subject of such Discounted Leases.
Debtor hereby represents and agrees that from the date of this
Agreement until final payment in full of the obligations:
1. OWNERSHIP.
----------
Debtor owns the Collateral or, if the advance is used to acquire
Collateral, Debtor will purchase and acquire rights in the Collateral within ten
(10) days of the date advances are made under the Note. If Collateral is being
acquired with the proceeds of an advance under the Note, Debtor authorizes Bank
to disburse proceeds directly to the seller of the Collateral. The Collateral
is free and clear of all liens, security interests, and claims except the
Permitted Lens , and Debtor will keep the Collateral free and clear from all
liens, security interests and claims, other than those granted to Bank and
except for the Permitted Liens.
44
<PAGE>
2. NAME AND OFFICES.
-----------------
There has been no change in the name of Debtor, or the name under
which Debtor conducts business, within the five (5) years preceding the date of
execution of this Security Agreement and Debtor has not moved its executive
offices or residence within the five (5) years preceding the date of execution
of this Security Agreement except as previously reported in writing to Bank.
The taxpayer identification number of Debtor as provided herein is correct.
3. TITLE/TAXES.
------------
Debtor has good and marketable title to Collateral, except for minor
imperfections in title of non-material amounts and except as otherwise disclosed
to Bank by Debtor in writing, and will warrant and defend same against all
materially adverse claims. Debtor will not transfer, sell, or lease Collateral
(except in the ordinary course of business which shall include the sale or lease
of obsolete equipment and the exchange of equipment and inventory). Debtor
agrees to pay promptly all taxes and assessments upon or for the use of
Collateral and on this Security Agreement. At its option, and upon prior written
notice to Borrower, Bank may discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on Collateral, except to the extent
Borrower notifies Bank that it is in good faith contesting any such encumbrance
and the encumbrance does not pose a threat to the Collateral. Debtor agrees to
reimburse Bank, on demand, for any such payment made by Bank. Any amounts so
paid and not reimbursed shall be added to the Obligations.
4. WAIVERS.
--------
Debtor waives presentment, demand, protest, notice of dishonor,
notice of default, demand for payment, notice of intention to accelerate
maturity, and notice of acceleration of maturity, notice of sale and all other
notices of any kind (except as specifically required herein). Debtor further
agrees not to assert against Bank as a defense (legal or equitable), as a set-
off, as a counterclaim, or otherwise, any claims Debtor may have against any
seller or lessor that provided personal property or services relating to any
part of the Collateral. In the event of a default which is not timely cured,
Debtor waives any and all rights to notice or to hearing prior to Bank's taking
immediate possession or control of any Collateral, and to any bond or security
which might be required by applicable law prior to the exercise of any of Bank's
remedies against any Collateral.
5. EXTENSIONS, RELEASES.
---------------------
Debtor agrees that Bank may extend, renew or modify any of the
Obligations and grant any releases, compromises or indulgences with respect to
any security for the Obligations, or with respect to any party liable for the
Obligations, all without notice to or consent of Debtor and without affecting
the liability of Debtor or the enforceability of this Security Agreement.
6. NOTIFICATIONS OF CHANGE.
------------------------
Debtor will notify Bank in writing at least thirty (30) days prior to
any change in: (a) Debtor's chief place of business; (b) Debtor's name or
identity; or (c) Debtor's corporate structure. Debtor will keep Collateral at
the location(s) previously provided to Bank until such time as Bank provides
written advance consent to a change of location, provided, however, that this
provision shall not apply to Collateral which is inventory, which is transported
in the normal course of business, vehicles or other assets or items of
Collateral which are not customarily fixed at or in a single location. Debtor
will bear the cost of preparing and filing any documents necessary to protect
Bank's liens.
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<PAGE>
7. COLLATERAL CONDITION AND LAWFUL USE.
------------------------------------
Debtor represents that Collateral is in good repair and condition and
that Debtor shall use reasonable care to prevent Collateral from being
materially damaged or depreciating, except as allowed by ordinary wear and tear.
Debtor shall immediately notify Bank of any material loss or damage to
Collateral. Debtor shall not permit any item of Collateral to become a fixture
to real estate or an accession to other personal property, except as required in
the ordinary course of Debtor's business. Debtor represents it is in compliance
in all material respects with all federal, state local laws, and, where
applicable, laws and regulations of any foreign jurisdiction, and rules and
regulations applicable to its properties, Collateral, operations, business, and
finances, including, without limitation, any federal or state laws relating to
liquor (including 18 U.S.C. (S) 3617, et seq.) or narcotics (including 21 U.S.C.
-------
(S) 801, et seq.) and all applicable federal, state, local laws, and, where
-------
applicable, laws and regulations of any foreign jurisdiction and regulations
intended to protect the environment.
8. RISK OF LOSS AND INSURANCE.
---------------------------
Debtor shall bear all risk of loss with respect to the Collateral.
The injury to or loss of Collateral, either partial or total, shall not release
Debtor from payment or other performance hereof. Debtor agrees to obtain and
keep in force casualty and hazard insurance on Collateral naming Bank as loss
payee. Such insurance is to be in form and amounts satisfactory to Bank. All
such policies shall provide to Bank a minimum of thirty (30) days written notice
of cancellation. Debtor shall furnish to Bank such policies, or other evidence
of such policies satisfactory to Bank. Bank is authorized, but not obligated,
to purchase any or all insurance or "Single Interest Insurance" protecting such
interest as Bank deems appropriate against such risks and for such coverage and
for such amounts, including either the loan amount or value of the Collateral at
its discretion, all at Debtor's expense. In such event, Debtor agrees to
reimburse Bank for the cost of such insurance and Bank may add such cost to the
Obligations. Debtor shall bear the risk of loss to the extent of any deficiency
in the effective insurance coverage with respect to loss or damage to any of the
Collateral. Debtor hereby assigns to Bank the proceeds of all such insurance
and directs any insurer to make payments directly to Bank. Debtor hereby
appoints Bank its attorney-in-fact, which appointment shall be irrevocable and
coupled with an interest for so long as the Obligations are unpaid, to file
proof of loss and/or any other forms required to collect from any insurer any
amount due from any damage or destruction of Collateral, to agree to and bind
Debtor as to the amount of said recovery, to designate payee(s) of such
recovery, to grant releases to insurer, to grant subrogation rights to any
insurer, and to endorse any settlement check or draft. Debtor agrees not to
exercise any of the foregoing powers granted to Bank without the Bank's prior
written consent, which consent shall not be unreasonably withheld.
9. FINANCING STATEMENTS.
---------------------
No Financing Statement (other than any filed by Bank or disclosed as a
Permitted Lien ) covering any of Collateral or proceeds thereof is on file in
any public filing office. This Security Agreement, or a copy thereof, or any
Financing Statement executed hereunder may be recorded. On request of Bank,
Debtor will execute one or more Financing Statements in form satisfactory to
Bank and will pay all costs and expenses of filing the same or of filing this
Security Agreement in all public filing offices, where filing is deemed by Bank
to be desirable. Bank is authorized to file Financing Statements relating to
Collateral without Debtor's signature where authorized by law. Debtor appoints
Bank as its attorney-in-fact to execute such documents necessary to accomplish
perfection of Bank's security interest. The appointment is coupled with an
interest and shall be irrevocable as long as any Obligations remain outstanding.
Debtor further agrees to take such other actions as might be requested for the
perfection, continuation and assignment, in whole or in part,
Page 3
<PAGE>
of the security interests granted herein. If certificates are issued or
outstanding as to any of the Collateral, Debtor will cause the security
interests of Bank to be properly protected, including perfection of notation
thereon.
10. DEBENTURE.
----------
Debtor, TECHFORCE UK LIMITED, has executed a Debenture in favor of
the Bank for the purpose of giving a first lien right in favor of the Bank
over all assets of the Debtor, TECHFORCE UK LIMITED, located in the United
Kingdom. Such Debenture, where appropriate, and all of the terms of said
Debenture are herein incorporated by reference and made a part hereof.
11. LANDLORD/MORTGAGEE WAIVERS.
---------------------------
Debtor shall cause each mortgagee of real property owned by Debtor
and each landlord of real property leased by Debtor to execute and deliver
instruments satisfactory in form and substance to Bank by which such mortgagee
or landlord waives its rights, if any, in the Collateral.
12. STOCK, DIVIDENDS.
-----------------
If, with respect to any security pledged hereunder, a stock dividend
is declared, any stock split made or right to subscribe is issued, all the
certificates for the shares representing such stock dividend, stock split or
right to subscribe will be immediately delivered, duly endorsed, to the Bank as
additional collateral, and any cash or non-cash dividend will be immediately
delivered to Bank.
13. CONTRACTS, CHATTEL PAPER, ACCOUNTS, GENERAL INTANGIBLES.
--------------------------------------------------------
Debtor warrants that, to the best of its knowledge, the Collateral
consisting of contract rights, chattel paper, accounts, or general intangibles
is (a) genuine and enforceable in accordance with its terms except as limited by
law; (b) not subject to any defense, set-off, claim or counterclaim of a
material nature against Debtor except as to which Debtor has notified Bank in
writing; and (c) not subject to any other circumstances that would materially
impair the validity, enforceability or amount of such Collateral except as to
which Debtor has notified Bank in writing. Except in the ordinary course of
business, Debtor shall not amend, modify or supplement any lease, contract or
agreement contained in the Collateral or waive any provision therein, without
prior written consent of Bank.
