<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________
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 June 30, 1997
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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
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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 August 11, 1997, there were 8,078,141 shares of the issuer's
common stock outstanding.
<PAGE>
TECHFORCE CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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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
Item 3. Quantitative and Qualitative Disclosures About Market
Risks..................................................... 11
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
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<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,175 $ 3,943
Investments 5,386 2,299
Accounts receivab, net of Allowance for Doubtful Accounts 11,899 12,687
of $425,269 and $845,000 at Jun 30, 1997 and Dec 31, 1996 respectively
Inventories 2,715 4,446
Net Investment in Sales Type Leases (current portion) 3,146 2,438
Prepaid expenses/Other Assets 862 741
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Total current assets 25,183 26,554
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PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements 618 582
Office furniture and fixtures 6,009 4,885
Replacement parts 14,731 11,542
Equipment held for rental 1,068 1,038
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22,426 18,047
Less accumulated depreciation (8,461) (6,736)
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Total property, plant and equipment, net 13,965 11,311
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NET INVESTMENT IN SALES TYPE LEASES 10,710 8,545
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Less current portion
ORGANIZATION COSTS AND OTHER ASSETS 62 73
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Total assets $49,920 $46,483
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,697 $ 2,583
Accrued expenses 2,221 3,259
Accrued contract labor 192 600
Current maturities of obligations under capital leases,
long-term debt and non-recourse notes payable 3,414 2,644
Line of credit - -
Deferred revenue 3,476 2,722
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13,000 11,808
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LONG-TERM DEBT AND OTHER LIABILITIES 1,174 1,725
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NON-RECOURSE NOTES PAYABLE, net of current maturities 5,248 4,455
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STOCKHOLDERS' EQUITY
Common stock 80 80
Additional paid in capital 27,808 27,698
Retained earnings 2,610 717
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30,498 28,495
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Total liabilities and stockholders' deficit $49,920 $46,483
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</TABLE>
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30
-------------------------- ------------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Services $ 8,601 $ 7,260 $18,821 $16,615
Hardware 6,543 6,081 13,984 13,953
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Total revenues 15,144 13,341 32,805 30,568
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Direct costs:
Services 5,752 5,667 12,614 12,039
Hardware 3,926 4,142 9,414 9,814
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Total direct costs 9,678 9,809 22,028 21,853
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Gross Margin:
Services 2,849 1,593 6,207 4,576
Hardware 2,617 1,939 4,570 4,139
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Total gross margin 5,466 3,532 10,777 8,715
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Operating costs
Selling and marketing 2,440 2,553 4,722 4,775
Research and development 297 432 629 884
General and administrative 1,248 1,098 2,395 2,210
Non recurring expense from restructuring 244 244
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3,985 4,327 7,746 8,113
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Operating income 1,481 (795) 3,031 602
Interest expense, net 16 68 57 69
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Income before taxes 1,465 (863) 2,974 533
Provision for income taxes (532) 355 (1,081) (134)
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Net income $ 933 $ (508) $ 1,893 $ 399
============ ========== ============= =============
Net income per common share $0.11 ($0.06) $0.23 $0.05
============ ========== ============= =============
Weighted average common
shares outstanding 8,294,230 7,905,500 8,295,705 8,394,147
============ ========== ============= =============
</TABLE>
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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1997 1996
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,893 $ 399
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,870 1,383
Changes in operating assets and liabilities 3,037 (867)
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Net cash provided by operating activities 6,800 915
Cash Flows from investing activities
Purchase of property and equipment (4,513) (2,355)
Investment in sales-type leases (2,873) (5,756)
(Purchase of) Sale of Investments (3,087) 9,196
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Net cash (used in) provided by investing activities (10,473) 1,085
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Cash flows from financing activities
Issuance (repayment) of long term debt 795 (812)
Issuances of Common Stock, net 110 5
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Net cash (used in) provided by financing activities 905 (807)
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Net (decrease) increase in cash and cash equivalents (2,768) 1,193
Cash and cash equivalents, beginning of period 3,943 565
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Cash and cash equivalents, end of period $ 1,175 $ 1,758
======== ========
</TABLE>
<PAGE>
TECHFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 1997
(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, and support of computer and
data communications networking equipment.
2. BASIS OF FINANCIAL REPORTING
The condensed consolidated financial statements at June 30, 1997 and for
the three month period 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 period. 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, 1996.
3. MAJOR CUSTOMERS
During the quarters ended June 30, 1997, and June 30, 1996, the following
customers individually accounted for more than 10% of the Company's
revenue:
<TABLE>
<CAPTION>
Quarter Ended June 30, 1997 Quarter Ended June 30, 1996
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Amount ($000) Percentage Amount ($000) Percentage
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Packard Bell Electronics, Inc. $2,610 17% $1,768 13%
Federal Express N/A N/A $1,551 11%
</TABLE>
The loss of revenues from Packard Bell could have a severe impact on the
results of the operations of the Company in the near term.
4. LEGAL MATTERS
From time to time, 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 any such matters will not have a material
adverse effect on the Company's financial position at 6/30/97 or results of
operations for the six months then ended.
<PAGE>
5. Certain amounts included in the 1996 financial statements have been
reclassified to conform with the 1997 financial statements.
6. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (EPS). SFAS
128 establishes new standards for computing and presenting EPS.
Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures, and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. Management has determined that the adoption
of SFAS 128 will not have a material effect on the accompanying financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments and related information. SFAS 131
is effective for financial statements relating to periods beginning after
December 15, 1997. The effects of SFAS 131 on the Company have not been
considered at this time.
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 provides network support services focusing on mission critical
technologies such as LAN/WAN internetworking, data networking, mainframe channel
networking and workstation support. The Company's support solutions include
network monitoring services, 7X24 diagnostic and technical support from the
Technology Support Center in Clearwater, Florida, on-site and depot maintenance
(advance equipment replacement), remote and on-site equipment software
installation and network design on complex multi-vendor enterprise networks.
The Company's maintenance contracts with customers range from one to five years.
The Company also sells and leases various data network hardware supplied by
other manufacturers, as well as its own channel extension hardware. Field
service operations are conducted through a combination of the Company's field
support personnel and a network of authorized service providers that are
certified by the Company to provide local on-site repair or parts replacement
services under the direction of the Company's Technical Support Center.
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 Company's PC support agreements. Revenues from product sales are recognized
at the time of shipment. When appropriate, revenues from leasing are accounted
for as sales-type leases where the present value of all payments 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 ended
June 30, 1997 and June 30, 1996, respectively were $3.3 million and $1.9
million. Amortized interest on sales-type leases totaled $0.14 million and
$0.2 million for the three month periods ended June 30, 1997 and June 30, 1996,
respectively.
On April 30, 1997, the Company paid $375,000 for the assets and other
rights related to the SCANmanager remote LAN monitoring operations of UB
Networks located in Atlanta, Georgia. In conjunction with this purchase, the
Company hired the operational and technical employees of UB Networks'
SCANmanager operations and assumed the existing customer obligations. The
Company plans to migrate the customer support center operations of its TechCare
(SM) service offering to Atlanta, Georgia and integrate the SCANmanager service
offerings of UB Networks into its suite of TechCare remote monitoring services.
Management anticipates that revenues from its proprietary channel extension
products and services will gradually decrease over the next few years at a rate
of approximately 10% to 20% per year primarily as a result of a trend toward
open-systems environments. Management does not believe that this gradual
decline in such revenues will have a material adverse effect on the Company's
results of operations and financial condition.
Revenues from Packard Bell increased during the three months ended June 30,
1997 as compared to the same period in 1996 when the Company experienced an
interruption in this business due to disputes over payment issues. Revenues
from Packard Bell represented 17% of total Company revenues for the three months
ended June 30, 1997 as compared to 13% for the three months ended June 30, 1996.
The call volume level for the three months ended June 30, 1997 may not be
indicative of future call volumes due to changes made by Packard Bell in its end
user product warranty.
Packard Bell is invoiced monthly and payment is due 30 days after the
invoice date. The Company typically receives payment from Packard Bell
approximately 60 days after the billing date, which is generally a longer
payment cycle than experienced under the Company's other service contracts. 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.
<PAGE>
Revenues from FedEx decreased during the three and six months ended June
30, 1997 as compared to the same periods in 1996 due to lower repair volumes
resulting from the introduction of upgraded technology by FedEx which
experiences a lower failure rate than the replaced technology. The Company had
previously experienced above-average margins from the repair of the units which
FedEx replaced. Consequently, margins from the remaining repair business from
FedEx decreased significantly as a result of the decreased volume of higher
margin repair services. The Company is currently in discussions with FedEx
regarding how repair services for FedEx will be discontinued by the Company.
