UNITED STATE 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

Information Required in Proxy Statement

 

Schedule 14a Information

 

Proxy Statement Pursuant to Section 14(a) of The Securities Exchange Act of 1934

 

(Amendment No. )

 

Filed by the Registrant ý

 

Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

¨Preliminary Proxy Statement

 

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ýDefinitive Proxy Statement

 

¨Definitive Additional Materials

 

¨Soliciting Material Under Rule 14a-12

 

COMMAND CENTER, INC.

(Name of Registrant as Specified in Its Charter)
 
 
(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

 

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(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):

 

 

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Color Logo
3609 S. Wadsworth Blvd., Suite 250

Lakewood, Colorado 80235

 

NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

 

To Be Held On July 10, 2019

 

To the Shareholders of Command Center, Inc.:

 

We are pleased to invite you to attend the 2019 Annual Meeting of Shareholders of Command Center, Inc., a Washington corporation (“Command Center” or the “Company”), which will be held at Woolley’s Classic Suites, 16450 E. 40th Circle, Aurora, Colorado 80011 on July 10, 2019 at 2:30 p.m., Mountain Daylight Time (the “Annual Meeting”), for the following purposes:

 

At the Annual Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:

 

1.To approve the election of directors (the “Director Proposal”);

 

2.To approve the reincorporation of the Company in the state of Delaware (the “Reincorporation Proposal”);

 

3.To approve an amendment to the Company’s Articles of Incorporation (i) to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of common stock, par value $0.001 per share (the “Common Stock”), from 8,333,333 to 30,000,000 shares and the authorized shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), from 416,666 to 1,000,000 shares, and (ii) to change the name of the Company to “HireQuest, Inc.” (the “Charter Amendment Proposal”);

 

4.To approve the issuance of shares of the Company’s Common Stock in connection with the Merger and the resulting change of control for purposes of Nasdaq Listing Rule 5635 (the “Nasdaq Proposal”);

 

5.To ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

6.To approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the attached proxy statement (the “Say-on-Pay Proposal”);

 

7.To conduct a non-binding advisory vote to determine the frequency of future advisory votes on executive compensation (the “Say-on-Frequency Proposal”);

 

8.To approve, on a non-binding advisory basis, certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger (the “Change of Control Compensation Proposal”); and

 

 

9.To approve any adjournment of the Annual Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

 

The Company will transact no other business at the Annual Meeting except such business as may properly be brought before the Annual Meeting or any adjournments or postponements thereof. Please refer to the proxy statement of which this notice forms a part for further information with respect to the business to be transacted at the Annual Meeting.

 

As previously disclosed by the Company in its filings with the Securities and Exchange Commission, the Company has entered into a merger agreement with Hire Quest Holdings, LLC and certain other parties. The closing of the contemplated merger is contingent on the approval by our shareholders of the Charter Amendment Proposal and the Nasdaq Proposal.

 

Our Board of Directors recommends that the Company’s shareholders vote “FOR” each of the Board of Directors’ nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary. All of these proposals are described in further detail in the proxy statement.

 

The Company’s Board of Directors has fixed the close of business on June 17, 2019 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Annual Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to receive notice of the Annual Meeting, attend the Annual Meeting and vote on all matters that properly come before the Annual Meeting.

 

Your vote is very important. Whether or not you expect to attend the Annual Meeting in person, we urge you to submit a proxy to vote your shares as promptly as possible. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction form provided by your broker, bank or other nominee.

 

The enclosed proxy statement provides a detailed description of the Merger and the Merger Agreement. We urge you to read this proxy statement, including any documents incorporated by reference, and the Annexes, carefully and in their entirety. If you have any questions concerning the proposed acquisition or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of the Company’s Common Stock, please contact the Company’s proxy solicitor: InvestorCom, LLC by calling (877) 972-0090 or by emailing info@investor-com.com.

 

  By Order of the Board of Directors of the Company,



R. Rimmy Malhotra
Co-Chairman of the Board of Directors
June 18, 2019

 

 

Color Logo
3609 S. Wadsworth Blvd., Suite 250

Lakewood, Colorado 80235

 

YOUR VOTE IS VERY IMPORTANT

 

June 18, 2019

 

To the Shareholders of the Company:

 

I am pleased to invite you to attend the 2019 Annual Meeting of Shareholders of Command Center, Inc., a Washington corporation (“Command Center” or the “Company”), which will be held at Woolley’s Classic Suites, 16450 E. 40th Circle, Aurora, Colorado 80011 on July 10, 2019 at 2:30 p.m., Mountain Daylight Time (the “Annual Meeting”).

 

The Company, CCNI One, Inc., a Florida corporation and a wholly-owned subsidiary of the Company (“Merger Sub 1”), Command Florida, LLC, a Florida limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub 2”), Hire Quest Holdings, LLC, a Florida limited liability company (“Hire Quest”), and, solely for purposes of Sections 5.20(c), 5.20(e) and 5.23 of the agreement, Richard Hermanns, as the representative of the members of Hire Quest, have entered into a merger agreement (the “Merger Agreement”), providing for the acquisition of Hire Quest by the Company. The terms of the Merger Agreement provide that, (i) Merger Sub 1 will be merged with and into Hire Quest (the “First Merger”), with Hire Quest being the surviving entity (the “First Surviving Company”), and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub 2 being the surviving entity (the “Surviving Company”). If the Merger is completed, holders of Hire Quest’s membership interests will receive an aggregate of 9,837,328 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), representing approximately 68% of the Company’s outstanding Common Stock. The Company currently has 4,629,331 shares of Common Stock outstanding. The Merger Agreement also contemplates that the Company will commence a self-tender offer to purchase up to 1,500,000 shares of its Common Stock at a share price of $6.00 per share (the “Offer”). Following completion of the Offer, and assuming the Offer is fully subscribed, the Company will have 12,966,659 shares of Common Stock outstanding, in which case the percentage ownership of Common Stock held by the Hire Quest security holders will increase to approximately 76%.

 

At the Annual Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:

 

1.To approve the election of directors (the “Director Proposal”);

 

2.To approve the reincorporation of the Company in the state of Delaware (the “Reincorporation Proposal”);

 

3.To approve an amendment to the Company’s Articles of Incorporation (i) to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333 to 30,000,000 shares and the authorized shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), from 416,666 to 1,000,000 shares, and (ii) to change the name of the Company to “HireQuest, Inc.” (the “Charter Amendment Proposal”);

 

 

4.To approve the issuance of shares of the Company’s Common Stock in connection with the Merger and the resulting change of control for purposes of Nasdaq Listing Rule 5635 (the “Nasdaq Proposal”);

 

5.To ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

6.To approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the attached proxy statement (the “Say-on-Pay Proposal”);

 

7.To conduct a non-binding advisory vote to determine the frequency of future advisory votes on executive compensation (the “Say-on-Frequency Proposal”);

 

8.To approve, on a non-binding advisory basis, certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger (the “Change of Control Compensation Proposal”); and

 

9.To approve any adjournment of the Annual Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

 

Your vote is very important, regardless of the number of shares of the Company’s Common Stock you own. Whether or not you expect to attend the Annual Meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the Annual Meeting.

 

Our Board of Directors recommended that the Company’s shareholders vote “FOR” each of the Board of Directors’ nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary. All of these proposals are described in further detail in the proxy statement.

 

The obligations of the Company and Hire Quest to complete the Merger are subject to the satisfaction or waiver of several conditions, including shareholder approval of the Charter Amendment Proposal and the Nasdaq Proposal. The proxy statement contains detailed information about the Company, Hire Quest, the Annual Meeting, the Merger Agreement and the Merger. You should read the proxy statement carefully and in its entirety before voting, including the section entitled “Risk Factors” beginning on page 18.

 

I sincerely hope that you will be able to attend the Annual Meeting. However, whether or not you plan to attend, please complete and return the enclosed proxy in the accompanying envelope or vote your shares by telephone or via the Internet. If you hold your shares through your broker or other nominee, please provide voting instructions to your broker or nominee. If you attend the Annual Meeting, you may, if you wish, withdraw any proxy previously given and vote your shares in person.

 

  Sincerely,

R. Rimmy Malhotra
Co-Chairman of the Board of Directors

 

  

PROXY STATEMENT
of
COMMAND CENTER, INC.

 

Annual Meeting of Shareholders to be held on July 10, 2019

 

This proxy statement, which we refer to as the “proxy statement,” of Command Center, Inc., a Washington corporation (“Command Center” or the “Company”), is being used to solicit proxies on behalf of the Company from the Company’s shareholders in connection with the 2019 Annual Meeting of Shareholders of the Company to be held on July 10, 2019 (the “Annual Meeting”). The Company, CCNI One, Inc., a Florida corporation and a wholly-owned subsidiary of the Company (“Merger Sub 1”), Command Florida, LLC, a Florida limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub 2”), Hire Quest Holdings, LLC, a Florida limited liability company (“Hire Quest”), and, solely for purposes of Sections 5.20(c), 5.20(e) and 5.23 of the agreement, Richard Hermanns, as the representative of the members of Hire Quest, have entered into a merger agreement (the “Merger Agreement”), providing for the acquisition of Hire Quest by the Company. The terms of the Merger Agreement provide that, (i) Merger Sub 1 will be merged with and into Hire Quest (the “First Merger”), with Hire Quest being the surviving entity (the “First Surviving Company”), and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub 2 being the surviving entity (the “Surviving Company”). If the Merger is completed, holders of Hire Quest’s membership interests will receive an aggregate of 9,837,328 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), representing approximately 68% of the Company’s outstanding Common Stock. The Company currently has 4,629,331 shares of Common Stock outstanding. The Merger Agreement also contemplates that the Company will commence a self-tender offer to purchase up to 1,500,000 shares of its Common Stock at a share price of $6.00 per share (the “Offer”). Following completion of the Offer, and assuming the Offer is fully subscribed, the Company will have 12,966,659 shares of Common Stock outstanding, in which case the percentage ownership of Common Stock held by the Hire Quest security holders will increase to approximately 76%.

 

In evaluating the Merger, the Board considered a number of factors including:

 

·Hire Quest’s superior financial performance over time on a combined company basis;

 

·The possible alternatives to the Merger, including maintaining the status quo, conducting a stock repurchase or undertaking a recapitalization, which alternatives our Board of Directors (the “Board”) determined were less favorable to our shareholders than the Merger, given the potential risks, rewards and uncertainties associated with those alternatives;

 

·The strategic and financial benefits that could potentially arise from the combination of Hire Quest and the Company;

 

·The expectation that the Merger will strengthen the Company’s financial liquidity and cash flow;

 

·A combined Hire Quest and Command Center will allow the Company’s shareholders to own shares in a combined company that will have a significantly larger market capitalization; and

 

 

·The significant value to the Company’s shareholders represented by the net income and cash flows of Hire Quest following the completion of the Merger.

 

At the Annual Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:

 

1.To approve the election of directors (the “Director Proposal”);

 

2.To approve the reincorporation of the Company in the state of Delaware (the “Reincorporation Proposal”);

 

3.To approve an amendment to the Company’s Articles of Incorporation (i) to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333 to 30,000,000 shares and the authorized shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), from 416,666 to 1,000,000 shares, and (ii) to change the name of the Company to “HireQuest, Inc.” (the “Charter Amendment Proposal”);

 

4.To approve the issuance of shares of the Company’s Common Stock in connection with the Merger and the resulting change of control for purposes of Nasdaq Listing Rule 5635 (the “Nasdaq Proposal”);

 

5.To ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

6.To approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers as disclosed in this proxy statement (the “Say-on-Pay Proposal”);

 

7.To conduct a non-binding advisory vote to determine the frequency of future advisory votes on executive compensation (the “Say-on-Frequency Proposal”);

 

8.To approve, on a non-binding advisory basis, certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger (the “Change of Control Compensation Proposal”); and

 

9.To approve any adjournment of the Annual Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

 

For the Merger to be consummated, shareholders must approve the Charter Amendment Proposal and the Nasdaq Proposal.

 

The Company’s Common Stock is currently traded on the NASDAQ Capital Market under the symbol “CCNI.” On April 8, 2019, immediately preceding the announcement of the proposed Merger after market close, the Company’s Common Stock closed at $3.92. On June 17, 2019, the closing price of the Company’s Common Stock on the NASDAQ Capital Market was $5.39 per share. There is no public market for Hire Quest’s securities.

 

The obligations of the Company and Hire Quest to complete the Merger are subject to the satisfaction or waiver of several conditions, including shareholder approval of the Charter Amendment Proposal and the Nasdaq Proposal. If the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Merger will not be completed. A vote in favor of the Charter Amendment Proposal and the Nasdaq Proposal shall be deemed an approval of the Merger.

 

 

This proxy statement contains detailed information about the Company, Hire Quest, the Annual Meeting, the Merger Agreement and the Merger. Shareholders are strongly urged to read and consider carefully this proxy statement in its entirety.

 

See the section entitled “Risk Factors” beginning on page 18 for a discussion of the risks associated with the Merger and related transactions.

 

The Company’s Board of Directors has fixed the close of business on June 17, 2019 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Annual Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to receive notice of the Annual Meeting, attend the Annual Meeting and vote on all matters that properly come before the Annual Meeting.

 

This proxy statement and the accompanying form of proxy for the Company’s shareholders are first being mailed or delivered to the Company’s shareholders on or about June 18, 2019.

 

ADDITIONAL INFORMATION

 

This proxy statement incorporates important business and financial information about the Company from other documents that are not included in or delivered with this proxy statement. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this proxy statement free of charge by requesting them in writing or by telephone from the Company at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235, Attention: Corporate Secretary or (866) 464-5844.

 

For a more detailed description of the information incorporated by reference in this proxy statement and how you may obtain it, see “Where You Can Find More Information” beginning on page 138.

 

ABOUT THIS PROXY STATEMENT

 

This proxy statement constitutes a proxy statement for the Company under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the Annual Meeting of the Company’s shareholders.

 

You should rely only on the information contained in or incorporated by reference into this proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement. This proxy statement is dated June 18, 2019. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of the incorporated document. Our mailing of this proxy statement to the Company’s shareholders will create any implication to the contrary.

 

This proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation.

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING 1
SUMMARY 9
The Companies (See page 88) 9
The Merger (see page 88) 10
Merger Consideration (see page 108) 11
Annual Meeting of the Company’s Shareholders 11
Reasons for Entering into the Merger (see page 94) 12
Recommendation of the Company’s Board of Directors (see page 3) 12
Opinion of the Company’s Financial Advisor (see page 125) 13
Interests and Voting Power of Directors, Executive Officers and their Affiliates (see page 57) 13
Ownership of Combined Entity (see page 105) 13
Expected Timing of the Merger 14
Representations, Warranties and Covenants in the Merger Agreement (see page 109) 14
Restrictions on Soliciting Other Transactions (see page 113) 14
Conditions to Completion of the Merger (see page 122) 14
Termination of the Merger Agreement (see page 123) 14
Termination Fee and Expense Reimbursement (see page 124) 15
Risk Factors (see page 18) 15
Accounting Treatment (see page 132) 15
Certain Material U.S. Federal Income Tax Considerations (see page 131) 15
No Dissenters’ Rights of Appraisal (see page 138) 15
Voting Agreements (See page 124) 16
Market Price and Dividend Information 16
Regulatory Approvals 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 17
RISK FACTORS 18
Risks Relating to the Merger 18
Risks Relating to Hire Quest’s Business 23
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 26
HIRE QUEST’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 33
THE ANNUAL MEETING 37
PROPOSAL 1 – ELECTION OF DIRECTORS 41
CORPORATE GOVERNANCE 45
AUDIT COMMITTEE REPORT 50
EXECUTIVE COMPENSATION 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 56

 

i

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 57
PROPOSAL 2 – APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM THE STATE OF WASHINGTON TO THE STATE OF DELAWARE 59
Summary 59
General Information 60
Reasons for the Reincorporation 60
Changes as a Result of Reincorporation 61
The Plan of Conversion 61
Effect of Not Obtaining the Required Vote for Approval 61
Anti-Takeover Implications 62
Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation and/or Merger 62
Certain Federal Income Tax Consequences of Reincorporation 83
PROPOSAL 3 – APPROVAL OF AN AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED CAPITAL AND CHANGE THE NAME 84
Description of the Amendment 84
Purpose and Effect 85
Possible Anti-Takeover Effects of the Amendment 86
Consequences of Failure to Obtain Shareholder Approval 86
Effectiveness of the Amendment 86
PROPOSAL 4 – ISSUANCE OF MORE THAN 20% OF OUR COMMON STOCK IN CONNECTION WITH THE MERGER AND A CHANGE OF CONTROL FOR THE PURPOSES OF NASDAQ LISTING RULE 5635 86
THE MERGER 88
The Companies 88
Effects of the Merger 93
Reasons for the Merger 94
Background of the Merger 96
Financing of the Merger 102
Interests of the Company’s Directors and Executive Officers in the Merger 102
Interests of Hire Quest Directors and Executive Officers in the Merger 102
Board of Directors Post-Merger 103
New Directors of the Company Post-Merger 103
Ownership of the Company Pre- and Post-Merger 105
Effect of Merger on Shares Held by Certain Hire Quest Affiliates 106
Hire Quest Transactions with Related Party Franchisees 107

 

ii

 

THE MERGER AGREEMENT 107
General 108
Merger Consideration 108
Payment and Exchange Procedures 108
Representations and Warranties 109
Material Adverse Effect 110
Conduct of Business Prior to the Effective Time of the Merger 111
No Solicitation 113
Annual Meeting of Shareholders 115
Change in Board Recommendation 116
Stock Exchange Listing 116
Public Announcements 116
Notification of Certain Events 116
Indemnification 117
Tax Treatment 118
Employee Matters 118
Reincorporation in Delaware 118
Pre-Closing Reorganization & Dock Square Agreement 118
The Offer 119
Pre-Closing Balance Sheet Adjustment 120
Covered Claim Indemnification 120
Franchise Purchase Agreement 121
Pre-Closing Transition 121
Other Covenants 122
Conditions to Completion of the Merger 122
Termination of the Merger Agreement 123
Fees and Expenses 124
Amendment and Waiver 124
Voting Agreements 124
Certain Material U.S. Federal Income Tax Considerations 131
Accounting Treatment of the Merger 132
Pre-emptive Rights 132
PROPOSAL 5 – RATIFICATION OF SELECTION OF PLANTE & MORAN, PLLC AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 132
Change in Auditors 133
Principal Accountant Fees and Services 134
PROPOSAL 6 – SAY-ON-PAY PROPOSAL 135

 

iii

 

PROPOSAL 7 – SAY-ON-FREQUENCY PROPOSAL 136
PROPOSAL 8 – ADVISORY VOTE ON CHANGE OF CONTROL COMPENSATION COMPENSATION 137
PROPOSAL 9 – ADJOURNMENT OF THE ANNUAL MEETING 137
NO DISSENTERS’ RIGHTS OF APPRAISAL 138
SHAREHOLDER PROPOSALS 138
OTHER MATTERS PRESENTED AT THE ANNUAL MEETING 138
WHERE YOU CAN FIND MORE INFORMATION 138
HIRE QUEST, LLC FINANCIAL STATEMENTS 140

 

ANNEX A AGREEMENT AND PLAN OF MERGER

ANNEX B FORM OF VOTING AGREEMENT

ANNEX C FAIRNESS OPINION OF D.A. DAVIDSON & CO.
ANNEX D CERTIFICATE OF CONVERSION
ANNEX E FORM OF DELAWARE CERTIFICATE OF INCORPORATION

ANNEX F PLAN OF CONVERSION

ANNEX G FORM OF DELAWARE BYLAWS
ANNEX H WASHINGTON ARTICLES OF AMENDMENT

 

iv

 

Color Logo
3609 S. Wadsworth Blvd., Suite 250

Lakewood, Colorado 80235

 

QUESTIONS AND ANSWERS ABOUT THE MERGER
AND THE ANNUAL MEETING

 

The following are some questions that you, as a shareholder of the Company, may have regarding the Merger and the Company’s Annual Meeting and brief answers to those questions. We urge you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the Merger and the Annual Meeting. Additional important information is also contained in the Annexes to and the documents incorporated by reference into this proxy statement.

