SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement | |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
x | Definitive Proxy Statement | |
¨ | Definitive Additional Materials | |
¨ | Soliciting Material Pursuant to Rule 14a-12 | |
COMFORCE Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party: |
| (4) | Date Filed: |
COMFORCE Corporation
415 Crossways Park Drive, P.O. Box 9006
Woodbury, New York 11797
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 9, 2004
As a stockholder of COMFORCE Corporation (the “Company”), you are invited to be present, or represented by proxy, at the Company’s 2004 Annual Meeting of Stockholders, to be held at the Company’s offices at 415 Crossways Park Drive, Woodbury, New York on June 9, 2004 at 10:00 a.m., New York City time, and any adjournments thereof, for the following purposes:
| 1. | To elect John C. Fanning, Harry V. Maccarrone, Rosemary Maniscalco, Kenneth J. Daley, Daniel Raynor, Gordon Robinett and Pierce J. Flynn to the Board of Directors of the Company for terms of one (1) year. See “Proposal No. 1—Election of Directors” in the proxy statement. |
| 2. | To transact such other business as may properly be brought before the meeting or any adjournment thereof. |
Stockholders of record at the close of business on April 28, 2004 are entitled to vote at the Annual Meeting of Stockholders and all adjournments thereof. Since a majority of the outstanding shares of the Company’s common stock must be represented at the meeting in order to constitute a quorum, all stockholders are urged either to attend the meeting or to be represented by proxy.
If you do not expect to attend the meeting in person, please sign, date and return the accompanying proxy in the enclosed reply envelope. Your vote is important regardless of the number of shares you own. If you later find that you can be present and you desire to vote in person or, for any other reason, desire to revoke your proxy, you may do so at any time before the voting.
If you plan to vote at the meeting in person and your shares are held in the name of your broker, bank or other nominee, please request from such broker, bank or other nominee a letter to present to the judge of the election evidencing your ownership of the shares and your authority to vote the shares at the meeting.
By Order of the Board of Directors
Harry V. Maccarrone
Secretary
April 28, 2004
COMFORCE Corporation
415 Crossways Park Drive, P.O. Box 9006
Woodbury, New York 11797
ANNUAL MEETING OF STOCKHOLDERS
To be held on June 9, 2004
PROXY STATEMENT
This proxy statement and the Notice of Annual Meeting and Form of Proxy accompanying this proxy statement, which will be mailed on or about May 6, 2004, are furnished in connection with the solicitation by the Board of Directors of COMFORCE Corporation, a Delaware corporation (the “Company” or “COMFORCE”), of proxies to be voted at the annual meeting of stockholders to be held at the Company’s offices at 415 Crossways Park Drive, Woodbury, New York on June 9, 2004 at 10:00 a.m., New York City time, and any adjournments thereof.
Holders of record of the Company’s common stock at the close of business on April 28, 2004 (the “record date”) will be entitled to one vote at the meeting or by proxy for each share then held. On the record date, there were 16,669,402 shares of common stock of the Company outstanding. All shares represented by proxy will be voted in accordance with the instructions, if any, given in such proxy. A stockholder may withhold authority to vote for the nominees by marking the appropriate box on the accompanying proxy card, or may withhold authority to vote for an individual nominee by drawing a line through such nominee’s name in the appropriate place on the accompanying proxy card. Unless instructions to the contrary are given, each properly executed proxy will be voted (1) to elect John C. Fanning, Harry V. Maccarrone, Rosemary Maniscalco, Kenneth J. Daley, Daniel Raynor, Gordon Robinett and Pierce J. Flynn as directors of the Company, and (2) to transact such other business as may properly be brought before the meeting or any adjournment thereof.
All proxies may be revoked and execution of the accompanying proxy will not affect a stockholder’s right to revoke it by giving written notice of revocation to the Secretary at any time before the proxy is voted or by the mailing of a later-dated proxy. Any stockholder attending the meeting in person may vote his or her shares even though he or she has executed and mailed a proxy. A majority of all of the issued and outstanding shares of the Company’s common stock is required to be present in person or by proxy to constitute a quorum. Directors are elected by a plurality. The favorable vote of the holders of a majority of the shares of common stock represented in person or by proxy at the meeting is required to approve or adopt the other proposals presented to the meeting.
This proxy statement is being solicited by the Board of Directors of the Company. The expense of making this solicitation is being paid by the Company and consists of preparing, assembling and mailing the Notice of Meeting, proxy statement and Proxy, tabulating returns of proxies, and charges and expenses of brokerage houses and other custodians, nominees or fiduciaries for forwarding documents to stockholders. In addition to solicitation by mail, officers and regular employees of the Company may solicit proxies by telephone, facsimile or in person without additional compensation therefor.
PROPOSAL NO. 1—ELECTION OF DIRECTORS
Election of Directors
The Company’s Bylaws provide that the Board of Directors shall consist of from three to nine persons as fixed by the Board. Seven persons have been nominated to serve as directors to hold office until the next annual meeting or until their successors shall be duly elected and qualified. It is intended that proxies in the form enclosed granted by the stockholders will be voted, unless otherwise directed, in favor of electing the following persons as directors: John C. Fanning, Harry V. Maccarrone, Rosemary Maniscalco, Kenneth J. Daley, Daniel Raynor, Gordon Robinett and Pierce J. Flynn.
Unless you indicate to the contrary, the persons named in the accompanying proxy will vote it for the election of the nominees named above. If, for any reason, a nominee should be unable to serve as a director at the time of the meeting, which is not expected to occur, the persons designated herein as proxies may not vote for the election of any other person not named herein as a nominee for election to the Board of Directors. See “Information Concerning Directors and Nominees.”
Recommendation
The Board of Directors recommends a vote “FOR” the election of each of the nominees. Proxies solicited by the Board of Directors will be voted in favor of this proposal unless a contrary vote or authority withheld is specified.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Directors and Nominees
Set forth below is information concerning each director and nominee for director of the Company, including his or her business experience during at least the past five years, his or her positions with the Company and the Company’s wholly-owned subsidiary, COMFORCE Operating, Inc. (“COI”), and certain directorships held by him or her. Each nominee, except for Pierce J. Flynn, is currently a director of the Company. There are no family relationships among any of the directors or nominees, nor, except as hereinafter described, are there any arrangements or understandings between any director or nominee and another person pursuant to which he or she was selected as a director or nominee. Each director is to hold office until the next annual meeting of the stockholders or until his or her successor has been elected and qualified.
Name | Age | Current Position with the Company | ||
John C. Fanning | 72 | Chairman of the Board, Chief Executive Officer and Director | ||
Harry V. Maccarrone | 56 | Executive Vice President, Chief Financial Officer, Secretary and Director | ||
Rosemary Maniscalco | 63 | Vice Chairman of the Board and Director | ||
Kenneth J. Daley | 66 | Director | ||
Daniel Raynor | 44 | Director | ||
Gordon Robinett | 68 | Director | ||
Pierce J. Flynn | 67 | Nominee | ||
2
John C. Fanning has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since 1998. From 1997 to 1998 he was President of the Company’s Financial Outsourcing Services and Human Capital Management divisions. Mr. Fanning was the founder of Uniforce Services, Inc. (“Uniforce”) and served as its Chairman, Chief Executive Officer and President and as one of its directors from 1961, the year in which Uniforce’s first office was opened, until its acquisition by the Company in 1997. Mr. Fanning entered the employment field in 1954, when he founded the Fanning Personnel Agency, Inc., his interest in which he sold in 1967 to devote his efforts solely to Uniforce’s operations. He also founded and served as the first president of the Association of Personnel Agencies of New York.
Harry V. Maccarrone has served as Executive Vice President, Secretary and a Director of the Company since 1998 and as the Chief Financial Officer of the Company since 2000. Mr. Maccarrone, who joined Uniforce in 1988 as Assistant Vice President—Finance, served as Vice President—Finance of Uniforce from 1989 to 1997. From 1989 until 1997 he also served as Uniforce’s Treasurer and Chief Financial Officer.