Accordingly, revenues and margins from this business for the three and six
months ended June 30, 1997 should not be considered indicative of future
revenues and margins from the Company's repair services.
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
operating results 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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 establishes new standards for computing and presenting EPS.
Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures, and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted.
Management has determined that the adoption of SFAS 128 will not have a material
effect on the accompanying financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments and related information. SFAS 131 is effective
for financial statements relating to periods beginning after December 15, 1997.
The effects of SFAS 131 on the Company have not been considered at this time.
Other issued but not yet required FASB standards are not currently
applicable or material to the Company's operations.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Total revenues. Total revenues increased 13.5% from $13.3 million for the
three months ended June 30, 1996 to $15.1 million for the three months ended
June 30, 1997 due to increased revenues from hardware sales and leasing activity
and increased enterprise network support and PC support revenues offset by a
decrease in service revenues from FedEx.
Service revenues. Revenues from services increased 18.5% from $7.3
million (54.4% of total revenues) for the three months ended June 30, 1996 to
$8.6 million (56.8% of total revenues) for the three months ended June 30, 1997.
This increase was attributable to increased service revenues associated with the
Company's enterprise network support services and increased PC support revenues
offset by a decrease in revenue from services provided to FedEx. Revenues from
enterprise network support services increased by 22.3% while revenues from
Packard Bell increased by 47.6% and revenues from FedEx decreased by 47.3% for
the three months ended June 30, 1997 as compared to revenues from these services
for the three months ended June 30, 1996. Revenues from FedEx decreased due to
lower repair volumes resulting from the introduction of upgraded technology by
FedEx which experiences a lower failure rate than the replaced technology. The
Company had previously experienced above-average margins from the repair of the
units which FedEx replaced. Consequently, margins from the remaining repair
<PAGE>
business from FedEx decreased significantly as a result of the decreased volume
of higher margin repair services. The Company is currently in discussions with
FedEx regarding how repair services for FedEx will be discontinued by the
Company. Accordingly, revenues and margins from this business for the three
months ended June 30, 1997 should not be considered indicative of future
revenues and margins from the Company's repair services. For the three months
ended June 30, 1997 as compared to the same period in 1996, the Company
experienced a decrease in revenues from its proprietary channel extension
support business in line with its previously stated expectations.
Hardware revenues. Revenues from hardware products increased 7.6% from
$6.1 million (45.6% of total revenue) for the three months ended June 30, 1996
to $6.5 million (43.2% of total revenues) for the three months ended June 30,
1997 due to an increase in revenues from the Company's leasing activity.
Hardware revenues included revenues from leasing activities of $1.9 million and
$3.3 million for the three months ended June 30, 1996 and the three months ended
June 30, 1997, respectively.
Cost of Service. Cost of service increased 1.5% from $5.7 million (78.1% of
service revenues) for the three months ended June 30, 1996 to $5.8 million
(66.9% of service revenues) for the three months ended June 30, 1997. This
overall cost of service increase was favorably affected by improvements in PC
support costs and unfavorably affected by the reduction of FedEx business
volumes.
Cost of Hardware. Cost of hardware decreased 5.2% from $4.1 million (68.1%
of hardware revenues) for the three months ended June 30, 1996 to $3.9 million
(60.0% of hardware revenue) for the three months ended June 30, 1997. This
decrease was caused primarily by lower than average costs associated with the
sales of used equipment which yielded higher margins during the three months
ended June 30, 1997.
Gross Margin. Overall gross margin increased 54.8% from $3.5 million,
(26.5% of total revenues), for the three months ended June 30, 1996 to $5.5
million, (36.1% of total revenues) for the three months ended June 30, 1997.
Gross margin on services increased 79.0% from $1.6 million for the three months
ended June 30, 1996 to $2.8 million for the three months ended June 30, 1997,
while increasing as a percent of service revenues from 21.9% to 33.1%
respectively. Gross margin on hardware revenues increased 35.0% from $1.9
million for the three months ended June 30, 1996 to $2.6 million for the three
months ended June 30, 1997. This increase was caused primarily by increased
revenues and margins from sales of used equipment during the three months ended
June 30, 1997. Hardware margins as a percentage of hardware revenues increased
from 31.9% for the three months ended June 30, 1996 to 40.0% for the three
months ended June 30, 1997 primarily as a result of these factors. The Company
has experienced competitive pressure on resale hardware margins and anticipates
continued pressure due to price competition.
Selling and Marketing Expenses. Selling and marketing expenses decreased
4.4% from $2.6 million (19.1% of total revenues) for the three months ended June
30, 1996 to $2.4 million (16.1% of total revenues) for the three months ended
June 30, 1997. This decrease is a result of selling cost improvements initiated
by the Company for 1997.
Research and Development Expenses. Research and development expenses
decreased 31.3% from $0.4 million (3.2% of total revenues) for the three
months ended June 30, 1996 to $0.3 million (2.0% of total revenues) for the
three months ended June 30, 1997. Increased expenses associated with the
Company's service development activity were offset by internal business systems
support expenses now being reported together with general and administrative
expenses.
General and Administrative Expenses. General and administrative expenses
increased 13.7% from $1.1 million for the three months ended June 30, 1996 to
$1.2 million for the three months ended June 30, 1997. This increase included
internal business systems support expenses reported together with general and
administration expenses for the 1997 period.
Non recurring expenses. Non recurring restructuring expenses were $0.2
million for the three months ended June 30, 1996. The Company incurred no such
expenses for the three months ended June 30, 1997.
<PAGE>
Operating Income. Operating income increased $2.3 million from an operating
loss of $0.8 million, (6.0% of total revenues), for the three months ended June
30, 1996 to $1.5 million, (9.8% of total revenues), for the three months ended
June 30, 1997 as a result of the factors listed above.
Interest Expense, Net. Net interest expense decreased from $67,000 for the
three months ended June 30, 1996 to $16,000, for the three months ended June 30,
1997. Interest income totaled $0.1 million for the three months ended June 30,
1996 and was not material for the three months ended June 30, 1997.
Income Taxes. The Company's effective income tax rate was 36.3% for the
three months ended June 30, 1997, as compared to a 41.0% tax benefit rate on the
pretax loss in the three months ended June 30, 1996. The higher benefit rate
for 1996 as compared to the expense rate for 1997 was principally the result of
higher non-taxable interest income and a prior year income tax refund recognized
for the 1996 period.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total revenues. Total revenues increased 7.3% from $30.6 million for the
six months ended June 30, 1996 to $32.8 million for the six months ended June
30, 1997 due to increased revenues from enterprise network support and PC
support revenues offset by a decrease in service revenues from FedEx.
Service revenues. Revenues from services increased 13.3% from $16.6
million (54.4% of total revenues) for the six months ended June 30, 1996 to
$18.8 million (57.4% of total revenues) for the six months ended June 30, 1997.
This increase was attributable to increased service revenues associated with the
Company's enterprise network support services and increased PC support revenues
offset by a decrease in revenue from services provided to FedEx. Revenues from
enterprise network support services increased by 26.6% while revenues from FedEx
decreased by 29.1% and revenues from Packard Bell remained relatively constant
for the six months ended June 30, 1997 as compared to revenues from these
services for the six months ended June 30, 1996. Revenues from FedEx decreased
due to lower repair volumes resulting from the introduction of upgraded
technology by FedEx which experiences a lower failure rate than the old replaced
technology . The Company had previously experienced above-average margins from
the repair of the units which FedEx replaced. Consequently, margins from the
remaining repair business from FedEx decreased significantly as a result of the
decreased volume of higher margin repair services. The Company is currently in
discussions with FedEx regarding how repair services for FedEx will be
discontinued by the Company. Accordingly, revenues and margins from this
business for the six months ended June 30, 1997 should not be considered
indicative of future revenues and margins from the Company's repair services.
For the six months ended June 30, 1997 as compared to the same period in 1996,
the Company experienced a decrease in revenues from its proprietary channel
extension support business in line with its previously stated expectations.
Hardware revenues. Revenues from hardware products was unchanged at $14.0
million for the six months ended June 30, 1996 (45.6% of total revenue) and June
30, 1997 (42.6% of total revenues). Hardware revenues included revenues from
leasing activities of $7.2 million and $4.4 million for the six months ended
June 30, 1996 and the six months ended June 30, 1997, respectively.
Cost of Service. Cost of service increased 4.8% from $12.0 million (72.5%
of service revenues) for the six months ended June 30, 1996 to $12.6 million
(67.0% of service revenues) for the six months ended June 30, 1997. This overall
cost of service increase was favorably affected by improvements in PC support
costs and unfavorably affected by the reduction of FedEx business volumes.