 

Q:Why am I receiving these materials?

 

A:           The Company and Hire Quest have agreed to the acquisition of Hire Quest by the Company under the terms of the Merger Agreement, which is described in further detail under the caption “The Merger Agreement” beginning on page 107 of this proxy statement. In order to complete the Merger, the Company’s shareholders must approve an increase in the Company’s authorized capital stock and the issuance of the shares in connection with the Merger resulting in a change of control pursuant to the Nasdaq listing rules, as further described in the Charter Amendment Proposal and the Nasdaq Proposal contained herein. The Company will hold its Annual Meeting to seek these approvals and the approval of certain additional proposals. These materials describe the Merger, the proposed share issuance and the other proposals, and are being sent to the Company’s shareholders in connection with its Annual Meeting. This document is not a proxy statement or information statement of Hire Quest in connection with any matter upon which Hire Quest may solicit proxies or consents from its security holders.

 

This document contains important information about the Merger, the Annual Meeting, the matters to be considered and voted upon by the Company’s shareholders at the Annual Meeting and information about the Company and Hire Quest. You should read it carefully.

 

Q:What is the Merger?

 

A:           The Merger is the proposed transaction through which the Company and Hire Quest will combine the two companies. The Merger will be accomplished under an Agreement and Plan of Merger by and among the Company, Merger Sub 1, Merger Sub 2, Hire Quest and Richard Hermanns as the Member Representative, dated April 8, 2019. Pursuant to the terms of the Merger Agreement, (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being the first surviving entity, and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the surviving entity. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

 

Q:Why are the Company and Hire Quest proposing the Merger?

 

A:           The Company and Hire Quest believe that the Merger will make the combined company more competitive and financially robust. The combined company will have a national footprint and be able to compete for major national accounts in a manner that the Company could not otherwise do as a stand-alone company. Additionally, the added scale is expected to lead to a more diverse set of customers, better negotiating leverage with insurers and other service providers, and make the combined company more attractive to institutional investors.

 

1

 

Q:What is the value of the Merger consideration?

 

A:           The Company will issue 9,837,328 shares of the Company’s Common Stock to Hire Quest’s security holders, representing approximately 68% of the Company’s outstanding stock (the “Merger Consideration”) upon the closing of the Merger. Hire Quest membership interests have no established trading market.

 

Q:What will each Hire Quest security holder receive in the Merger?

 

A.           Each member of Hire Quest will receive its pro rata share of the Merger Consideration, calculated in accordance with Hire Quest’s operating agreement.

 

Q:What are the Company’s shareholders being asked to vote upon in connection with the Annual Meeting?

 

A:           The Company’s shareholders will be asked to consider and to vote upon 9 proposals in connection with the Annual Meeting:

 

·The Director Proposal;

 

·The Reincorporation Proposal;

 

·The Charter Amendment Proposal;

 

·The Nasdaq Proposal;

 

·The ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

·The Say-on-Pay Proposal;

 

·The Say-on-Frequency Proposal;

 

·The Change of Control Compensation Proposal; and

 

·The Adjournment Proposal.

 

No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. However, if the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Company will not be able to consummate the Merger. A vote in favor of the Charter Amendment Proposal and the Nasdaq Proposal shall be deemed an approval of the Merger.

 

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Q:What vote of the Company’s shareholders is required to approve each of the proposals?

 

A:            Proposal No. 1 - Election of Directors: The affirmative vote of a plurality of the votes cast is required for the election of each of the nominees. Withheld votes or broker non-votes with respect to this proposal will have no effect on this vote. 

 

Proposal No. 2 - Reincorporation Proposal: The affirmative vote of a majority of the Company’s outstanding Common Stock is required to approve the Reincorporation Proposal.

 

Proposal No. 3 - Charter Amendment Proposal: The affirmative vote of a majority of the Company’s outstanding Common Stock is required to approve the Charter Amendment Proposal.

 

Proposal No. 4 - Nasdaq Proposal: The affirmative vote of a majority of all votes cast is required to approve the Nasdaq Proposal.

 

Proposal No. 5 - Ratification of Auditors Proposal: The affirmative vote of a majority of all votes cast is required to ratify our selection of Plante & Moran, PLLC as our independent registered public accounting firm for the fiscal year ending December 27, 2019.

 

Proposal No. 6 - Say-on-Pay Proposal: The affirmative vote of a majority of all votes cast is required to approve the Say-on-Pay Proposal.

 

Proposal No. 7 - Say-on-Frequency Proposal: The alternative (every One Year, Two Years or Three Years) receiving the highest number of votes cast will be considered the frequency recommended by our shareholders.

 

Proposal No. 8 – Change of Control Compensation Proposal: The affirmative vote of a majority of all votes cast is required to approve the Change of Control Compensation Proposal.

 

Proposal No. 9 - Adjournment Proposal: The affirmative vote of a majority of all votes cast is required to approve the Adjournment Proposal.

 

Q:How does the Company’s Board of Directors recommend that the Company’s shareholders vote with respect to the proposals?

 

A:           Our Board of Directors recommends that the Company’s shareholders vote “FOR” each of the Board of Directors’ nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.

 

Q:Are there any shareholders already committed to voting in favor of the proposals?

 

A:           Yes. Pursuant to shareholder voting agreements entered into with the Company and Hire Quest (the “Voting Agreements”), the Company’s directors, executive officers and certain shareholders have agreed to vote their shares of the Company’s Common Stock in favor of the Reincorporation Proposal, the Charter Amendment Proposal and the Nasdaq Proposal. The shares held by such directors, officers and shareholders collectively represented approximately 24% of the outstanding shares of the Company’s Common Stock as of June 17, 2019. For a more complete description of these Voting Agreements, see “Voting Agreements” beginning on page 124 of this proxy statement. The form of Voting Agreement is also attached to this proxy statement as Annex B.

 

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Q:What happens if the Nasdaq Proposal is not approved?

 

A:           If the Nasdaq Proposal is not approved, the Merger cannot be completed because the Company will not be able to issue shares to Hire Quest security holders as consideration for the Merger.

 

Q:What happens if the Charter Amendment Proposal is not approved?

 

A:           If the Charter Amendment Proposal is not approved, the Merger cannot be completed because the Company will not have a sufficient number of authorized shares of Common Stock to issue to Hire Quest security holders as consideration for the Merger.

 

Q:What happens if the Reincorporation Proposal is not approved?

 

A:           If the Reincorporation Proposal is not approved, the Company will remain a Washington corporation and subject to Washington law, and its existing Articles of Incorporation and bylaws will continue to apply. While the Merger Agreement requires the Company to use commercially reasonable efforts to obtain shareholder approval of the Reincorporation Proposal, the approval of this proposal is not a condition to the completion of the Merger. If, however, the Nasdaq Proposal and Charter Amendment Proposal are approved but the Reincorporation Proposal is not approved, following the completion of the Merger, the Company’s existing Articles of Incorporation will be replaced with the amended articles of incorporation attached to this proxy statement as Annex H.

 

Q:What happens to the Board of Directors if the Director Proposal is approved and the Company consummates the Merger?

 

A:           If the Director Proposal is approved and the Company consummates the Merger, the Company is obligated to appoint four directors selected by Hire Quest to the Company’s Board of Directors, subject to compliance with applicable Nasdaq listing standards, and three of the Company’s current directors will remain on the Board of Directors following the closing of the Merger. The Merger Agreement provides that, of the Company’s current directors that will remain on the Board, one will remain on the Board until the 2022 annual meeting of shareholders, the second will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual meeting of shareholders.

 

Q:What is required to complete the Merger?

 

A:           Important conditions to the completion of the Merger include:

 

·the Company shareholder approval of the Charter Amendment Proposal and the Nasdaq Proposal;

 

·the Company, Hire Quest and Branch Banking & Trust Company (“BB&T Bank”) entering into a $30 million credit facility as further described in the section entitled “Financing of the Merger” beginning on page 102;

 

·the completion of a pre-closing reorganization of Hire Quest; and

 

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·Satisfaction or waiver of all of the other conditions to completion of the Merger. For a description of these conditions, see the section entitled “The Merger Agreement” beginning on page 107.

 

Q:Could the Company’s stock price affect the closing of the Merger or the Merger Consideration?

 

A:           No.

 

Q:When do the Company and Hire Quest expect to complete the Merger?

 

A:           The Company and Hire Quest currently expect to complete the Merger on or after July 15, 2019. Completion of the Merger will only be possible, however, after all conditions to the completion of the Merger contained in the Merger Agreement are satisfied or waived, including shareholder approval of the Nasdaq Proposal and the Charter Amendment Proposal. It is possible that factors outside of either company’s control could require them to complete the Merger at a later time or not complete it at all.

 

Q:What are the United States federal income tax consequences of the Merger?

 

A:           The Merger is intended to qualify as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). See page 131 for a further description of the certain material U.S. Federal income tax considerations relating to the Merger.

 

Q:What effect will the Merger have on the Company’s shareholders?

 

A:           The Company’s shareholders will continue to hold the same number of shares of the Company’s Common Stock after the Merger. The issuance of 9,837,328 shares of the Company’s Common Stock to Hire Quest security holders in connection with the Merger will dilute the ownership of the Company’s existing shareholders. The Merger Agreement also contemplates that concurrently with the filing of this proxy statement, the Company will commence the Offer to purchase up to 1,500,000 shares of its Common Stock at a share price of $6.00 per share. The Offer is not a condition to the closing of the Merger. The Company currently has 4,629,331 shares of Common Stock issued and outstanding. Assuming that the Merger is consummated, and the Company purchases 1,500,000 shares of Common Stock in the Offer and the Company makes no other issuances or repurchases of Common Stock, the Company will have 12,966,659 shares of Common Stock outstanding, in which case the percentage ownership of Common Stock held by the Hire Quest security holders will increase to approximately 76%.

 

For a discussion of the effect on the ownership of the Company’s shareholders, please see the section of this proxy statement entitled “Ownership of the Company Pre- and Post-Merger” beginning on page 105.

 

Q:Are there risks that the Company’s shareholders should consider?

 

A:           Yes. You should carefully review the section entitled “Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related to the Merger, the combined companies and the business and operations of each of the Company and Hire Quest. In addition, you are encouraged to read the Company’s publicly filed documents incorporated by reference into this proxy statement.

 

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Q:When and where will the Annual Meeting take place?

 

A:           The Annual Meeting will be held at Woolley’s Classic Suites, 16450 E. 40th Circle, Aurora, Colorado 80011 on July 10, 2019 at 2:30 p.m., Mountain Daylight Time.

 

Q:Who may attend and vote at the Annual Meeting?

 

A:           All the Company’s shareholders of record as of the close of business on June 17, 2019 may vote at the Annual Meeting. Each Company shareholder is entitled to one vote for each share of the Company’s Common Stock owned as of that record date.

 

If your shares of the Company’s Common Stock are registered directly in your name with the transfer agent, you are the shareholder of record with respect to those shares, and the proxy statement and the Company’s proxy card are being sent directly to you. If you are a shareholder of record, you may attend the Annual Meeting and vote your shares in person. However, even if you plan to attend the Annual Meeting in person, please sign and return the enclosed proxy card or vote your shares by telephone or via the Internet to ensure that your shares will be represented at the Annual Meeting if you are unable to attend.

 

If your shares of Common Stock are held in a brokerage account or by another nominee, then you are considered the beneficial owner of shares that are held in “street name,” and the proxy statement is being forwarded to you by your broker or other nominee together with a voting instruction form for you to return to your broker or other nominee to direct them to vote on your behalf. As the beneficial owner, you are also invited to attend the Annual Meeting. However, because a beneficial owner is not the shareholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the Annual Meeting.

 

Q:What do I need to do now? How do I vote?

 

A:           If you are a record holder of the Company’s Common Stock, you should read this proxy statement carefully and then complete and sign the proxy card and return it in the enclosed envelope or vote your shares by telephone or via the Internet. This will enable your shares to be represented at the Annual Meeting.

 

If your shares of the Company’s Common Stock are held in “street name” by your broker or other nominee, you must instruct the broker or such other nominee as to how to vote your shares by following the instructions that the broker or other nominee provides to you. Brokers usually offer the ability for shareholders to submit voting instructions by mail by completing a voting instruction form, by telephone or over the Internet. If you do not provide instructions to your broker or other nominee, your shares will not be voted on any proposal on which your broker or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.” Except for the proposal ratifying the selection of the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, brokers will not have discretionary authority to vote on any of the proposals being submitted to a vote of the Company’s shareholders at the Annual Meeting.

 

Q:What happens if I do not return my proxy card or if I abstain from voting?

 

A:           If you fail to send in a proxy card or vote at the Annual Meeting or if your shares are held in “street name” and you fail to instruct your broker how to vote your shares (or in the case of the ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the broker elects not to vote the shares), your shares will not be counted as present for the purpose of determining the presence of a quorum, which is required to transact business at the Annual Meeting. If you fail to send in your proxy card or fail to instruct your broker how to vote (resulting in a “broker non-vote”), this will have the same effect as voting “AGAINST” the Charter Amendment Proposal and the Reincorporation Proposal. If you fail to send in your proxy card or fail to instruct your broker how to vote (resulting in a “broker non-vote”), because no vote will have been cast, this will have no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the Say-on-Frequency Proposal, the Change of Control Compensation Proposal or the Adjournment Proposal.

 

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An abstention occurs when a shareholder attends a meeting, either in person or by proxy, but specifically indicates an abstention from voting on one or more of the proposals. If you submit a proxy card or provide proxy instructions to your broker or other nominee and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the Annual Meeting, but will not be voted at the Annual Meeting. As a result, your abstention will have the same effect as voting “AGAINST” the Charter Amendment Proposal and the Reincorporation Proposal. If you abstain, since no vote will have been cast, this will have no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the Adjournment Proposal, the ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the Change of Control Compensation Proposal or the Say-on-Frequency Proposal.

 

If you do not include any instructions on a properly executed proxy or voting instruction form, your shares will be voted “FOR” each of the Board of Directors’ nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.

 

Q:May I revoke or change my vote after I have sent in my proxy card or provide proxy instructions to my broker?

 

A:           Yes. If you are a holder of record of the Company’s shares, you may change your vote at any time before your proxy is voted at the Annual Meeting by:

 

·delivering a signed written notice of revocation to the Corporate Secretary of the Company at the Company’s address set forth above;

 

·signing and delivering a new, valid proxy bearing a later date; or

 

·attending the Annual Meeting and voting in person, although your attendance alone will not revoke your proxy.

 

If your shares are held in a “street name” you must contact your broker or other nominee to change your vote.

 

Q:Do I have dissenters’ or appraisal rights in connection with any of the proposals?

 

A:           No. There are no dissenters’ rights, appraisal rights or similar rights available to the Company’s shareholders in connection with any of the proposals or the Merger.

 

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Q:Who is paying for the Company’s proxy solicitation?

 

A:           The Company will bear the cost of soliciting proxies for the Annual Meeting. The Company’s directors, officers and employees may solicit proxies by telephone and facsimile, by mail, over the Internet or in person. They will not be paid any additional amounts for soliciting proxies. The Company has retained InvestorCom, LLC to assist it in the solicitation of proxies. The Company expects to pay InvestorCom, LLC a fee of $6,500 plus out of pocket expenses for its services. The Company also will request that banks, brokerage firms, custodians, trustees, nominees, fiduciaries and other similar record holders forward the solicitation materials to the beneficial owners of Common Stock held of record by such person, and the Company will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

 

Q:What should I do if I receive more than one set of voting materials for the Annual Meeting?

 

A:           You may receive more than one set of voting materials for the Annual Meeting, including multiple copies of this proxy statement and multiple proxy cards or voting instruction form. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record of the Company’s Common Stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction form that you receive.

 

Q:Whom should I contact if I have any questions?

 

A:           Please contact the Company’s Corporate Secretary at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.