Rosemary Maniscalcohas served as the Vice Chairman of the Company since August 2001 and as a Director of the Company since June 2001. She has also served since 1999 as the president of Corporate ImageMakers, Inc., a consulting company that advises corporations on critical employment and timely workplace issues. Prior thereto, Ms. Maniscalco served with Uniforce from 1981 until its 1997 merger with the Company, including as a member of Uniforce’s Board of Directors (from 1984 to 1997) and as its president and chief operating officer (from 1992 to 1997). Following Uniforce’s merger with the Company, she served as the president of the Company’s Staff Augmentation division until 1999.
Kenneth J. Daleyhas served as a Director of the Company since 1999. From 1957 until his retirement in 1998, Mr. Daley held various positions with Chase Manhattan Bank (“Chase”) and, prior to its acquisition by Chase, Chemical Banking Corporation, most recently as Division Executive responsible for middle market business in the Long Island region. He currently serves as a director of National Medical Health Card Systems Inc., a provider of prescription benefit management services, a trustee of Briarcliff College and a trustee of Long Island Catholic Charities.
Daniel Raynor has served as a Director of the Company since 1998. He is a managing partner of The Argentum Group, a private equity firm, a position he has held since 1987. Mr. Raynor also serves as a director of NuCO2, Inc. and TCI Solutions, Inc., both of which are reporting companies under the Securities Exchange Act of 1934. In addition, Mr. Raynor serves on the boards of several privately-held companies. He received a B.S. in economics from The Wharton School, University of Pennsylvania.
Gordon Robinett has served as a Director of the Company since 1998. He is currently a consultant to Command Security, a security services firm based in Poughkeepsie, New York. Mr. Robinett retired as the vice president—finance and treasurer of Uniforce in 1989, after more than 20 years of service.
Pierce J. Flynn has served as Vice President—Investments of Legg Mason Wood Walker, Inc., New York City, since March 2003. He previously served as the President and Chief Executive Officer of Melhado, Flynn & Associates, Inc., a New York City-based broker-dealer and investment adviser firm, during his association with that firm from 1977 until December 2002.
Meetings of the Board of Directors
In fiscal 2003, the Board of Directors of the Company conducted five meetings. Each director of the Company attended at least 75% of the meetings held during the time he or she served as director.
3
Committees
The standing committees of the Board of Directors include the Audit Committee, the Stock Option and Compensation Committee and the Nominating Committee,.
The Audit Committee has responsibility for performing all functions customarily performed by audit committees of public companies, including without limitation recommending independent auditors to be retained by the Company; conferring with the independent auditors regarding their audit of the Company’s financial statements and other financial matters; reviewing the fees of such auditors and other terms of their engagement; considering the adequacy of internal financial controls and the results of fiscal policies and financial management of the Company; recommending changes in financial policies or procedures as suggested by the auditors; and performing such other functions and duties as may be charged to or expected of it by the Securities and Exchange Committee and the American Stock Exchange. The current members of the Audit Committee, Messrs. Daley, Robinett and Raynor, are independent directors as defined by the rules of the American Stock Exchange. The Audit Committee held four meetings during fiscal 2003. All of the members of the Committee attended at least 75% of these meetings.
The Company’s Board of Directors has determined that the Committee has at least one “audit committee financial expert” within the meaning of the rules of the Securities and Exchange Commission adopted under the Sarbanes-Oxley Act of 2002. See “Report of the Audit Committee.”
The Stock Option and Compensation Committee has responsibility for administering the Company’s Long-Term Investment Plan and 2002 Stock Option Plan and awarding and fixing the terms of stock option grants thereunder, and for reviewing and approving executive and employee salaries, bonuses, non-cash incentive compensation and benefits,. During fiscal 2003, the Committees functions were performed by two separate committees—the Stock Option Committee and the Compensation Committee—that were consolidated in March 2004. Messrs. Daley and Robinett are currently members of the Committee and during fiscal 2003 served as members of each of the constituent committees, each of which acted on one occasion by unanimous consent.
The Nominating Committee will have responsibility for nominating individuals to serve on the Company’s Board of Directors after the current annual meeting. The Committee was formed in March 2004 in order to meet the requirements of the American Stock Exchange that the Company have a nominating committee by the time of the annual meeting of shareholders on June 9, 2004. Messrs. Daley and Robinett, the initial members of the Committee, are independent directors within the meaning of the rules of the American Stock Exchange. The Company and the Committee will adopt a charter describing, among other things, the qualities and skills that the Company believes are prerequisites to membership on the Board and the specific, minimum requirements that any Committee-recommended nominee must meet, and will adopt policies addressing, among other things, the consideration of candidates recommended by shareholders and the process by which nominees will be identified and evaluated. Neither a charter nor any policies have yet to be adopted, but they will be adopted by the date of the shareholders meeting and will be in place for the fiscal 2005 annual meeting and any earlier interim appointments.
For the annual meeting of shareholders on June 9, 2004, all of the directors participated in the nominating process. The only non-incumbent nominee for the current shareholders meeting, Pierce J. Flynn, was identified by John C. Fanning, the Company’s Chairman and Chief Executive Officer.
INFORMATION REGARDING EXECUTIVE OFFICERS
The following table sets forth certain information concerning each individual who currently serves as an executive officer or key employee of the Company, including such person’s business experience during at least the past five years and positions held with the Company. Executive officers are appointed by the Board of Directors and serve at the discretion of the Board. There are no family relationships among the executive officers, nor are there any arrangements or understandings between any executive officer and another person pursuant to which he or she was
4
selected as an officer except as may be hereinafter described.
Name | Age | Position | ||
John C. Fanning | 72 | Chairman of the Board, Chief Executive Officer and Director | ||
Harry V. Maccarrone | 56 | Executive Vice President, Chief Financial Officer, Secretary and Director | ||
Robert F. Ende | 45 | Senior Vice President, Finance | ||
Linda Annicelli | 47 | Vice President, Administration | ||
John C. Fanning. See “Information Concerning Directors and Nominees” for additional information concerning Mr. Fanning’s business experience.
Harry V. Maccarrone. See “Information Concerning Directors and Nominees” for additional information concerning Mr. Maccarrone’s business experience.
Robert F. Endehas served as the Company’s Senior Vice President, Finance since April 2002, having previously served as the Company’s Vice President, Finance from 2000 to April 2002, as its Vice President of Financial Services from 1999 to 2000 and as its Vice President and Controller from the time of Uniforce’s merger with the Company in 1997 until 1999. Mr. Ende previously served as the Controller of Uniforce from 1994 to 1997. Prior to joining Uniforce, he held various financial executive positions in the service industry from 1983 to 1994. Mr. Ende was associated with Ernst & Young from 1980 to 1983 and is a certified public accountant.
Linda Annicellihas served as the Company’s Vice President, Administration since 1999, having previously served as the Company’s General Manager and Director of Corporate Services from 1998 to 1999 and as its General Manager from the time of Uniforce’s merger with the Company in 1997 until 1998. Prior thereto, Ms. Annicelli held various marketing and administrative positions with Uniforce, including as General Manager from 1992 to 1997 and as Director of Communications and Administration from 1989 to 1992.
EXECUTIVE COMPENSATION
Director Compensation and Arrangements
During fiscal 2003, all directors received fees of $10,000 ($2,500 per quarter). In addition to this cash compensation, during fiscal 2003 each director received options to purchase 10,000 shares of common stock under the Company’s Long-Term Stock Investment Plan at an exercise price of $0.66 per share. Each director is entitled to receive options to purchase 10,000 shares of the Company’s common stock upon his or her initial election to the Board and, annually thereafter, upon his or her re-election to the Board, at an exercise price equal to the market price on the date of grant. All of the options awarded to date are for terms of 10 years, subject to earlier termination under certain circumstances as provided in the Plan.