Cost of Hardware. Cost of hardware decreased 4.1% from $9.8 million (70.3%
of hardware revenues) for the six months ended June 30, 1996 to $9.4 million
(67.3% of hardware revenue) for the six months ended June 30, 1997. This
decrease was caused primarily by lower than average costs associated with the
sales of used equipment which yielded higher margins during the six months ended
June 30, 1997.
Gross Margin. Overall gross margin increased 23.7% from $8.7 million
(28.5% of total revenues) for the six months ended June 30, 1996 to $10.8
million (32.9% of total revenues) for the six months ended June 30, 1997. Gross
margin on services increased 35.6% from $4.6 million for the six months ended
June 30, 1996 to $6.2 million for the six months ended June 30, 1997, while
<PAGE>
increasing as a percent of revenue from 27.5% to 33.0% respectively. Gross
margin on hardware revenues increased 10.4% from $4.1 million for the six months
ended June 30, 1996 to $4.6 million for the six months ended June 30, 1997.
This increase was caused primarily by increased revenues and margins from sales
of used equipment during the three months ended June 30, 1997. Hardware margins
as a percentage of hardware revenues increased from 29.7% for the six months
ended June 30, 1996 to 32.7% for the six months ended June 30, 1997 primarily as
a result of these factors. The Company has experienced competitive pressure on
resale hardware margins and anticipates continued pressure due to price
competition.
Selling and Marketing Expenses. Selling and marketing expenses decreased
1.1% from $4.8 million (15.6% of total revenues) for the six months ended June
30, 1996 to $4.7 million (14.4% of total revenues) for the six months ended June
30, 1997. This decrease reflects selling cost improvements initiated by the
Company for 1997.
Research and Development Expenses. Research and development expenses
decreased 28.8% from $0.9 million (2.9% of total revenues) for the six months
ended June 30, 1996 to $0.6 million (1.9% of total revenues) for the six months
ended June 30, 1997. Increased expenses associated with the Company's service
development activity were offset by internal business systems support expenses
now being reported together with general and administrative expenses.
General and Administrative Expenses. General and administrative expenses
increased 8.4% from $2.2 million (7.2% of total revenues) for the six months
ended June 30, 1996 to $2.4 (7.3% of total revenues) for the six months ended
June 30, 1997. This increase included business systems support expenses reported
together with general and administrative expenses for the 1997 period.
Non recurring expenses. Non recurring restructuring expenses were $0.2
million for the six months ended June 30, 1996. The Company incurred no such
expenses for the six months ended June 30, 1997.
Operating Income. Operating income increased 403.5% from $0.6 million (2.0%
of total revenues) for the six months ended June 30, 1996 to $3.0 million (9.2%
of total revenues) for the six months ended June 30, 1997 as a result of the
factors listed above.
Interest Expense, Net. Net interest expense decreased from $69,000 for the
six months ended June 30, 1996 to $57,000, for the six months ended June 30,
1997. Interest income totaled $0.2 million for the six months ended June 30,
1996 and was not material for the six months ended June 30, 1997.
Income Taxes. The Company's effective income tax rate was 36.3% for the
six months ended June 30, 1997, as compared to 25.1 % in the same period of the
prior fiscal year. The lower 1996 rate was principally the result of higher
non-taxable interest income and a prior year income tax refund together with
lower pretax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $0.9 million and $6.8
million for the six months ended June 30, 1996 and 1997, respectively. Cash
provided by operating activities for the 1996 period was primarily due to net
income before depreciation and amortization and increases in deferred revenue
partially offset by increases in accounts receivable and inventory. Cash
provided by operating activities for the 1997 period was primarily due to income
before depreciation and amortization, increases in accounts and current notes
payable and reductions in accounts receivable and inventory partially offset by
reductions in deferred revenue.
The Company's investing activities provided cash of $1.1 million and used
cash of $10.5 million for the six months ended June 30, 1996 and 1997,
respectively. Cash provided by the Company's investing activities for the 1996
period related to the sale of investments, offset by the purchase of property
and equipment as well as increases in investment of sales-type leases. Cash
used in the Company's investing activities for the 1997 period resulted from the
purchase of investments, property, and equipment, as well as increases in
investment of sales-type leases.
<PAGE>
Financing activities used cash of $0.8 million for the six months ended
June 30, 1996 for repayments of long term debt. Cash provided by financing
activities of $0.9 million for the six months ended June 30, 1997 resulted from
the Company's lease discounting activity which included the issuance of certain
non-recourse notes payable to banks.
The Company's cash requirements have been financed with cash flow from
operations and borrowings under its revolving credit facility with First Union
National Bank of Florida (the "Bank") since October 1996. The credit facility
with the Bank provides for borrowings of up to $15.0 million based on the value
and aging of the Company's eligible accounts and lease receivables. Borrowings
under the line of credit bear interest at the Bank's quoted variable base rate,
which has ranged from 7.02% to 7.25% and was 7.19% as of June 30, 1997. As of
June 30, 1997, the Company had no outstanding balance under the line of credit
and approximately $7.6 million was available for borrowing thereunder based upon
the Company's qualifying accounts receivables. The Company intends to use its
borrowing capacity under the line of credit on a limited basis primarily for
working capital requirements. The credit facility expires in September 1998.
Although there can be no assurances that the Bank will do so, the Company
believes that the Bank will agree to renew the facility.
The Company believes that leasing provides a key competitive advantage in
the sale of long term support agreements. 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. The Company increased its investment in sales-type leases by $1.5
million and discounted leases to third parties of $1.2 million for the six
months ended June 30, 1997. As of June 30, 1997, the Company's investment in
capital leases included $7.7 million of leases which had been discounted via
non-recourse notes payable to banks. An additional $8.2 million represented
undiscounted leases, a portion of which the Company expects to discount in the
near future. 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 that cash from operations and borrowings available
under its revolving credit facility together with current cash balances 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" contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. Among such risks and uncertainties are as those relating to the
competitive nature of the TechForce's marketplace and its ability to expand its
customer base and grow revenues in line with previous experience, dependence
upon certain key personnel, the Company's ability to manage its growth, and the
risk of economic and market factors affecting TechForce or its customers.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
Not Applicable.
<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
At the company's annual meeting of shareholders held on May 15, 1997, the
following individuals were elected to the Board of Directors:
Votes For Votes Withheld
------------ --------------
1. William E. Bassett 6,555,727 12,900
2. Paul J. Ferri 6,555,727 12,900
3. John A. Koehler 6,120,652 447,975
4. Bertil D. Nordin 6,555,727 12,900
5. Richard D. Tadler 6,555,727 12,900
The following proposal was approved at the Company's annual meeting:
Ratification of the appointment of Arthur Andersen LLP as the company's
independent auditors for 1997:
Votes For Votes Against Votes Withheld
--------- ------------- --------------
6,557,827 8,900 1,900
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
----------- -----------
10.1 ScanManager Purchase Agreement, dated as of April 30, 1997 by
and between TechForce Corporation and Ungermann-Bass
Networks, Inc.
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 duly authorized.
TECHFORCE CORPORATION
Date: August 15, 1997 /s/ Jerrel W. Kee
-----------------------------------------
Jerrel W. Kee
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO.
- -----------
10.1 ScanManager Purchase Agreement, dated as of April 30, 1997, by and
between TechForce Corporation and Ungermann-Bass Networks, Inc.
11.1 TechForce Corporation and Subsidiaries Computation of Earnings Per
Share of Common Stock.
27 Summary Financial Data
<PAGE>
EXHIBIT 10.1
SCANMANAGER PURCHASE AGREEMENT
THIS SCANMANAGER PURCHASE AGREEMENT (the "Agreement") is entered into
as of the 30th day of April, 1997 (the "Effective Date"), by and between
TechForce Corporation, a Georgia corporation ("TechForce"), and Ungermann-Bass
Networks, Inc., a Delaware corporation ("UB Networks") and a wholly-owned
subsidiary of Newbridge Networks, Inc., a Delaware Corporation, ("Newbridge").
BACKGROUND
----------
UB Networks has developed and possesses a capability in remote network
monitoring of customers' enterprise networks, marketed as the SCANmanager
service which is inclusive of UB Networks' FaultSCAN and PerformanceSCAN
components ("SCANmanager"). SCANmanager enables customers with local and wide
area communications and computer networks to "out-task" key computer network
management functions.
TechForce desires to purchase SCANmanager and its related assets and
service functions (the "SCANmanager Business") from UB Networks and UB Networks
desires to sell the SCANmanager Business to TechForce as provided herein.