14. ACCOUNT INFORMATION.
--------------------
From time to time, at the Bank's reasonable request, Debtor shall
provide Bank with schedules describing all accounts and contracts, including
customers' addresses, credited or acquired by Debtor and at the Bank's request
shall execute and deliver written assignments of contracts and other documents
evidencing such accounts and contracts to Bank. Together with each schedule,
Debtor shall, if requested by Bank, furnish Bank with copies of Debtor's sales
journals, invoices, customer purchase orders or the equivalent, and original
shipping or delivery receipts for all goods sold, and Debtor warrants the
genuineness thereof. Bank shall hold all such information in confidence and
shall not disclose same to any third party, except as may be required by state
or federal law or regulation and upon order of court.
15. ACCOUNT AND CONTRACT DEBTORS.
-----------------------------
In the event of a default which is not timely cured, Bank shall have
the right to notify the account and contract debtors obligated on any or all of
the Collateral to make payment thereof directly to Bank and Bank may take
control of all proceeds of any such Collateral, which rights Bank may exercise
at any time. The cost of such collection and enforcement, including attorneys'
fees
Page 4
<PAGE>
and expenses, shall be borne solely by Debtor whether the same is incurred
by Bank or Debtor. Upon demand of Bank, Debtor will, upon receipt of all
checks, drafts, cash and other remittances in payment on Collateral, deposit the
same in a special bank account maintained with Bank, over which Bank also has
the power of withdrawal.
If a Default occurs, no discount, credit, or allowance shall be
granted by Debtor to any account or contract debtor and no return of merchandise
shall be accepted by Debtor without Bank's consent, except as provided by
contract with Debtor's customers or in the Debtor's ordinary course of business.
Bank may, after Default, settle or adjust disputes and claims directly with
account and contract debtors for amounts and upon terms that Bank considers
advisable, and in such cases, Bank will credit the Obligations with the net
amounts received by Bank, after deducting all of the expenses incurred by Bank.
Debtor agrees to indemnify and defend Bank and hold it harmless with respect to
any claim or proceeding arising out of any matter related to collection of the
Collateral.
16. GOVERNMENT CONTRACTS.
---------------------
If any accounts receivable or proceeds of inventory covered hereby
arises from obligations due to Debtor from any governmental unit or
organization, Debtor shall immediately notify Bank in writing and execute all
documents and take all actions reasonably demanded by Bank to ensure recognition
by such governmental unit or organization of the rights of Bank in the
Collateral.
17. INVENTORY.
----------
So long as no Default has occurred, Debtor shall have the right in
the regular course of business, to process and sell Debtor's inventory. In the
event of a default which is not timely cured and upon demand of Bank, Debtor
will, upon receipt of all checks, drafts, cash and other remittances, in payment
of Collateral sold, deposit the same in a special bank account maintained with
Bank, over which Bank also has the power of withdrawal. Debtor shall be in
material compliance with all federal, state, and local laws, regulations,
rulings, and orders applicable to Debtor or its assets or business, in all
respects. Without limiting the generality of the previous sentence, Debtor shall
materially comply with all requirements of the federal Fair Labor Standards Act
in the conduct of its business and the production of inventory. Debtor shall
notify Bank immediately of any known violation by Debtor of the Fair Labor
Standards Act, and a failure of Debtor to so notify Bank shall constitute a
continuing representation that all inventory then existing has been produced in
compliance with the Fair Labor Standards Act.
18. INSTRUMENTS, CHATTEL PAPER.
---------------------------
Any Collateral that is instruments, chattel paper and negotiable
documents and requires perfection of a security interest by possession will be
properly assigned to, deposited with and held by Bank, unless Bank shall
hereafter otherwise direct or consent in writing. Bank may, without notice,
before or after maturity of the Obligations, exercise any or all rights of
collection, conversion, or exchange and other similar rights, privileges and
options pertaining to the Collateral, but shall have no duty to do so.
19. COLLATERAL DUTIES.
--------------------
Bank shall have no custodial or ministerial duties to perform with
respect to Collateral pledged except as set forth herein; and by way or
explanation and not by way of limitation, Bank shall incur no liability for any
of the following: (a) loss or depreciation of the Collateral (unless caused by
its willful misconduct), (b) its failure to present any paper for payment or
protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral, or (c) its failure to present or surrender
for redemption, conversion or exchange any bond, stock,
Page 5
<PAGE>
paper or other security whether in connection with any merger, consolidation,
recapitalization, or reorganization, arising out of the refunding of the
original security, or for any other reason, or its failure to notify any party
hereto that the Collateral should be so presented or surrendered.
20. TRANSFER OF COLLATERAL.
-----------------------
The Bank may assign its rights in the Collateral or any part thereof,
to the assignee, as well as any subsequent holder hereof, who shall thereupon
become vested with all the powers and rights herein given to the Bank with
respect to the property so transferred and delivered, and the Bank shall
thereafter be forever relieved and fully discharged from any liability with
respect to such property so transferred, but with respect to any property not so
transferred the Bank shall retain all rights and powers hereby given.
21. SUBSTITUTE COLLATERAL.
----------------------
With prior written consent of Bank, other Collateral may be
substituted for the original Collateral herein in which event all rights,
duties, obligations, remedies and security interests provided for, created or
granted shall apply fully to such substitute Collateral.
22. INSPECTION, BOOKS AND RECORDS.
------------------------------
Debtor will at all times keep materially accurate and complete
records covering each item of Collateral, including the proceeds therefrom.
Bank, or any of its agents, shall have the right, at intervals to be determined
by Bank, upon reasonable prior notice and without hindrance or delay, to
inspect, audit, and examine the Collateral and to make extracts from the books,
records, journals, orders, receipts, correspondence and other data relating to
the Collateral, Debtor's business or any other transaction between the parties
hereto. Debtor will at its expense furnish Bank copies thereof upon request.
Bank shall hold all such information in confidence and shall not disclose the
same to any third party except as may be required by state or federal law or
regulation.
23. ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION.
----------------------------------------------
Debtor shall pay all of Bank's reasonable expenses incurred in
enforcing this Security Agreement and in preserving and liquidating the
Collateral, including but not limited to, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any trial, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
24. DEFAULT.
--------
If any of the following occurs, a default ("Default") under this
Security Agreement shall exist:
(a) Nonpayment. The failure of timely payment of the Obligations
-----------
under the Note or any other Loan Document.
(b) False Warranty. A warranty or representation made in the Loan
---------------
Documents or furnished Bank in connection with the loan evidenced by the Loan
Documents proves materially false, or if of a continuing nature, becomes
materially false and such materially false warranty or representation is not
cured within thirty (30) days following written notice by the Bank to the
Borrower.
(c) Cross Default. At Bank's option, any default in payment or
--------------
performance of any obligation under any other loans, contracts or agreements of
Debtor or any Subsidiary of Debtor,
Page 6
<PAGE>
any general partner of or the holder(s) of the majority ownership interests of
Debtor with Bank ( "Subsidiary" shall mean any corporation of which more than
50% of the issued and outstanding voting stock is owned directly or indirectly
by Debtor), which default is not timely cured and as a result of such default an
acceleration occurs, shall constitute a default of the terms and conditions of
the Obligations of the Debtor to the Bank under the Note, Security Agreement and
other Loan Documents. Likewise, any default in the terms and conditions of the
Note which is the subject of this loan, this Security Agreement or any of the
Loan Documents, which default is not timely cured and as a result of such
default an acceleration occurs, shall be and constitute a default under the
terms and conditions of any other obligation owed by the Debtor to the Bank.
(d) Bankruptcy. If the Debtor shall file a petition in voluntary
-----------
bankruptcy or under any bankruptcy act or similar law, state or federal, whether
now or hereafter existing, or an answer admitting insolvency or inability to pay
its debts, or if Debtor fails to obtain a vacation or stay of involuntary
proceedings within sixty (60) days of the filing of such involuntary
proceeding.the same shall constitute an immediate default,
(e) Cessation. The dissolution of, termination of existence of,
----------
loss of good standing by or against the Debtor, or its Subsidiaries, if any, or
any general partner of the holders of the majority ownership interests of
Debtor, or any party to the Loan Documents.
(f) Material Capital Structure or Business Alteration. Without
--------------------------------------------------
prior written consent of Bank, (i) a material alteration in the kind or type of
Debtor's business or that of its Subsidiaries , if any; (ii) the acquisition of
substantially all of Debtor's or any Subsidiary's business or assets, or a
material portion (10% or more) of such business or assets if such a sale is
outside Debtor's or any Subsidiary's ordinary course of business, or more than
50% of its outstanding stock or voting power in a single transaction or a series
of transactions; (iii) except for Acquisitions of $3,000,000.00 or less, the
acquisition of substantially all of the business or assets or more than fifty
percent (50%) of the outstanding stock or voting power of any other entity; or
(iv) except where the Acquisition is for $3,000,000.00 or less, should any
Debtor or Subsidiary enter into any merger or consolidation.
(g) Non-monetary Defaults. If default in the due observerance or
----------------------
performance of non-monetary covenants, agreements or conditions heretofore or
hereafter contained, required to be kept or performed or observed by the Debtor
in the Note, the Security Agreement, the Loan Agreement or any other Loan
Document or any other instrument executed concurrently with or in connection
with the Note, the Security Agreement, the Loan Agreement or other Loan
Documents, and the same shall not be cured within thirty (30) days after written
notice thereof by the Bank to the Debtor. If such non-monetary cure cannot be
reasonably expected to occur within said thirty (30) day period, the same shall
not be considered a Default so long as the Debtor immediately and within the
thirty (30) day period, commences cure and diligently pursues said cure to
completion and, during such time, the Collateral of the Bank is not impaired and
the Borrower's ability to repay the Obligations has not been impaired.