 

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SUMMARY

 

This summary highlights certain information contained elsewhere in this proxy statement and may not contain all the information that is important to you. To better understand the Merger and the matters to be considered and voted upon at the Annual Meeting, you should read this proxy statement carefully, including the attached Annexes, and the other documents to which we have referred you. In addition, you should read the information the Company has incorporated by reference into this proxy statement, which includes important information about the Company that has been filed with the Securities and Exchange Commission (the “SEC”). See the section entitled “Where You Can Find More Information” beginning on page 138, which describes how you may obtain the information incorporated by reference into this proxy statement without charge. We have included page references in this summary to direct you to a more complete description of the topics presented below.

 

In this proxy statement “the Company,” “we,” “us,” and “our” refers to Command Center, Inc., and where appropriate, its subsidiaries, “Hire Quest” refers to Hire Quest Holdings, LLC, and where appropriate, its subsidiaries, “Merger Sub 1” refers to CCNI One, Inc., and “Merger Sub 2” refers to Command Florida, LLC. In addition, the “Merger” refers to the proposed merger of Merger Sub 1 with and into Hire Quest immediately followed by the merger of Hire Quest with and into Merger Sub 2 and the “Merger Agreement” refers to the Agreement and Plan of Merger, dated as of April 8, 2019, by and among the Company, Merger Sub 1, Merger Sub 2, Hire Quest and Richard Hermanns. When this proxy statement refers to the “combined company,” it means the Company and Hire Quest and their respective subsidiaries, collectively, after completion of the Merger.

 

The Companies (See page 88)

 

Command Center, Inc.

 

The Company is a staffing company, operating primarily in the manual on-demand labor segment of the staffing industry. In 2018, we employed approximately 32,000 employees and provided services to approximately 3,600 customers, primarily in the industrial/manufacturing/warehousing, construction, hospitality, transportation, and retail industries. Our customers range in size from small businesses to large corporate enterprises. All of our temporary staff, whom we refer to as “field team members,” are employed by us. Most of our work assignments are short-term, and many are filled on little advanced notice from our customers. In addition to short and longer-term temporary work assignments, we sometimes recruit and place workers in temp-to-hire positions.

 

As of June 17, 2019, we owned and operated 67 on-demand labor locations, or branches, across 22 states. We currently operate as Command Center, Inc., and we are also known in some locations as Command Labor. All financial information is consolidated and reported in our consolidated financial statements.

 

In prior years we were organized as Command Staffing, LLC. We were organized as a limited liability company in December 2002 and commenced operations in 2003 as a franchisor of on-demand labor businesses. In November 2005, Temporary Financial Services, Inc., a public company, acquired the assets of Command Staffing, LLC and Harborview Software, Inc., an affiliated company that owned the software used in the operation of our on-demand labor branches. The transaction was accounted for as if Command Staffing, LLC was the accounting acquirer, and our name changed to Command Center, Inc.

 

Our Common Stock is traded on the NASDAQ Capital Market under the symbol “CCNI.”

 

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The principal executive offices of the Company are located at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235, and its telephone number is (866) 464-5844.

 

For more information on the Company, see the reports and other information the Company files with the SEC, including its Annual Report on Form 10-K for the year ended December 28, 2018. These filings may be viewed on the Internet at www.sec.gov. Additional information about the Company is included in the documents incorporated by reference in this proxy statement. See “Where You Can Find More Information” beginning on page 138.

 

Hire Quest Holdings, LLC

 

Hire Quest is a temporary staffing company, providing back-office support for Trojan Labor and Acrux Staffing franchised locations across the United States. Trojan Labor provides temporary staffing services that include general labor, industrial, and construction personnel. Acrux Staffing provides temporary staffing services that include skilled, semi-skilled, and general labor industrial personnel, as well as clerical and secretarial personnel. As of April 30, 2019, Hire Quest’s franchisees owned and operated 98 branch locations in 21 states and the District of Columbia. 83 branches operated under the Trojan Labor brand, and 15 branches operated under the Acrux Staffing brand. Hire Quest’s corporate headquarters are located in Goose Creek, South Carolina.

 

Hire Quest is a private company and therefore has no established trading market for its common stock.

 

The principal executive offices of Hire Quest are located at 111 Springhall Drive, Goose Creek, South Carolina 29445, and its telephone number is (843) 723-7400.

 

CCNI One, Inc.

 

Merger Sub 1 is a wholly-owned subsidiary of the Company and was formed in Florida on March 25, 2019, solely for the purpose of facilitating the Merger. Merger Sub 1 has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

 

Command Florida, LLC

 

Merger Sub 2 is a wholly-owned subsidiary of the Company and was formed in Florida on February 27, 2019, solely for the purpose of facilitating the Merger. Merger Sub 2 has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

 

The Merger (see page 88)

 

The Merger will be accomplished pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being the First Surviving Company, and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the Surviving Company. The Surviving Company may change its name in conjunction with or after the Merger.

 

A copy of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. The Company encourages you to read the entire Merger Agreement carefully because it is the principal document governing the Merger.

 

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Merger Consideration (see page 108)

 

In the Merger, the Company will issue 9,837,328 shares of the Company’s Common Stock to Hire Quest’s security holders, representing approximately 68% of the Company’s outstanding stock prior to the purchase of any shares of Common Stock by the Company in the Offer.

 

Annual Meeting of the Company’s Shareholders

 

The Annual Meeting of the Company’s shareholders will be held on July 10, 2019 at 2:30 p.m., Mountain Daylight Time at Woolley’s Classic Suites, 16450 E. 40th Circle, Aurora, Colorado 80011. All the Company’s shareholders of record as of the close of business on June 17, 2019 may vote at the Annual Meeting. Each shareholder is entitled to one vote for each share of the Company’s Common Stock owned as of that record date.

 

At the Annual Meeting, the Company shareholders will be asked to consider and to vote upon 9 proposals:

 

·To approve the election of directors as set forth in the Director Proposal;

 

·To approve the reincorporation of the Company in the state of Delaware as set forth in the Reincorporation Proposal;

 

·To approve an amendment to the Company’s Articles of Incorporation (i) to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333 to 30,000,000 shares and the authorized shares of Preferred Stock from 416,666 to 1,000,000 shares, and (ii) to change the name of the Company to “HireQuest, Inc.” as set forth in the Charter Amendment Proposal;

 

·To approve the issuance of shares of the Company’s Common Stock in connection with the Merger and the resulting change of control for purposes of Nasdaq Listing Rule 5635 as set forth in the Nasdaq Proposal;

 

·To ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

·To approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers as disclosed in this proxy statement as set forth in the Say-on-Pay Proposal;

 

·To conduct a non-binding advisory vote to determine the frequency of future advisory votes on executive compensation as set forth in the Say-on-Frequency Proposal;

 

·To approve, on a non-binding advisory basis, certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger as set forth in the Change of Control Compensation Proposal; and

 

·To approve any adjournment of the Annual Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals as set forth in the Adjournment Proposal.

 

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No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. If the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Merger will not be completed. A vote in favor of the Charter Amendment Proposal and the Nasdaq Proposal shall be deemed an approval of the Merger.

 

Reasons for Entering into the Merger (see page 94)

 

In evaluating the Merger, including the issuance of the shares of the Company’s Common Stock in connection with the Merger, the Company’s Board consulted with the Company’s management, and, in reaching its decision to recommend the issuance of shares of our Common Stock in connection with the Merger and approving the Merger, the Board considered a number of factors including the following:

 

·Hire Quest’s superior financial performance over time on a combined company basis;

 

·The possible alternatives to the Merger, including maintaining the status quo, conducting a stock repurchase or undertaking a recapitalization, which alternatives our Board determined were less favorable to our shareholders than the Merger, given the potential risks, rewards and uncertainties associated with those alternatives;

 

·The strategic and financial benefits that could potentially arise from the combination of Hire Quest and the Company;

 

·The expectation that the Merger will strengthen the Company’s financial liquidity and cash flow;

 

·A combined Hire Quest and Command Center will allow the Company’s shareholders to own shares in a combined company that will have a significantly larger market capitalization; and

 

·The significant value to the Company’s shareholders represented by the net income and cash flows of Hire Quest following the completion of the Merger.

 

The Board also relied on the opinion of D.A. Davidson & Co. (“D.A. Davidson”), dated April 5, 2019. See “Opinion of the Company’s Financial Advisor” beginning on page 125 of this proxy statement.

 

Recommendation of the Company’s Board of Directors (see page 3)

 

After careful consideration, the Company’s Board determined that: (i) electing the Company’s nominees for director, (ii) reincorporating in Delaware pursuant to the Reincorporation Proposal, (iii) amending the Company’s Articles of Incorporation to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333 to 30,000,000 shares and the authorized shares of Preferred Stock from 416,666 to 1,000,000 shares, and to change the name of the Company to “HireQuest, Inc.”, (iv) issuing shares of the Company’s Common Stock in connection with the Merger, (v) ratifying the selection of our independent registered public accounting firm, (vi) approving in an advisory non-binding vote the Company’s current executive compensation, (vii) determining in an advisory non-binding vote that future advisory votes on executive compensation should be held every One Year, (viii) approving in an advisory non-binding vote certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger, and (ix) adjourning the Annual Meeting, for any reason, including if necessary, to solicit additional proxies, are each in the best interest of the Company and its shareholders. Our Board recommends that you vote “FOR” each of the Board of Directors’ nominees that are standing for election to the Board of Directors, “FOR” the Reincorporation Proposal, “FOR” the Charter Amendment Proposal, “FOR” the Nasdaq Proposal, “FOR” the proposal to ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, “FOR” the Say-on-Pay Proposal, “FOR” the “ONE YEAR” option for the Say-on-Frequency Proposal, “FOR” the Change of Control Compensation Proposal, and “FOR” the Adjournment Proposal if necessary.

 

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Opinion of the Company’s Financial Advisor (see page 125)

 

The Company retained D.A. Davidson to deliver its opinion as to the fairness, from a financial point of view, of the consideration to be paid by the Company to Hire Quest pursuant to the Merger Agreement. The aggregate fees paid to D.A. Davidson by the Company for its services was $250,000. On April 7, 2019, D.A. Davidson provided its opinion,dated April 5, to the Board in connection with its consideration of the transactions contemplated by the Merger Agreement and its opinion does not constitute a recommendation as to how any holder of the Company’s Common Stock should vote with respect to approving the issuance of additional shares of the Company’s Common Stock in connection with the proposed Merger or any other proposal to be considered and voted upon at the Annual Meeting. The full text of the D.A. Davidson opinion, which sets forth assumptions made, matters considered and limitations on and qualifications to the review undertaken by D.A. Davidson in connection with its opinion, is attached as Annex C to this proxy statement.

 

The Company urges its shareholders to read the opinion carefully.

 

Interests and Voting Power of Directors, Executive Officers and their Affiliates (see page 57)

 

Neither the Company nor any of our executive officers or directors beneficially owns any of Hire Quest’s outstanding securities. Three current directors of the Company, and four current directors of Hire Quest, Richard Hermanns, Edward Jackson, Payne Browne and Kathleen Shanahan (or replacement designees selected by Hire Quest), are expected to serve as directors of the Company after the closing of the Merger. In addition, certain key employees of Hire Quest will enter into employment agreements with the Company effective as of the closing of the Merger, providing them with base salaries and potential bonus compensation, the right to receive stock options and severance. Richard K. Coleman, Jr., the Company’s President and Chief Executive Officer, will be appointed Chief Operating Officer of the Company and Richard Hermanns will be appointed Chief Executive Officer of the Company (subject to the consummation of the Merger).

 

Ownership of Combined Entity (see page 105)

 

As of the effective time of the Merger and following the closing of the Offer, the ownership of the Company’s outstanding Common Stock will be approximately as follows:

 

   At the Effective Time of the Merger 

Assuming

1,500,000 Shares

Repurchased in Offer (1)

Existing Company shareholders    32%   24%
Existing Hire Quest security holders   68%   76%

 

(1)  Assumes that the Company repurchases 1,500,000 shares of its Common Stock in the Offer.

 

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Expected Timing of the Merger

 

The Company and Hire Quest currently expect to complete the Merger promptly following the Annual Meeting. Completion of the Merger is subject to all conditions to closing being satisfied or waived. It is possible that factors outside of either company’s control could require the Company and Hire Quest to complete the Merger at a later time or not complete it at all.

 

Representations, Warranties and Covenants in the Merger Agreement (see page 109)

 

The Company and Hire Quest have made customary representations, warranties and covenants in the Merger Agreement. Subject to certain exceptions, each of the Company and Hire Quest is required, among other things, to conduct its business in the ordinary course in all material respects during the interim period between the execution of the Merger Agreement and the closing of the Merger.

 

Restrictions on Soliciting Other Transactions (see page 113)

 

The Merger Agreement provides that neither the Company nor Hire Quest may solicit alternative business combination transactions and, subject to certain exceptions, may not engage in discussions or negotiations regarding any alternative business combination transaction.

 

Conditions to Completion of the Merger (see page 122)

 

The obligations of the Company and Hire Quest to complete the Merger are subject to the satisfaction (or waiver, where permitted) of the following conditions:

 

·the Company shareholder approval of the Charter Amendment Proposal and the Nasdaq Proposal;

 

·the Company, Hire Quest and BB&T Bank entering into a $30 million credit facility;

 

·the completion of a pre-closing reorganization of Hire Quest; and

 

·Satisfaction or waiver of all of the other conditions to completion of the Merger. For a description of these conditions, see the section entitled “The Merger Agreement” beginning on page 107.

 

Termination of the Merger Agreement (see page 123)

 

The Company and Hire Quest may mutually agree to terminate the Merger Agreement at any time prior to effectiveness of the Merger. Either party may also terminate the Merger Agreement if:

 

·the Merger has not been consummated on or before the 150th day (September 5, 2019) following the date of the Merger Agreement (the “End Date”);

 

·any governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law or order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger or if any governmental entity prevents the commencement and completion of the Offer; or

 

14

 

·the Charter Amendment Proposal and the Nasdaq Proposal are not approved by the Company’s shareholders at the Annual Meeting.

 

Termination Fee and Expense Reimbursement (see page 124)

 

Generally, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring those expenses.

 

If the Merger Agreement is terminated by the Company prior to the receipt of shareholder approval of the proposals and in connection with entering into a different acquisition agreement in respect of a superior proposal, then the Company shall pay to Hire Quest, at or prior to such termination, a termination fee equal to $1.2 million (the “Termination Fee”). If the Merger Agreement is terminated by the Company because a governmental entity prevents the commencement and completion of the Offer, then the Company shall pay to Hire Quest, at or prior to such termination, an amount equal to 50% of the Termination Fee. If the Merger Agreement is terminated by Hire Quest under certain circumstances further described in the Merger Agreement, including due to a breach by the Company or the Merger Subs of any representation, warranty, covenant, or agreement that would cause the closing conditions of the Merger Agreement to not be satisfied, the Company shall pay Hire Quest the Termination Fee.

 

Risk Factors (see page 18)

 

You should carefully review the section entitled “Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related to the Merger, the combined companies and the business and operations of each of the Company and Hire Quest.

 

Accounting Treatment (see page 132)

 

The Company prepares its financial statements in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Merger will be accounted for as an acquisition under U.S. GAAP. Because there will be a change of control, the transaction will be treated as a reverse acquisition. Because the companies are very similar and the Company has publicly traded stock, the Company’s closing stock price is considered to be the most reliable determination of the fair value of Hire Quest’s private stock. Consideration used below is estimated based on the Company’s closing stock price on April 12, 2019. The purchase price and allocation of the purchase price will be finalized based on the stock price on the closing date.

 

Certain Material U.S. Federal Income Tax Considerations (see page 131)

 

The Merger is intended to qualify as a “reorganization” under Section 368(a) of the Code, as discussed below under “Certain Material U.S. Federal Income Tax Considerations” on page 131.

 

No Dissenters’ Rights of Appraisal (see page 138)

 

Under Washington law, the holders of shares of the Company’s Common Stock are not entitled to dissenters’ rights of appraisal in connection with any of the proposals to be considered and acted upon at the Annual Meeting. In addition, because the Merger is not subject to the Company’s shareholder approval under Washington law, the holders of shares of the Company’s Common Stock are not entitled to dissenters’ rights of appraisal in connection with the Merger.

 

This proxy statement is only seeking the Company shareholder votes.

 

15

 

Voting Agreements (See page 124)

 

Certain of the Company’s directors, executive officers and shareholders have agreed to vote their shares of the Company’s Common Stock in favor of the Reincorporation Proposal, the Charter Amendment Proposal and the Nasdaq Proposal. The shares held by these directors, officers and shareholders collectively represented approximately 24% of the outstanding shares of the Company’s Common Stock as of June 17, 2019. In addition, each of the members of Hire Quest voted in favor of the approval and adoption of the Merger Agreement and approval of the Merger.

 

Market Price and Dividend Information

 

On April 8, 2019, prior to the announcement of the Merger after market close, the Company’s Common Stock closed at $3.92. On June 17, 2019, the Company’s Common Stock closed at $5.39. Following the consummation of the Merger, the Company’s Common Stock, including the shares issued in connection with the Merger, is expected to continue to trade on the NASDAQ Capital Market. Following the Merger, the Company currently intends to retain earnings, if any, to finance the growth and development of its business, but will evaluate its dividend policy shortly after the completion of the Merger and business integration.

 

Regulatory Approvals

 

The Company must comply with applicable securities laws in connection with the issuance of shares of the Company’s Common Stock in connection with the Merger.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement and the documents incorporated by reference into this proxy statement contain “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Specific forward-looking statements include, without limitation, statements regarding the following:

 

·The effects of the Merger on our shareholders;

 

·The anticipated timing of the completion of the Merger;

 

·The anticipated benefits expected from the Merger; and

 

·The expected federal tax consequences from the Merger.

 

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the risk factors that follow and elsewhere in this proxy statement and the incorporated documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the risk factors that follow and or that are disclosed in our incorporated documents.