Executive Officer Compensation
The following table shows all compensation paid by the Company and its subsidiaries for the fiscal years ended December 28, 2003, December 29, 2002 and December 30, 2001 to (1) the person who has served as the chief executive officer of the Company throughout fiscal 2003 (John C. Fanning) and (2) the three other persons who served as executive
5
officers of the Company during fiscal 2003 and whose income exceeded $100,000 (collectively, the “Named Executive Officers”).
Summary Compensation Table (1)
| Annual Compensation | Long Term Compensation | ||||||||||
Name and Position | Year | Salary ($) | Bonus ($) | Securities Underlying Options/SAR’s (#) | All Other Compensation ($)(2) | ||||||
John C. Fanning, Chairman and Chief Executive Officer | 2003 2002 2001 | 391,606 389,877 389,877 | — — — | 10,000 85,000 10,000 | (3) (4) (5) | 24,397 23,961 33,501 | |||||
Harry V. Maccarrone, Executive Vice President, Chief Financial Officer and Secretary | 2003 2002 2001 | 257,500 258,558 249,524 | — — — | 10,000 85,000 10,000 | (3) (4) (5) | 10,355 8,483 17,440 | |||||
Robert F. Ende, Senior Vice President, Finance | 2003 2002 2001 | 170,000 170,077 163,760 | 25,000 — — | — 50,000 — | (6) | 7,595 7,296 8,610 | |||||
Linda Annicelli, Vice President, Administration | 2003 2002 2001 | 143,000 144,116 139,608 | — — — | — 15,000 — | (6) | 2,873 2,994 2,950 | |||||
| (1) | Does not include perquisites and other personal benefits, securities or other property, if any, received by any such executive officer which did not exceed the lesser of $50,000 or 10% of such executive officer’s salary and bonus for the year indicated. |
| (2) | Represents deferred compensation under deferred compensation arrangements. |
| (3) | Represents options to purchase the Company’s common stock at an exercise price of $0.66 per share. |
| (4) | Represents options to purchase the Company’s common stock at an exercise price of $1.10 per share for 10,000 shares and $1.45 for 75,000 shares. |
| (5) | Represents options to purchase the Company’s common stock at an exercise price of $1.50 per share. |
| (6) | Represents options to purchase the Company’s common stock at an exercise price of $1.45 per share. |
Option Awards and Values
In 1993, the Company adopted with stockholder approval a Long-Term Stock Investment Plan (the “1993 Plan”) which authorized the grant of options to purchase up to 5,000,000 shares of the Company’s common stock to executives, key employees and agents of the Company and its subsidiaries. All executive officers and other officers, directors and employees, as well as independent agents and consultants, of the Company and its subsidiaries were eligible to participate
6
in the 1993 Plan and to receive grants made before December 31, 2002. Effective as of December 31, 2002, the Company can no longer make option grants under the 1993 Plan.
In 2002, the Company adopted with stockholder approval the 2002 Stock Option Plan (the “2002 Plan”) which authorizes the grant of options to purchase up to 1,000,000 shares of the Company’s common stock to executives, key employees and agents of the Company and its subsidiaries. All executive officers and other officers, directors and employees, as well as independent agents and consultants, of the Company and its subsidiaries are eligible to participate in the 2002 Plan and to receive grants.
The following table shows options awarded to the Named Executive Officers under the 2002 Plan in fiscal 2003 and the assumed appreciated value of such options. None of the Named Executive Officers received stock appreciation rights in fiscal 2003.
Option Grants in Fiscal Year 2002
Number of Securities Underlying Option/ Granted | % of Total Options/ Granted Employees in Fiscal | Exercise ($/Sh) | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (1) | ||||||||||
| 5% ($) | 10% ($) | |||||||||||||
John C. Fanning | 10,000 | 16.7 | % | $ | 0.66 | 8/13/2013 | 4,600 | 11,300 | ||||||
Harry V. Maccarrone | 10,000 | 16.7 | % | $ | 0.66 | 8/13/2013 | 4,600 | 11,300 | ||||||
| (1) | The potential realizable value shown is calculated based upon appreciation of the Company’s common stock issuable under options, calculated over the full term of the options assuming 5% and 10% annual appreciation in the value of the common stock from the date of grant, net of the exercise price of the options. |
The following table shows information concerning the aggregate number and values of options granted under both the 1993 Plan and the 2002 Plan that were held by the Named Executive Officers as of December 28, 2003. None of the Named Executive Officers holds stock appreciation rights and none of such persons exercised any options in fiscal 2003.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values (1)
Name | Shares Acquired or Exercise (#) | Value Realized ($) | Number of Securities Underlying Options at Fiscal Year End (#) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Fiscal Year End ($) Exercisable/ Unexercisable | |||||
John C. Fanning | — | — | 470,000/35,000 | —/— | (2) | ||||
Harry V. Maccarrone | — | — | 330,000/35,000 | —/— | (2) | ||||
Robert Ende | — | — | 68,333/16,667 | —/— | (2) | ||||
Linda Annicelli | — | — | 35,000/5,000 | —/— | (2) |
| (1) | This information is presented as of December 28, 2003. |
7
| (2) | The exercise prices of these options are less than the closing market price of the Company’s common stock on December 28, 2003. See the notes to the “Summary Compensation Table” for a description of the terms of the options listed in this table. |
The following table shows additional information concerning options and warrants issued as part of equity compensation plans.
Equity Compensation Plan Information
The following table describes options and warrants issued as part of the Company’s equity compensation plans.
Plan Category | Number of securities to be issued upon exercise of | Weighted- average exercise | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column). | ||||
Equity compensation plans approved by security holders (1) | 3,284,000 | $ | 4.61 | 940,000 | |||
Equity compensation plans not approved by security holders (2) | 724,628 | 2.27 | — | ||||
Total | 4,008,628 | 4.19 | 940,000 | ||||
| (1) | At December 28, 2003, the Company had two equity compensation plans that had been approved by stockholders, the 1993 Plan and the 2002 Plan. Securities shown as being issuable pursuant to outstanding options, warrants and rights in the first column represent option grants made under the 1993 Plan and the 2002 Plan. No options or other rights are issuable under the 1993 Plan after December 31, 2002. Accordingly, the number of securities shown in the third column as being available for future issuance include only the shares of common stock remaining available for issuance under the 2002 Plan upon exercise of options or other rights that may be granted thereunder in future periods. |
| (2) | Includes options to purchase 555,628 shares of the Company’s common stock issued to Austin Iodice and Anthony Giglio, former officer’s of the Company, as settlement of litigation concerning the continuing validity of options originally granted to them under a plan approved by the stockholders. Although these options were issued outside of the 1993 Plan, the Board elected to treat them as issued under the 1993 Plan solely for the purpose of determining the shares remaining available for issuance under the 1993 Plan. The balance of these securities are warrants issued as additional compensation to debtholders for extending credit to the Company. |
Employment Agreements
Effective as of January 1, 1999, the Company entered into an employment agreement with John C. Fanning, Chairman and Chief Executive Officer of the Company. As amended, the agreement provides for a salary of $385,000 per year, subject to annual increases of the higher of 7% or the percentage increase in the Consumer Price Index, annual incentive compensation equal to 5% of the Company’s pre-tax operating income in excess of $2.5 million and less than $3.0 million and 3.5% of the Company’s pre-tax operating income in excess of $3.0 million, and participation in the Company’s benefit programs. As amended to date, the agreement continues until December 31, 2006 and provides for an expense allowance of $30,000 annually, which is non-accountable to the extent documented expenses are less than $30,000. At Mr. Fanning’s request, the agreement was amended to eliminate the salary increases that otherwise would have gone into effect in 2002, 2003 and 2004.