(h) Loss, Theft, etc. Any loss, theft, substantial damage or
-----------------
destruction of the Collateral not fully covered by insurance, or as to which
insurance proceeds are not remitted to Bank within thirty (30) days of loss, and
which creates a material impairment of Debtor's operations or the ability of
Debtor to repay the Obligations under the Loan Documents; any sale (except the
sale of inventory in the ordinary course of business), lease or encumbrance of
the Collateral without the prior written consent of the Bank, except for
Permitted Liens; or the making of any levy, seizure or attachment on or of the
Collateral which is not removed within ten (10) days following such levy,
seizure or attachment;
(i) Receiver. The appointment of a receiver for, assignment for
---------
the benefit of creditors of the Debtor or any of its Subsidiaries, if any, or
any party to the Loan Documents.
Page 7
<PAGE>
25. REMEDIES ON DEFAULT (INCLUDING POWER OF SALE).
----------------------------------------------
If a Default occurs in the Note, Security Agreement, Loan Agreement
or any Loan Document which is not timely cured, all of the Obligations shall be
deemed accelerated and immediately due and payable without notice and Bank may,
at any time thereafter, take the following actions and shall have all of the
following rights and remedies:
(a) Possession. To take immediate possession of the Collateral,
-----------
without notice or resort to legal process, and for such purpose, to enter upon
any premises on which the Collateral or any part thereof may be situated and to
remove the same therefrom, or, at its option, to render the Collateral unusable
or dispose of said Collateral on Debtor's premises.
(b) Assemble. To require Debtor to assemble the Collateral and
---------
make it available to Bank at a place to be designated by Bank.
(c) Setoff. To exercise its right of set-off or bank lien as to
-------
any monies of Debtor deposited in demand, checking, time, savings, certificate
of deposit or other accounts of any nature maintained by Debtor with Bank or
Affiliates of Bank, without advance notice, regardless of whether such accounts
are general or special.
(d) Dispose of Collateral. To dispose of Collateral, as a unit
----------------------
or in parcels, separately or with any real property interests also securing the
Obligations, in any county or place to be selected by Bank, at either private or
public sale (at which public sale bank may be the purchaser) with or without
having the Collateral physically present at said sale.
(e) Notice. Any notice of sale, disposition or other action by
-------
Bank required by law and sent to Debtor at Debtor's address shown above, or at
such other address of Debtor as may from time to time be shown on the records of
Bank, at least five (5) days prior to such action, shall constitute reasonable
notice to Debtor. Notice shall be deemed given or sent when mailed postage
prepaid to Debtor's address as provided herein. The Bank, without any obligation
to do so, shall endeavor to give Notice to the Debtor of Bank's exercise of its
remedies under this Agreement. A failure to give such Notice shall not
constitute a default hereunder by the Bank, nor shall it impair, prohibit, or
preclude the Bank from enforcing any or all of its right under the Loan
Documents.
(f) Application of Proceeds. Bank shall be entitled to apply the
------------------------
proceeds of any sale or other disposition of the Collateral, and the payments
received by Bank with respect to any of the Collateral, to the Obligations in
such order and manner as Bank may determine.
(g) Decline of Collateral. Collateral that is subject to rapid
----------------------
declines in value and is customarily sold in recognized markets may be disposed
of by Bank in a recognized market for such collateral without providing notice
of sale.
(h) UCC. Bank shall have all rights and remedies of a Secured
----
Party under the Uniform Commercial Code.
(i) Cumulative. Bank shall be entitled to exercise any rights
- ----------- -----------
ans remedies as provided in the Loan Documents or so provided by law or equity.
26. REMEDIES ARE CUMULATIVE.
------------------------
No failure on the part of Bank to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Bank of any right, power or
remedy hereunder preclude any other or further exercise thereof or the
Page 8
<PAGE>
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
27. MISCELLANEOUS.
--------------
(a) Amendments and Waivers. No waivers, amendments or modifica-
-----------------------
tions of any provision of the Note, Security Agreement, Loan Agreement or any
Loan Documents shall be valid unless in writing and signed by an officer of Bank
and the Borrower. No waiver by Bank of any Default shall operate as a waiver of
any other Default or of the same Default on a future occasion. Neither the
failure of, nor any delay by, Bank in exercising any right, power or privilege
granted pursuant to any Loan Document shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege.
(b) Assignment. All rights of Bank hereunder are freely assign-
-----------
able, in whole or in part, and shall inure to the benefit of and be enforceable
by Bank, its successors, assigns and affiliates. The Bank, without any
obligation to do so, shall endeavor to give notice to the Debtor of any intended
assignment of the Note, Security Agreement, Loan Agreement or any of the Loan
Documents. A failure to give such notice shall not constitute a default
hereunder by the Bank nor shall it impair, prohibit or preclude the Bank from
enforcing any or all of its rights and remedies under the Loan Documents. Debtor
shall not assign its rights and interest hereunder without the prior written
consent of Bank, and any attempt by Debtor to assign without Bank's prior
written consent is null and void. Any assignment shall not release Debtor from
the Obligations. This Security Agreement shall be binding upon Debtor, and the
heirs, personal representatives, successors, and assigns of Debtor.
(c) Applicable Law; Conflict Between Documents. The Note,
-------------------------------------------
Security Agreement, Loan Agreement and all Loan Documents shall be governed by
and construed under the laws of the State of Florida without regard to that
state's conflict of laws principles. If any terms of the Loan Documents conflict
with the terms of any commitment letter or loan proposal, the terms of the Loan
Documents shall control.
(d) Jurisdiction. Debtor irrevocably agrees to non-exclusive
-------------
personal jurisdiction in the State of Florida.
(e) Severability. If any provision of any Loan Document shall be
-------------
prohibited by or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of the
Loan Documents.
(f) Notices. Any notices to Debtor shall be sufficiently given,
--------
if in writing and mailed or delivered to the address of Debtor shown above or
such other address as provided hereunder; and to Bank, if in writing and mailed
or delivered to Bank's office address at 410 Central Avenue, St. Petersburg,
Florida 33701, or such other address as Bank may specify in writing from time to
time. In the event that the Debtor changes Debtor's address at any time prior to
the date this Note is paid in full, Debtor agrees to promptly give written
notice of said change of address by registered or certified mail, return receipt
requested, all charges prepaid.
(g) Plural; Captions. All references in the Loan Documents to
-----------------
Borrower, guarantor, person, document or other nouns of reference mean both the
singular and plural form, as the case may be, and the term "person" shall mean
any individual, person or entity. The captions contained in the Loan Documents
are inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents.
Page 9
<PAGE>
(h) Loan Documents. The term "Loan Documents" refers to all
---------------
documents executed in connection with the Loan and may include, without
limitation, a commitment letter or loan proposal that survive the closing, a
loan agreement, the Note, this Security Agreement, the security instruments,
financing statements, debentures, letters of credit, and any renewals,
modificaitons, amendments or supplements (excluding swap agreements as defined
in 11 U.S.C. (S) 101).
(i) Joint and Several Obligations. Each Borrower is jointly and
------------------------------
severally obligated under this Security Agreement and the other Loan Documents.
(j) Binding Contract. Debtor by execution and Bank by acceptance
-----------------
of this Security Agreement, agree that each party is bound by all terms and
provisions of this Security Agreement.
(k) Time is of the Essence. Time shall be of the essence.
-----------------------
(l) Capitalized Terms. Capitalized terms used herein and not
------------------
otherwise defined shall have the meaning assigned to said terms in the Loan
Agreement.
28. ARBITRATION.
------------
Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Security Agreement and the
other Loan Documents ("Disputes") between or among parties to this Security
Agreement shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, disputes as to whether a matter is subject to
arbitration, claims brought as class actions, claims arising from Loan Documents
executed in the future, or claims arising out of or connected with the
transaction reflected by this Security Agreement.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
--
seq. of the Arbitration Rules shall be applicable to claims of less than
- ----
$1,000,000.00. All applicable statutes of limitation shall apply to any Dispute.
A judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
29. PRESERVATION AND LIMITATION OF REMEDIES.
----------------------------------------
Notwithstanding the preceding binding arbitration provisions, Bank
and Debtor agree to preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely, independently or in connection with
an arbitration proceeding or after an arbitration action is brought. Bank and
Debtor shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable:
(a) all rights to foreclose against any real or personal property or
other security by exercising a power of sale granted under Loan Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale;
Page 10
<PAGE>
(b) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property;
(c) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and
(d) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Debtor and Bank agree that they shall not have a remedy of punitive
or exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
30. DELIVERY AND ACCEPTANCE.
------------------------
This Security Agreement was executed, delivered and accepted between
the Debtor and the Bank at Hunton & Williams, The NationsBank Plaza, Suite
4100, 600 Peachtree Street N.E., Atlanta, Georgia.
IN WITNESS WHEREOF, Debtor, on the day and year first written above,
has caused this Agreement to be executed under seal.