NOW, THEREFORE, in consideration of the foregoing premises, and of the
respective covenants and commitments of the parties set forth herein, and other
sufficient and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows
ARTICLE 1
---------
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Included Assets. UB Networks hereby sells, assigns and transfers
---------------
to TechForce all of UB Networks' right, title and interest in and to the
following assets used or usable in connection with the SCANmanager Business (the
"Assets"):
(a) Equipment and other Tangible Property. All of the equipment,
-------------------------------------
supplies, furniture, computers, telephone systems and other tangible
personal property owned by UB Networks listed on Schedule 1.1(a).
---------------
(b) Real Estate and Personal Property Leases. All leasehold interests
----------------------------------------
in and to the real property in Marietta, Georgia where the SCANmanager
Service Center is located (the "Real Property Lease") and all leasehold
interests in all leases of personal property, including equipment,
furniture, computers, telephone systems, and other tangible personal
property leased by UB Networks being used by UB Networks in the operation
of the SCANmanager Business (the "Personal Property Leases" and together
with the Real Property Lease, the "Leases") listed and described on
Schedule 1.1(b).
---------------
<PAGE>
(c) Customers and Customer Contracts. All right, title and interest
--------------------------------
in and to UB Networks' contracts, purchase orders and other agreements with
the customers listed on Schedule 1.1(c) (the "Customer Contracts").
---------------
(d) Prospective Customers and Prospective Customer Assets. (i) All
-----------------------------------------------------
right, title and interest in and to UB Networks' potential contracts and
agreements with the prospective customers listed on Schedule 1.1(d) (the
---------------
"Prospective Customers"); and (ii) any and all bid and proposal documents
for SCANmanager Business services related to the Prospective Customers (the
"Prospective Customer Assets").
(e) Suppliers and Supplier Contracts. All right, title and interest
--------------------------------
in and to UB Networks' contracts and agreements with the service and supply
providers (the "Suppliers") set forth on Schedule 1.1(e) (the "Supplier
---------------
Contracts").
(f) Intangible Assets and Proprietary Rights. Those other intangible
----------------------------------------
assets described on Schedule 1.1(f) (the "Intangible Assets").
---------------
(g) Books and Records. All books, records and other documents and
-----------------
information relating to the Assets and the SCANmanager Business that are
material to the operation and understanding of the SCANmanager Business,
whether in hardcopy, electronic or other form.
(h) Goodwill. The goodwill of the SCANmanager Business as a going
--------
concern.
1.2 Excluded Assets. UB Networks is not selling to TechForce the assets,
---------------
properties and rights described on Schedule 1.2 ("Excluded Assets"), and the
------------
Excluded Assets are hereby specifically excluded from the Assets.
ARTICLE 2
---------
PURCHASE PRICE
--------------
2.1 Amount. The total purchase price (the "Purchase Price") for the
------
Assets shall be the sum of (a) the Cash Payment (defined below) plus (b) the
aggregate amount of the Earnout Payments (defined below); provided, however,
that TechForce's obligation to pay Earnout Payments is limited and capped by an
amount equal to $375,000 subject to any adjustments effected to the Earnout
Payments pursuant to this Agreement.
2.2 Payments. TechForce shall make payment of the Purchase Price in the
--------
following manner:
(a) Cash Payment. TechForce shall pay the sum of $375,000 to UB
------------
Networks in cash or by company check on the Effective Date (the "Cash
Payment").
-2-
<PAGE>
(b) Earnout Payment Calculation. TechForce will make earnout payments
---------------------------
(the "Earnout Payments") to UB Networks in amounts equal to the Earnout
Percentage of the revenues accrued and collected by TechForce for Accrual
Period Services; provided, however, that the Earnout Payments shall not
exceed Three Hundred Seventy-Five Thousand Dollars ($375,000) in the
aggregate. "Accrual Period Services" shall mean those SCANmanager Business
services rendered to Eligible Customers by TechForce ("SCANmanager
Services") during each three (3) month period beginning with the three (3)
month period ending July 31, 1997, and terminating with the three (3)
month period ending October 31, 1998 (each such period to be referred to
individually as an "Accrual Period" and all such periods to be referred to
collectively as the "Earnout Period"). The Earnout Percentage shall be
equal to twenty percent (20%) through the period ending April 30, 1998, and
shall be equal to fifteen percent (15%) through the remainder of the
Earnout Period. "Eligible Customers" shall mean the British House of
Parliament, the Prospective Customers and each customer that purchases
SCANmanager Services from TechForce as part of a package of services
offered by UB Networks, Newbridge Network, Inc., its parent Newbridge
Networks Corporation or any subsidiary of Newbridge Network Corporation, to
such customer.
(c) Earnout Payment Terms. Earnout Payments for each Accrual Period
---------------------
shall be due and payable within thirty (30) days after the end of the
Payment Period in which the underlying SCANmanager Services revenues for
such Earnout Payment were collected. "Payment Period" shall mean each of
the Accrual Periods and each successive three (3) month period thereafter
following the end of the Earnout Period until all such revenues have been
collected or are agreed by TechForce and UB Networks to be uncollectible.
(d) Certifications. Each Earnout Payment for an Accrual Period shall
--------------
be accompanied by a statement certified by the Chief Financial Officer of
TechForce or his designee (each a "Certification"). Each Certification
shall contain a list of the Eligible Customers receiving SCANmanager
Services from TechForce during such Accrual Period and the SCANmanager
Service revenues accrued for each such Eligible Customer during such
Accrual Period and collected during the applicable Payment Period.
(e) Audit Rights. Upon the written request of UB Networks delivered
------------
within forty-five (45) days after the end of the Earnout Period, TechForce
shall allow an independent certified public accounting firm reasonably
acceptable to TechForce access to the TechForce records supporting the
calculation of the Earnout Payments for the purpose of reviewing the
Earnout Payment calculation; provided, however, that such audit firm shall
first agree to protect TechForce proprietary information disclosed during
such review. All expenses incurred by UB Networks in performing such
review shall be borne by UB Networks, unless such review discloses an error
of five percent (5%) or more in the calculation of any Earnout Payment. In
that case TechForce shall reimburse UB Networks for the reasonable amount
of such expenses.
-3-
<PAGE>
(f) Other Concerns. If UB Networks objects to the calculation of any
--------------
Earnout Payment or the designation of Eligible Customers set forth in any
Certification, TechForce shall promptly meet with UB Networks and attempt
in good faith to reach a resolution of such disagreement upon written
request from UB Networks.
2.3 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Assets in the manner described on Schedule 2.3. Each of TechForce and
------------
UB Networks shall file, in accordance with the Internal Revenue Code of 1986, as
amended, an asset allocation statement on Form 8594 with its federal income tax
return for the current tax year and shall contemporaneously provide the other
party with a copy of the Form 8594 being filed.
2.4 Discontinuation of Earnout Payments.
-----------------------------------
(a) Right to Discontinue. TechForce shall be entitled immediately to
--------------------
discontinue the Earnout Payments with no further obligation to make the
Earnout Payments upon any breach of Section 2 or 3 of the UB Networks
Noncompetition Agreement or the Newbridge Noncompetition Agreement
(collectively, the "Noncompetition Agreements"); provided, however, that
TechForce shall pay an amount equal to the Earnout Payments into an
interest bearing escrow account reasonably acceptable to UB Networks after
asserting such a breach. In the event that a court of final determination
issues a judgment that there has been such a breach prior to April 30,
2004, the escrowed amount, plus interest, shall be released to TechForce.
If no such judgment has been rendered by April 30, 2004, the escrowed
amount, plus interest, shall be distributed to UB Networks.
(b) Understandings. UB Networks hereby acknowledges and agrees that
--------------
the obligations under the Noncompetition Agreements are an essential part
of the consideration to TechForce in consummating the acquisition of the
Assets and the SCANmanager Business, that TechForce would not consummate
such acquisition in the absence of such covenants, that the termination of
the Earnout Payments as provided in this Section 2.4 is a right agreed to
by UB Networks to cause TechForce to consummate the acquisition of the
Assets and the SCANmanager Business and that the discontinuation of the
Earnout Payments shall not be in full satisfaction of, constitute
liquidated damages for, or serve in lieu of any other remedies available
for any such breach of the Noncompetition Agreements.