8
The agreement is terminable by the Company only for “just cause,” and imposes customary non-competition and confidentiality restrictions. The agreement provides that, if it is terminated or not extended, other than for just cause, Mr. Fanning will be entitled to a severance payment equal to one year’s compensation (with the bonus calculated at the highest rate during the last three years) and reimbursement for health insurance costs for three years. Furthermore, the agreement provides that, if Mr. Fanning resigns within one year following a “change of control,” or if the agreement is terminated or not extended within three years following a change of control, other than for just cause, he will be entitled to receive three times the amount of the Company’s pension, deferred compensation and like contributions made by the Company on his behalf, if any, and his annual base salary and bonus (calculated at the highest rate during the last three years). In addition, in the event the agreement is terminated or not extended prior to a change of control or within three years after a change of control, other than for just cause, or if Mr. Fanning resigns within one year after a change of control, all unvested stock options shall immediately vest and remain exercisable throughout their original term. Mr. Fanning is also entitled to receive a payment equal to the excise taxes payable by him in respect of any of the termination payments described above plus a “gross up” payment based on projected federal, state and local income taxes payable by him due to his receipt of this additional compensation.
Effective as of January 1, 1999, the Company entered into an employment agreement with Harry V. Maccarrone, who then served as the Company’s Executive Vice President and Secretary of the Company. As amended to date, the agreement provides for a salary of $278,100 per year, subject to annual increases of the higher of 7% or the percentage increase in the Consumer Price Index, an expense allowance of $15,000, and participation in the Company’s benefit programs. However, the agreement was amended to limit the salary increase to 3% in 2002, to provide for no salary increase in 2003 and to provide for a salary increase of 8% effective in April 2004. His agreement is in other respects substantially the same as Mr. Fanning’s agreement.
Compensation Committee Interlocks and Insider Participation
Kenneth J. Daley and Gordon Robinett serve on the Company’s Stock Option and Compensation Committee. There are no interlocking relationships, as defined in the regulations of the Securities and Exchange Commission, involving any of these individuals.
Performance Information
Set forth below in tabular form is a comparison of the total stockholder return (annual change in share price plus dividends paid, assuming reinvestment of dividends when paid) assuming an investment of $100 on the starting date for the period shown for the Company, the Dow Jones US Total Market Index (a broad equity market index which includes the stock of companies traded on the American Stock Exchange) and the Dow Jones US Industrial Services Index (an industry index which includes providers of staffing services).
No dividends were paid on the Company’s common stock during the period shown. The return shown is based on the percentage change from December 31, 1998 through December 28, 2003.
9
| Cumulative Total Return ($) | ||||||||||||
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |||||||
COMFORCE CORPORATION | 100.00 | 53.49 | 32.56 | 20.47 | 10.70 | 10.05 | ||||||
DOW JONES US TOTAL MARKET | 100.00 | 122.72 | 111.35 | 99.17 | 76.03 | 98.54 | ||||||
DOW JONES US INDUSTRIAL SERVICES | 100.00 | 129.61 | 82.99 | 85.37 | 62.60 | 76.52 | ||||||
REPORT OF THE COMPENSATION COMMITTEE
Overview and Philosophy
The Company’s executive compensation policy is to provide compensation to employees at such levels as will enable the Company to attract and retain employees of the highest caliber, to compensate employees in a manner best calculated to recognize individual, group and Company performances and to seek to align the interests of the employees with the interests of the Company’s stockholders. The Stock Option and Compensation Committee has responsibility for administering the Company’s stock option plans (the 1993 Plan and the 2002 Plan) and for reviewing and approving executive and employee salaries, bonuses, non-cash incentive compensation and benefits. Under the 2002 Plan, the Committee awards incentive stock options, non-qualified stock options and stock appreciation rights to key management personnel for the purpose of creating incentives for such persons to seek to maximize stockholder value. The 2002 Plan is also intended to aid in attracting persons of outstanding ability to enter and remain in the employ of the Company. During fiscal 2003, option grants were made to directors. During fiscal 2002, option grants were awarded to specific key managers based on the salary ranges applicable to such officers and employees at the time of the award and various subjective factors such as the executive’s responsibilities, individual performance and anticipated contribution to the Company’s performance. Kenneth Daley and Gordon Robinett currently serve on the Stock Option and Compensation Committee.
Compensation of Executive Officers
Salary determinations for executive officers are based upon various subjective factors such as the executive’s responsibilities, position, qualifications, individual performance and experience. The Company did not utilize quantitative measures of Company or individual performance for purposes of fixing the salaries or bonuses of its executives except as described below under “—Compensation of Chief Executive Officer.”
Compensation of Chief Executive Officer
John C. Fanning was appointed as the Company’s Chief Executive Officer in October 1998. In determining the appropriate compensation for Mr. Fanning, the Compensation Committee (now known as the Stock Option and Compensation Committee) engaged PricewaterhouseCoopers LLP to undertake an analysis of the salaries and incentive compensation paid to the chief executive officers of 15 other public staffing companies with annual revenues of from $142 million to $7.2 billion. To ensure comparability, the report size-adjusted the compensation data from these companies through regression analysis and reported competitive practices at the 50th and 75th percentile pay levels. In
10
considering Mr. Fanning’s compensation and the terms of his employment agreement with the Company, the Committee considered this report and considered the size and earnings history of the Company as compared to the companies listed in the report. The Committee also considered various subjective factors such as Mr. Fanning’s responsibilities, position, qualifications and experience. The Committee approved Mr. Fanning’s employment agreement in January 1999.
The Committee subsequently approved a restructuring of Mr. Fanning’s compensation to lower his base salary and create greater performance incentives, and the Company and Mr. Fanning entered into an amendment to his employment agreement to reflect these terms in March 2000. In the fourth quarter of 2000, the Committee again reviewed Mr. Fanning’s compensation and concluded that the revised terms did not fairly compensate him in challenging market conditions. Accordingly, the Committee recommended that the Company enter into an amendment to his employment agreement to restore the original compensation terms. This amendment was executed in January 2001.
The decisions of the Committee to approve the restructured term, to subsequently restore the original terms, to extend the term of the agreement on several occasions (most recently in 2004 to extend the term by one year until December 31, 2006) and to provide for an expense allowance were based in each instance upon various subjective factors, including Mr. Fanning’s qualifications and years of experience and the perceived benefits to the Company’s stockholders of performance incentives. In no instance did the Committee undertake a new survey or analysis of the compensation paid to chief executives by other similarly situated companies.
At Mr. Fanning’s request, the agreement was amended to (i) eliminate the salary increases that otherwise would have gone into effect in January 2002, 2003 and 2004 and to (ii) ensure that he would realize no benefit from an increase in pre-tax operating income resulting from the elimination of goodwill amortization in accordance with the Financial Accounting Standards Board Statement No. 142,Goodwill and Other Intangible Assets.
Deductibility of Compensation
Under Section 162(m) of the Code, the Internal Revenue Service will generally deny the deduction of compensation paid to certain executives to the extent such compensation exceeds $1 million, subject to an exception for compensation that meets certain “performance-based” requirements. The Company has taken actions designed to increase its opportunity to deduct all compensation paid to highly compensated officers for federal income tax purposes. However, no assurance can be given that such actions will ensure the deductibility for federal income tax purposes of all executive compensation paid by the Company. Furthermore, neither the Board nor the Compensation Committee subscribes to the view that any executive’s compensation should be limited to the amount deductible if such executive deserves compensation in excess of $1 million and it is not reasonably practicable to compensate him or her in a manner such that the compensation payable is fully deductible by the Company.
Stock Option and Compensation Committee:
Kenneth J. Daley
Gordon Robinett
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of three independent directors and operates under a written Audit Committee Charter adopted by the Board of Directors in accordance with rules of the American Stock Exchange. As part of its annual review of the Audit Committee Charter, in November 2002, the Board of Directors amended and restated the Audit Committee Charter to reflect (i) the Sarbanes-Oxley Act of 2002, (ii) current thinking on the proper role of an audit committee as part of the corporate governance structure, and (iii) proposed amendments to the rules of the American Stock Exchange. The Audit Committee Charter was again amended in April 2004 to reflect the final rules of the American Stock Exchange as approved by the Securities and Exchange Commission. The Audit Committee Charter, as amended and restated in April 2004, is set forth as Annex A to this proxy statement.