TECHFORCE CORPORATION
Taxpayer Identification Number: 58-2082077
CORPORATE By: ________________________________________
SEAL JERREL W. KEE, Senior Vice President
Page 11
<PAGE>
EXECUTED as a Deed and Delivered by
the Company pursuant to a resolution of
its board of directors dated [ } by:-
"The Common Seal of )
TECHFORCE UK LIMITED )
was hereto affixed )
in the presence of: )
Director ________________________________
(Signature)
________________________________
(Print name of person signing)
Secretary _________________________________
(Signature)
________________________________
(Print name of person signing)
Page 12
<PAGE>
10.2(a)
[FIRST UNION LOGO APPEARS HERE]
LOAN AGREEMENT
First Union National Bank of Florida
Post Office Box 740502
Atlanta, Georgia 30374-0502
(Hereinafter referred to as the "Bank")
TECHFORCE CORPORATION
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620
TECHFORCE UK LIMITED
15950 Bay Vista Drive, Suite 340
Clearwater, Florida 34620
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into September 23rd, 1996, by
and between Bank and Borrower, corporations organized under the laws of the
State of Georgia and the United Kingdom, respectively.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") which is evidenced by one or more promissory notes
(whether one or more, the "Note") as follows:
Line of Credit - in the principal amount of $15,000,000.00 which is
evidenced by the Promissory Note dated September 23rd, 1996 ("Note"), under
which Borrower may borrow, repay, and reborrow, from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the principal
amount. The Loan proceeds are to be used by Borrower solely for working capital
support, with a sublimit of $3,000,000.00 for equipment lease financing, and the
Borrower shall have the option to utilize availability under the Line of Credit
to finance Acquisitions based on the terms, conditions and limitations as
hereinafter set forth. Bank's obligation to advance or readvance under the Note
shall terminate if Borrower is in Default under the Note or any Loan Document.
This Agreement applies to the Loan and all Loan Documents herein.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower upon
the terms and subject to the conditions set forth herein, and Bank and Borrower
agree as follows:
1. REPRESENTATIONS.
----------------
Borrower represents that from the date of this Agreement and until final
payment in full of the Obligations:
(a) Accurate Information. All information now and hereafter furnished to
---------------------
Bank is and will be true, correct and complete in all material respects.
Provided, concerning any information delivered to Bank by Borrower, which
information was created or otherwise generated by a third person for the benefit
of Borrower or Bank, Borrower makes no representation as to the accuracy or
correctness of such information. Any such information relating to Borrower's
financial condition will accurately reflect Borrower's financial condition as of
the date(s) thereof, (including all
22
<PAGE>
contingent liabilities of every type) in all material respects, and Borrower
further represents that its financial condition has not had a material adverse
change since the date(s) of such documents.
(b) Authorization; Non-Contravention. The execution, delivery and
---------------------------------
performance by Borrower and any guarantor, as applicable, of this Agreement and
other Loan Documents to which it is a party are within its power, have been duly
authorized by all necessary action taken by the duly authorized officers of
Borrower and, if necessary, by making appropriate filings with any governmental
agency or unit and are the legal, binding, valid and enforceable obligations of
Borrower; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower, or a default under
any agreement, judgment, injunction, order, decree or other instrument binding
upon or affecting Borrower or any guarantor, (ii) result in the creation or
imposition of any lien (other than the lien(s) created by the Loan Documents) on
any of Borrower's assets, or (iii) give cause for the acceleration of any
obligations of Borrower to any other creditor. The foregoing representation is
subject to and limited by applicable bankruptcy, insolvency and other similar
law affecting creditors' rights.
(c) Asset Ownership. Borrower has good and marketable title to, or a valid
----------------
and subsisting leasehold interest in, all of the properties and assets reflected
on the balance sheets and financial statements supplied Bank by Borrower, and
all such properties and assets are free and clear of mortgages, security deeds,
pledges, liens, charges, and all other encumbrances, except for minor
imperfections in title of non-material amounts and except as otherwise disclosed
to Bank by Borrower in writing and shown on Schedule "A" attached hereto
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen.
(d) Discharge of Liens and Taxes. Borrower has duly filed, paid and/or
-----------------------------
discharged all taxes except that, as of the date hereof, the tax return for the
State of Georgia has not been processed or other claims which may become a lien
(other than a Permitted Lien) on any of its property or assets, except to the
extent that such items are not yet due and payable or are being appropriately
contested in good faith and an adequate reserve for the payment thereof is being
maintained.
(e) Sufficiency of Capital. Borrower is not, and after consummation of
-----------------------
this Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with the Loan, will not be, insolvent within
the meaning of 11 U.S.C. (S) 101(32).
(f) Compliance with Laws. Borrower is in compliance in all material
---------------------
respects with all federal, state and local laws, and, where applicable, foreign
jurisdictions, rules and regulations applicable to its properties, operations,
business, and finances, including, without limitation, any federal or state laws
relating to liquor (including 18 U.S.C. (S) 3617, et seq.) or narcotics
(including 21 U.S.C.(S) 801, et seq.) and/or any commercial crimes; all
applicable federal, state and local laws and, where applicable, foreign
jurisdictions, and regulations intended to protect the environment; and the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if
applicable.
(g) Organization and Authority. Borrower is duly organized, validly
---------------------------
existing and in good standing under the laws of the state or country of its
organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted.
Borrower is duly qualified, licensed and in good standing in each jurisdiction
where qualification or licensing is required by the nature of its business or
the character and location of its property, business or customers, and in which
the failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of Borrower.
Page 2
<PAGE>
(h) No Litigation. There are no pending or threatened suits, claims or
--------------
demands against Borrower or any guarantor that have not been disclosed to Bank
by Borrower in writing and which are shown on Schedule "B" attached hereto.
(i) Regulation U. None of the proceeds of the Loan made pursuant to this
-------------
Agreement shall be used directly or indirectly for the purpose of purchasing or
carrying any margin stock in violation of any of the provisions of Regulation U
of the Board of Governors of the Federal Reserve System ("Regulation U"), or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry margin stock or for any other purchase which might
render the Loan a "Purpose Credit" within the meaning of Regulation U.
(j) ERISA. Each employee pension benefit plan, as defined in ERISA,
------
maintained by Borrower meets, as of the date hereof, the minimum funding
standards of ERISA and all applicable regulations thereto and requirements
thereof, and of the Internal Revenue Code of 1954, as amended. No "Prohibited
Transaction" or "Reportable Event" (as both terms are defined by ERISA) has
occurred with respect to any such plan.
(k) Name and Offices. Borrower has had no change in the name under which
-----------------
the Borrower conducts business in the five years preceding the date of execution
of this Agreement and Borrower has not moved its executive offices or place of
business within the five years preceding the date of execution of this
Agreement, except as set forth on Schedule "C" attached hereto. The Borrower's
chief place of business and executive offices are located as is set forth on
Schedule "D" attached hereto.
(l) Landlords and Mortgagees. Borrower has current lease agreements
-------------------------
and/or mortgages outstanding, wherein the landlord and/or the mortgagee may have
certain rights in the Collateral, said landlords and mortgagees being set forth
and described on Schedule "E" attached hereto.
2. AFFIRMATIVE COVENANTS.
----------------------
Borrower agrees that from the date of this Agreement and until final
payment in full of the Obligations, unless Bank shall otherwise consent in
writing, Borrower will:
(a) Business Continuity. Conduct its business in substantially the same
--------------------
manner and locations as such business is now and has previously been conducted.
(b) Maintain Properties. Maintain, preserve and keep its property in good
--------------------
repair, working order and condition, making all needed replacements, additions
and improvements thereto, to the extent allowed by this Agreement.
(c) Access to Books & Records. Allow Bank, or its agents, during normal
--------------------------
business hours and after giving reasonable notice to the Borrower, access to the
books, records and such other documents of Borrower as Bank shall reasonably
require, and allow Bank to make copies thereof at Bank's expense.
(d) Insurance. Maintain adequate insurance coverage with respect to its
----------
properties and business against loss or damage of the kinds and in the amounts
customarily insured against by companies of established reputation engaged in
the same or similar businesses as the Borrower including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. Companies deemed acceptable to Bank
shall be companies which shall be licensed to do business within the State of
Florida and who shall be financially sound and reputable insurors. Borrower
shall deliver copies of such policies to the Bank
Page 3
<PAGE>
with satisfactory bank's loss payable endorsements, naming Bank as an additional
insured and loss payee. Each such endorsement shall include a New York standard
or other mortgagee clause acceptable to Bank. Each policy of insurance or
endorsement shall contain a clause requiring the insuror to give not less than
thirty (30) days prior written notice to Bank in the event of cancellation of
the policy for any reason whatsoever and a clause that the interest of the Bank
shall not be impaired or invalidated by any act or neglect of Borrower or any
owner of the Collateral nor by the occupation of the premises for purposes more
hazardous than are permitted by the policy. The Borrower agrees to furnish Bank,
promptly as rendered, true copies of all reports with respect to property
insurance claims in excess of $50,000.00 made in any reporting forms to
insurance companies.
(e) Notice of Default and Other Notices.
------------------------------------
(i) Notice of Default. Furnish to Bank immediately upon becoming
----------------------
aware of the existence of any condition or event which constitutes a Default (as
defined in the Loan Documents) or any event which, upon the giving of notice or
lapse of time or both, may become a Default, written notice specifying the
nature and period of existence thereof and the action which Borrower is taking
or proposes to take with respect thereto.