ARTICLE 3
---------
ASSUMPTION OF LIABILITIES
-------------------------
3.1 Executory Obligations to be Assumed by TechForce. In addition to the
------------------------------------------------
Purchase Price, TechForce agrees to assume and to pay and/or perform, in
accordance with their respective terms and from and after the Effective Date,
(a) property, sales and like taxes, utility and other period expenses for
periods from and after the Effective Date; and (b) the executory obligations or
commitments of UB Networks (but only to the extent such obligations or
commitments relate
-4-
<PAGE>
to a time after the Effective Date) under the Real Property Lease, the Personal
Property Leases, the Customer Contracts, the Supplier Contracts and the
agreements and contracts related to the Intangible Assets.
3.2 No Other Liabilities to be Assumed. Other than as set forth in
----------------------------------
Section 3.1, TechForce shall not assume, and nothing contained in this Agreement
shall be construed as an assumption by TechForce of, any liabilities,
obligations, expenses or undertakings of UB Networks of any nature whatsoever,
whether fixed or contingent, known or unknown. UB Networks shall be responsible
for all of the liabilities, obligations, expenses and undertakings relating to
the SCANmanager Business prior to the Effective Date and not specifically
assumed by TechForce.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF UB NETWORKS
---------------------------------------------
UB Networks makes the following representations and warranties to TechForce
and agrees that all such representations and warranties shall survive and remain
in full force and effect after the Effective Date until the expiration thereof
in accordance with Section 9.1 of this Agreement. Except as set forth in the
disclosure letter from UB Networks to TechForce in the form of Exhibit 4 to this
Agreement (the "Disclosure Letter"), UB Networks represents and warrants on the
Effective Date that:
4.1 Organization and Standing. UB Networks is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority (corporate and otherwise) to own or
lease its property and carry on its business as such business is now conducted
and to permit the transactions contemplated by this Agreement.
4.2 Corporate Authorization and No Conflict. The execution and delivery
---------------------------------------
of this Agreement and all other documents contemplated by this Agreement and the
Exhibits, Schedules, and certificates and the Disclosure Letter furnished in
connection herewith (the "Related Documents") by or on behalf of UB Networks and
Newbridge, as the case may be, and the consummation of the transactions
contemplated herein or therein, have been duly authorized by all necessary
corporate actions on the part of UB Networks and Newbridge, and to the best
knowledge of UB Networks, such execution, delivery and consummation of the
transactions contemplated hereunder and thereunder shall not result in any
violation or breach of any contract, trust, document or instrument to which UB
Networks is a party or by which any of its property is bound. This Agreement
and the Related Documents have been duly executed by UB Networks and are the
valid and legally binding obligations of UB Networks enforceable against it in
accordance with their respective terms, except as limited by the exercise of
judicial discretion, bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of creditors'
rights, and except as the remedy of specific performance may be unavailable in
certain cases.
-5-
<PAGE>
4.3 Approvals. No approval, authorization, order, license or consent of
---------
or registration, qualification or filing with any governmental authority and no
approval or consent by any other person or entity is required in connection with
the execution, delivery or performance by UB Networks of this Agreement and the
other agreements contemplated hereby.
4.4 No Liens or Encumbrances. UB Networks has good and marketable title
------------------------
to all of the Assets, free from any and all claims, liens, pledges, mortgages,
security interests, charges, options, defaults, restrictions or encumbrances of
any nature whatsoever; provided, however, that this sentence shall not
constitute a warranty against any matter included within the scope of Section
4.12(a). UB Networks has obtained all permissions and consents necessary for
the transfer and assignment of the Assets and the SCANmanager Business to
TechForce, and TechForce is not and shall not be become liable for any payment
to any third party as a result of any such transfer and assignment.
4.5 Expense Reports. Attached hereto as Schedule 4.5, is a true and
--------------- ------------
correct copy of the department expense reports of the SCANmanager Business for
the period from the inception of the SCANmanager Business through MARCH 31,
1997, which fairly present the direct expenses of the SCANmanager Business other
than corporate support and sales services.
4.6 Contracts and Commitments. Except for the Customer Contracts,
-------------------------
Supplier Contracts, the Leases and the Licenses (as defined below) (the
"Contracts"), UB Networks is not a party to any written or oral, express or
implied, agreement, or any other contract or commitment of any nature which
creates a material benefit or liability with respect to the Assets or the
SCANmanager Business or is material to TechForce's use, benefit or enjoyment
thereof. To the best knowledge of UB Networks, UB Networks is not in material
default, and there is no fact or event known to UB Networks which with the lapse
of time would constitute a material default, under any of the Contracts.
4.7 Lawsuits, Proceedings, etc. UB Networks has not been served with or
---------------------------
notified of any action, suit or proceedings or, to the best knowledge of UB
Networks, has any action, suit or proceeding been threatened before any court,
commission, agency, arbitrator or other judicial or administrative authority
against or affecting the SCANmanager Business or the Assets.
4.8 Employees and Labor Matters. UB Networks is not a party to any
---------------------------
collective bargaining or other labor agreement relating to the SCANmanager
Business other than the employment agreements with employees assigned to the
SCANmanager Business attached to this Agreement as Schedule 4.8. There is not
------------
pending or, to the best knowledge of UB Networks, threatened any labor dispute,
strike, work stoppage, union representation, election, negotiation of collective
bargaining agreement or similar labor matter relating to the SCANmanager
Business. UB Networks is not involved in any controversy with any of the
employees of the SCANmanager Business or any organization representing any
employees of the SCANmanager Business. UB Networks is in compliance with all
applicable federal and state laws and regulations applicable to the SCANmanager
Business concerning the employer/employee relationship and with all of its
agreements relating to the employment of the employees of the
-6-
<PAGE>
SCANmanager Business, including, without limitation, provisions thereof relating
to wages, bonuses, hours of work and the payment of Social Security,
unemployment or other payroll taxes or deductions, non-compliance with which
could have an adverse effect upon the Assets or the SCANmanager Business in an
amount exceeding $10,000.00 in the aggregate. UB Networks is not liable for any
unpaid wages, bonuses or commissions or any tax, penalty, assessment or
forfeiture for failure to comply with any of the foregoing.
4.9 Condition of Tangible Assets. Schedule 1.1(a) sets forth all tangible
---------------------------- ---------------
property that is a material Asset of the SCANmanager Business or material to the
operation of the SCANmanager Business. All of the tangible Assets listed on
Schedule 1.1(a) are currently in good order and repair, normal wear and tear
- ---------------
excepted. The Assets and the Excluded Assets constitute all of the operating
assets and properties that have been used by UB Networks in the operation of the
SCANmanager Business since SCANmanager's inception and that are material to the
operation or understanding of the SCANmanager Business.
4.10 Compliance with Laws. UB Networks owns and operates, and has owned
--------------------
and operated, the Assets and the SCANmanager Business in compliance with all
applicable laws, ordinances, rules and regulations except to the extent that
non-compliance with such laws, ordinances, rules and regulations would not have
an adverse effect on the Assets or the SCANmanager Business exceeding $10,000.00
in the aggregate. UB Networks has no knowledge of any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent compliance or continued compliance
with any such law or regulation. There have been no material citations, adminis
trative proceedings or judicial proceedings under any applicable laws,
ordinances, rules or regulations against UB Networks relating to the Assets or
the SCANmanager Business. UB Networks has not received notice of and has no
knowledge of any violation, criminal, civil or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding that is now pending or threatened under any such
applicable law, ordinance, regulation, order or requirement relating to the
Assets or the SCANmanager Business.
4.11 Environmental Matters. To the best knowledge of UB Networks, UB
---------------------
Networks is not in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "environmental laws"), does not own or
operate any real property contaminated with any substance that is subject to any
environmental laws, is not liable for any off-site disposal or contamination
pursuant to any environmental laws and is not subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim would
individually or in the aggregate have a material adverse effect in excess of
$10,000.00 on the Assets or the SCANmanager Business, and is not aware of any
pending investigation which might lead to such a claim.
-7-
<PAGE>
4.12 Intangible Property Rights.
--------------------------
(a) In its operation of the SCANmanager Business, UB Networks has not
infringed, and the Assets do not infringe, any trade secret or copyright
or, to the best knowledge of UB Networks, any patent or other intellectual
property right of any third party; provided, however, that UB Networks
makes no representation regarding the validity of title held by any third
party to the subject matter of any license or lease included in the Assets
or the infringement of any such subject matter. The Assets include all
intellectual property, permits, licenses and other intangible property
required for the operation of the SCANmanager Business as it is presently
being conducted that are material to the operation or understanding of the
SCANmanager Business.
(b) Schedule 1.1(f) contains a true, correct and complete list of all
---------------
patents, copyrights, trademarks, service marks, software, processes, trade
secrets, confidential information, know how, operating procedures,
marketing and sales materials and methods and all other intellectual
property (the "Proprietary Rights") owned by UB Networks or licensed from
another party by UB Networks that have been used by UB Networks at any time
in connection with, and that are of value to, the SCANmanager Business.