11
The Committee recommends to the Board of Directors the selection of the Company’s independent auditors. Management is responsible for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. The Company’s Board of Directors has determined that the Committee has at least one “audit committee financial expert” within the meaning of the rules of the Securities and Exchange Commission adopted under the Sarbanes-Oxley Act of 2002.
In this context, the Audit Committee has met and held discussions with management and the independent auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Audit Committee discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Company’s independent auditors also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent auditors that firm’s independence.
Based upon the Audit Committee’s discussion with management and the independent auditors and the Audit Committee’s review of the representations of management and the report of the independent auditors to the Audit Committee, the Audit Committee made a recommendation whether the Board of Directors should include the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 28, 2003 to be filed with the Securities and Exchange Commission.
The Audit Committee also considered whether the provision of non-audit services is compatible with maintaining the principal auditors’ independence.
Audit Committee:
Kenneth J. Daley
Daniel Raynor
Gordon Robinett
12
PRINCIPAL STOCKHOLDERS
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares and percentage of common stock known to the Company (based upon representations made to it or public filings with the Securities and Exchange Commission) to be beneficially owned as of April 28, 2004 by (i) each person who beneficially owns more than 5% of the shares of common stock, (ii) each director and executive officer of the Company, and (iii) all directors and executive officers of the Company as a group. Unless stated otherwise, each person so named exercises sole voting and investment power as to the shares of common stock so indicated. Unless otherwise indicated below, the business address for each person shown is 415 Crossways Park Drive, P.O. Box 9006, Woodbury, NY 11797. There were 16,669,402 shares of common stock issued and outstanding as of April 28, 2004.
Name and Address of Beneficial Owner | Number (1) | Percentage (1) | |||
Management: | |||||
John C. Fanning (2)(3) | 4,953,201 | 28.8 | % | ||
Harry V. Maccarrone, individually (4) | 375,552 | 2.2 | % | ||
Harry V. Maccarrone, as trustee of the John C. Fanning Irrevocable Trust (4) | 5,028,179 | 30.2 | % | ||
Rosemary Maniscalco (3)(5) | 70,000 | * | |||
Daniel Raynor (6) | 60,000 | * | |||
Gordon Robinett (7) | 61,043 | * | |||
Kenneth J. Daley (8) | 54,000 | * | |||
Robert Ende (9) | 88,422 | * | |||
Linda Annicelli (10) | 42,031 | * | |||
Directors and officers as a group (11) | 6,308,427 | 35.3 | % | ||
Other Significant Stockholders: | |||||
ARTRA GROUP Incorporated (12) 500 Central Avenue Northfield, Illinois 60093 | 1,525,500 | 9.2 | % | ||
Alberta, Canada Alberta Treasury, Room 530 Terrace Building 9515 107th Street Edmonton, Alberta T5K 2C3 | 1,400,000 | 8.4 | % | ||
| * | Less than 1% |
| (1) | For purposes of this table, shares are considered “beneficially owned” if the person directly or indirectly has the sole or shared power to vote or direct the voting of the securities or the sole or shared power to dispose of or direct the disposition of the securities. A person is also considered to beneficially own shares that such person has the right to acquire within 60 days, and options exercisable within such period are referred to herein as “currently exercisable.” |
| (2) | The shares beneficially owned by Mr. Fanning, the Chairman and Chief Executive Officer of the Company, are (i) 24,200 shares currently held of record by him, (ii) 3,795,162 shares owned by the John C. Fanning Irrevocable Trust, of which Mr. Fanning is the beneficiary, (iii) 628,839 shares held by a limited partnership of which the John C. Fanning Irrevocable Trust is the general partner, (iv) 200,000 shares issuable upon exercise of a currently exercisable option at an exercise price of $5.25 per share, (v) 200,000 shares issuable upon exercise of a currently exercisable option at an exercise price of $2.00 per share, (vi) 10,000 shares issuable to |
13
| him upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, (vii) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.10 per share, (viii) 75,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.45 per share, and (ix) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $0.66 per share. Harry V. Maccarrone holds sole voting power with respect to the shares held by the limited partnership and the John C. Fanning Irrevocable Trust. |
| (3) | Not included in the shares beneficially owned by John C. Fanning are up to 11,565,276 shares of common stock issuable upon conversion of the Convertible Notes, the Series 2003A Preferred Stock or the Series 2003B Preferred Stock held by the Fanning CPD Assets, LP, a limited partnership in which John C. Fanning holds a 51.0% economic interest. Ms. Maniscalco is the general partner of this limited partnership. Under their terms, none of the Convertible Notes, the Series 2003A Preferred Stock or the Series 2003B Preferred Stock can be converted into common stock if the conversion would result in the occurrence of a “change of control” under the indenture governing the Senior Notes. In such case, the Convertible Notes, the Series 2003A Preferred Stock and the Series 2003B Preferred Stock are convertible into shares of non-voting participating preferred stock having a liquidation preference of $0.01 per share (but no other preferences) to be created by the Company. This participating preferred stock will in turn be convertible into common stock (on the same basis as if a direct conversion had been permitted) once the same restrictions are removed. As a result of Mr. Fanning’s current beneficial ownership position, a conversion into common stock is not permitted, nor is anticipated that it will be permitted prior to the repayment of the Senior Notes, which mature on December 1, 2007. |
| (4) | The shares beneficially owned by Mr. Maccarrone, Executive Vice President, Chief Financial Officer and Secretary of the Company, are (i) 10,552 shares currently held of record by him, (ii) 30,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $7.00 per share, (iii) 100,000 shares issuable upon exercise of a currently exercisable option at an exercise price of $5.25 per share, (iv) 130,000 shares issuable upon exercise of three currently exercisable options at an exercise price of $2.00 per share, (v) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, (vi) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.10 per share, (vii) 75,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.45 per share, (viii) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $0.66 per share, (ix) 3,795,162 shares owned by the John C. Fanning Irrevocable Trust, of which Mr. Maccarrone is the trustee, and (x) 1,233,017 shares held by a limited partnership of which the John C. Fanning Irrevocable Trust is the general partner. Harry V. Maccarrone holds sole voting power with respect to the shares held by the limited partnership and the John C. Fanning Irrevocable Trust. |
| (5) | The shares beneficially owned by Ms. Maniscalco, the Vice Chairman and a Director of the Company are (i) 15,000 shares currently held of record by her, (ii) 10,000 shares issuable to her upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, (iii) 10,000 shares issuable to her upon the exercise of a currently exercisable option at an exercise price of $1.10 per share, (iv) 25,000 shares issuable to her upon the exercise of a currently exercisable option at an exercise price of $1.45 per share, and (v) 10,000 shares issuable to her upon the exercise of a currently exercisable option at an exercise price of $0.66 per share |
| (6) | The shares beneficially owned by Mr. Raynor, a Director of the Company, are (i) 10,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $4.94 per share, (ii) 10,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $3.13 per share, (iii) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.75 per share, (iv) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, (v) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.10 per share, and (vi) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $0.66 per share. |
14
| (7) | The shares beneficially owned by Mr. Robinett, a Director of the Company, are (i) 1,043 shares owned of record, (ii) 10,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $4.94 per share, (iii) 10,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $3.13 per share, (iv) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.75 per share, (v) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, (vi) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.10 per share, and (vii) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $0.66 per share. |
| (8) | The shares beneficially owned by Mr. Daley, a Director of the Company, are (i) 14,000 shares held of record in an individual retirement account, (ii) 10,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $3.13 per share, (iii) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.75 per share, (iv) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.50 per share, and (v) 10,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $0.66 per share. |
| (9) | The shares beneficially owned by Mr. Ende, Senior Vice President, Finance of the Company, are (i) 3,422 shares owned of record by him, (ii) 5,000 shares issuable to him upon exercise of a currently exercisable option at an exercise price of $10.00 per share, (iii) 30,000 shares issuable to him upon the exercise of currently exercisable options at an exercise price of $2.00 per share and (iv) 50,000 shares issuable to him upon the exercise of a currently exercisable option at an exercise price of $1.45 per share. |
| (10) | The shares beneficially owned by Ms. Annicelli, the Vice President, Administration of the Company, are (i) 2,031 shares owned of record by her, (ii) 5,000 shares issuable to her upon exercise of a currently exercisable option at an exercise price of $10.00 per share, (iii) 20,000 shares issuable to her upon the exercise of currently exercisable options at an exercise price of $2.00 per share, and (iv) 15,000 shares issuable to her upon the exercise of a currently exercisable option at an exercise price of $1.45 per share. |
| (11) | The shares shown to be beneficially owned by the directors and officers as a group include shares held of record by them or an affiliate and shares issuable upon the exercise of options. |
| (12) | ARTRA Group Incorporated, a Delaware corporation, presently owns all of such shares of record directly or through a wholly-owned subsidiary, Fill-Mor Holding, Inc. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, certain of its officers and persons who own more than 10% of the Company’s common stock to file reports of ownership and changes in ownership with the SEC. Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, the Company believes that all Section 16(a) filing requirements applicable to persons who are officers or directors of the Company or holders of 10% of the Company’s common stock were complied with in fiscal 2003 except that Form 4s were not filed for John Fanning on two occasions in fiscal 2003 to report the acquisition by the Fanning Partnership of the Convertible Notes and the Series 2003A Preferred Stock (and the non-voting preferred shares into which they are convertible), which transactions have since been reported on a Form 4. These transactions had previously been reported in the Company’s periodic reports.