(ii) Other Notices. Promptly notify Bank in writing of
-------------------
(1) any material adverse change in its financial condition or its
business;
(2) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any material indebtedness owing by
Borrower;
(3) any material adverse claim against or affecting Borrower or any
part of its properties;
(4) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower, which, if resolved or determined adversely to the
Borrower, may have a materially adverse effect upon Borrower's financial
condition; and
(5) at least thirty (30) days prior thereto or as soon as possible if
such notice cannot reasonably be given thirty (30) days prior thereto, any
change in Borrower's name or address as shown above, and/or any change in
Borrower's structure or change of Borrower's chief place of business or any
executive office.
(f) Compliance with Other Agreements. Comply with all terms and conditions
---------------------------------
contained in this Agreement, and any other Loan Documents, and swap agreements,
if applicable, as defined in the Note.
(g) Payment of Debts. Pay and discharge when due, and before subject to
-----------------
penalty or further charge, and otherwise satisfy before maturity or delinquency,
all obligations, debts, taxes, and liabilities of whatever nature or amount
which would have a material adverse effect on the Collateral, business or
profits of Borrower, except those which Borrower in good faith disputes.
(h) Reports and Proxies. Deliver to Bank, promptly, a copy of all
--------------------
financial statements, financial reports, notices, and proxy statements, sent by
Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority.
Page 4
<PAGE>
(i) Other Financial Information. Deliver promptly to Bank such other
----------------------------
information regarding the operation, business affairs, and financial condition
of Borrower which Bank may reasonably request.
(j) Non-Default Certificate From Borrower. Deliver to Bank, with the
--------------------------------------
Financial Statements required herein, a certificate signed by Borrower by a
principal financial officer of Borrower warranting to the best of such officer's
knowledge that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred.
(k) Estoppel Certificate. Furnish, within (fifteen) 15 days after request
---------------------
by Bank, a written statement duly acknowledged of the amount due under the Loan
and whether, to the best of Borrower's knowledge, offsets or defenses exist
against the Obligations
(l) Deposit Relationship. Maintain its primary depository accounts and
---------------------
cash management accounts with Bank.
3. NEGATIVE COVENANTS.
-------------------
Borrower agrees that from the date of this Agreement and until final
payment in full of the Obligations, unless Bank shall otherwise consent in
writing, Borrower will not:
(a) Default on Other Contracts or Obligations. Default on any material
------------------------------------------
contract with or obligation when due to a third party or default in the
performance of any material obligation to a third party incurred for money
borrowed in an amount in excess of $50,000.00, except to the extent that such
obligations or amounts are being appropriately contested in good faith with
adequate reserves for the payment thereof being maintained.
(b) Judgment Entered. Permit the entry of any monetary judgment or the
-----------------
assessment against, the filing of any tax lien against, or the issuance of any
writ of garnishment or attachment against any property of or debts due Borrower
in an amount in excess of $50,000.00 and that is not discharged or execution is
not stayed within thirty (30) days of entry.
(c) Loans and Advances. Except for inter-Borrower loans, Borrower shall
-------------------
not make loans or advances, excepting ordinary course of business travel and
expense advances, to any person or entity which total more than $50,000.00 in
the aggregate.
(d) Government Intervention. Permit the assertion or making of any
------------------------
seizure, vesting or intervention by or under authority of any government by
which the management of Borrower or any guarantor is displaced of its authority
in the conduct of its respective business or such business is curtailed or
materially impaired.
(e) Prepayment of Other Debt. Retire any long-term debt entered into prior
-------------------------
to the date of this Agreement at a date in advance of its legal obligation to do
so, except as such prepayment may result in substantial savings to Borrower or
otherwise be in Borrower's best interest while resulting in no impairment of
Borrower's ability to pay all obligations to Bank as the same shall become due.
(f) Retire or Repurchase Capital Stock. Retire or otherwise acquire any of
-----------------------------------
its capital stock, except as such retirement or repurchase does not materially
impair Borrower's ability to pay its obligations to the Bank as the same shall
become due.
(g) Change in Fiscal Year. Change its fiscal year without the consent of
----------------------
Bank.
Page 5
<PAGE>
(h) Encumbrances. Create, assume, or permit to exist any mortgage,
-------------
security deed, deed of trust, pledge, lien, charge or other encumbrance on any
of its assets, whether now owned or hereafter acquired, other than the following
"Permitted Liens":
(i) security interests required by the Loan Documents;
(ii) liens for taxes contested in good faith;
(iii) liens accruing by law for employee benefits; or
(iv) those encumbrances listed on Schedule A.
(i) Investments. Purchase any stock, securities, or evidence of
------------
indebtedness of any other person or entity except investments in direct
obligations of the United States Government and certificates of deposit of
United States commercial banks having a tier 1 capital ratio of not less than
six percent (6%) and then in an amount not exceeding ten percent (10%) of the
issuing bank's unimpaired capital and surplus.
4. FINANCIAL COVENANTS.
--------------------
Borrower, on a consolidated basis, agrees to the following provisions from
the date of this Agreement and until final payment in full of the Obligations,
unless Bank shall otherwise consent in writing:
(a) Limitation on Debt. Borrower shall not, directly or indirectly,
-------------------
create, incur, assume or become liable for additional debt, contingent or
direct, if, giving effect to such additional debt on a pro forma basis, causes
the aggregate amount of Borrower's debt, including obligations to Bank, to
exceed $25,000.00, except for the following:
(i) Loans made between the Borrower and the Bank pursuant to this
Loan;
(ii) Purchase money security interests;
(iii) Payables in the ordinary course of business;
(iv) Capitalized leases (included in Senior Debt);
(v) Intercompany debt between the Borrowers;
(vi) Balances existing as of the date of this Loan and as are reduced
over time with creditors AT&T Paradyne, Union Chelsea National Bank, United
American Bank and Seaman's Credit Corporation.
(b) Senior Debt/EBITDA. Beginning December 31, 1996, and measured
-------------------
quarterly thereafter, Senior Debt at quarter end shall not exceed 2.50 times
EBITDA for the most recent twelve (12) month period, consistent with GAAP.
Page 6
<PAGE>
5. ANNUAL FINANCIAL STATEMENTS.
----------------------------
Borrower shall deliver to Bank, within one hundred five (105) days after
the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules, a copy of its report on Form 10-K, an inventory report and a budget
for the coming year; all on a consolidated and consolidating basis and in
reasonable detail, prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year. All
such statements shall be examined by an independent certified public accountant
acceptable to Bank. Bank acknowledges the acceptance of Arthur Anderson,
L.L.P., as an accountant acceptable to the Bank. The opinion of such
independent certified public accountant shall not be acceptable to Bank if
qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval.
6. PERIODIC FINANCIAL STATEMENTS.
------------------------------
Borrower shall deliver to the Bank, monthly, a Borrowing Base Certificate,
Summary Aging Reports and the Aging Summary for Leases, which Certificate and
Reports shall be due by the fifteenth (15th) of the following month.
Borrower shall deliver to the Bank, quarterly, a Covenant Compliance
Certificate, certified by the Comptroller, and Accounts Receivable Detailed Aged
Trial Balance, both of which shall be due by the fifteenth (15th) of the month
following the end of the quarter. The Borrower shall deliver to the Bank a copy
of its reports on a Form 10-Q, which shall be due within fifteen (15) days of
its filing.
7. FINANCIAL AND OTHER INFORMATION.
--------------------------------
Borrower shall deliver to Bank such information as Bank may reasonably
request from time to time, including without limitation, financial statements
and information pertaining to Borrower's financial condition. Such information
shall be true, complete, and accurate, in all material respects, provided,
however, that Borrower makes no representation as to the accuracy or correctness
of any information delivered to the Bank by Borrower which information was
created or otherwise generated by a third person for the benefit of Bank.
8. BORROWING BASE.
---------------
As to the Note in the principal amount of $15,000,000.00, the following
provisions shall apply:
(a) Working Capital Advances. The maximum amount outstanding under the
-------------------------
revolving credit facility shall be the lesser of 85% of (1) Eligible Accounts
Receivable plus ninety percent (90%) of the net present value of Eligible Leases
(capped in the aggregate at $3,000,000.00) or (ii) $15,000,000.00.
Eligible Accounts Receivable shall be defined as all accounts receivable
not more than ninety (90) days from the date of the original invoice that arise
in the ordinary course of Borrower's business and meets the following
eligibility requirements: (i) the sale of goods or services reflected in such
account is final and such goods and services have been delivered or provided and
accepted by the account debtor and payment for such is owing; (ii) the invoices
comprising an account are not subject to any claims, returns or disputes of any
kind; (iii) the account debtor is not insolvent;
Page 7
<PAGE>
(iv) the account debtor has its principal place of business in the United States
(excepting Canadian accounts, UK account and accounts backed by letters of
credit); (v) the account debtor is not an affiliate of Borrower and is not a
supplier to Borrower and the account is not otherwise exposed to risk of set-
off; (vi) not more than fifty percent (50%) of the original invoices owing
Borrower by the account debtor are more than ninety (90) days from the date of
the original invoice, and (vii) are evidenced by a monthly Borrowing Base
Certificate and Accounts Receivable Aging Summary. AT&T Contra accounts and
foreign accounts (excepting Canadian accounts, UK accounts and accounts backed
by letters of credit) are considered ineligible accounts.
Eligible Leases shall be defined as leases aged one hundred eighty (180)
days or less and which payment is thirty (30) days or less past due, as
evidenced by a monthly Borrowing Base Certificate and Aging Summary for Leases.