 

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RISK FACTORS

 

In addition to the other information included and incorporated by reference in this proxy statement, you should carefully consider the following risks before deciding whether to vote for the Charter Amendment Proposal or the Nasdaq Proposal. See the section entitled “Where You Can Find More Information” beginning on page 138.

 

Risks Relating to the Merger

 

The Company and Hire Quest may not realize all of the anticipated benefits of the Merger.

 

The success of the Merger will depend, in large part, on the ability of the combined company to realize the anticipated benefits from combining the businesses of the Company and Hire Quest. To realize the anticipated benefits of the Merger, the combined company must successfully integrate the businesses of the Company and Hire Quest. This integration will be complex and time-consuming.

 

Potential difficulties the Company and Hire Quest may encounter include, among others:

 

·unanticipated issues in integrating logistics, information, communications and other systems;

 

·integrating personnel from the two companies while maintaining focus on providing a consistent, high quality level of service;

 

·transitioning the Company’s branch network to become franchise-owned by multiple franchisees, including some first-time franchisees;

 

·integrating complex systems, technology, networks and other assets of Hire Quest in a seamless manner that minimizes any adverse impact on customers, employees, service providers, and other constituencies;

 

·performance shortfalls at one or both of the companies as a result of the diversion of management’s attention from day-to-day operations caused by activities surrounding the completion of the Merger and integration of the companies’ operations;

 

·potential unknown liabilities, liabilities that are significantly larger than anticipated, unforeseen expenses or delays associated with the Merger and the integration process;

 

·unanticipated changes in applicable laws and regulations;

 

·the impact on the Company’s internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002, including, but not limited to, complexities that arise as a result of integrating the accounting system and internal controls of a private with that of a public company; and

 

·complexities associated with managing the larger, combined business.

 

Some of these factors are outside the control of either company.

 

The Company has not completed a merger or acquisition comparable in size or scope to the Merger. The failure of the combined company, after the Merger, to successfully integrate the operations of the Company and Hire Quest or otherwise to realize any of the anticipated benefits of the Merger could cause an interruption of, or a loss of momentum in, the activities of the combined company and could adversely affect its results of operations. The integration process may be more difficult, costly or time-consuming than anticipated, which could cause the Company’s stock price to decline.

 

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The pendency of the Merger could adversely affect the Company’s stock price and could adversely affect the Company’s and Hire Quest’s respective businesses, financial condition, results of operations or business prospects.

 

While neither the Company nor Hire Quest is aware of any significant adverse effects to date, the pendency of the Merger could disrupt either or both of their businesses in a number of ways, including:

 

·the attention of the Company’s and/or Hire Quest’s management may be directed toward the completion of the Merger and related matters and may be diverted from the day-to-day business operations of their respective companies, including from other opportunities that might otherwise be beneficial to them;

 

·certain customers, suppliers, business partners and other persons with whom the Company and/or Hire Quest have a business relationship may delay or defer certain business decisions or seek to terminate, change or renegotiate their relationship with the Company or Hire Quest as a result of the Merger, whether pursuant to the terms of their existing agreements or otherwise; and

 

·current and prospective employees may experience uncertainty regarding their future roles with the combined company, which might adversely affect the Company’s and/or Hire Quest’s ability to retain, recruit and motivate key personnel.

 

Provisions of the Merger Agreement limit the Company’s and Hire Quest’s ability to pursue other business combinations and may deter third parties from proposing alternative transactions.

 

The Merger Agreement contains provisions that make it difficult for the Company or Hire Quest to entertain a third-party proposal for an acquisition of the Company or Hire Quest. These provisions include a general prohibition against solicitation or engaging in discussions or negotiations regarding any alternative acquisition proposal by each of the Company and Hire Quest and a requirement that the Company pay the Termination Fee to Hire Quest if the Merger Agreement is terminated under certain circumstances. See the Sections entitled “Termination of the Merger Agreement” and “Fees and Expenses” beginning on pages 123 and 124, respectively.

 

These provisions might discourage a third party that might otherwise be interested in making a proposal from considering or proposing an acquisition of either the Company or Hire Quest, including an acquisition or similar transaction that may be deemed of greater value than the Merger to the Company’s shareholders or Hire Quest security holders. In addition, even if a third party elected to propose an acquisition, the existence of the Termination Fee may result in that third party offering a lower value than the third party might otherwise have offered.

 

Hire Quest is a private company, making it difficult to determine its value.

 

Hire Quest is a private company and, as such, there is no public trading market for its securities and no market price that may be used in valuing its securities. As a result, Hire Quest’s value is difficult to determine. The number of shares of the Company’s Common Stock to be issued to Hire Quest security holders was determined based on negotiations between the parties, and it may not be indicative of Hire Quest’s actual value.

 

19

 

Future financial results of the combined company may differ materially from the unaudited pro forma combined financial statements presented in this proxy statement and the financial forecasts prepared in connection with discussions concerning the Merger.

 

The unaudited pro forma combined financial information included in this proxy statement is derived from the Company’s and Hire Quest’s separate historical consolidated financial statements. This pro forma financial information may not necessarily reflect what the Company’s results of operations and financial position would have been had the Merger occurred during the periods presented in the pro forma combined financial information, or what the Company’s results of operations and financial position will be in the future.

 

Failure to complete or delay of the Merger could negatively impact the Company’s and Hire Quest’s respective businesses, financial condition or results of operations.

 

The completion of the Merger is subject to a number of conditions, as described under “Conditions to Completion of the Merger” beginning on page 122, and there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the conditions are not satisfied or waived, the Merger will not be completed or will be delayed. If the Merger is not completed or is delayed, the Company and Hire Quest will be subject to several risks, including but not limited to:

 

·the current market price of the Company’s Common Stock may reflect a market assumption that the Merger will occur or that it will occur by a certain date, and a failure to complete the Merger or a delay in the Merger could result in a negative perception by the market of the Company generally and a resulting decline in the market price of the Company’s Common Stock;

 

·the Company or Hire Quest may experience negative reactions from their respective employees, customers, suppliers and other business partners;

 

·there may be substantial disruption to the Company’s and Hire Quest’s businesses and a distraction of their respective management teams and employees from day-to-day operations, because matters related to the Merger have required substantial commitments of time and financial and other resources, which could otherwise have been devoted to other opportunities that might have been beneficial;

 

·the Company may be required to pay a substantial Termination Fee to Hire Quest if the Merger Agreement is terminated under certain circumstances; and

 

·if the Merger is not completed, the Company would continue to face the risks that it currently faces as an independent company.

 

In addition to these factors, failure to complete the Merger will mean that the Company and Hire Quest will not obtain the anticipated benefits of combining the two companies. If the Merger is not completed, the risks described above may materialize and materially adversely affect the Company’s business, financial condition, results of operations and stock price.

 

The combined company’s future operating results will be adversely affected if it does not effectively manage its expanded operations following the Merger.

 

Following the Merger, the size of the combined company’s business will be significantly larger than the current businesses of the Company and Hire Quest. The future success of the combined company will depend, in part, upon its ability to manage this expanded business, which will pose substantial challenges for the combined company’s management. The Company cannot assure you that the combined company will be successful or that the combined company will realize the expected operating efficiencies, synergies, and other benefits currently anticipated to result from the Merger.

 

20

 

Converting the Company’s business model to a franchise model following the Merger has multiple risks for our operations.

 

As a basis for the Merger, the Company believes Hire Quest’s franchise operating model is superior to the Company’s and offers many benefits. It is contemplated that shortly after the closing of the Merger, the Company will be selling its branches and converting them to franchises. While this operating strategy has perceived benefits, it also comes with risks. The Company will need to identify franchisees that have the financial capability and operating acumen to effectively operate these franchises. We will have less control over the day-to-day functioning of the branches and the franchisees may operate in a manner that is counter to our interests or introduce risks to our business by departing from our operating norms. Further, operating as a franchise model will introduce regulatory risk as franchises are generally regulated at both the Federal and state level. Franchises require a different operating model than what the Company currently employs, including new IT systems and business processes that must be adopted. We plan on leveraging the Hire Quest platform for these functions, but there is no assurance that we can do so successfully, and the business rationale for the Merger is heavily dependent on our ability to do so.

 

The market price of the Company’s Common Stock after the Merger may be affected by factors different from those affecting the market price of the Company’s shares prior to the Merger.

 

The businesses of the Company and Hire Quest differ in important respects and, accordingly, the results of operations of the combined company and the market price of the Company’s Common Stock following the Merger may be affected by factors different from those existing prior to the Merger. For a discussion of the businesses of the Company and Hire Quest and of certain factors to consider in connection with those businesses, see the documents incorporated by reference into this proxy statement referred to under the section entitled “Where You Can Find More Information” and Hire Quest’s business description beginning on page 89.

 

The issuance of shares of the Company’s Common Stock to Hire Quest security holders in connection with the Merger will significantly reduce the percentage ownership of the Company’s current shareholders.

 

Current shareholders of the Company will experience a significant reduction in the relative percentage ownership of the Company’s Common Stock upon completion of the Merger. If the Merger is completed, 9,837,328 shares of the Company’s Common Stock will be issued to Hire Quest security holders as consideration in the Merger. Following completion of the Offer, and assuming the Offer is fully subscribed, the Company will have 12,966,659 shares of Common Stock outstanding, in which case the percentage ownership of Common Stock held by the Hire Quest security holders will increase to approximately 76%.

 

Following the closing of the Merger, the ownership of the Company’s Common Stock will be highly concentrated.

 

Following the completion of the Merger, Hire Quest security holders will own approximately 68% of our Common Stock. Hire Quest security holders will not participate in the Offer, which will further concentrate their ownership of the Company, from an aggregate of approximately 68% following the closing of the Merger to approximately 76% of the issued and outstanding shares following the closing of the Offer, assuming the Offer is fully subscribed. Concentrated ownership may limit the ability of our shareholders to influence corporate matters and may also have the effect of delaying, preventing or defeating a change of control.

 

21

 

Retention of Key Personnel

 

The future positive performance of the combined company depends to a significant degree upon the continued service of key members of the Company’s management as well as key personnel of Hire Quest’s management. The loss of one or more of these key personnel could have a material adverse effect on our business, operating results, and financial condition before and after completion of the Merger. Certain key members of the Company’s management possess knowledge and information that are exclusive to them, and the loss of this working and historical knowledge could be deleterious moving forward. Additionally, key personnel within certain departments of the Company will be important to the integration of the two companies, as well as maintaining certain systems and functional areas of operations. The loss of any of these personnel could have a negative impact on the integration and operations of the Company or the combined company.

 

Given the low national unemployment rate and the natural disruption created in the merger process, there is no certainty that we will be able to retain our key employees or that we will be successful in attracting and retaining similarly situated personnel in the future. We believe the aforementioned risks may be mitigated by the fact that key members of each company’s management teams possess similar skills, experience and expertise, such that the loss of any single key person could be supplanted with a person of similar (although not necessarily equal) ability and knowledge.

 

Similarly, in the event the Merger does not close for any reason, the disruption created by the merger process could ultimately cause some or all key personnel to leave their employment with the Company.

 

Use of Company Cash and Debt Financing to Satisfy the Offer

 

While not a condition to the closing of the Merger, in the event the Offer is fully subscribed, the Company would likely utilize all or a significant portion of its available cash. Additionally, the Company will likely incur a debt obligation to satisfy the purchase of a portion of the tendered shares, in addition to utilizing all or a significant portion of the Company’s available cash in the process. This use of cash and likely incurrence of debt will likely have a negative impact on the combined company’s financial condition and may have a negative impact on the combined company’s financial performance after the completion of the Merger. For more information regarding the Offer, please see section entitled “The Merger Agreement – The Offer.”

 

The Merger may be completed on different terms from those contained in the Merger Agreement.

 

Prior to the completion of the Merger, the Company and Hire Quest may amend or alter the terms of the Merger Agreement or waive compliance with the terms and conditions of the Merger Agreement, including closing conditions. Although certain types of amendments, alterations or waivers may not be made after the shareholder vote unless the votes of the Company’s shareholders and Hire Quest security holders are re-solicited, most amendments, alterations and waivers will not require any re-solicitation. Any such amendments or alterations may have negative consequences to the Company’s shareholders and/or Hire Quest security holders or adversely affect the operations of the combined company.

 

22

 

If the Company is or becomes a “personal holding company,” the Company may be required to pay personal holding company taxes, which would have an adverse effect on the Company’s cash flows, results of operations and financial condition.

 

Under the Code, a corporation that is a “personal holding company” may be required to pay a personal holding company tax in addition to regular income taxes. A corporation generally is considered a personal holding company if (1) at any time during the last half of the taxable year more than 50% of the value of the corporation’s outstanding stock is owned, directly, indirectly or constructively, by or for five or fewer individuals (the “Ownership Test”) and (2) at least 60% of the corporation’s “adjusted ordinary gross income” constitutes “personal holding company income” (the “Income Test”). A corporation that is considered a personal holding company is required to pay a personal holding company tax at a rate equal to 20% of such corporation’s undistributed personal holding company income, which is generally taxable income with certain adjustments, including a deduction for U.S. federal income taxes and dividends paid.

 

As a result of the Merger, the Company will likely satisfy the Ownership Test in 2019. However, the Company does not expect to satisfy the Income Test in 2019. Accordingly, the Company does not believe that it will be considered a personal holding company in 2019. However, because personal holding company status is determined annually and is based on the nature of the Company’s income and the percentage of the Company’s outstanding stock that is owned, directly, indirectly or constructively, by major shareholders, there can be no assurance that the Company will not be a personal holding company in 2019 or become a personal holding company in any future taxable year. If the Company were considered a personal holding company with undistributed personal holding company income in a taxable year, the payment of personal holding company taxes would have an adverse effect on the Company’s cash flows, results of operations and financial condition.

 

For a more detailed discussion of the personal holding company rules, see the section below entitled “Certain Material U.S. Federal Income Tax Considerations.”

 

We will incur significant transaction costs in connection with the Merger, including all costs incurred by the Company and Hire Quest.

 

We have incurred and expect to incur significant, non-recurring costs in connection with consummating the Merger. We may also incur additional costs to retain key employees throughout the transition.

 

Risks Relating to Hire Quest’s Business

 

Some of the risks relating to the Merger described above and relating to the Company described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2018 and incorporated by reference may also apply to Hire Quest. In addition, Hire Quest faces the following risks relating to its franchise system, which risks would be faced by the Company if and when the Merger closes:

 

Hire Quest’s operating and financial results and growth strategies are closely tied to the success of its franchisees.

 

With the exception of one company-owned branch, Hire Quest’s branches are operated by its franchisees, which makes it dependent on the financial success and cooperation of its franchisees. Hire Quest has limited control over how its franchisees’ businesses are run, and the inability of franchisees to operate successfully could adversely affect its operating and financial results through decreased royalty payments. If its franchisees incur too much debt, if their operating expenses increase or if economic or sales trends deteriorate such that they are unable to operate profitably or repay existing debt, it could result in their financial distress, including insolvency or bankruptcy. If a significant franchisee or a significant number of franchisees become financially distressed, Hire Quest’s operating and financial results could be impacted through reduced or delayed royalty payments. Hire Quest’s success also depends on the willingness and ability of its franchisees to implement major initiatives, which may include financial investment. Its franchisees may be unable to successfully implement strategies that Hire Quest believes are necessary for their further growth, which in turn may harm the growth prospects and financial condition of Hire Quest.

 

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Hire Quest’s franchisees could take actions that could harm its business.

 

Hire Quest’s franchisees are contractually obligated to operate their branches in accordance with the operations standards set forth in Hire Quest’s agreements with them and applicable laws. However, although Hire Quest attempts to properly train and support all its franchisees, they are independent third parties whom it does not control. The franchisees own, operate, and oversee the daily operations of their branches, and their core branch employees are not Hire Quest’s employees. Accordingly, their actions are outside of Hire Quest’s control. Although Hire Quest has developed criteria to evaluate and screen prospective franchisees, it cannot be certain that its franchisees will have the business acumen or financial resources necessary to operate successful franchises at their approved locations, and state franchise laws may limit its ability to terminate or not renew these franchise agreements. Moreover, despite its training, support and monitoring, franchisees may not successfully operate branches in a manner consistent with Hire Quest’s standards and requirements or may not hire and adequately train qualified branch personnel. The failure of Hire Quest’s franchisees to operate their franchises in accordance with its standards or applicable law, actions taken by their employees or a negative publicity event at one of its branches or involving one of its franchisees could have a material adverse effect on Hire Quest’s reputation, its brands, its ability to attract prospective franchisees, its company-owned branch, and its business, financial condition or results of operations.

 

If Hire Quest fails to identify, recruit and contract with a sufficient number of qualified franchisees, its ability to open new branches and increase its revenues could be materially adversely affected.

 

The opening of additional branches and expansion into new markets depends, in part, upon the availability of prospective franchisees who meet Hire Quest’s criteria. Many of Hire Quest’s franchisees open and operate multiple branches, and part of its growth strategy requires it to identify, recruit and contract with new franchisees or rely on its existing franchisees to expand. Hire Quest may not be able to identify, recruit or contract with suitable franchisees in its target markets on a timely basis or at all. If it is unable to recruit suitable franchisees or if franchisees are unable or unwilling to open new branches, its growth may be slower than anticipated, which could materially adversely affect its ability to increase its revenues and materially adversely affect its business, financial condition and results of operations.

 

Opening new branches in existing markets and aggressive development could cannibalize existing sales and may negatively affect sales at existing branches.

 

Hire Quest intends to continue opening new franchised branches in its existing markets as a part of its growth strategy. Expansion in existing markets may be affected by local economic and market conditions. Further, the customer target area of Hire Quest’s branches varies by location, depending on a number of factors, including population density, area demographics and geography. As a result, the opening of a new branch in or near markets in which its franchisees’ branches already exist could adversely affect the sales of these existing franchised branches. Sales cannibalization between branches may become significant in the future as Hire Quest continues to expand its operations and could affect sales growth, which could, in turn, materially adversely affect its business, financial condition or results of operations. There can be no assurance that sales cannibalization will not occur or become more significant in the future as Hire Quest increases its presence in existing markets.