15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Convertible Notes Transaction: In September 2001, the Company completed the exchange of $18.0 million principal amount of its PIK Debentures for Convertible Notes in the principal amount of $8.0 million, plus $1.0 million in cash. The Fanning Partnership was the holder of the $18.0 million PIK Debentures that were exchanged for the Convertible Notes and cash. The purpose of this transaction was to improve the Company’s balance sheet through the exchange of higher interest rate debt (15% per annum) for lower interest rate debt (8% per annum) and elimination of $9.0 million of debt. The Company’s offer to exchange PIK Debentures for Convertible Notes was extended to all holders of the PIK Debentures, but no other holder of PIK Debentures accepted the Company’s offer on these terms. The Company obtained the opinion of an independent investment banking firm that this transaction was fair to the Company from a financial point of view, and the Company’s independent directors approved the terms of the transaction.
The Fanning Partnership had purchased these PIK Debentures from unaffiliated third parties in arm’s length transactions. The consideration paid by the Company to the Fanning Partnership for the principal amount of the PIK Debentures exchanged in this transaction approximated in value the consideration that the Fanning Partnership had previously been paid to the unaffiliated third party sellers of the PIK Debentures. The Company’s exchange transaction with the Fanning Partnership was treated as a gain on the extinguishment of debt and not as a contribution to capital since the Fanning Partnership purchased the PIK Debentures (it later exchanged for the Convertible Notes) from the unaffiliated parties at a discount and the Company received the benefits of this pricing in its transaction with the Fanning Partnership.
The Convertible Notes currently permit payment of semi-annual interest on an in-kind basis until December 1, 2004 through the issuance of additional Convertible Notes. To date, the Company has issued additional Convertible Notes to the Fanning Partnership in the aggregate principal amount of $1.4 million as in-kind interest payments. The Convertible Notes are convertible into the Company’s common stock based on a price of $1.70 per share of common stock, provided that if such conversion would result in a “change of control” occurring under the terms of the indenture governing the Senior Notes, the Convertible Notes will be convertible into shares of non-voting participating preferred stock having a nominal liquidation preference (but no other preferences), which in turn will be convertible into common stock at the holder’s option at any time so long as the conversion would not result in a change of control.
In March 2004, the Fanning Partnership agreed to extend the payment-in-kind terms under the Convertible Notes from the original termination date on December 1, 2003 for one additional year. The Company’s board has directed management, in consultation with an independent financial advisor, to advise the board as to appropriate consideration to pay to the holder for agreeing to this accommodation. This consideration will be recorded in fiscal 2004.
Series 2003A Preferred Stock Transaction: In February 2003, the Company issued $6.1 million face amount (6,100 shares) of its new Series 2003A Preferred Stock having a fair market value of $4.3 million in exchange for $12.3 million of its outstanding PIK Debentures (including accrued interest) from the Fanning Partnership. The purpose of this transaction was to improve the Company’s balance sheet through the elimination of higher interest rate debt through the issuance of equity securities. The Company’s offer to exchange PIK Debentures for Series 2003A Preferred Stock was extended to all holders of the PIK Debentures, but no other holder of PIK Debentures accepted the Company’s offer on these terms. The Company obtained the opinion of an independent investment banking firm that the terms of the exchange transaction with the Fanning Partnership were fair to the Company from a financial point of view, and the Company’s independent directors approved the terms of the transaction.
The Fanning Partnership had purchased these PIK Debentures from unaffiliated third parties in arm’s length transactions. The consideration paid by the Company to the Fanning Partnership for the principal amount of the PIK Debentures exchanged in this transaction approximated in value the consideration that the Fanning Partnership had previously been paid to the unaffiliated third party sellers of the PIK Debentures. The Company’s exchange transaction with the Fanning Partnership was treated as a gain on the extinguishment of debt and not as a contribution to capital since the Fanning Partnership purchased the PIK Debentures (it later exchanged for the Series 2003A Preferred Stock) from the unaffiliated parties at a discount and the Company received the benefits of this pricing in its transaction with the Fanning Partnership.
16
Series 2003B Preferred Stock Transaction: In September 2003, the Company issued shares of its Series 2003B Preferred Stock having a face amount and fair market value of $513,000 (513 shares) in exchange for $2.0 million aggregate amount of the Convertible Notes. The purpose of this transaction was to improve the Company’s balance sheet through the elimination of higher interest rate debt through the issuance of equity securities. The Company obtained the opinion of an independent investment banking firm that the terms of the exchange transaction with the Fanning Partnership were fair to the Company from a financial point of view, and the Company’s independent directors approved the terms of the transaction.
The consideration paid to the Fanning Partnership in September 2003 for the principal amount of the Convertible Notes exchanged in this transaction was substantially less than the consideration paid by the Fanning Partnership for the securities it had previously exchanged for the Convertible Notes. As a result of this transaction, the Company recorded a contribution to capital in lieu of recognizing a gain on the extinguishment of debt.
The conversion price of $0.54 per share for the Series 2003B Preferred Stock represents the average closing price of the common stock for the 15 trading days immediately preceding the date of the effective date of the transaction (September 26, 2003), it was lower than the $0.82 per share closing price as of the effective date. As a result of this beneficial conversion feature, the Company recorded a preferred stock dividend of $266,000 in the fiscal 2003.
Rights and Preferences of Series 2003A and 2003B Preferred Stock: The rights and preferences of the Series 2003A and Series 2003B Preferred Stock are substantially identical except that conversion price is $1.05 for the Series 2003A Preferred Stock and $0.54 for the Series 2003B Preferred Stock. The conversion price is the price at which a holder of shares of Series 2003A or 2003B Preferred Stock may convert such shares into common stock (or, in certain circumstances, into a participating preferred stock which in turn will be convertible into common stock at the same effective rate). There are 6,500 authorized shares of Series 2003A Preferred Stock, par value $.01 per share, of which 6,148 are outstanding, and 3,500 authorized shares of Series 2003B Preferred Stock, par value $.01 per share, of which 513 are outstanding.