Leases with a term exceeding thirty-six (36) months are considered ineligible
leases unless preapproved by the Bank.
(b) Acquisition Sublimit. There shall be a two (2) year availability with
---------------------
advances taken during the two year period amortized up to five (5) years from
the date of advancement. Exact amortization and amount of financing of each
advance to be based upon the type of Acquisition and determined at the time of
the advance. Bank reserves the option to review any Acquisition in excess of
$3,000,000.00 prior to funding, regardless of whether funded under the working
capital or Acquisition portion of the credit facility. Acquisitions with a per
transaction cost of $3,000,000.00 or less may be made without Bank approval so
long as borrowing base availability is sufficient (independent of the assets
being acquired), no term-out of the corresponding draw is being requested and
the resulting post-acquisition financial condition allows for compliance with
financial covenants. So long as the foregoing parameters are met, there is no
limit on aggregate Acquisitions draws less than $3,000,000.00. Collateral
shall include an interest in assets acquired. The variable interest rate set
forth in the Note shall also apply for this sublimit. Upon Borrower's request,
fixed rate options will be provided at time of funding, based upon prevailing
market rates. NOTE: A prepayment penalty may apply if a fixed interest rate is
-----
selected.
(c) Required Reports. Borrower shall certify to Bank by the tenth (10th)
-----------------
day of each month, the information set forth on the Borrowing Base and Covenant
Compliance Certificate for TECHFORCE CORPORATION and subsidiaries in a form and
content attached as Schedule "F" hereto, together with all detail and supporting
documents requested by Bank. Bank may at any time and from time to time, during
Borrower's normal business hours and upon reasonable notice, enter upon any
business premises of Borrower and audit Borrower's accounts. Bank's
determination of the amount of Eligible Accounts Receivable and Eligible Leases
shall at all times be indisputable and deemed correct. The Borrower, at all
times, shall cooperate with Bank without limitation by providing Bank
information and access to Borrower's premises and business records and shall be
courteous to Bank's agents.
9. CONDITIONS PRECEDENT.
---------------------
The obligations of Bank to make the Loan and any advances pursuant to this
Agreement are subject to the following conditions precedent:
(a) Additional Documents. Receipt by Bank of such additional supporting
---------------------
documents as Bank or its counsel may reasonably request.
_____(b) No Default. All of the terms, conditions, covenants and payments
-----------
required by the Borrower pursuant to the Note and Loan Documents are current and
not in Default.
Page 8
<PAGE>
10. DEFAULT
-------
If any of the following occurs, a default ("Default") under the Note,
Security Agreement, this Agreement and the Loan Documents shall exist:
(a) Nonpayment. The failure of timely payment of the Obligations under the
-----------
Note or any other Loan Document.
(b) False Warranty. A warranty or representation made in the Loan
---------------
Documents or furnished Bank in connection with the loan evidenced by the Loan
Documents proves materially false, or if of a continuing nature, becomes
materially false and such materially false warranty or representation is not
cured within thirty (30) days following written notice by the Bank to the
Borrower.
(c) Cross Default. At Bank's option, any default in payment or performance
--------------
of any obligation under any other loans, contracts or agreements of Borrower or
any Subsidiary of Borrower with Bank , which default is not timely cured and as
a result of such default an acceleration occurs, shall constitute a Default of
the terms and conditions of the obligations of the Borrower to the Bank under
the Note, Security Agreement and other Loan Documents. Likewise, any Default in
the terms and conditions of the Note which is the subject of this loan, the
Security Agreement or any of the Loan Documents, which default is not timely
cured and as a result of such Default an acceleration occurs, shall be and
constitute a Default under the terms and conditions of any other obligation owed
by the Borrower to the Bank.
(d) Bankruptcy. If the Borrower shall file a petition in voluntary
-----------
bankruptcy or under any bankruptcy act or similar law, state or federal, whether
now or hereafter existing, or an answer admitting insolvency or inability to pay
its debts, or if Borrower fails to obtain a vacation or stay of involuntary
proceedings within sixty (60) days of the filing of such involuntary proceeding,
the same shall constitute an immediate default.
(e) Cessation. The dissolution of, termination of existence of, loss of
----------
good standing by or against the Borrower, or its subsidiaries, if any, or any
general partner of the holders of the majority ownership interests of Borrower,
or any party to the Loan Documents.
(f) Material Capital Structure or Business Alteration. Without prior
--------------------------------------------------
written consent of Bank, (i) a material alteration in the kind or type of
Borrower's business or that of its Subsidiaries , if any; (ii) the acquisition
of substantially all of Borrower's or any Subsidiary's business or assets, or a
material portion (10% or more) of such business or assets if such a sale is
outside Borrower's or any Subsidiary's ordinary course of business, or more than
fifty percent (50%) of its outstanding stock or voting power in a single
transaction or a series of transactions; (iii) except for Acquisitions of
$3,000,000.00 or less, the acquisition of substantially all of the business or
assets or more than fifty percent (50%) of the outstanding stock or voting power
of any other entity; or (iv) except where the Acquisition is for $3,000,000.00
or less, should any Borrower or Subsidiary enter into any merger or
consolidation.
(g) Non-monetary Defaults. If default in the due observerance or
----------------------
performance of non-monetary covenants, agreements or conditions heretofore or
hereafter contained, required to be kept or performed or observed by the
Borrower in the Note, the Security Agreement, this Agreement or any other Loan
Document or any other instrument executed concurrently with or in connection
with the Note, the Security Agreement, this Agreement or the other Loan
Documents, and the same shall not be cured within thirty (30) days after written
notice thereof by the Bank to the Borrower. If such cure cannot be reasonably
expected to occur within said thirty (30) day period, the same shall not be
considered a Default so long as the Borrower immediately and within
Page 9
<PAGE>
the thirty (30) day period, commences cure and diligently pursues said cure to
completion and, during such time, the Collateral of the Bank is not impaired and
the Borrower's ability to repay the Obligations has not been impaired.
(h) Loss, Theft, etc. Any loss, theft, substantial damage or destruction
-----------------
of the Collateral not fully covered by insurance, or as to which insurance
proceeds are not remitted to Bank within thirty (30) days of loss, and which
creates a material impairment of Borrower's operations or the ability of
Borrower to repay the Obligations under the Loan Documents; any sale (except the
sale of inventory in the ordinary course of business), lease or encumbrance of
the Collateral without the prior written consent of the Bank, except for
Permitted Liens; or the making of any levy, seizure or attachment on or of the
Collateral which is not removed within ten (10) days following such levy,
seizure or attachment.
(i) Receiver. The appointment of a receiver for, assignment for the
---------
benefit of creditors of the Borrower or any of its Subsidiaries, if any.
11. REMEDIES UPON DEFAULT
---------------------
If a Default occurs in the Note, Security Agreement, this Agreement or any
Loan Document which is not timely cured, all of the Obligations shall be deemed
accelerated and immediately due and payable without notice and Bank may, at any
time thereafter, take the following actions and shall have all of the following
rights and remedies:
(a) Possession. To take immediate possession of the Collateral, without
-----------
notice or resort to legal process, and for such purpose, to enter upon any
premises on which the Collateral or any part thereof may be situated and to
remove the same therefrom, or, at its option, to render the Collateral unusable
or dispose of said Collateral on Borrower's premises.
(b) Assemble. To require Borrower to assemble the Collateral and make it
---------
available to Bank at a place to be designated by Bank.
(c) Setoff. To exercise its right of set-off or bank lien as to any monies
-------
of Borrower deposited in demand, checking, time, savings, certificate of deposit
or other accounts of any nature maintained by Borrower with Bank or Affiliates
of Bank, without advance notice, regardless of whether such accounts are general
or special.
(d) Dispose of Collateral. To dispose of Collateral, as a unit or in
----------------------
parcels, separately or with any real property interests also securing the
Obligations, in any county or place to be selected by Bank, at either private or
public sale (at which public sale bank may be the purchaser) with or without
having the Collateral physically present at said sale.
(e) Notice. Any notice of sale, disposition or other action by Bank
-------
required by law and sent to Borrower at Borrower's address shown above, or at
such other address of Borrower as may from time to time be shown on the records
of Bank, at least five (5) days prior to such action, shall constitute
reasonable notice to Borrower. Notice shall be deemed given or sent when mailed
postage prepaid to Borrower's address as provided herein. The Bank, without any
obligation to do so, shall endeavor to give such Notice to the Borrower of
Bank's exercise of its remedies under this Agreement. A failure to give such
Notice shall not constitute a default hereunder by the Bank, nor shall it
impair, prohibit, or preclude the Bank from enforcing any or all of its rights
under this Loan Agreement.
Page 10
<PAGE>
(f) Application of Proceeds. Bank shall be entitled to apply the proceeds
------------------------
of any sale or other disposition of the Collateral, and the payments received by
Bank with respect to any of the Collateral, to the Obligations in such order and
manner as Bank may determine.
(g) Decline of Collateral. Collateral that is subject to rapid declines in
----------------------
value and is customarily sold in recognized markets may be disposed of by Bank
in a recognized market for such collateral without providing notice of sale.
(h) UCC. Bank shall have all rights and remedies of a Secured Party under
----
the Uniform Commercial Code.
_____(i) Cumulative. Bank shall be entitled to exercise any rights and
-----------
remedies as provided in the Loan Documents or so provided by law or equity.