 

24

 

Hire Quest may engage in litigation with its franchisees.

 

Although Hire Quest believes it generally enjoys a positive working relationship with its franchisees, the nature of the franchisor-franchisee relationship may give rise to litigation with its franchisees. While Hire Quest does not currently engage in litigation with its franchisees in the ordinary course of business, it is possible that it may experience litigation with some of its franchisees in the future. Hire Quest may engage in future litigation with franchisees to enforce its contractual indemnification rights if it is brought into a matter involving a third party due to the franchisee’s alleged acts or omissions. In addition, it may be subject to claims by its franchisees relating to its franchise disclosure document, including claims based on financial information contained in its franchise disclosure document. Engaging in such litigation may be costly and time-consuming and may distract management and materially adversely affect its relationships with franchisees and its ability to attract new franchisees. Any negative outcome of these or any other claims could materially adversely affect Hire Quest’s results of operations as well as its ability to expand its franchise system and may damage its reputation and brands. Furthermore, existing and future franchise-related legislation could subject Hire Quest to additional litigation risk in the event it terminates or fail to renew a franchise relationship.

 

25

 

COMMAND CENTER, INC.

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of income based upon the combined historical financial statements of the Company and Hire Quest, after giving effect to the proposed Merger of Hire Quest into Merger Sub 2, a wholly-owned subsidiary of the Company, and the adjustments described in the accompanying notes. The Merger will be accounted for as a reverse acquisition under the acquisition method of accounting, which requires determination of the accounting acquirer. The accounting guidance for business combinations provides that in identifying the acquiring entity in a combination effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including but not limited to, the relative voting rights of the shareholders of the constituent companies in the combined company, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of equity securities in the business combination, including payment of any premium.

 

Because the Hire Quest security holders will be entitled to designate the majority of the Board of Directors of the combined company and will receive a majority of the equity securities and voting rights of the combined company upon closing of the Merger, Hire Quest is considered to be the acquirer of the Company for accounting purposes. This means that Hire Quest will allocate the purchase price to the fair value of the Company’s assets acquired and liabilities assumed on the acquisition date, with any excess purchase price being recorded as goodwill.

 

The unaudited pro forma condensed combined balance sheet as of March 29, 2019 reflects the transaction as if it occurred on March 29, 2019. The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 28, 2018 and for the fiscal quarter ended March 29, 2019 reflect the transaction as if it occurred on December 30, 2017, the beginning of the earliest period presented.

 

The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period. You should read the information set forth below together with the notes to the pro forma condensed combined financial statements, the Annual Report of the Company on Form 10-K for the fiscal year ended December 28, 2018 and the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 29, 2019, which are incorporated by reference in this proxy statement, and the financial statements of Hire Quest for the years ended December 31, 2018 and 2017 and the three months ended March 31, 2019 and 2018 included in this proxy statement.

 

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Command Center, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 29, 2019

 

   Command Center, Inc.  HireQuest, LLC  Pro forma adjustments  Pro forma condensed combined
ASSETS              
Current assets                       
Cash and cash equivalents  $7,478,045   $398,694   $(7,478,045)  A    $398,694 
Accounts receivable, net of allowance for doubtful accounts   9,063,215    22,397,298           31,460,513 
Prepaid expenses, deposits, and other assets   460,953    380,371    6,503,225  B    7,344,549 
Prepaid workers' compensation   313,814               313,814 
Total current assets   17,316,027    23,176,363    (974,820)      39,517,570 
Property and equipment, net   288,375    2,176,064           2,464,439 
Right-of-use asset   1,795,451               1,795,451 
Deferred tax asset   1,321,644                1,321,644 
Workers' compensation risk pool deposit, less current portion, net   191,521               191,521 
Workers' compensation risk pool deposit in receivership, net   260,000        (260,000)  C      
Goodwill and other intangible assets, net   3,903,963        20,999,675   D     24,903,638 
Total assets  $25,076,981   $25,352,427   $19,764,855      $70,194,263 
LIABILITIES AND EQUITY                       
Current liabilities                       
Accounts payable  $904,981   $41,024   $      $946,005 
Due to franchisees       1,978,209           1,978,209 
Other current liabilities   788,831    2,076,117           2,864,948 
Accrued wages and benefits   1,583,534    654,090           2,237,624 
Current portion of lease liabilities   930,874               930,874 
Current portion of workers' compensation claims liability   1,003,643               1,003,643 
Total current liabilities   5,211,863    4,749,440          9,961,303 
Lease liabilities, less current portion   915,203               915,203 
Workers' compensation claims liability, less current portion   912,754               912,754 
Due to affiliate       4,646,906           4,646,906 
Deferred tax liability           11,461,123  E    11,461,123 
Other liabilities       2,541,515           2,541,515 
Total liabilities   7,039,820    11,937,861    11,461,123      30,438,804 
Equity                       
Total Command Center, Inc. stockholders' equity   18,037,161        (18,037,161)  F      
Total HireQuest, LLC member equity       13,414,566    26,340,893   F     39,755,459 
Total stockholders' equity   18,037,161    13,414,566    8,303,732       39,755,459 
Total liabilities and stockholders' equity  $25,076,981   $25,352,427   $19,764,855      $70,194,263 

 

See notes to pro forma condensed combined financial statements.

 

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Command Center, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations for the

Fiscal Quarter Ended March 29, 2019

 

   Command Center, Inc.  HireQuest, LLC  Pro forma adjustments  Pro forma condensed combined
Revenue  $21,754,898   $3,497,306   $       $25,252,204 
Cost of staffing services   16,122,635    149,288            16,271,923 
Gross profit   5,632,263    3,348,018            8,980,281 
Selling, general and administrative expenses   6,550,012    1,614,603    (781,572)  A    7,383,043 
Depreciation and amortization   67,817    14,037    1,221,135   B    1,302,989 
Income (loss) from operations   (985,566)   1,719,378    (439,563)       294,249 
Interest expense and other financing expense   80    1,894            1,974 
Net income (loss) before income taxes   (985,646)   1,717,484    (439,563)       292,275 
Provision for income taxes   (241,623)       668,720   C    427,097 
Net income (loss)  $(744,023)  $1,717,484   $(1,108,283)      $(134,822)
                         
Earnings (loss) per share:                        
Basic  $(0.16)       $(0.13)      $(0.01)
Diluted  $(0.16)      $(0.13)      $(0.01)
                         
Weighted average shares outstanding:                        
Basic   4,662,275         8,304,834        12,966,659 
Diluted   4,662,275         8,304,384        12,966,659 

 

See notes to pro forma condensed combined financial statements.

 

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Command Center, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations for the

Fiscal Year Ended December 28, 2018

 

   Command Center, Inc.  Hire Quest, LLC  Pro forma adjustments  Pro forma condensed combined
Revenue  $97,388,820   $12,965,711   $        $110,354,531 
Cost of staffing services   72,450,295    629,449             73,079,744 
Gross profit   24,938,525    12,336,262             37,274,787 
Selling, general and administrative expenses   23,433,198    5,106,769    (52,510)   A    28,487,460 
Depreciation and amortization   323,852    92,608    5,001,132    B    5,417,592 
Income from operations   1,181,475    7,136,885    (4,948,622)        3,369,735 
Interest expense and other financing expense   2,116    19,697             21,813 
Net income before income taxes   1,179,359    7,117,188    (4,948,622)        3,347,922 
Provision for income taxes   205,072        1,814,224    C    2,019,296 
Net income  $974,287   $7,117,188   $(6,762,846)       $1,328,626 
                          
Earnings per share:                         
Basic  $0.20        $(0.84)       $0.10 
Diluted  $0.20        $(0.84)       $0.10 
                          
Weighted average shares outstanding:                         
Basic   4,853,000         8,113,659     D     12,966,659 
Diluted   4,855,019         8,113,659     D     12,968,678 

 

See notes to pro forma condensed combined financial statements.

 

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COMMAND CENTER, INC.
Notes to Pro Forma Condensed Combined Financial Statements.

 

Note 1 – Basis of Presentation

 

The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the Merger and expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates. They have been prepared to illustrate the estimated effect of the Merger and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed of the Company as of the closing date of Merger, and could result in a significant change to the unaudited pro forma condensed combined financial information, including goodwill.

 

Note 2 – Command Center Preliminary Purchase Price Allocation

 

Because the Merger is considered a reverse merger for accounting purposes, the fair value of the purchase consideration is calculated based on Command Center’s stock price as it is considered to be a more reliable determination than the fair value of Hire Quest’s private stock. Consideration is estimated based on Command Center’s stock price of $5.69. The purchase price will be finalized based on the stock price on the closing date.

 

     
Shares of Command Center, Inc.     4,629,331  
Estimated share price    $ 5.69  
Fair value of consideration   $ 26,340,893  

 

The preliminary purchase price as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their preliminary estimated fair values. The fair value assessments are preliminary and are based upon available information and certain assumptions which the Company believes are reasonable. Actual results may differ materially from the unaudited pro forma condensed combined financial statements.

 

Description  Amount
Current assets  $9,837,982 
Property, plant and equipment, net (1)   288,375 
Other non-current assets   3,308,616 
Identifiable intangible assets (2)   19,894,341 
Goodwill   5,009,296 
Current liabilities   (5,211,863)
Non-current liabilities   (1,827,957)
Deferred tax liability   (4,957,897)
Preliminary purchase price  $26,340,893 

 

1)Preliminary fair value assessments are still in process. However, based on the information received to date, management does not believe the fair value will be materially different from the historical carrying value. As such, the historical carrying value has been used in the preliminary purchase price allocation.

 

2)Preliminary fair value adjustments were identified related to customer relationships and the related customer lists. The useful life of customer relationships was estimated to be four years. Preliminary adjustments are under review and are subject to change.

 

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Note 3 – Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

 

(A)Adjusted out due to cash not being included in the calculation of the preliminary purchase price due to the cost of the tender offer.

 

(B)Related to the liability associated with Hire Quest changing from cash to accrual basis of accounting for tax reporting purposes that will be reimbursed by the owners of Hire Quest.

 

(C)Based on the level of uncertainty related to the collectability of this deposit, no value was assigned to it in the preliminary fair value assessment.

 

(D)Adjustments to intangible assets based on preliminary fair value assessment:

 

Description  Amount
Fair value of customer relationships  $19,165,452 
Fair value of trademarks   728,890 
Fair value of consideration transferred in excess of the preliminary fair value of assets acquired and liabilities assumed   5,009,296 
Less Command Center’s historic intangible assets   (3,903,963)
Pro forma adjustment to intangible assets  $20,999,675 

 

(E)

Related to the liability associated with Hire Quest changing from cash to accrual basis of accounting for tax reporting purposes of $6,503,225 and the liability related to the identifiable intangible assets having no tax basis.

 

(F)Adjustments to Command Center’s historical equity:

 

Description  Amount
Fair value of consideration transferred  $26,340,893 
Less Command Center's historical equity   (18,037,161)
Pro forma adjustment to total Command Center and Hire Quest equity  $8,303,732 

 

Note 4 – Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Income

 

(A)Represents the elimination of non-recurring expense directly related to the Merger

 

(B)The newly acquired intangible assets consisting of customer relationships and trademarks will be amortized on a straight line basis over their estimated useful lives. The fair value assessment is preliminary and any changes to the preliminary values will have a direct impact on future earnings via amortization expense.

 

Description  Estimated fair value  Estimated useful life  Fiscal Quarter Ended March 29, 2019  Fiscal Year Ended December 28, 2018
Customer relationships  $19,165,451    4 years  $1,197,841   $4,791,363 
Trademarks   728,890    2 years   91,111    364,445 
Less historical amortization          $(67,817)  $(154,676)
Pro forma adjustment to amortization expense          $1,221,135   $5,001,132 

 

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(C)To record the income tax impact of the pro forma adjustments 4(A) above. The pro forma tax provision does not include the effect of Hire Quest, LLC being required to change their accounting method to an accrual basis as a result of the merger transaction.

  

Description  Fiscal Quarter Ended March 29, 2019  Fiscal Year Ended December 28, 2018  
Pro forma change in income before income tax  $781,572  $52,510  
Combined Federal and State statutory rate   24.9%   24.9%  
Sub-total  $194,777  $13,086  
             
Hire Quest, LLC tax expense due to change from S to C corporation  $473,943   $1,801,138   
             
Pro forma impact to income tax expense  $668,720   $1,814,224   

 

(D)The pro forma basic and diluted earnings per share calculations are based on the basic and diluted weighted average shares of Command Center. The pro forma basic and diluted weighted average shares outstanding are a combination of historical weighted average Command Center shares and the share impact related to the Merger as follows:

 

   Fiscal Quarter Ended March 29, 2019  Fiscal Year Ended December 28, 2018  
Historic weighted average number of common shares outstanding            
Basic   4,662,275    4,853,000   
Dilute   4,662,275    4,855,019   
Impact of the Merger on the weighted average number of common shares outstanding   8,304,384    8,113,659   
Pro forma weighted average number of common shares outstanding            
Basic   12,966,659    12,966,659   
Dilute   12,966,659    12,968,678   

 

32

 

HIRE QUEST’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion reviews significant factors with respect to Hire Quest’s financial condition at March 31, 2019 and December 31, 2018, and results of operations for the three months ended March 31, 2019 and 2018 and fiscal years ended December 31, 2018 and 2017. This discussion should be read in conjunction with Hire Quest’s financial statements presented elsewhere in this proxy statement. The financial statements and the following discussion relate to Hire Quest, LLC, the operating company that is 93.5% owned by Hire Quest Holdings, LLC. It is a condition to the closing of the Merger that Hire Quest Holdings, LLC engage in a restructuring such that, immediately prior to the closing of the Merger, Hire Quest Holdings, LLC will own 100% of Hire Quest, LLC. References in this section to “Hire Quest” refer solely to Hire Quest, LLC.

 

The following discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially from those discussed in such forward-looking statements. See the cautionary statement regarding forward-looking statements beginning on page 17 of this proxy statement. This discussion and analysis should be considered in light of such cautionary statements and the risk factors beginning on page 18 of this proxy statement.

 

The following table reflects certain operating results for the three months ended March 31, 2019 and 2018 and the years ended December 31, 2018 and 2017. The table serves as the basis for the narrative discussion that follows.

 

Hire Quest, LLC
Consolidated Statements of Income

 

   3/31/2019  3/31/2018  12/31/2018  12/31/2017
   (Unaudited)  (Unaudited)     (Restated)
Total revenue  $3,497,306   $3,052,788   $12,965,710   $11,277,700 
Total cost of revenue, owned location   149,288    153,215    629,449    501,953 
      Gross profit   3,348,018    2,899,573    12,336,261    10,775,747 
Personnel   881,130    704,652    3,179,908    2,723,291 
General and administrative expenses   733,473    557,706    1,954,502    1,797,355 
Depreciation and amortization   14,037    29,844    92,608    85,279 
Management fees       249,292    249,292    3,400,355 
      Operating income   1,719,378    1,358,079    6,859,951    2,769,468 
Other income (expenses)   (1,894)   94,689    257,234    67,378 
          Net income  $1,717,484   $1,452,768   $7,117,185   $2,836,845 

  

Results of Operations

 

Hire Quest’s revenue consists of (1) royalty fees earned through staffing services sold at franchised branches and (2) revenue of its corporate-owned branch. Hire Quest also refers to total sales generated by its franchisees as “franchise sales.” The sum of “franchise sales” and revenue of the corporate-owned branch is referred to as “total system-wide sales.”

 

Hire Quest’s franchisees serve a wide variety of customers and industries across 21 states and the District of Columbia. Sales of a particular franchised branch can fluctuate significantly on both a quarter-over-quarter and year-over-year basis depending on the local economic conditions and need for temporary labor services in the local economy.

 

33

 

Three Months ended March 31, 2019 compared to three months ended March 31, 2018

 

Revenue: Revenue was $3.5 million for the three months ended March 31, 2019 compared to $3.1 million for the three months ended March 31, 2018, an increase of approximately $400,000, or 12.9%. Franchise sales increased from approximately $40 million for the three months ended March 31, 2018 to approximately $48 million for the three months ended March 31, 2019. The increase in both franchise sales and royalty-driven revenue was due primarily to the opening of new franchises in a number of markets, opening new offices in existing franchised territories, and expanding the customer base.

 

Total Cost of Revenue, Owned Location: Total cost of revenue, owned location was approximately 4.3% of revenue for the three months ended March 31, 2019 compared to approximately 5.0% for the three months ended March 31, 2018. This decrease was due to the decreasing cost of payroll in the Hire Quest-owned branch location as compared to total royalties and franchise sales system wide.

 

Personnel, General and Administrative Expenses, and Management Fee: Personnel, General and Administrative Expenses, and Management Fee were approximately $1.6 million for the three months ended March 31, 2019 compared to $1.5 million for the three months ended March 31, 2018. As a percentage of revenue, Personnel, General and Administrative Expenses, and Management fee decreased from 48.4% for the three months ended March 31, 2018 to 45.7% for the three months ended March 31, 2019. This decrease as a percentage of revenue was driven largely by the elimination after January 2018 of a management fee that Hire Quest had paid to a related entity.

  

Year ended December 31, 2018 compared to year ended December 31, 2017

 

Revenue: Revenue was $13.0 million for the year ended December 31, 2018, compared to $11.2 million for 2017, an increase of approximately $1.8 million, or 16.1%. Franchise sales increased from approximately $170 million in 2017 to approximately $190 million in 2018. The increase in both franchise sales and royalty-driven revenue was due primarily to the opening of new franchises in a number of markets, opening new offices in existing franchised territories, and expanding the customer base.

  

Total Cost of Revenue, Owned Location: Total cost of revenue, owned location was approximately 4.9% of revenue in 2018, compared to 4.5% in 2017, an increase of 0.4%. This relative increase was due to the rising costs of payroll in the company-owned branch location as a result of increased payroll being run through that branch.