Each share of Series 2003A and 2003B Preferred Stock has a face amount of $1,000, and bears annual cumulative dividends of $75 per share (7.5% per annum). As of December 28, 2003, there were accumulated, unpaid and undeclared dividends of $406,000. Upon liquidation, the holders of the Series 2003A and 2003B Preferred Stock will be entitled to a liquidation preference of $1,000 per share plus the amount of accumulated, unpaid and undeclared dividends before any distributions shall be made to the holders of common stock or any other junior series or class of stock of the Company. Unless the holders of two-thirds of the shares of Series 2003A and 2003B Preferred Stock outstanding shall have otherwise consented, no series or class of preferred stock having rights or preferences that are not junior to the Series 2003A and 2003B Preferred Stock shall be issued by the Company.
The Company can only pay dividends on the Series 2003A and 2003B Preferred Stock if (i) dividends can legally be paid in accordance with Delaware law, (ii) the Company’s Board of Directors, in its discretion upon the exercise of its fiduciary duties, declares that a dividend be paid, (iii) payment of the dividend is permitted under the terms of the PNC Credit Facility, and (iv) the Company has sufficient funds to upstream in accordance with the restricted payments tests under the indenture governing the Senior Notes.
In the event that the conversion of Series 2003A and 2003B Preferred Stock into common stock of COMFORCE would result in either (i) the occurrence of a “change of control” as defined in the indenture governing COI’s Senior Notes, or (ii) require stockholder approval in accordance with the rules and regulations of the Securities and Exchange Commission or the American Stock Exchange (or any other exchange or quotation system on which the Company’s shares are then listed), then the Series 2003A and 2003B Preferred Stock held by such holder shall not be convertible into common stock, but rather shall be convertible into shares of non-voting participating preferred stock having a liquidation preference of $0.01 per share (but no other preferences) to be created by the Company. The participating preferred stock will in turn be convertible into the Company’s common stock (on the same basis as if the conversion to common stock from Series 2003A and 2003B Preferred Stock had occurred directly) if the conversion will not result in a “change of control” as defined in the indenture governing the Senior Notes or require stockholder approval in accordance with the rules and regulations of the Securities and Exchange Commission or the American Stock Exchange
17
(or any other exchange or quotation system on which the Company’s shares are then listed).
Other Transactions: Rosemary Maniscalco, through a company owned by her, provides consulting services to the Company at the rate of $1,100 per day, plus expenses. During fiscal 2003, the Company paid $77,040 for such consulting services. Rosemary Maniscalco, the Vice Chairman of the Company, is the general partner of the Fanning Partnership but holds no pecuniary interest in the Fanning Partnership.
See “Executive Compensation—Employment Agreements” for a description of the employment agreements entered into between the Company and each of John C. Fanning, the Chairman and Chief Executive Officer of the Company, and Harry V. Maccarrone, the Executive Vice President of the Company.
INDEPENDENT AUDITORS
Engagement of Independent Auditor
The Company’s Audit Committee intends to examine proposals from prospective independent auditors to audit its financial statements for the 2004 fiscal year, including from its current independent auditor, KPMG LLP, and therefore will not be submitting to stockholders its recommendation for an auditor. Representatives of KPMG LLP will be present at the meeting, will make a statement if they desire to do so and will be available to respond to appropriate questions that may be asked by stockholders.
Services Provided by the Company’s Independent Auditor
Audit Fees:KPMG LLP billed the Company an aggregate of $193,000 in fiscal 2002 and $237,500 in fiscal 2003 for fees for professional services rendered in connection with the audits of the Company’s financial statements and for the reviews of the financial statements included in each of the Company’s quarterly and annual reports.
Audit-Related Fees: KPMG LLP billed the Company an aggregate of $15,000 in fiscal 2002 for assurance and related services in connection with the audits and reviews of the Company’s financial statements.
Tax Fees: KPMG LLP billed the Company an aggregate of $72,000 in fiscal 2002 and $135,829 in fiscal 2003 for tax compliance, tax advice and tax planning services.
All Other Fees: KPMG LLP did not bill the Company for any other services in fiscal 2002 or 2003 except as described above.
Pre-Approval of Services
In accordance with the requirements of the Securities and Exchange Commission, the American Stock Exchange and the Charter of the Audit Committee included as Annex A to this proxy statement, the Audit Committee must pre-approve all auditing services (which may entail providing comfort letters in connection with securities underwritings) and non-audit services proposed to be provided by the Company’s auditor, except for non-audit services within the permittedde minimus. All of the services described above were pre-approved by the Audit Committee.
STOCKHOLDERS’ PROPOSALS
To be considered for inclusion in the Company’s proxy statement for next year’s annual meeting of stockholders, stockholder proposals must be sent to the Company, directed to the attention of Linda Annicelli, Vice President, Administration, at COMFORCE Corporation, 415 Crossways Park Drive, P.O. Box 9006, Woodbury, New York 11797, for receipt not later than January 15, 2005.
GENERAL AND OTHER MATTERS
Management knows of no matters, other than those referred to in this proxy statement, which will be presented to the meeting. However, if any other matters properly come before the meeting or any adjournment, the persons named in the accompanying proxy will vote it in accordance with their best judgment on such matters.
The Company will bear the expense of preparing, printing and mailing this proxy statement, as well as the cost of any required solicitation. In addition to the solicitation of proxies by use of the mails, the Company may use regular employees, without additional compensation, to request, by telephone or otherwise, attendance or proxies previously solicited.
A copy of the annual report on Form 10-K that accompanies this proxy statement will be posted on the Company’s website: www.comforce.com. In addition, the Company will provide to stockholders upon request, without charge, copies of the exhibits to the annual report. Requests should be submitted to Linda Annicelli, Vice President, Administration, at COMFORCE Corporation, 415 Crossways Park Drive, P.O. Box 9006, Woodbury, New York 11797.
By Order of the Board of Directors
Harry V. Maccarrone, Secretary
Woodbury, New York
April 28, 2004
18
ANNEX A
COMFORCE Corporation
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
as amended and restated effective April 26, 2004
I. Purpose
The Audit Committee (the “Committee” or the “Audit Committee”) of COMFORCE Corporation (the “Corporation”) shall serve as the Corporation’s liaison with the registered public accounting firm engaged on behalf of the Corporation by the Committee (also known as the Corporation’s “auditor”); to assist the Board of Directors in fulfilling its responsibilities by reviewing financial reports and information provided by the Company to any governmental body or to the public; to oversee the Corporation’s systems of internal controls regarding finance and accounting that the Corporation’s chief executive and financial officers establish on behalf of the Corporation; and to otherwise supervise the Corporation’s auditing, accounting and financial reporting processes generally. In performing its duties, the Audit Committee shall be mindful of its need to:
| • | Serve as an independent and objective party to supervise the Corporation’s financial reporting process and monitor its internal controls systems; |
| • | Seek to ensure that the Corporation’s disclosure policies are designed to provide full, fair and prompt disclosure of all material information to the Corporation’s stockholders and the investment community generally; and |
| • | Provide an open avenue of communication among the auditor, all officers, agents and employees of the Corporation, the persons responsible for the internal controls function and the Board of Directors. |
II. Composition
The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors as determined in accordance with the rules of the American Stock Exchange. Without limiting the foregoing, no director shall be deemed independent unless (i) the Board of Directors of the Corporation has affirmatively determined that such director does not have a material relationship with the Corporation that would interfere with the exercise of his or her independent judgment, and (ii) such director satisfies the independence standards specified in Section 121A and Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, each member of the Audit Committee must be able to read and understand fundamental financial statements, including the Corporation’s balance sheet, income statement, and cash flow statement. Furthermore, at least one member of the Audit Committee must be financially sophisticated, in that he or she has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including but not limited to being or having been a chief executive officer, chief financial officer, other senior officer with financial oversight responsibilities. A director who qualifies as an audit committee financial expert under Item 401(h) of Securities and Exchange Commission Regulation S-K shall be presumed to qualify as financially sophisticated.
The members of the Committee shall be elected by the Board at its annual meeting. The members shall elect a Chairperson by majority vote of the full Committee membership.