12. REMEDIES ARE CUMULATIVE
-----------------------
No failure on the part of Bank to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by Bank of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any right,
power or remdy. The remedies herein provided are cumulative and are not
exclusive of any remedies provided by law, in equity or in other Loan Documents.
13. MISCELLANEOUS PROVISIONS.
-------------------------
(a) Amendments and Waivers. No waivers, amendments or modifications of
-----------------------
any provision of the Note, Security Agreement, Loan Agreement or any Loan
Documents shall be valid unless in writing and signed by an officer of Bank and
the Borrower. No waiver by Bank of any Default shall operate as a waiver of any
other Default or of the same Default on a future occasion. Neither the failure
of, nor any delay by, Bank in exercising any right, power or privilege granted
pursuant to any Loan Document shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
other right, power or privilege.
(b) Assignment. The Note and other Loan Documents shall inure to the
-----------
benefit of and be binding upon the parties and their respective heirs, legal
representatives, successors and assigns. Bank's interests in and rights under
the Note and other Loan Documents are freely assignable, in whole or in part, by
Bank. The Bank, without any obligation to do so, shall endeavor to give notice
to the Borrower of any intended assignment of the Note, Security Agreement, this
Agreement or any of the Loan Documents. A failure to give such notice shall not
constitute a default hereunder by the Bank nor shall it impair, prohibit or
preclude the Bank from enforcing any or all of its rights and remedies under the
Loan Documents. Borrower shall not assign its rights and interest hereunder
without the prior written consent of Bank, and any attempt by Borrower to assign
without Bank's prior written consent is null and void. Any assignment shall not
release Borrower from the Obligations.
(c) Applicable Law; Conflict Between Documents. The Note and other Loan
-------------------------------------------
Documents shall be governed by and construed under the laws of the State of
Florida without regard to that state's conflict of laws principles. If the terms
of the Note should conflict with the terms of this Loan Agreement or any
commitment letter that survives closing, the terms of the Note shall control.
(d) Jurisdiction. Borrower irrevocably agrees to non-exclusive personal
-------------
jurisdiction in the State of Florida.
Page 11
<PAGE>
(e) Severability. If any provision of the Note or of the other Loan
-------------
Documents shall be prohibited or invalid under applicable law, such provision
shall be ineffective but only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of the Note or other such document.
(f) Notices. Any notices to Borrower shall be sufficiently given,
--------
if in writing and mailed or delivered to the Borrower's address shown above or
such other address as provided hereunder, and to Bank, if in writing and mailed
or delivered to Bank's office address at 410 Central Avenue, St. Petersburg,
Florida 33701 or such other address as Bank may specify in writing from time to
time. In the event that Borrower changes Borrower's address at any time prior to
the date the Obligations are paid in full, Borrower agrees to promptly give
written notice of said change of address by registered or certified mail, return
receipt requested, all charges prepaid.
(g) Plural; Captions. All references in the Loan Documents to
-----------------
Borrower, guarantor, person, document or other nouns of reference mean both the
singular and plural form, as the case may be, and the term "person" shall mean
any individual, person or entity. The captions contained in the Loan Documents
are inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents.
(h) Binding Contract. Borrower by execution of this Agreement and
-----------------
Bank acceptance of the Note agree that each party is bound to all terms and
provisions of the Note and this Agreement.
(i) Advances. Bank in its sole discretion may make other advances and
---------
readvances under the terms of the Note and this Agreement.
(j) Posting of Payments. All payments received during normal banking
--------------------
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day.
(k) Joint and Several Obligations. Each Borrower is jointly and
------------------------------
severally obligated under this Agreement and the other Loan Documents.
(l) Fees and Taxes. Borrower shall promptly pay all documentary,
---------------
intangible recordation and/or similar taxes on this transaction whether assessed
at closing or arising from time to time.
(m) Time is of the Essence. As for each payment or performance
-----------------------
hereunder time shall be of the essence.
(n) Schedules. The following schedules attached to this Agreement are
----------
incorporated herein by reference:
(i) Schedule A - Permitted Liens.
(ii) Schedule B - Pending or Threatened Suits, Claims or
Demands.
(iii) Schedule C - Change of Name and Offices.
(iv) Schedule D - Chief Place of Business and Executive Offices.
(v) Schedule E - Landlords and Mortgagees.
(vi) Schedule F - Borrowing Base and Covenant Compliance
Certificate.
Page 12
<PAGE>
14. BASIS FOR REPRESENTATIONS AND DELIVERY OF INFORMATION
-----------------------------------------------------
The Note and Loan Documents provide that the Borrower shall from time to
time deliver to the Bank certain information, reports, representations,
certifications and warranties. For purposes of such performance in favor of the
Bank and to establish the threshold of the knowledge or notice that the Borrower
may have when making such presentation or deliveries, the Borrower shall be
deemed to have notice of a fact when (a) Borrower has actual knowledge of it; or
(b) Borrower has received a notice or notification of it; or (c) from all of the
facts or circumstances known to the Borrower at the time in question, the
Borrower has reason to know that it exists.
The Borrower shall be deemed to "know" or to have "knowledge" of a fact
when the Borrower has actual knowledge of it. "Discover" or "learn" or a word
or phrase of similar import refers to knowledge rather than to reason to know.
The time and circumstances under which a notice or notification may cease to be
effective are not determined by the Uniform Commercial Code of Florida. All
other terms shall be as defined in the Uniform Commerical Code of the State of
Florida.
15. DEFINITIONS
-----------
When used herein, or in any other Loan Document, the following terms
shall have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
(a) Acquisitions shall mean the Borrower's acquiring, by purchase of
------------
assets, stock, merger or consolidation, all or a substantial portion of the
assets of a third person or entity, which is not a Subsidiary or Affiliate of
the Borrower.
(b) Affiliate shall have the meaning as defined in 11 U.S.C. Section
---------
101, except that the term "Debtor" shall be substituted by the term "Borrower"
herein.
(c) Bank shall mean First Union National Bank of Florida, its
----
succesors and assigns.
- --------
(d) Borrower shall mean Techforce Corporation, a Georgia corporation,
--------
and Techforce UK Limited, jointly and severally.
(e) CD-based rate shall mean the domestic certificate of deposit
-------------
rate, more specifically "CD rate" and is the rate (rounded to the next higher
1/100th of one percent) for U.S. Dollar certificates of deposits of that many
months maturity as published in the Federal Reserves H.15 under the caption "CDs
(Secondary Market)" for the first New York business day of the relevant capital
Interest Period (or if not so reported, then as determined by the Bank from
another recognized source or interbank quotation), adjusted for reserves by
dividing that rate by 1.00 minus the CD Reserve. "CD Reserve" is the maximum
percentage reserve requirement (rounded to the next higher 1/100th of one
percent and expressed as a decimal) of the Federal Reserve Board for non-
personal time deposits of that maturity and in an amount of $100,000.00 or more.
(f) Collateral shall mean all Accounts, Chattel Paper, Contracts,
----------
Contract Rights, Documents, General Intangibles, Goods, Leasehold Improvements,
Instruments, Deposit Accounts, Equipment, Fixtures, Inventory, all as generally
defined in the Uniform Commercial Code, of the State of Florida, and all other
assets of the Debtor, of whatever nature or kind and wherever located,
including, but not limited to, furniture, furnishings, patents, trademarks,
licenses (including licenses on patents and trademarks), rights as seller of
Goods and rights to return or repossess Goods, partnership interests or joint
ventures and all records pertaining to the Collateral, now owned or hereafter
acquired and all products and proceeds of any of the Collateral described above
Page 13
<PAGE>
in any form, and all proceeds of such Collateral, any additions, accessions or
substitutions thereof and thereto. Notwithstanding the foregoing, Collateral
does not and shall not include any Discounted Leases or the equipment which is
the subject of such Discounted Leases.
(g) Discounted Leases shall mean a lease of equipment where the
-----------------
Borrower is the Lessor and the Borrower's customer is the Lessee.
(h) EBITDA shall mean earnings before interest, taxes, depreciation
------
and amortization in accordance with GAAP.
(i) GAAP shall mean generally accepted accounting principles in the
----
United States of America in effect from time to time, applied on a consistent
basis.
(j) Loan Documents shall mean all documents executed in connection
--------------
with the Loan evidenced by the Note and may include, without limitation, a
commitment letter or loan proposal that survives closing, a loan agreement, the
note, the security agreement, the security instruments, financing statements,
debentures, mortgage instruments, letters of credit and any renewals or
modifications, amendments or supplements (excluding swap agreements as defined
in 11 U.S.C. Section 101).
(k) Obligations shall mean any and all indebtedness and other obliga-
-----------
tions under the Note, all other obligations as defined in the respective Loan
Documents and all obligations under any swap agreements as defined in 11 U.S.C.
Section 101 between Borrower and Bank whenever executed.