Such list identifies (i) UB Networks as either the owner or licensee of
each such Proprietary Right; and (ii) in the case where UB Networks is a
licensee, the attendant licensor(s) and license agreement(s) for such
Proprietary Right. Other than licenses identified in the Disclosure Letter
that can not be provided to TechForce without breaching confidentiality
comments to the applicable licensor, the Disclosure Letter sets forth a
true and correct copy of each license and other agreement with respect to
each Proprietary Right as such licenses and other agreements are currently
in effect (the "Licenses"). UB Networks owns all right, title and interest
in and to such Proprietary Rights, free and clear of adverse claims, liens,
mortgages, charges, security interests and encumbrances, including without
limitation any exclusive rights, however described, granted to parties
other than UB Networks; provided, however, that this sentence shall not
constitute a warranty against any matter included within the scope of
Section 4.12(a).
(c) Set forth in the Disclosure Letter is a list of all licenses
granted to third parties by UB Networks in connection with the SCANmanager
Business and/or the Assets. Such list identifies, as applicable, the
Proprietary Rights, other Assets or other items covered by each such
license.
(d) UB Networks pays no royalty to anyone for any Proprietary Right.
(e) UB Networks has taken all reasonable measures to protect its
rights in SCANmanager mark, the other Proprietary Rights and the other
Assets; provided, however, that no trademark, service mark, copyright or
patent has been applied for or registered. UB Networks has not sent nor
otherwise communicated to any other person any notice, charge, claim or
assertion of, and does not have any knowledge of, any
-8-
<PAGE>
present, impending or threatened infringement by such other person of any
Proprietary Right of UB Networks.
(f) UB Networks has entered into employee confidentiality and
invention assignment agreements with each of its present and past employees
who has worked on or in connection with SCANmanager or the SCANmanager
Business; and copies of each such agreement are set forth in the Disclosure
Letter. UB Networks has not received notice, orally or in writing, that
any other person or entity claims any interest in any Asset or any
component of the SCANmanager Business other than the Assets licensed to UB
Networks, and to the best knowledge of UB Networks, no other person or
entity has, or has made, such a claim, except the ownership and other
rights claimed by licensors under the licenses listed in the Disclosure
Letter. Neither the execution nor delivery of this Agreement or any other
document contemplated hereby, nor the carrying on of the SCANmanager
Business by TechForce, will, to the best knowledge of UB Networks, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under
which any of such employees is obligated.
4.13 Changes in Customers or Suppliers. UB Networks' has not received
---------------------------------
notice that any Customer or Supplier intends to terminate, limit or reduce its
business relations with UB Networks.
4.14 No Brokers or Finders. No person, firm or corporation has any right
---------------------
or other claim against TechForce, the Assets or the SCANmanager Business for any
commission, fee or other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement.
4.15 Taxes. UB Networks has filed all income, excise, corporate,
-----
franchise, property, payroll and other tax returns or reports required to be
filed by it relating to the SCANmanager Business, by any foreign country, the
United States of America and any state or other political subdivision thereof
and has paid all taxes and assessments relating to the time periods covered by
such returns or reports. There are no present disputes as to taxes of any
nature payable by UB Networks relating to the SCAN Manager Business.
4.16 Absence of Undisclosed Liabilities. To the best knowledge of UB
----------------------------------
Networks, there are no liabilities (secured or unsecured and whether accrued,
absolute, direct, indirect, contingent or otherwise, and whether due or to
become due), or facts or circumstances which might lead to liabilities, arising
from any fact, circumstance, condition or omission occurring or existing prior
to the Effective Date which could (individually or in the aggregate) adversely
affect the Assets, the SCANmanager Business or TechForce's use, benefit,
operation or enjoyment thereof.
-9-
<PAGE>
4.17 Bulk Sales. The transfer of the Assets pursuant to this Agreement are
----------
not subject to the provisions of the Uniform Commercial Code - Bulk Transfers,
as adopted by the State of California.
4.18 Disclosure. Attached as Schedule 4.18 is a true and correct copy of
---------- -------------
that certain "UB Networks SCANmanager Remote Monitoring Service - Descriptive
Memorandum" delivered by UB Networks to, and relied on by, TechForce in making
its decision to acquire SCANmanager and the Assets (the "Memorandum"). To the
best knowledge of UB Networks, no representation or warranty made by UB Networks
in this Agreement or in any Related Document or disclosure made in the
Memorandum is false or misleading or omits to state any fact necessary to make
any such representation, statement or disclosure not misleading in any way that
would materially and adversely affect the Assets or the SCANmanager Business.
To the best knowledge of UB Networks, there is no event, fact or condition that
materially and adversely affects, or that reasonably could be expected to
materially and adversely affect, the value of the Assets or the SCANmanager
Business, taken as a whole, that has not been set forth herein, in a Related
Document or in the Memorandum.
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF TECHFORCE
-------------------------------------------
TechForce makes the following representations and warranties to UB Networks
and agrees that all such representations and warranties shall survive and remain
in full force and effect after the Effective Date until the expiration thereof
in accordance with Section 9.2 of this Agreement. TechForce hereby represents
and warrants to UB Networks on the Effective Date as follows:
5.1 Organization and Standing. TechForce is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of Georgia,
and has all requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement.
5.2 Corporate Authorization and No Conflict. The execution and delivery
---------------------------------------
of this Agreement on behalf of TechForce, and the consummation of the
transactions contemplated hereunder have been duly authorized by all necessary
corporate action on the part of the TechForce, and, to the best of TechForce's
knowledge, such execution, delivery and consummation of the transactions
contemplated hereunder and thereunder will not result in a violation or breach
of any document or instrument to which TechForce is a party or by which any of
its property is bound. This Agreement has been duly executed by TechForce and
is the valid and legally binding obligation of TechForce enforceable against it
in accordance with its terms, except as limited by the exercise of judicial
discretion, bankruptcy, insolvency, reorganization, moratorium or similar law
relating to or affecting generally the enforcement of creditors' rights, and
except as the remedy of specific performance may be unavailable in certain
cases.
-10-
<PAGE>
5.3 No Brokers or Finders. No person, firm or corporation engaged by
---------------------
TechForce has any right or other claim against UB Networks for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
5.4 Approvals. No approval, authorization, order, license or consent of
---------
or registration, qualification or filing with any governmental authority and no
approval or consent by any other person or entity is required in connection with
the execution, delivery or performance by TechForce of this Agreement and the
agreements contemplated hereby.
ARTICLE 6
---------
ADDITIONAL COVENANTS
--------------------
6.1 Use of Names. UB Networks acknowledges and agrees that TechForce is
-------------
acquiring the names "SCANmanager," "FaultSCAN," and "PerformanceSCAN" and the
goodwill associated therewith and that UB Networks and its affiliates will not
use, and will not attempt to grant to any third party the right to use, such
names subsequent to the Effective Date.
6.2 Marketing and Non-competition Covenants.
---------------------------------------
(a) Marketing. UB Networks agrees that TechForce's success in
---------
selling the SCANmanager service to the Prospective Customers and others is
critical to TechForce's ability to make the SCANmanager Business an
economically viable segment of TechForce's overall business. Therefore, UB
Networks agrees to provide at no charge the transition support services
described on Exhibit A to this Agreement.
---------
(b) Non-competition Covenants. UB Networks and Newbridge each agree
-------------------------
to abide by and comply with the non-competition covenants (the "Non-
Competition Covenants") set forth on Exhibit B to this Agreement as a
---------
"Selling Group Party" under such covenants.
6.3 Prorations. All personal property taxes on the Assets, all payments
----------
in lieu of taxes on the Assets and other taxes applicable thereto, if any, and
payments under leases and licenses included in the Assets and all utility and
other period charges shall be pro rated between UB Networks and TechForce as of
the Effective Date.
6.4 Additional Documentation and Assistance. UB Networks shall from time
---------------------------------------
to time, subsequent to the Effective Date, at TechForce's request and without
further consideration, take such further action and execute and deliver to
TechForce such other instruments of conveyance, assignment or transfer and take
such other action as TechForce reasonably may require in order to more
effectively convey, transfer to and vest in TechForce, and put TechForce in
possession of, the Assets.
6.5 UB Networks Trademarks. TechForce acknowledges that it is acquiring
----------------------
no rights to use any trademark or tradename of UB Networks other than the names
listed in Schedule 1.1(f).
---------------
-11-
<PAGE>
TechForce agrees that it shall have no right to use, and shall remove, all other
trademarks and tradenames of UB Networks from any materials used by TechForce in
marketing, selling and providing the SCANmanager Business services, including
any such materials transferred to TechForce pursuant to this Agreement.