 

Personnel, General and Administrative Expenses, and Management Fees: Personnel, General and Administrative Expenses, and Management Fees was approximately $5.4 million in 2018, compared to $7.9 million in 2017, a decrease of approximately $2.5 million. As a percentage of revenue, Personnel, General and Administrative Expenses, and Management Fees decreased from 70.8% in 2017 to 41.5% in 2018. This decrease on both an absolute and relative basis is due primarily to the cancellation of a management fee that Hire Quest paid to a related entity in 2017, which it stopped paying after January 2018.

 

Liquidity and Capital Resources

 

Hire Quest believes that its cash flow from operations, working capital balances at March 31, 2019, and access to its line of credit with Branch Banking and Trust Company (“BB&T”), will be sufficient to fund anticipated operations for the foreseeable future.

 

At March 31, 2019, Hire Quest’s current assets exceeded its current liabilities by approximately $13.0 million. Included in current assets is cash of approximately $399,000, and accounts receivable of approximately $22.4 million. Included in current liabilities as of such date were amounts due to franchisees of approximately $2.0 million and amounts due to affiliates (Hirequest Insurance Company, Hire Quest LTS, LLC, and Hire Quest Financial, LLC) of approximately $4.6 million.

 

These “due to affiliate” amounts are expected to be paid prior to the closing of the Merger.

  

At December 31, 2018, Hire Quest’s current assets exceeded its current liabilities by approximately $11.4 million. Included in current assets is cash of approximately $1.3 million, and accounts receivable of approximately $20.7 million. Included in current liabilities as of such date were amounts due to franchisees of approximately $0.6 million and amounts due to affiliates (Hirequest Insurance Company, Hire Quest LTS, LLC and Hire Quest Financial, LLC) of approximately $7.7 million. Hire Quest’s working capital requirements are driven largely by temporary employee payroll and accounts receivable from customers. Since receipts lag behind employee pay – which is typically daily or weekly – its working capital requirements increase during growth periods.

 

Hire Quest’s current financing agreement is a revolving line of credit with BB&T, which allows it to draw up to $5.0 million at an interest rate equal to LIBOR plus 1.75%. As collateral for repayment of any and all obligations, Hire Quest granted BB&T a security interest in all of its property including, but not limited to, accounts receivable, intangible assets, contract rights, investment property, deposit accounts, and other such assets. The unused portion of the line of credit is subject to a fee of 0.10% per annum. At the closing of the Merger, this line of credit is expected to be repaid out of the working capital. On April 17, 2019, the Company, certain of its subsidiaries, and Hire Quest Holdings, LLC (the “Borrower”) entered into a commitment letter with BB&T Bank, pursuant to which BB&T Bank committed to extend a revolving line of credit in the maximum initial amount of $30,000,000 with a $15,000,000 letter of credit sublimit and $20,000,000 uncommitted accordion feature to the Borrower for the financing of the Offer and to provide ongoing working capital needs. The entry into this credit facility is a closing condition to the Merger.

 

Critical Accounting Policies

 

Management's discussion and analysis of financial condition and results of operations are based upon Hire Quest’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

34

 

Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating Hire Quest’s reported financial results, and they require management’s most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. 

 

Revenue Recognition:  On January 1, 2018, Hire Quest adopted new revenue recognition guidance using the modified retrospective method for all open contracts and related amendments. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of this new guidance did not have a material impact on Hire Quest’s consolidated financial statements.

 

Revenue is presented on a net basis as agent as opposed to a gross basis as principal. Hire Quest has determined that net reporting as agent is the appropriate treatment based upon the following analysis:

 

To identify contracts with its customers for purposes of revenue recognition, Hire Quest generally relies on three documents. The first is a franchise agreement between Hire Quest and its franchisee. This document allocates responsibility to the franchisee to collect the open account with the down-stream customer. Hire Quest and the franchisees agree that when accounts receivable are collected, they are applied to the due to/due from franchisee after Hire Quest collects its royalty and other miscellaneous fees. The parties to the franchise agreement are the franchisee and Hire Quest. The second document is referred to as the Customer Service Agreement, and it identifies parties to the contract, the general terms, rights and obligations of each party, and payment terms. The parties to the Customer Service Agreements are “Trojan Labor” or “Acrux Staffing” and the customer. “Trojan Labor” and “Acrux Staffing” are service marks registered with the United States Patent and Trademark Office, which Hire Quest licenses to the franchisees. The third document is referred to as a Rate Agreement, and it also identifies the parties to the contract, further defines each party’s rights and obligations related to the services to be transferred, and defines payment rates and reiterates the payment terms.

 

Hire Quest’s performance obligations take the form of promised services to the franchisees. It must provide support to them as they fill orders from customers. Hire Quest’s franchisees are ready to provide services or make services available for a customer to use as and when the customer decides. Hire Quest provides its franchisees with a series of distinct services that have the same pattern of transfer:

 

1.The franchisee simultaneously receives and consumes the benefits of Hire Quest’s service,

 

2.Hire Quest recognizes revenue over time as it transfers services to its franchisees satisfying its performance obligation, and

 

3.Hire Quest applies a single method of measuring progress towards its performance obligations, which is consistently applied to similar performance obligations.

 

Hire Quest determines the transaction price by calculating the royalties on services provided by franchisees to end of the line customers. The royalty ranges from approximately 8% of sales by franchisees to approximately 4% of sales by franchisees. To calculate services provided by franchisees, Hire Quest multiplies the units of actual services received and consumed by the end line customer by the agreed upon rates for said services.

 

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Hire Quest’s performance obligations are to its franchisees. Because its franchisees receive and consume the benefits of its services simultaneously, Hire Quest’s performance obligations are typically satisfied when its services are provided. Hire Quest does not require payment prior to the delivery of service. It allocates the royalty fee to the services it provides to the franchisees in the franchise agreement. It recognizes revenue upon the sale made by the franchisee to the end of the line customer. This is by reviewing sales made by franchisees.

 

Income Taxes:  As a disregarded entity, Hire Quest is not a tax paying entity for purposes of federal and state income taxes. Income of Hire Quest is taxed to Hire Quest’s members (partners for tax purposes) in their individual returns. Therefore, no provision or liability for income taxes has been included in the accompanying financial statements.

 

Prior to the adoption of ASC 606, Hire Quest accounted for revenue when both parties to the contract approved the contract, the rights and obligations of the parties were identified, payment terms were identified, and collectability of consideration was probable.  Hire Quest’s primary source of revenue is royalties earned from franchisees from providing temporary contract labor to customers. Revenue was recognized at the time Hire Quest satisfies its performance obligation.

 

Over 84 Days Receivable Allowance: When an outstanding receivable reaches 84 days outstanding, the amount is booked to an allowance account. This amount is reimbursed from the franchisee and until it is deemed uncollectible, it remains outstanding.

 

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THE ANNUAL MEETING

 

What is the time, date, place and purpose of the Annual Meeting?

 

The Annual Meeting is scheduled to be held at Woolley’s Classic Suites, 16450 E. 40th Circle, Aurora, Colorado 80011 on July 10, 2019 at 2:30 p.m., Mountain Daylight Time, to vote on the following proposals:

 

1.To approve the election of directors, or the Director Proposal;

 

2.To approve the reincorporation of the Company in the state of Delaware, or the Reincorporation Proposal;

 

3.To approve an amendment to the Company’s Articles of Incorporation (i) to increase the Company’s authorized capital stock from 8,749,999 to 31,000,000 shares and correspondingly increase the authorized shares of Common Stock from 8,333,333 to 30,000,000 shares and the authorized shares of Preferred Stock from 416,666 to 1,000,000 shares, and (ii) to change the name of the Company to “HireQuest, Inc.” as set forth in the Charter Amendment Proposal;

 

4.To approve the issuance of shares of the Company’s Common Stock in connection with the Merger and the resulting change of control for purposes of Nasdaq Listing Rule 5635, or the Nasdaq Proposal;

 

5.To ratify the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019;

 

6.To approve, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers as disclosed in this proxy statement (the “Say-on-Pay Proposal”);

 

7.To conduct a non-binding advisory vote to determine the frequency of future advisory votes on executive compensation (the “Say-on-Frequency Proposal”);

 

8.To approve, on a non-binding advisory basis, certain compensation arrangements that may be paid or become payable to our named executive officers upon completion of the Merger (the “Change of Control Compensation Proposal”); and

 

9.To approve any adjournment of the Annual Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals, or the Adjournment Proposal.

 

Other than the foregoing proposals, we do not expect any other matters to be presented for a vote at the Annual Meeting. If any other matter is properly brought before the Annual Meeting, your proxy gives authority to the proxies described therein to vote on such matters in their discretion.

 

No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. However, if the Charter Amendment Proposal and the Nasdaq Proposal are not approved, the Merger cannot be completed. A vote to approve the Charter Amendment Proposal and the Nasdaq Proposal will be deemed an approval of the Merger.

 

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What is the record date and who is entitled to vote?

 

Our Board has fixed the close of business on June 17, 2019 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Annual Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to (a) receive notice of the Annual Meeting, (b) attend the Annual Meeting and (c) vote on all matters that properly come before the Annual Meeting.

 

At the close of business on the record date, 4,629,331 shares of our Common Stock were outstanding and entitled to vote. Each share is entitled to one vote on each matter to be voted upon at the Annual Meeting. The Company’s Common Stock is the only class of securities entitled to vote at the Annual Meeting.

 

What is the vote required to approve each of the proposals?

 

  Proposal   Vote Required   Broker Discretionary Vote Allowed
1. Director Proposal.   The affirmative vote of a plurality of the votes cast is required for the election of each of the nominees.   No
2. Reincorporation Proposal.   The affirmative vote of at least a majority of the outstanding shares.   No
3. Charter Amendment Proposal.   The affirmative vote of at least a majority of the outstanding shares.   No
4. Nasdaq Proposal.   The affirmative vote of the majority of the votes cast.   No
5. Ratification of auditors proposal.   The affirmative vote of the majority of the votes cast.   Yes
6. Say-on-Pay Proposal.   The affirmative vote of the majority of the votes cast.   No
7. Say-on-Frequency Proposal.   The affirmative vote of a plurality of the votes cast is required for the determination of the frequency alternative (One Year, Two Years or Three Years).   No
8. Change of Control Compensation Proposal.   The affirmative vote of the majority of the votes cast.   No
9. Adjournment Proposal.   The affirmative vote of the majority of the votes cast.   No

 

What are the voting procedures for record holders of the Company’s Common Stock and beneficial owners of the Company’s Common Stock holding their shares in “street name?”

 

Record Holders

 

If you hold your shares of the Company’s Common Stock directly in your name as a record holder, you may vote your shares using any of the following methods:

 

1.       Vote by Internet. The website address for Internet voting is on your proxy card or the vote instruction form.

 

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2.       Vote by mail. Mark, date, sign and mail promptly the enclosed proxy card (a postage-paid envelope is provided for mailing in the United States).

 

3.       Vote in person. Attend and vote at the Annual Meeting.

 

4.       Vote by phone. The phone number is on your proxy card or the vote instruction form.

 

Beneficial Owners (holding the Company’s shares in “street name”)

 

If you are the beneficial owner of shares of the Company’s Common Stock, but your shares are held in “street name” in an account at your broker or bank or with another nominee, you must instruct the broker or such other nominee as to how to vote your shares by following the instructions that the broker or other nominee provides to you. The voting instruction form that will be sent to you by your broker, bank or nominee will include details regarding how you may provide those voting instructions. Brokers usually offer the ability for shareholders to submit voting instructions by mail by completing a voting instruction form, by telephone or over the Internet. Please refer to the voting instruction form to see if you may submit voting instructions using the telephone or Internet.

 

If you are a beneficial owner holding your shares in “street name,” it is possible for you to attend the Annual Meeting and vote in person. In order to do so, you must obtain a valid “legal proxy’ from the record holder of your shares.

 

What is an abstention and how is it treated?

 

An abstention represents a shareholder’s affirmative choice to decline to vote on a proposal. Abstained shares are considered to be “present” and “entitled to vote” at the Annual Meeting and therefore are included in determining whether or not a quorum is present at the Annual Meeting. Abstentions will have the effect of voting “AGAINST” the Charter Amendment Proposal and the Reincorporation Proposal. If you abstain, since no vote will have been cast, this will have no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the Adjournment Proposal, the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the Change of Control Compensation Proposal or the Say-on-Frequency Proposal.

 

What is a broker non-vote and how is it treated?

 

If your shares are held in “street name” in an account at your broker, bank or another nominee, you must instruct the broker, bank or such other nominee as to how to vote your shares by following the instructions they provide to you. If you do not provide these voting instructions, your shares will not be voted on any proposal on which your broker or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.” Except for Proposal 5, brokers will not have discretionary authority to vote on any of the proposals being submitted to a vote of the Company shareholders at the Annual Meeting. Broker non-votes will have the effect of a vote “AGAINST” the Charter Amendment Proposal and the Reincorporation Proposal. Because no vote will have been cast, a broker non-vote, will have no effect on the outcome of the Director Proposal, the Nasdaq Proposal, the ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accounting firm, the Say-on-Pay Proposal, the Say-on-Frequency Proposal, the Change of Control Compensation Proposal or the Adjournment Proposal.

 

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What is considered a quorum at the Annual Meeting?

 

A quorum of shareholders is necessary to validly hold the Annual Meeting. A quorum will be present if a majority of the outstanding shares of our Common Stock on the record date are represented at the Annual Meeting, either in person or by proxy. Your shares will be counted for purposes of determining a quorum if you vote via the Internet, by telephone or by submitting a properly executed proxy card or voting instruction form by mail, or if you vote in person at the Annual Meeting. Abstentions will be counted for determining whether a quorum is present for the Annual Meeting. A quorum is not required to approve Proposal 9, the Adjournment Proposal.

 

How many votes subject to a Voting Agreement are the Company’s executive officers and directors entitled to vote?

 

Pursuant to Voting Agreements entered into with the Company and Hire Quest, the Company’s directors, executive officers and certain shareholders have agreed to vote their shares of the Company’s Common Stock in favor of the Charter Amendment Proposal, the Reincorporation Proposal and the Nasdaq Proposal. The shares held by such directors, officers and shareholders collectively represented approximately 1,095,901 shares of our Common Stock, or approximately 24% of the outstanding shares of the Company’s Common Stock as of the record date.

 

How will proxies be counted?

 

All shares represented by properly executed proxies received in time for the Annual Meeting will be voted at the meeting in the manner specified by the shareholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” each of the proposals.

 

Is my proxy or voting instruction form revocable?

 

You may revoke your proxy and change your vote at any time before your proxy is voted at the Annual Meeting by giving written notice to the Corporate Secretary of the Company, by delivering a proxy card dated after the date of the proxy or by voting in person at the special meeting (although your attendance alone at the Annual Meeting will not revoke your proxy). All written notices of revocation and other communications with respect to revocations of proxies should be addressed to the Company at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235, Attention: Corporate Secretary.

 

If your shares are held in a “street name” you must contact your broker or other nominee to change your vote.

 

What happens if I sell my shares of Common Stock before the Annual Meeting?

 

The record date for the Annual Meeting is earlier than the date of the Annual Meeting. If you transfer your shares after the record date but before the Annual Meeting date, you will retain your right to vote those shares at the Annual Meeting.

 

Who can I talk to if I have questions about the Annual Meeting or the proposals to be voted on?

 

You can call Brendan Simaytis, Corporate Secretary, at (866) 464-5844 Monday through Friday between the hours of 9:30 and 4:00 Mountain time with any questions or you can reach InvestorCom, LLC, the Company’s proxy solicitor at (877) 972-0090 or by email at info@investor-com.com.

 

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What is “householding” and how does it affect me?

 

Record holders who have the same address and last name will receive only one copy of their proxy materials, unless we are notified that one or more of these record holders wishes to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards.

 

If you are eligible for householding, but you and other record holders with whom you share an address, receive multiple copies of these proxy materials, or if you hold the stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact our transfer agent, Continental Stock Transfer & Trust Company (in writing: One State Street Plaza, 30th Floor, New York, New York 10004; or by telephone: (212) 509-4000 or (212) 616-7615 (facsimile)).

 

If you participate in householding and wish to receive a separate copy of these proxy materials, or if you do not wish to continue to participate in householding and prefer to receive separate copies of these documents in the future, please contact Continental Stock Transfer & Trust Company as indicated above. Beneficial owners can request information about householding from the organization.

 

Will the Company be paying proxy solicitation fees in connection with the Annual Meeting?

 

The Company will bear the cost of soliciting proxies for the Annual Meeting. In addition to mailing these proxy materials, our directors, officers and employees may solicit proxies by telephone and facsimile, by mail, over the Internet or in person. They will not be paid any additional amounts for soliciting proxies. The Company has retained InvestorCom, LLC to assist in the solicitation of proxies. We expect to pay InvestorCom, LLC a fee of $6,500 plus out of pocket expenses for its services plus $4.50 per shareholder contacted by telephone. The Company also will request that banks, brokerage firms, custodians, trustees, nominees, fiduciaries and other similar record holders forward the solicitation materials to the beneficial owners of Common Stock held of record by such person, and the Company will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

 

Will the Company’s auditors be attending the Annual Meeting?

 

Representatives of Plante & Moran, PLLC are expected to be present at the Annual Meeting and accordingly will be available to make any statement or to respond to any questions.

 

PROPOSAL 1 – ELECTION OF DIRECTORS

 

Our Board of Directors currently consists of seven members. Upon the recommendation of the Nominating and Governance Committee, our Board of Directors has nominated each of the following seven persons to be elected to serve until the 2020 annual meeting of shareholders and until his successor is duly elected and qualified. Each of the nominees (i) currently serves on our Board of Directors; (ii) has consented to being named in this proxy statement; and (iii) has agreed to serve as a director if elected. As of the date of this proxy statement, our Board of Directors is not aware of any nominee who is unable or will decline to serve as a director.

 

The seven nominees standing for election who receive the greatest number of votes cast at the Annual Meeting will be elected as directors.