(l) Permitted Liens shall mean (i) liens at any time granted in favor
---------------
of Bank; (ii) liens for taxes (excluding any lien imposed pursuant to any of the
provisions of ERISA) not yet due or being contested as permitted by Paragraph
1(d) hereof, but only if in Bank's reasonable judgment such lien does not affect
adversely and materially Bank's rights or the priority of Bank's liens in the
Collateral; (iii) liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons for labor,
materials, supplies or rentals incurred in the ordinary course of the Borrower's
business, but only if the payment thereof is not at the time required (or if
payment is required, only if and for so long as the validity and amount of the
claims secured thereby are being actively contested in good faith and by
appropriate lawful proceedings and such liens do not, in the aggregate
materially detract from the value of the Collateral of the Borrower or
materially impair the use thereof in the operation of the Borrower's business)
and only if such liens are junior to the liens in favor of the Bank; (iv) liens
incurred or deposits made in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, social security and other like
laws; (v) attachment, judgment and other similar non-tax liens arising in
connection with court proceedings, but only if and for so long as the execution
or other enforcement of such liens is and continues to be effectively stayed or
bonded on appeal in a manner satisfactory to the Bank for the full amount
thereof, the validity and amount of the claims secured thereby are being
actively contested in good faith and by appropriate lawful proceedings and such
liens do not, in the aggregate, materially detract from the value of the
Collateral of the Borrower or materially impair the use thereof in the operation
of the Borrower's business; (vi) purchase money security liens not otherwise
inconsistent with the terms of this Agreement; (vii) reservations, exceptions,
easements, rights of way, and other similar encumbrances affecting real
property, provided that in Bank's reasonable judgment, they do not in the
aggregate materially detract from the value of said properties or materially
interfere with their use in the ordinary course of the Borrower's business and,
if said real property constitutes Collateral, Bank has consented thereto or were
disclosed pursuant to this Agreement on a schedule hereto; (viii) such other
liens as appear on Schedule A attached hereto; and (ix) such other liens as
Bank may hereafter approve in writing, which approval will not be unreasonably
withheld or delayed.
Page 14
<PAGE>
(m) Senior Debt shall mean all commitment bank debt, outstanding
-----------
letter of credit (if applicable), capitalized leases and any other type of third
party debt not subordinated to Bank, with the exception of trade payables.
(n) Subsidiary shall mean any corporation of which more than fifty
----------
percent (50%) of the issued and outstanding voting stock is owned directly or
indirectly by Borrower.
16. CONFIDENTIALITY
---------------
Bank acknowledges that Borrower is a public company and that information
and disclosures contained in the various reports and financials that Borrower is
required to deliver to Bank will contain material non-public information. Bank
agrees to protect and keep confidential all information provided to Bank by
Borrower, not disclose such information to any third party and shall comply with
all state and federal regulations imposed upon Bank with respect to such
information.
17. DISCOUNTED LEASES
-----------------
It is the intent that Discounted Leases and the equipment which is the
subject of such Discounted Leases not be a part of the Collateral securing this
Loan. Provided, however, should Borrower present a Discounted Lease to Bank as
Collateral for a draw upon the Loan, Bank shall determine on a case by case
basis the amounts to be loaned under the Line of Credit and it shall be
conditioned upon the Bank's underwriting requirements existing at the time of
the request, including but not limited to, acquiring a first security interest
in the Discounted Lease and the equipment which is the subject of such
Discounted Lease.
18. DELIVERY AND ACCEPTANCE.
------------------------
This Loan Agreement was executed, delivered and accepted between the
Borrower and the Bank at Hunton & Williams, The NationsBank Plaza, Suite 4100,
600 Peachtree Street N.E., Atlanta, Georgia.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written
above, have caused this Agreement to be executed under seal.
TECHFORCE CORPORATION
Taxpayer Identification Number:
CORPORATE By: /s/ Jerrel W. Kee
SEAL --------------------------------------
JERREL W. KEE , Senior Vice President
Page 15
<PAGE>
EXECUTED as a Deed and Delivered by
the Company pursuant to a resolution of
its board of directors dated [ } by:-
"The Common Seal of )
TECHFORCE UK LIMITED )
was hereto affixed )
in the presence of: )
Director /s/ Jerrel W. Kee
--------------------------------
(Signature)
Jerrel W. Kee
--------------------------------
(Print name of person signing)
Secretary /s/ Timothy B. Knight
---------------------------------
(Signature)
Timothy B. Knight
--------------------------------
(Print name of person signing)
FIRST UNION NATIONAL BANK OF FLORIDA
/s/ Timothy Coop
---------------------------------------
Timothy Coop, President
Page 16
<PAGE>
SCHEDULE "A"
PERMITTED LIENS
1. Liens created pursuant to that certain Security Agreement dated March 25,
1994, in favor of AT&T Paradayne Corporation.
2. Lien created pursuant to that certain Lease Agreement on certain Discounted
Leases dated November 15, 1995, in favor of Union Chelsea National Bank.
3. Lien created in favor of National Westminster Bank.
4. Lien created pursuant to that certain Master Equipment Lease Agreement dated
July 13, 1994, in favor of Siemens Credit Corporation.
5. Lien created pursuant to that certain Lease Agreement in favor of United
American Bank.
6. Lien created pursuant to that certain Equipment Service Agreement dated
April 16, 1992, in favor of Packard Bell Electronics.
Page 17
<PAGE>
SCHEDULE B
PENDING OR THREATENED SUITS, CLAIMS OR DEMANDS
Borrower has a contract with Adelman Travel Systems, Inc. ("Adelman").
TechForce has terminated the contract because of concerns about Adelman's
performance under the contract and Adelman has alleged that such termination was
not permitted. The parties have already exchanged corresponsence with respect
to this matter but the parties have not reached a resolution. The UCC search
results revealed that Adelman filed a complaint in DuPage County, Wheaton,
Illinois, requesting that the court enter judgment in Adelman's favor for
alleged pecuniary damages in the sum of $50,000.00 and for costs and fees
incurred in any litigation. To date, the Borrower has not been served with, and
has no further knowledge of, any claim, summons or pending litigation with
Adelman or any other third parties.
Page 18
<PAGE>
SCHEDULE "C"
CHANGE OF NAME AND OFFICES
TechForce Corporation was incorporated under the name "International
Services Integrators Corporation". TechForce Corporation filed a Certificate of
Name Change Amendment on March 23, 1994, with the Georgia Secretary of State to
change its name to its present name.
TechForce U.K. Limited was incorporated under the name "Forbram Limited"
in England and Wales on the 15th day of February, 1994. TechForce U.K. Limited
filed a Certificate of Incorporation on Change of Name on February 18, 1994, to
change its name to its present name.
Page 19
<PAGE>
SCHEDULE "D"
CHIEF PLACE OF BUSINESS AND EXECUTIVE OFFICES
747 Church Road 15950 Bay Vista Drive
Suite C-1 Suite 340
Elmhurst, Illinois 60126 Clearwater, Florida 34620
Unit 16 3783 Lamar Street
Headlcy Park Area 10 Memphis, Tennessee 38818
Woodley, Reading
Berks, RGS 4SW
England
The chief place of business was changed by Borrower, TECHFORCE CORPORATION,
to 15950 Bay Vista Drive, Suite 340, Clearwater, Florida 34620, on March
____, 199__.
Page 20
<PAGE>
SCHEDULE "E"
LANDLORDS AND MORTGAGEES
Pinellas Bay Vista Partners, Ltd.
15950 Bay Vista Drive
Clearwater, Florida 34620
Loeb Industries, Inc.
c/o Commerce Center LP
5264 Poplar Avenue
Memphis, Tennessee 38119
Banyon Morgan Milwaukee Limited Partnership
c/o 18W100 100
22nd Street, Suite 128
Oakbrook T errace, Illinois 60181
Page 21
<PAGE>
SCHEDULE F
BORROWING BASE AND COVENANT COMPLIANCE CERTIFICATE
Page 22
<PAGE>
[THIS PAGE IS BLANK]
Page 23
<PAGE>
Exhibit
TECHFORCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 7,905,500 2,845,934 7,905,500 2,845,934
ADD - Shares of common stock assumed issued upon
exercise of stock options using the "treasury stock"
method as it applies to the computation of primary
earnings per share 433,363 504,148 433,363 494,542
ADD - Shares of preferred stock assumed issued upon
the conversion from redeemable convertible preferred
stock upon completion of public offering 0 2,839,566 0 2,839,566
------------------ ------------------ ------------------ ------------------
Number of common and common equivalent shares
outstanding 8,338,863 6,189,648 8,338,863 6,180,042
ADD - Additional shares of common stock assumed
issued upon exercise of stock options using the
"treasury stock" method as it applies to the
computation of fully diluted earnings per share 409,127 0 433,363 15,748
------------------ ------------------ ------------------ ------------------
Number of common and common equivalent shares
outstanding 8,314,627 5,685,500 8,338,863 5,701,248
================== ================== ================== ==================
Net earnings for primary and fully diluted earnings
per share $864,180 $81,000 $1,262,984 $504,995
Earnings per share:
Primary $0.10 $0.01 $0.15 $0.08
Fully diluted $0.10 $0.01 $0.15 $0.08
</TABLE>
58
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECHFORCE
CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996
(in thousands) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,794
<SECURITIES> 3,272
<RECEIVABLES> 12,118
<ALLOWANCES> 861
<INVENTORY> 5,100
<CURRENT-ASSETS> 23,556
<PP&E> 16,168
<DEPRECIATION> 5,745
<TOTAL-ASSETS> 40,934
<CURRENT-LIABILITIES> 12,265
<BONDS> 4,108
0
0
<COMMON> 79
<OTHER-SE> 27,316
<TOTAL-LIABILITY-AND-EQUITY> 40,934
<SALES> 6,444
<TOTAL-REVENUES> 14,934
<CGS> 4,669
<TOTAL-COSTS> 9,805
<OTHER-EXPENSES> 3,670
<LOSS-PROVISION> 861
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 1,388
<INCOME-TAX> (524)
<INCOME-CONTINUING> 864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 864
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