6.6 Request for Consent to Assignments. UB Networks agrees to request
----------------------------------
that each party to a Customer Contract, Supplier Contract, Lease or License
consent to the assignment of the right, title and interest of UB Networks under
such agreement to TechForce. TechForce agrees that the receipt of such consents
is not a condition to its obligations under this Agreement, that the failure to
obtain such consents is not a breach of any representation, warranty or
obligation of UB Networks under this Agreement and that TechForce may have to
negotiate new agreements with any such parties at the discretion of such
parties.
ARTICLE 7
---------
EMPLOYEES OF THE SCANMANAGER BUSINESS
-------------------------------------
TechForce shall offer employment to certain current employees of UB
Networks set forth on Schedule 7 on terms and conditions as are comparable to
----------
TechForce's general employment and hiring policies and procedures. UB Networks
shall remain solely responsible for all salaries, wages, benefits, severance
arrangements and all other terms of employment for each such person who may
become an employee of TechForce accruing prior to the Effective Date.
ARTICLE 8
----------
CLOSING CONDITIONS
------------------
8.1 Secretary's Certificate. UB Networks shall have delivered a
-----------------------
certificate of its secretary certifying a copy of the resolutions of the board
of directors of UB Networks authorizing this Agreement, and the transactions
contemplated hereby, and certifying the good standing of UB Networks as of the
Effective Date.
8.2 Opinion. UB Networks shall have caused to be delivered to TechForce
-------
an opinion of counsel in the form of Exhibit C to this Agreement.
---------
ARTICLE 9
---------
INDEMNIFICATION
---------------
9.1 Indemnification by UB Networks. The representations and warranties of
------------------------------
UB Networks contained in this Agreement shall survive the Effective Date and
shall expire on the second anniversary of the Effective Date, except that there
shall be no such limitation on any claim for or resulting from fraud other than
applicable statutes of limitation. Subject to the limitations set forth in
Sections 9.3 and 9.7 of this Agreement, UB Networks agrees to indemnify
TechForce with respect to, and hold TechForce harmless from, any loss,
liability, obligations, fines, penalties, settlements, damages, claims,
interest, awards and judgments, costs and expenses (including, but not limited
to, reasonable legal fees and other reasonable costs and expenses of
-12-
<PAGE>
investigations or contesting any of the foregoing) which TechForce may directly
or indirectly incur or suffer by reason of, or which result, arise out of, are
based upon or are related to (a) the inaccuracy of any representation or
warranty made by UB Networks in this Agreement or in any Related Document, (b)
the failure of UB Networks to comply with any covenants or other commitments
made in this Agreement, (c) the failure of UB Networks or Newbridge to comply
with the terms of the respective Noncompetition Agreement, (d) any liability
relating to or arising out of the conduct of the SCANmanager Business on or
prior to the Effective Date which is not specifically assumed by TechForce
pursuant to Section 3.1 of this Agreement, or (e) the application of any bulk
sales or similar law of any jurisdiction (collectively, "TechForce Claims").
9.2 Indemnification by TechForce. The representations and warranties of
----------------------------
TechForce contained in this Agreement shall survive the Effective Date and shall
expire on the second anniversary of the Effective Date, except that there shall
be no such limitation on any claim for or resulting from fraud other than
applicable statutes of limitation. Subject to the limitations set forth in
Sections 9.3 and 9.7 of this Agreement, TechForce agrees to indemnify UB
Networks with respect to, and hold UB Networks harmless from, any loss,
liability, obligations, fines, penalties, settlements, damages, claims,
interest, awards and judgments, costs and expenses (including, but not limited
to, reasonable legal fees and other reasonable costs and expenses of
investigations or contesting any of the foregoing) which UB Networks may
directly or indirectly incur or suffer by reason of, or which result, arise out
of, are based upon or are related to (a) the inaccuracy of any representation or
warranty made by TechForce in this Agreement or in any Related Document, or,
during the period that UB Networks provides TechForce with access to the UB
Networks' network during the transition period described in Schedule A, the
----------
breach of UB Networks' network security resulting from the negligence or willful
misconduct of TechForce, its employees or its agents in maintaining TechForce's
own network security, (b) the failure of TechForce to comply with any covenants
or other commitments made in this Agreement, or (c) any liability relating to or
arising out of the conduct of the SCANmanager Business following the Effective
Date and those liabilities assumed by TechForce pursuant to Section 3.1 (the "UB
Networks Claims" and collectively with the TechForce Claims, the "Indemnifiable
Claims").
-13-
<PAGE>
9.3 Limitations on Indemnification.
------------------------------
(a) Except for indemnification obligations arising out of fraud, the
indemnification obligation of UB Networks under this Article 9 for the
TechForce Claims arising under Section 9.1(a) or as a result of any breach
of the Noncompetition Covenants shall be limited to and shall not exceed in
the aggregate (i) Purchase Price including Earnout Payments paid or payable
by TechForce less $200,000 for any breach by UB Networks of the warranties
set forth in Section 4.12(a); and (ii) for all other TechForce Claims
arising under Section 9.1(a) above or as a result of any breach of the
Noncompetition Covenants, the Purchase Price (including, without
limitation, all Earnout Payments paid or payable by TechForce under this
Agreement) less (A) any amounts payable by UB Networks for any breach by UB
Networks of the warranties set forth in Section 4.12(a) and (B) any Earnout
Payments payable by TechForce under this Agreement that are not ultimately
paid by TechForce as a result of an exercise by TechForce of its setoff
rights under Section 2.4 above or Section 9.8 below for TechForce Claims
arising under Section 9.1(a).
(b) Except for indemnification obligations arising out of fraud, the
indemnification obligation of TechForce under this Article 9 for the UB
Networks Claims arising under Section 9.2(a) above shall be limited to and
shall not exceed in the aggregate the Purchase Price (including, without
limitation, all Earnout Payments paid or payable by TechForce under this
Agreement).
9.4 Third-Party Claims. Within ten (10) days after receipt of written
------------------
notice of the commencement of any action or the assertion of any claim,
liability or obligation by a third party (whether by legal process or
otherwise), against which claim, liability or obligation a party is, or may be,
required under this Article 9 to indemnify the other party, the indemnified
party will notify the indemnifying party in writing of the commencement or
assertion thereof (the "Claim Notice") and give the indemnifying party a copy of
such claim, process and all legal pleadings relating thereto. The indemnifying
party shall have the right to contest and conduct the defense of such action
with counsel of reputable standing reasonably acceptable to the indemnified
party by giving written notice to the indemnified party of its election to do so
within ten (10) days of the receipt of the Claim Notice, and the indemnified
party may participate in such defense by counsel of its own choosing at its own
expense. If the indemnified party shall be required by final judgment not
subject to appeal or by a settlement agreement to pay any amount in respect of
any obligation or liability against which the indemnifying party has agreed to
indemnify the indemnified party under this Agreement, such amount plus all
reasonable expenses incurred by the indemnified party in accordance with such
obligation or liability (including, without limitation, reasonable attorneys'
fees (other than fees incurred by counsel to the indemnified party employed
pursuant to the immediately preceding sentence) and costs of investigations)
shall be promptly paid by the indemnifying party to the indemnified party,
subject to reasonable documentation and cost substantiation of all such amounts.
The indemnifying party shall not settle or compromise any claim, action or
proceeding without the prior written consent of the
-14-
<PAGE>
indemnified party, which shall not be unreasonably withheld. The indemnified
party shall use reasonable efforts to mitigate any damage, loss, cost, expense,
liability or obligation with respect to which it shall be entitled to
indemnification hereunder. Subject to the limitations set forth in Sections 9.3
and 9.7 of this Agreement, failure of the indemnified party to give the Claim
Notice to the indemnifying party within the ten-day period required hereunder
shall not affect the indemnified party's rights to indemnification hereunder,
except if (and then only to the extent that) the indemnifying party incurs
additional expenses or the indemnifying party' defense of such claim is actually
prejudiced by reason of such failure to give timely notice.
9.5 Direct Claims. Subject to the limitations set forth in Section 9.3,
-------------
with respect to claims other than third-party claims, the indemnified party
shall use reasonable efforts promptly to notify the indemnifying party of such
claims, but failure of the indemnified party so to give notice to the
indemnifying party shall not affect the rights of the indemnified party to
indemnification hereunder, except if (and then only to the extent that) incurs
additional expenses or the indemnifying party is actually prejudiced by reason
of such failure to give timely notice.