A-1
III. Meetings
The Committee shall meet at least once quarterly, or more frequently as circumstances dictate. Additionally, the Committee Chairperson shall meet with the auditor and management on a quarterly basis to review the Corporation’s financial information, and shall meet with the persons responsible for the Corporation’s internal controls function annually or more frequently as circumstances may require. To the extent the Committee deems it appropriate to foster candid discussion, it shall meet privately with the auditor and the persons responsible for the Corporation’s internal controls function without the participation of management.
IV. Responsibilities and Duties
A. Review of Reports
1. The Committee shall review and reassess the adequacy of this Charter at least annually and shall revise this Charter as necessary.
2. The Committee shall review the Corporation’s annual financial statements and any other financial information or reports submitted to any governmental body, or the public, including any certification, report, opinion, or review rendered by the auditor.
3. The Committee shall review a summary of findings from completed internal audits and a progress report on the proposed internal audit plan, with explanations for any deviations from the original plan.
4. The Committee shall review with financial management and the auditor the quarterly report prior to its filing or prior to the release of earnings. The Chairperson shall represent the Committee at these meetings.
B. Engagement and Supervision of Auditor
1. The Committee shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by the Corporation (including resolution of any disagreements between management and the auditor regarding financial reporting) for purposes of preparing or issuing an audit report. The Corporation’s auditor shall report directly to the Committee.
2. The Committee shall oversee the independence of the auditor consistent with the Sarbanes-Oxley Act of 2002, the Securities Act of 1933, the Exchange Act, and the rules and regulations of the Public Company Accounting Oversight Board (the “Oversight Board”), the Financial Accounting Standards Board, the American Stock Exchange and the Securities and Exchange Commission, as the same may be applicable and be amended from time to time, and the Committee shall otherwise take, or recommend that the Board of Directors of the Corporation take, appropriate action to oversee the independence of the outside auditor. In fulfilling these obligations, the Committee shall:
| • | be responsible for ensuring its receipt from the outside auditors of a formal written statement delineating all relationships between the auditor and the Corporation, consistent with Independence Standards Board Standard 1; |
| • | actively engage in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor; and |
| • | pre-approve all auditing services (which may entail providing comfort letters in connection with securities underwritings) and non-audit services proposed to be provided by the Corporation’s auditor, except for non-audit services within the de minimus exception under |
A-2
Section 10A(i)(B) of the Exchange Act.
3. In connection with the auditor’s performance of non-audit services, the Committee shall monitor, and shall have authority to designate employees of the Corporation or engage agents to act on its behalf to monitor the non-audit services being performed by the Corporation’s auditor to ensure that the auditor is not performing services that the Committee does not preapprove or are otherwise prohibited under Section 10A(g) of the Exchange Act, including (i) bookkeeping and related services, (ii) financial systems design and implementation, (iii) appraisal or valuation services and fairness opinions, (iv) actuarial services, (v) internal audit outsourcing services, (vi) management and human resource functions, (vii) legal or expert services unrelated to the audit or (viii) such services as the Oversight Board may determine to be impermissible.
C. Financial Reporting Process
1. In consultation with the auditor and the persons responsible for the Corporation’s internal controls function, the Committee shall review the integrity of the Corporation’s financial reporting processes, both internal and external. In this connection, to the extent deemed appropriate, the Committee shall consult with the auditor out of the presence of management about internal controls and the fullness and accuracy of the Corporation’s financial statements.
2. The Committee shall consider the auditor’s judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting.
3. The Committee shall oversee the accounting and financial reporting processes of the Corporation and the audits of the financial statements of the Corporation. The Committee shall consider and approve, if appropriate, major changes to the Corporation’s auditing and accounting principles and practices as suggested by the auditor, management, or the persons responsible for the Corporation’s internal controls function.
4. The Committee shall, following the annual audit, review separately with each of management, the auditor, and the persons responsible for the Corporation’s internal controls function, any significant difficulties encountered during the scope of the audit, including any restriction on the scope of work or access to required information.
5. The Committee shall review with the auditor, the persons responsible for the Corporation’s internal controls function and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.
D. Proxy Statement Report
1. The Committee shall include a Committee report in the Corporation’s proxy statement, including:
(a) whether the Committee has reviewed and discussed the Corporation’s audited financial statements with management;
(b) whether the Committee has discussed with the auditor the matters required to be discussed by SFAS No. 61;
(c) whether the Committee has received the written disclosures and letter from the Corporation’s auditor relating to their independence as required by Independent Standards Board Standard No. 1, and has discussed with the auditor its independence; and
A-3
(d) whether the Committee has recommended to the Board of Directors, based upon the reviews and discussions referenced to in (a), (b) and (c), that the Corporation’s audited financial statements be included in the Corporation’s Annual Report on Form 10-K.
E. Other Authority
1. The Committee shall establish procedures for (i) receiving, retaining and treating complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and (ii) enabling employees to submit on a confidential, anonymous basis their concerns regarding questionable accounting or auditing standards.
2. The Committee shall have the authority to engage independent counsel and other advisers, as it determines to be necessary to carry out its duties.
3. The Committee shall have specific responsibilities, authority and procedures necessary to comply with any rules under the Exchange Act, including without limitation Rule 10A-3(b)(2), (3), (4) and (5).
A-4
PROXY
COMFORCE CORPORATION
Solicited by the Board of Directors for the
2004 Annual Meeting of Stockholders
415 Crossways Park Drive, P.O. Box 9006
Woodbury, New York 11797
The undersigned hereby appoints John C. Fanning and Harry V. Maccarrone as Proxies, each with the power to appoint his substitute, to vote all of the shares of Common Stock of COMFORCE Corporation, a Delaware corporation (the “Company”), held of record by the undersigned on the record date, April 28, 2004, at the 2004 Annual Meeting of Stockholders to be held on June 9, 2004, or any adjournment thereof, as directed and, in their discretion, on all other matters which may properly come before the meeting. The undersigned directs said proxies to vote as specified upon the item shown on the reverse side, which is referred to in the Notice of Annual Meeting and set forth in the Proxy Statement.
Holders of record of the Company’s Common Stock at the close of business on the record date will be entitled to vote at the Annual Meeting. Holders of Common Stock will be entitled to one vote for each share then held. Each stockholder may vote in person or by proxy. All shares represented by proxy will be voted in accordance with the instructions, if any, given in such proxy. A stockholder may withhold authority to vote for any nominee(s) by so indicating on the reverse side.
The votes represented by this proxy will be voted as marked by you. However, if you properly execute and return the proxy unmarked, such votes will be voted FOR all of the nominees. Any proxy that is not properly executed shall be ineffective. Please mark each box with an “x”.
(Continued, and to be marked, dated and signed, on the other side)
ANNUAL MEETING OF STOCKHOLDERS OF
COMFORCE CORPORATION
June 9, 2004
Please date, sign and mail your proxy card in the envelope provided as soon as possible.
Please detach along the perforated line and mail in the envelope provided.
The Board of Directors Recommends a Vote FOR all nominees.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [ x ]
| 1. | Election of Directors: | |||||
| ¨ FOR ALL NOMINEES | NOMINEES: | |||||
| ¨ WITHHOLD AUTHORITY FOR ALL NOMINEES ¨ FOR ALL EXCEPT (See instructions below) | 0 John C. Fanning 0 Harry V. Maccarrone 0 Rosemary Maniscalco 0 Kenneth J. Daley 0 Daniel Raynor 0 Gordon Robinett 0 Pierce J. Flynn | |||||
| The votes represented by this proxy will be voted as marked by you. However, if you execute and return the proxy unmarked, such votes will be voted FOR all of the nominees. Please mark each box with an “x”. | ||||||
| INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: 0 | ||||||
| To change the address on your account, please check the box below and indicate your new address in the address space above. Please note that changes to the registered names) on the account may not be submitted via this method.¨ | ||||||
| Signature of Stockholder Date: | Signature of Stockholder Date: | |||||
| Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as an executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. | ||||||