 

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If the Merger is completed, four of our directors will resign from the Board of Directors, and the Company is obligated to appoint four directors selected by Hire Quest to the Company’s Board of Directors to replace them, subject to compliance with applicable Nasdaq listing standards. Three of the Company’s current directors will remain on the Board of Directors following the closing of the Merger (the “Company Directors”). All of our directors have submitted conditional resignations, subject to completing the Merger. It has not been determined at this time which four directors’ resignations will be accepted and which three will remain on the Board of Directors following the effective time of the Merger. The Merger Agreement provides that, of the Company Directors, one will remain on the Board until the 2022 annual meeting of shareholders, the second will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual meeting of shareholders. However, if the Merger is not consummated, each of the directors elected by the Company’s shareholders at the Annual Meeting pursuant to this Director Proposal shall be elected to serve until the 2020 annual meeting of shareholders and until his successor is duly elected and qualified.

 

The following table and paragraphs set forth information regarding our executive officers and nominees for election to the Board, including the business experience for the past five years (and, in some instances, for prior years) of each of our executive officers and directors and the experiences and skills that led to the conclusion that the nominees should serve as directors.

 

Name

 

 

Age

 

 

Position

 

Richard K. Coleman, Jr.   62   President, Chief Executive Officer and Director
R. Rimmy Malhotra   43   Co-Chairman of the Board
JD Smith   48   Co-Chairman of the Board
Steven Bathgate   64   Director
Lawrence F. Hagenbuch   52   Director
Steven P. Oman   70   Director
Galen Vetter   67   Director

 

Richard K. Coleman, Jr. was appointed as our President, Chief Executive Officer, and a Director on April 1, 2018. Mr. Coleman has deep experience serving in senior executive positions and on various public company boards, and has gained extensive expertise in business development and operations. He is also currently Chairman of Hudson Global Inc., a global talent solutions company, and has been a director of Hudson since May 2014. Previously, Mr. Coleman served as Principal Executive Officer of Crossroads Systems, Inc., a global provider of data archive solutions, from August 2017 to March 2018, and as the company’s President and CEO from May 2013 to July 2017. Mr. Coleman has served in a variety of senior operational roles, including CEO of Vroom Technologies, Inc., Chief Operating Officer of MetroNet Communications, and President of US West Long Distance. He also has held significant officer-level positions with Frontier Communications, Centex Telemanagement, and Sprint Communications. He formerly served as a director of: Ciber, Inc. from April 2014 to December 2017, a leading global information technology company; Crossroads Systems, Inc. from April 2013 to July 2017, a global provider of data archive solutions; NTS, Inc. from December 2012 to June 2014, a broadband services and telecommunications company; Aetrium Incorporated from January 2013 to April 2014, a recognized world leader in the global semiconductor industry; and On Track Innovations Ltd. from December 2012 to April 2014, one of the pioneers of cashless payment technology. Mr. Coleman has served as an Adjunct Professor of Leadership and Management for Regis University, and is a guest lecturer on leadership and ethics for Denver University. Mr. Coleman has a Master of Business Administration degree from Golden Gate University and is a graduate of the United States Air Force Communications System Officer School. He has a Bachelor of Science degree from the United States Air Force Academy and has also completed leadership, technology, and marketing programs at Kansas University, UCLA, and Harvard Business School. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Coleman should continue to serve as a director of our Company include his years of experience serving on the boards of directors of other public and private entities and his years of operating and restructuring experience.

 

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R. Rimmy Malhotra was appointed to our Board of Directors on April 6, 2016. From 2013 to the present, Mr. Malhotra has served as the Managing Member and Portfolio Manager for the Nicoya Fund LP, a private investment partnership. Previously, from 2008 to 2013 he served as portfolio manager of the Gratio Values Fund, a mutual fund registered under the Investment Act of 1940. Prior to this, he was an Investment Analyst at a New York based hedge fund. He earned an MBA in Finance from The Wharton School and a Master’s degree in International Relations from the University of Pennsylvania where he was a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in Computer Science and Economics from Johns Hopkins University. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Malhotra should continue to serve as a director of our Company include his experience with public equities and his qualifications as a financial matters expert.

 

JD Smith has been a member of our Board of Directors since December 10, 2012. Mr. Smith has worked in real estate investment, construction and development since 1982. Currently, Mr. Smith is the owner of Real Estate Investment Consultants, LLC, a turnkey investment service firm serving all sectors of real estate and investment and development businesses. He also serves as chairman of the Board of Directors of iCore Connect, Inc., a publicly-held New York-based company and provider of comprehensive healthcare communications solutions. From 2008 until 2012 he was Director of Development for CP Financial, a venture capital firm based in Scottsdale, Arizona. From 1993 until 2008 he developed over two dozen projects in the Phoenix Metro Area, acting through his companies JD Investments, Inc., The High Sonoran Group, Inc., and JD Smith Development, LLC. In 1990 he formed his first operating company to buy and maintain residential rental properties and obtained his real estate license. In 1993 he graduated from Arizona State University with a Bachelor’s of Science degree in Real Estate. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Smith should continue to serve as a director of our Company include his experience as a real estate investor and as a prolific investor in a number of companies across various industries.

 

Steven Bathgate has over 35 years of security industry experience, particularly with microcap companies. He was appointed to our Board of Directors in 2016. In 1995 he founded GVC Capital LLC and he is the Senior Managing Partner of that firm. GVC Capital is an investment banking firm located in Denver, Colorado, focusing primarily on providing comprehensive investment banking services to undervalued microcap companies. Prior to founding GVC Capital, Mr. Bathgate was CEO of securities firm Cohig & Associates in Denver from 1985 to 1995 and was previously Managing Partner, Equity Trading, at Wall Street West. He was previously a director for Global Healthcare REIT and Bluebook International, Inc. Mr. Bathgate received a Bachelor of Science in Finance from the University of Colorado, Leeds School of Business. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Bathgate should continue to serve as a director of our Company include his years of experience raising capital for smaller capitalization companies and his knowledge of small capitalization public market participants.

 

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Lawrence F. Hagenbuch was appointed to our Board of Directors in April 2018. He brings extensive operations and board experience to Command Center, along with expertise in the creation of innovative marketing and planning strategies. Mr. Hagenbuch is currently a Managing Director with Huron Consulting. Mr. Hagenbuch served on the board of directors and the audit and compensation committees of the publicly traded firm Remy International from 2008 until the sale of the company in 2015. He currently serves on the board of directors of the publicly traded company Arotech. Mr. Hagenbuch has served in senior management positions at J. Hilburn, Alix Partners, GE / GE capital, and American National Can. Mr. Hagenbuch began his professional career in the United States Navy. Mr. Hagenbuch earned an undergraduate degree in engineering from Vanderbilt University on a full Navy ROTC scholarship. He later earned an MBA from the Wharton School of the University of Pennsylvania. Mr. Hagenbuch currently serves as a founding board member of the veteran’s service charity, Soldiers Who Salsa. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Hagenbuch should continue to serve as a director of our Company include his years of operating experience at both large and growth-oriented companies, in addition to his experience as a director of other public companies.

 

On April 16, 2018, we entered into a settlement agreement with Ephraim Fields, Echo Lake Capital, Keith Rosenbloom, Lawrence F. Hagenbuch, Randall Bort, and Sean Gelston to settle a proxy contest pertaining to the election of directors to our Board of Directors. Pursuant to the settlement agreement, the Board appointed Mr. Hagenbuch to the Board effective April 16, 2018 and agreed to nominate Mr. Hagenbuch for election to the Board at the 2018 annual meeting of shareholders.

 

Steven P. Oman has been a member of our Board of Directors since March 16, 2018. Mr. Oman is currently a partner in the law firm Provident Law, PLLC, located in Scottsdale, Arizona, and has held this position since June of 2015. Mr. Oman has been a practicing attorney for over 43 years, primarily in areas of business, real estate and estate planning. Prior to his work at Provident Law, he was a sole practitioner for many years in Scottsdale, Arizona, for the Law Office of Steven P. Oman. Mr. Oman has also served as a director and officer of other publicly-held companies, including Alanco Technologies, Inc., and Photocomm, Inc., providing various services and products over the years, including satellite-based technology, photovoltaics and oil industry water disposal facilities. Mr. Oman received his Bachelor of Mechanical Engineering degree in 1970 from the University of Minnesota, Institute of Technology, and his J.D. from William Mitchell College of Law, St. Paul, Minnesota in 1975. Mr. Oman is a member of the State Bar of Arizona and the Maricopa County Bar Association. The particular experience, qualifications, attributes or skills that led our Board to conclude that Mr. Oman should continue to serve as a director of our Company include his years of experience as an attorney handling business transactions and disputes and his understanding of the legal and regulatory risks confronting companies.

 

Galen Vetter was appointed to our Board of Directors in April 2018. He brings significant senior executive management and board experience to Command Center, along with accounting and financial expertise. Mr. Vetter served as president of Rust Consulting, Inc. from December 2008 to May 2012, as global chief financial officer of Franklin Templeton Investment Funds from April 2004 to November 2008 and in numerous roles at RSM LLP from June 1973 to March 2004. Since January 2009 Mr. Vetter has served as a member on the Advisory Board of Directors of Land O’Lakes, Inc. Since 2013 he has served as a director of Alerus Financial, Inc.  Mr. Vetter is a licensed certified public accountant (inactive). He received his Bachelor of Science degree from the University of Northern Iowa.  Mr. Vetter has had extensive exposure to the analysis of financial statements and financial reporting matters and qualifies as an “audit committee financial expert” under SEC guidelines. The particular experience, qualifications, attributes or skills that led our Board to concluded that Mr. Vetter should continue to serve as a director of our Company include his years of experience as a chief financial officer and public company auditor, as well as his varied experience as a public company board member.

 

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OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION AS DIRECTOR OF EACH DIRECTOR NOMINEE

 

CORPORATE GOVERNANCE

 

Corporate Governance Policies and Code of Ethics

 

We have adopted a Standard of Ethics and Business Conduct, Corporate Governance Guidelines, and a Policy on Roles and Responsibilities of the Chairman of the Board. Those policies are available on our website at www.commandonline.com and in print to any shareholder upon request at no charge. Requests should be addressed to: Corporate Secretary, Command Center, Inc., 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.

 

The Standards of Ethics and Business Conduct is applicable to all directors, officers and employees of the Company. To date, there have been no waivers under our Standards of Ethics and Business Conduct. We intend to disclose future amendments to, or waivers from, our Standards of Ethics and Business Conduct on our website within four business days following the date of such amendment or waiver.

 

Committees of the Board of Directors

 

Our Board of Directors established three standing committees and a special committee to facilitate and assist the Board in the execution of its responsibilities. The committees are the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Strategic Alternatives Committee. The composition and function of each of our committees complies with the rules of the SEC that are currently applicable to us and we intend to comply with additional exchange listing requirements to the extent that they become applicable to us in the future. The Board has also adopted charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee. Charters for these committees are available on our website at www.commandonline.com. The charter of each committee is also available in print to any shareholder upon request at no charge. The table below shows current membership for each of the standing Board committees and the special Board committee. Messrs. Malhotra and Smith currently serve as co-Chairmen of the Board.

 

Audit Committee   Compensation Committee   Nominating and Governance Committee  

Strategic

Alternatives Committee

Galen Vetter (Chair)   Lawrence F. Hagenbuch (Chair)   JD Smith (Chair)   R. Rimmy Malhotra (Chair)
Lawrence F. Hagenbuch   R. Rimmy Malhotra   Steven P. Oman   Steven Bathgate
Steven P. Oman   Steven Bathgate   Galen Vetter   JD Smith
            Lawrence F. Hagenbuch

 

Audit Committee:  Galen Vetter (Chairman), Lawrence F. Hagenbuch, and Steven P. Oman currently serve on the Audit Committee. The Audit Committee met on four occasions in 2018 and reviewed our quarterly filings and our annual filing and audit. Additional discussions among committee members outside of meetings were held to discuss the audit process and the preparation and review the consolidated financial statements.

 

Our Board of Directors has determined that Galen Vetter qualifies as an “audit committee financial expert” as defined under the Securities Exchange Act of 1934 and the applicable rules of the NASDAQ Capital Market. All the members of the Audit Committee are financially literate pursuant to the NASDAQ Listing Rules. Each of the members of the Audit Committee met and meets the independence standards for independent directors under the NASDAQ Listing Rules.

 

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The Audit Committee’s responsibilities include: 

 

·appointing, determining funding for, evaluating, and replacing of, and assessing the independence of our independent registered public accounting firm;

 

·reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

 

·pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

 

·coordinating the oversight and reviewing the adequacy of our internal controls over financial reporting;

 

·establishing policies and procedures for the receipt and retention of accounting related complaints and concerns; 

 

·preparing the audit committee report required by Securities and Exchange Commission rules to be included in our annual proxy statement; and

 

·monitoring compliance with our Code of Ethics.

 

Compensation Committee:  Lawrence F. Hagenbuch (Chairman), R. Rimmy Malhotra, and Steven Bathgate currently serve on the Compensation Committee. The Compensation Committee met on six occasions in 2018. The Compensation Committee is comprised of three non-employee directors. Each of the members of the Compensation Committee met and meets the independence standards for independent directors under the NASDAQ Listing Rules.

 

The Compensation Committee oversees our executive compensation program, establishes our compensation philosophy and policies, and administers our compensation plans.  The Compensation Committee generally reviews the compensation programs applicable to executive officers on an annual basis.  In setting compensation levels for a particular executive, the Committee takes into consideration the proposed compensation package as a whole and each element individually, as well as the executive's past and expected future contributions to our business.

 

The Committee has the authority to engage its own independent advisors to assist in carrying out its responsibilities. No such advisors are currently engaged. The Compensation Committee did not use an advisor to assist it in determining executive compensation for our 2018 fiscal year.  Executive management of the Company is actively involved in determining appropriate compensation and making recommendations to the Compensation Committee for its consideration.

 

Nominating and Governance Committee:  JD Smith (Chairman), Steven P. Oman, and Galen Vetter currently serve on the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met on three occasions in 2018. Each of the members of the Nominating and Governance Committee met and meets the independence standards for independent directors under the NASDAQ Listing Rules.

 

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The Nominating and Governance Committee Charter grants such Committee the authority to determine the skills and qualifications required of directors and to develop criteria to be considered in selecting potential candidates for Board membership. Neither the Committee nor the Board has established any minimum qualifications for nominees, but the Board does consider the composition of the Board as a whole, the requisite characteristics (including independence, diversity, experience in industry, finance, administration and operations) of each candidate, and the skills and expertise of its current members, while taking into account the overall operating efficiency of the Board and its committees.

 

The Nominating and Governance Committee’s responsibilities include, but are not limited to:

 

·developing and recommending to the Board criteria for Board and committee membership;

 

·establishing procedures for identifying and evaluating director candidates including nominees recommended by shareholders;

 

·identifying individuals qualified to become Board members;

 

·recommending to the Board the persons to be nominated for election as directors and to each of the Board’s committees; and

 

·overseeing the evaluation of the effectiveness of the organization of the Board, including its committees, and the Board’s performance.

 

Special Committee: In February 2017, our Board established the Strategic Alternatives Committee (the “Committee”) as a special committee. R. Rimmy Malhotra (Chairman), Steven Bathgate, JD Smith, and Lawrence F. Hagenbuch currently serve on the Committee. The Committee is empowered to identify and evaluate strategic opportunities available to the Company. The Committee has engaged the services of D.A. Davidson to assist the Committee in fulfilling this assignment. Each of the members of the Committee met and meets the independence standards for independent directors under the NASDAQ Listing Rules.

 

Director Nominations

 

The Board of Directors nominates directors for election at each annual meeting of shareholders and appoints new directors to fill vacancies when they arise. The Nominating and Governance Committee has the responsibility to identify, evaluate, recruit and recommend qualified candidates to the Board of Directors for nomination or election.

 

One of the Board of Directors’ objectives in evaluating director nominations is to ensure that its membership is composed of experienced and dedicated individuals with a diversity of backgrounds, perspectives and skills. The Nominating and Governance Committee will select nominees for director based on their character, judgment, diversity of experience, business acumen, and ability to act on behalf of all shareholders. We do not have a formal diversity policy, however, the Nominating and Governance Committee endeavors to have a Board representing diverse viewpoints as well as diverse expertise at policy-making levels in many areas, including business, accounting and finance, marketing and sales, legal, government affairs, regulatory affairs, business development, technology and in other areas that are relevant to our activities.

 

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The Nominating and Governance Committee believes that nominees for director should have experience, such as those mentioned above, that may be useful to the Company and the Board of Directors, high personal and professional ethics and the willingness and ability to devote sufficient time to carry out effectively their duties as directors. The Nominating and Governance Committee believes it is appropriate for at least one, and, preferably, multiple, members of the Board of Directors to meet the criteria for an “audit committee financial expert” as defined by rules of the SEC, and for a majority of the members of the Board of Directors to meet the definition of “independent director” as defined by the NASDAQ Listing Rules. The Nominating and Governance Committee also believes it is appropriate for key members of our management to participate as members of the Board of Directors. Prior to each annual meeting of shareholders, the Nominating and Governance Committee identifies nominees first by evaluating the current directors whose term will expire at the annual meeting and who are willing to continue in service. These candidates are evaluated based on the criteria described above, including as demonstrated by the candidate’s prior service as a director, and the needs of the Board of Directors with respect to the particular talents and experience of its directors. In the event that a director does not wish to continue in service, the Nominating and Governance Committee determines not to re-nominate the director, a vacancy is created on the Board of Directors as a result of a resignation, an increase in the size of the Board or other event, the Committee will consider various candidates for Board membership, including those suggested by the Committee members, by other Board members, by any executive search firm engaged by the Committee or by shareholders.