9.6 Indemnification Claims - Interest. Interest on any claim for
---------------------------------
indemnification pursuant to this Article 9 shall accrue at a rate equal to the
"prime rate" as published in the Wall Street Journal from time to time.
-------------------
Interest on third party claims described in Section 9.3 shall begin to accrue
from the date that payment of any amount in respect of such claim is made, and
interest on all other claims shall begin to accrue from the date the claim
arose. In each case, interest shall continue to accrue until the claim is
satisfied by payment.
9.7 Baskets. Each party's obligation to indemnify pursuant to Section
-------
9.1(a) or 9.2(a) above shall become operative only after the aggregate amount of
all claims to indemnification made by the other party exceed the sum of Ten
Thousand Dollars ($10,000.00); provided, however, that the entire amount of the
-------- -------
indemnified claims shall be paid once such limitation is exceeded.
Notwithstanding anything to the contrary set forth in this Agreement, no claim
for indemnification pursuant to Section 9.1(a) or 9.2(a) of this Agreement shall
be valid unless the indemnified party shall have given the indemnifying party
written notice of such claim on or before ninety (90) days after the second
anniversary date of the Effective Date.
9.8 Indemnification Claims - Right of Offset. In the event that TechForce
----------------------------------------
has a claim for indemnification against UB Networks, TechForce shall be entitled
to offset the amount of such claim against remaining Earnout Payments. This
offset right is in addition to TechForce's right to seek indemnification
directly from UB Networks and shall not be deemed to limit TechForce's
indemnification rights in any respect other than as provided in Section 9.3(a).
.
9.9 Subrogation. In the event of any indemnification payment under this
-----------
Article 9, the indemnifying party shall be subrogated to the extent of such
payment to rights of recovery the indemnified party may have against any other
person with respect to the indemnified claim, liability, or obligation, and the
indemnified party shall execute such documents and take such steps as may be
reasonably requested by the indemnifying party to secure such rights.
-15-
<PAGE>
9.10 Sole and Exclusive Remedy for Breach of Representations. Except for
-------------------------------------------------------
indemnification obligations arising out of fraud, the sole and exclusive remedy
of either party hereto against the other for any Indemnifiable Claim arising
under Section 9.1(a) or 9.2(a) shall be the indemnification rights set forth in
this Article 9.
ARTICLE 10
----------
MISCELLANEOUS
-------------
10.1 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of and be enforceable against the parties hereto and their respective
successors and permitted assigns.
10.2 Governing Law; Forum. This Agreement (and any and all disputes,
--------------------
controversies and other claims, losses and liabilities among the parties arising
out of, or in connection with, the transactions contemplated hereby) shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to its rules of conflicts of laws).
10.3 Notices. All notices, consents, requests, demands, instructions or
-------
other communications provided for herein shall be in writing and shall be deemed
validly given, made and served when delivered personally or sent by certified or
registered mail, postage prepaid, or by fax upon receipt by the sender of
written confirmation of the recipients' receipt thereof (mailed notices shall be
deemed given five (5) calendar days after deposit in the United States mail)
and, pending the designation of another address or fax number, addressed or
faxed as follows:
-16-
<PAGE>
If to UB Networks: Ungermann - Bass Networks, Inc.
c/o Newbridge Networks, Inc.
3900 Freedom Circle
Santa Clara, California 95054
Attn: William Kaplan
Fax No.: (408) 970-7330
With a copy to: Mendelson & Brown, LLP
1040 Marina Village Parkway, Suite B
Alameda, California 94501
Attn: Gregory L. Beattie, Esq.
Fax No.: (510) 521-7879
If to TechForce: Jerrel W. Kee
TechForce Corporation
15950 Bay Vista Drive
Clearwater, Florida 34620
Fax No.: (818) 532-3683
With a copy to: Hunton & Williams
Suite 4100, NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attn: Robert C. Reynolds, Jr., Esq.
Fax No.: (404) 888-4190
10.4 Entire Agreement. This Agreement and the Related Documents,
----------------
constitute the entire agreement between the parties relating to the purchase and
sale of the Assets and the SCANmanager Business and supersede in all respects
any and all prior oral or written agreements or understandings. This Agreement
shall be amended or modified only by written instrument signed by both parties.
10.5 Expenses. Except to the extent otherwise provided in this Agreement,
--------
each party shall pay for its own legal, accounting and other similar expenses
incurred in connection with the transactions contemplated by this Agreement,
whether or not such transactions are consummated.
10.6 Taxes. Any sales, transfer, use or excise taxes payable in connection
-----
with the transactions contemplated by this Agreement shall be paid by UB
Networks.
10.7 Publicity. The timing and content of all public announcements
---------
relating to the execution of this Agreement shall be approved by both TechForce
and UB Networks prior to the release of such public announcement, and each party
agrees to cooperate with the other party as appropriate to comply with all
applicable laws.
-17-
<PAGE>
10.8 Severability and Waivers. Each and every provision of this Agreement
------------------------
shall be deemed valid, legal and enforceable in all jurisdictions to the fullest
extent possible. Any provision of this Agreement that is determined to be
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be adjusted and reformed rather than voided, if possible, in order
to achieve the intent of the parties, and otherwise shall be voided. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the party making the waiver.
10.9 Assignment. This Agreement may not be assigned by either party hereto
----------
without the prior written consent of the other party other than to any
suscessors, subsidiary parent corporation of a party; provided, however, that
the assignor shall remain bound under all of its obligations under this
Agreement; provided, further, however, that the parties acknowledge that it is
the intention of UB Networks to merge into Newbridge and that thereupon the
separate corporate existence of UB Networks shall cease, and agree that in such
event all the rights, privileges and obligations of UB Networks shall inure to
the benefit of and be binding on Newbridge. The rights, privileges and
obligations of each party hereto shall inure to the benefit of and be binding on
the permitted assigns of such party.
10.10 "Knowledge." Any reference to the "knowledge" or the "best
---------
knowledge" of UB Networks shall refer to the knowledge of Tim Anderson and any
UB Networks employee assigned to the SCANmanager Business and working full-time
at the Marietta premises. .
10.11 Counterparts; Execution. To facilitate execution, this Agreement
-----------------------
may be executed in as many counterparts as may be required, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute but a single agreement. This Agreement
shall be deemed to have been executed at the time when the last signature of any
of the parties is affixed hereto or to any counterpart hereof.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized representatives as of the date set forth in
the first paragraph.
UNGERMANN-BASS NETWORKS, INC.
By:
-------------------------------
Title:
----------------------------
TECHFORCE CORPORATION
By:
-------------------------------
Title:
----------------------------
-19-
<PAGE>
EXHIBIT 11.1
TECHFORCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 AND THE THREE MONTHS
ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June, 30 1996
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding ................ 8,027,174 7,905,500 8,003,929 7,905,500
Net effect of dilutive securities, based on the
treasury stock and if-converted methods .......... 267,056 0 291,776 488,647
------------ -------------- -------------- ------------
Total Shares used in computation ...................... 8,294,230 7,905,500 8,295,705 8,394,147
Net Income ............................................ $ 933,000 $ (508,000) $ 1,893,000 $ 399,000
Net income per common and common equivalent share ...... $ 0.11 $ (0.06) $ 0.23 $ 0.05
Fully diluted:
Weighted average shares outstanding ................ 8,027,174 7,905,500 8,003,929 7,905,500
Net effect of dilutive securities, based on the
treasury stock and if-converted methods .......... 312,953 0 326,793 488,647
------------ -------------- -------------- ------------
Total Shares used in computation ...................... 8,340,127 7,905,500 8,330,722 8,394,147
Net Income ............................................ $ 933,000 $ (508,000) $ 1,893,000 $ 399,000
Net income per common and common equivalent share ...... $ 0.11 $ (0.06) $ 0.23 $ 0.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECHFORCE
CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 (IN
THOUSANDS) AND TECHFORCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE
DATA) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,175
<SECURITIES> 5,386
<RECEIVABLES> 12,324
<ALLOWANCES> 425
<INVENTORY> 2,715
<CURRENT-ASSETS> 25,183
<PP&E> 22,426
<DEPRECIATION> 8,461
<TOTAL-ASSETS> 49,920
<CURRENT-LIABILITIES> 13,000
<BONDS> 6,422
0
0
<COMMON> 80
<OTHER-SE> 30,418
<TOTAL-LIABILITY-AND-EQUITY> 49,920
<SALES> 13,984
<TOTAL-REVENUES> 32,805
<CGS> 9,414
<TOTAL-COSTS> 22,028
<OTHER-EXPENSES> 7,746
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,974
<INCOME-TAX> 1,081
<INCOME-CONTINUING> 1,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,893
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