 

On September 5, 2017, our Board of Directors approved and adopted an amendment, effective as of such date, to our amended and restated bylaws. The amendment added Article 3.8, which is an advance notice provision for director nominations and shareholder proposals. A shareholder who wishes to suggest a prospective nominee for the Board of Directors should notify the Company’s Corporate Secretary in writing and include any supporting material the shareholder considers appropriate. Information to be in the notice includes (i) the name, age, business address and residence address for the nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of capital stock of the Company which are owned of record and beneficially by each such nominee (if any), (iv), such other information concerning each such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved) or that is otherwise required to be disclosed, under Section 14(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, (v) the consent of the nominee to being named in the proxy statement as a nominee and to serve as a director if elected, and (vi) as to the Proposing Stockholder: (A) the name and address of the Proposing Stockholder as they appear on the corporation’s books and of the beneficial owner, if any, on whose behalf the nomination is being made, (B) the class and number of shares of the corporation which are owned by the Proposing Stockholder (beneficially and of record) and owned by the beneficial owner, if any, on whose behalf the nomination is being made, as of the date of the Proposing Stockholder’s notice, and a representation that the Proposing Stockholder will notify the Company in writing of the class and number of such shares owned of record and beneficially as of the record date for the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, (C) a description of any agreement, arrangement or understanding with respect to such nomination between or among the Proposing Stockholder and any of its affiliates or associates, and any others (including their names) acting in concert with any of the foregoing, and a representation that the Proposing Stockholder will notify the corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, (D) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the Proposing Stockholder’s notice by, or on behalf of, the Proposing Stockholder or any of its affiliates or associates, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of the Proposing Stockholder or any of its affiliates or associates with respect to shares of stock of the corporation, and a representation that the Proposing Stockholder will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, (E) a representation that the Proposing Stockholder is a holder of record of shares of the corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, and (F) a representation whether the Proposing Stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve the nomination and/or otherwise to solicit proxies from shareholders in support of the nomination. Submission of a prospective nominee must comply with the requirements set forth in the Company's Bylaws.

 

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Stockholder nominations must be made in accordance with the procedures outlined in, and must include the information required by, our Bylaws and must be addressed to: Corporate Secretary, Command Center, Inc., 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235. Stockholders can obtain a copy of our Bylaws by writing to the Corporate Secretary at this address.

 

Shareholder Communications with the Board of Directors

 

If a shareholder wishes to communicate with the Board of Directors, he or she may send any communication in writing to: Corporate Secretary, Command Center, Inc., 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235. The shareholder should include his or her name and address in the written communication and indicate whether he or she is a shareholder of Command Center. The Corporate Secretary will review any communication received from a shareholder, and all material communications from shareholders will be forwarded to the appropriate director or directors or Committee of the Board of Directors based on the subject matter.

 

Director Compensation

 

The following table summarizes the cash, equity awards, and all other compensation earned by each of our non-employee directors during the fiscal year ended December 28, 2018. Directors who are also officers are included in the Summary Executive Compensation Table below.

 

Name  Fees earned or paid in cash 

Share

awards (1)

 

Option

awards (2)

  Total
JD Smith  $39,445   $64,225   $   $103,670 
R. Rimmy Malhotra   38,720    64,225    26,730    129,675 
Steven Bathgate   32,316    64,225    26,730    123,271 
Steven P. Oman   23,683    52,373        76,055 
Galen Vetter   24,672    51,582        76,254 
Lawrence F. Hagenbuch   21,504    51,582        73,086 
John Schneller (3)   17,321    14,225        31,546 
Richard Finlay (4)   11,364            11,364 
John Stewart (5)   11,537            11,537 
Total  $220,562   $362,436   $53,460   $636,459 

 

1) This column represents the grant date fair value of shares awarded to each non-employee director in 2018 in accordance with U.S. GAAP. The amounts were calculated using the closing price of our stock on the grant date.

 

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2) This column represents the grant date fair value of options awarded to each non-employee director in 2018 in accordance with U.S. GAAP.

3) Served as director until July 12, 2018.

4) Served as director until January 22, 2018.

5) Served as director and Chairman of the Board until January 16, 2018.

 

Narrative to Director Compensation Table

 

The Compensation Committee recommends and the Board of Directors determines the compensation for our directors, based on industry standards and our financial situation. During 2018, we paid each of our independent directors a base amount of $25,000 as an annual retainer, paid on a quarterly basis, and granted each independent director 8,026 restricted shares of our Common Stock which vest in equal installments at each grant date anniversary over the next two years. In addition, each Co-Chairman of the Board receives an additional $5,000 annual retainer, the Chairman of the Audit Committee receives an additional $6,500 annual retainer, and each Chairman of the Compensation Committee and the Nominating and Governance Committee receives an additional $5,000 annual retainer. Non-chairman members of the Audit committee receive an additional $3,500 annual retainer, and non-chairman members of all other committees receive an additional $2,500 annual retainer.

 

Attendance at Meetings

 

During 2018, our Board of Directors held fifteen meetings and acted by unanimous written consent on seven occasions. Each member attended at least 75% of the meetings of the Board and committees on which he or she served during his or her term of office. Directors are expected to attend the Company’s meetings of shareholders, absent unusual circumstances. Last year’s annual meeting of shareholders was attended by all of our directors.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our officers, directors, and beneficial owners of more than 10% of our equity securities to timely file certain reports regarding ownership of and transactions in our securities with the Securities and Exchange Commission. Copies of the required filings must also be furnished to us. Section 16(a) compliance was required during the fiscal year ended December 28, 2018. Based solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to us pursuant to Rule 16a-3(e) under the Exchange Act during 2018, we believe that, during 2018, the filing requirements under Section 16(a) of the Exchange Act were satisfied, with the exception of (i) one Form 4 reporting three transactions not reported on a timely basis by Mr. Sandford, (ii) one Form 3 not reported on a timely basis by Mr. Steven P. Oman, (iii) one Form 4 reporting one transaction not reported on a timely basis by Mr. Hagenbuch, (iv) two Forms 4 each reporting two transactions not reported on a timely basis by Mr. Bathgate, (v) due to an administrative oversight by the Company, one Form 4 each reporting one transaction not reported on a timely basis by each of Messrs. Smith, Oman, Malhotra, Hagenbuch, Vetter and Bathgate.

 

Officer and Director Legal Proceedings

 

There are no legal proceedings involving our officers or directors.

 

AUDIT COMMITTEE REPORT

 

Management has the primary responsibility for the Company’s internal controls and financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting and Oversight Board and issuing an opinion thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. As part of its ongoing activities, the Audit Committee has:

 

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·reviewed and discussed with management and the independent registered public accounting firm the Company’s audited consolidated financial statements for the fiscal year ended December 28, 2018;

 

·met with the Company’s Chief Executive Officer, Chief Financial Officer, and the independent registered public accounting firm to discuss the scope and the results of the audits and the overall quality of the Company’s financial reporting and internal controls;

 

·discussed with the independent registered public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, Communications with Audit Committees, as amended;

 

·received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting and Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence as currently in effect, and discussed with the independent registered public accounting firm its independence from the Company; and

 

·pre-approved all audit, audit related and other services to be provided by the independent registered public accounting firm.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended December 28, 2018, for filing with the Securities and Exchange Commission.

 

In addition, the Audit Committee appointed Plante & Moran, PLLC as the Company’s independent registered public accounting firm for the fiscal year ending December 27, 2019, and any interim periods, subject to the ratification of this appointment by the shareholders.

 

Audit Committee

 

Galen Vetter (Chair)

Lawrence Hagenbuch

Steven P. Oman

 

EXECUTIVE COMPENSATION

 

Executive Officers

 

The following table contains the names, ages and positions of the executive officers of the Company who are not directors.

 

Name

 

 

Age

 

 

Position

 

Cory Smith   43   Chief Financial Officer
Brendan Simaytis   45   Executive Vice President, Secretary and General Counsel

 

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Cory Smith was appointed as our Chief Financial Officer on July 31, 2017. Mr. Smith was previously employed by the Company from 2010 through 2015, serving as our Controller during the final two years of his tenure.  Before rejoining the Company, he was employed by Southeast Staffing beginning in 2015, where he served as the Vice President of Finance. From 2005 to 2010, Mr. Smith worked as a Certified Public Accountant, primarily performing attestation work. Mr. Smith graduated cum laude from Lewis-Clark State College with a Bachelor of Science in Business Administration.

 

Brendan Simaytis was appointed Executive Vice President and General Counsel on July 1, 2018, and also serves as the Company’s Corporate Secretary. He has been employed with the Company since 2011, primarily as a corporate attorney.  Beginning in May of 2017, he served as Corporate Secretary and Associate General Counsel.  During the course of his employment, Mr. Simaytis has become versed in all aspects of the Company’s business and operations, and he has involvement with, and oversight of, various functions within the Company.  Before joining Command Center, he worked litigating personal injury, property and contractual claims in Missouri and Illinois on behalf of large and small corporate clients while at Williams Venker & Sanders, LLC, a civil litigation law firm in St. Louis, Missouri.  He then worked in private practice in Coeur d’Alene, Idaho, representing both businesses and individuals in a variety of matters.  Mr. Simaytis graduated with a Bachelor of Arts from Northern Illinois University and a Juris Doctor from Western Michigan University Cooley Law School.  He is admitted to practice in Missouri, Illinois and Idaho.

 

Summary Compensation Table

 

The following tables provide a summary of information about compensation expensed or accrued by us during the fiscal years ended December 28, 2018, and December 29, 2017 for (a) our Chief Executive Officer, (b) our former Chief Executive Officer, (c) our Chief Financial Officer, and (d) our Executive Vice President and General Counsel (collectively, the “Named Executive Officers” or “NEOs”). Columns required by SEC rules are omitted where there is no amount to report.

 

Name and Principal Position  Year  Salary  Bonus  Option awards (5)  All other compensation  Total
Richard K. Coleman, Jr. (1)   2018   $243,750   $100,000   $316,335    297(6)  $660,382 
President, Chief Executive Officer, and Director                              
Cory Smith (2)   2018    172,500    23,763        27,728(7)   223,991 
Chief Financial Officer   2017    63,462        12,450        75,912 
Brendan Simaytis (3)   2018    196,250    35,644        90(6)   231,984 
Executive Vice President and General Counsel   2017    176,077    40,000    62,941        279,018 
Frederick Sandford (4)   2018    68,750            697,664(8)   766,414 
Former Chief Executive Officer and Director    2017    275,000        62,251        337,251 

 

 

1) Mr. Coleman was appointed Chief Executive Officer on April 1, 2018.

2) Mr. Smith was appointed Chief Financial Officer on July 22, 2017.

 

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3) Mr. Simaytis was appointed Executive Vice President and General Counsel on July 1, 2018.

4) Mr. Sandford’s tenure as an officer ended on March 31, 2018.

5) Options were granted with an exercise price equal to the fair market value of our Common Stock on the date of grant, a ten-year life, and vesting over three years from the date of grant. Options are valued using the Black-Scholes pricing model. For additional information refer to Note 7 to the Consolidated Financial Statements found in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 28, 2018.

6) Other compensation is for Company sponsored life insurance.

7) Mr. Smith’s other compensation is for reimbursable relocation expenses and Company sponsored life insurance.

8) Mr. Sandford’s other compensation is for severance and Company sponsored life insurance.

 

Narrative to Summary Compensation Table

 

Summary of Executive Employment Agreements:  On March 31, 2019 we entered into an Executive Employment Agreement with Richard K. Coleman, Jr., the Company's Chief Executive Officer, effective as of April 1, 2019. This agreement provides for Mr. Coleman to continue serving as our Chief Executive Officer during an initial six-month term and to receive an annual base salary of $325,000. Mr. Coleman will be eligible for a performance bonus during the initial term, and a lump sum payment equal to $200,000 at the closing of a change of control transaction, under certain conditions.

 

On June 5, 2019, we entered into an Executive Employment Agreement with Cory Smith, the Company’s Chief Financial Officer. This agreement provides for Mr. Smith to continue serving as the Company’s Chief Financial Officer during an initial term through September 30, 2019 and to receive an annual base salary of $180,000. Mr. Smith will also be eligible for a performance bonus during the initial term, and a lump sum payment of $50,000 in the event of a change of control, as defined by the agreement, during the term or within six months following the term. If Mr. Smith’s employment is terminated by us without cause within 3 months following a change of control, or there is a failure or refusal of a surviving or successor entity to assume all of the obligations of the agreement or to offer a bona fide offer of continued employment with a surviving or successor entity, with compensation, benefits, and terms at least equal to those set forth in the agreement, Mr. Smith will be entitled to receive his base salary for six months. Upon a change of control, the term of Mr. Smith’s employment will automatic renew for 24 months.

 

On June 29, 2018, we entered into an Executive Employment Agreement with Brendan Simaytis, the Company’s Executive Vice President and General Counsel, effective as of July 1, 2018. This agreement provides for Mr. Simaytis to continue serving as the Company’s Executive Vice President and General Counsel during an initial one-year term and to receive an annual base salary of $200,000. Mr. Simaytis will also be eligible for a performance bonus during the initial term, and a lump sum payment of $50,000 in the event of a change of control, as defined by the agreement, during the term or within six months following the term. If Mr. Simaytis’s employment is terminated by us without cause within 12 months following a change of control, Mr. Simaytis will be entitled to receive his base salary for the greater of six months or the time remaining in the current term of the agreement. Upon a change of control, the term of Mr. Simaytis’ employment will automatic renew for 12 months.

 

On March 28, 2018, we entered into a severance agreement with our former Chief Executive Officer, Frederick Sandford. Pursuant to this severance agreement, we mutually agreed to terminate Mr. Sandford’s employment as of March 31, 2018. In addition, Mr. Sandford agreed to resign as a member of our Board of Directors and from all other positions with Command Center, also effective at 11:59 p.m. on March 31, 2018. In return, we agreed to pay Mr. Sandford $275,000 severance, an amount equal to 105% of the intrinsic value of Mr. Sandford’s unexercised options whether vested or not, and $25,000 to cover his legal fees. All unexercised options were terminated and cancelled as a result.

 

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All our executive officers receive expense reimbursement for business travel and participation in employee benefits programs made available during the term of employment.

 

Summary of the Executive Bonus Program. The 2018 plan was established by our Compensation Committee, in conjunction with our Board of Directors and input from management, through our current executive employment agreements. The plan sets out a goal and incentives for management upon achievement of which management will be awarded cash. This goal represents our business focus for the 2018 fiscal year and strives to align our business focus with the interests of our shareholders.

 

The plan provides for a bonus pool to be created in an amount equal to 15% of our 2018 adjusted EBITDA exceeding $3 million. This pool will be distributed to members of our executive management, with 50% of the pool going to our Chief Executive Officer, Richard K. Coleman, Jr., 25% going to our Chief Financial Officer, Cory Smith, and 25% going to our Executive Vice President and General Counsel, Brendan Simaytis.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table shows grants of options outstanding on December 28, 2018, the last day of our last completed fiscal year, to each of the NEOs named in the Summary Compensation Table.

 

Name  Grant date  Number of securities underlying unexercised options exercisable  Number of securities underlying unexercised options unexercisable 

Option

exercise

price

 

Option expiration

date

Richard K. Coleman, Jr.  4/1/2018   42,143    57,143   $5.70(1)  3/31/2028
Cory Smith  9/29/2017   2,083    2,083    5.40(2)  9/28/2027
Brendan Simaytis  9/22/2017   8,333    8,333    4.80(2)  9/21/2027
   9/29/2017   3,125    3,125    5.40(2)  9/28/2027


1) These options vest 25% at the date of grant with the remaining 75% vesting in equal, monthly increments of the first day of each of the following 35 months. The vesting of these options will accelerate and the options will vest in full upon a change of control.

2) These options vest in four equal installments, 25% at the date of grant, and 25% at each grant date anniversary over the following three years.

 

Payments upon Termination and Change in Control

 

The following is a summary setting forth potential severance payments and benefits provided for our current NEOs valued as of December 28, 2018.

 

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Richard K. Coleman, Jr., President and Chief Executive Officer  Involuntary Termination without Cause (1)  Termination for Change in Control  Death  Disability
Base Salary  $231,250   $81,250   $   $ 
Bonus (2)       119,461         
Total  $231,250   $200,711   $   $ 

 

1) Includes base salary through the end of the current term.

2) Includes change in control bonus. The change in control bonus is an amount equal to $200,000 reduced by any payment made pursuant to the 2018 performance bonus.

 

Cory Smith, Chief Financial Officer 

Involuntary Termination without

Cause (1)

  Termination for Change in Control (1)  Death (1)  Disability (1)
Base Salary  $90,000   $90,000   $90,000   $90,000 
Bonus (2)       50,000         
Total  $90,000   $140,000   $90,000   $90,000 

 

1) Includes base salary through 6 months.

2) Includes change in control bonus.

 

Brendan Simaytis, Executive Vice President and General Counsel  Involuntary Termination without
Cause (1)
  Termination for Change in Control (1)  Death (1)  Disability (1)
Base Salary  $100,000   $100,000   $100,000   $100,000 
Bonus (2)       50,000         
Total  $100,000   $150,000   $100,000   $100,000 

 

1)  Includes base salary through the end of the current term, or 6 months.

2) Includes change in control bonus.

 

Payments Made Upon Any Termination: Regardless of the manner in which an NEOs employment terminates, the executive is entitled to receive amounts earned during his term of employment. Such amounts include: earned but unpaid salary through the date of termination; non-equity incentive compensation earned and payable prior to the date of termination; option grants received which have already vested and are exercisable prior to the date of termination (subject to the terms of the applicable option agreements) and unused vacation pay.

 

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Payments Made Upon Involuntary Termination Without Cause: In the case of Mr. Coleman, he will continue to receive his base salary for the remainder of the then-current term. In the case of Mr. Smith and Mr. Simaytis, each will continue to receive their base salary through the end of the current term or six months, whichever is longer.

 

Payments Made Upon a Change in Control: Some NEO’s employment agreements contain change in control provisions. The benefits, in addition to the items listed under the heading “Payments Made Upon Any Termination” above include the vesting of all outstanding stock options.

 

In the case of Mr. Simaytis, he will continue to receive his base salary through the end of the current term or six months, whichever is longer, if he is terminated without cause within twelve months of the change in control. In addition, Mr. Simaytis each will continue to receive his base salary for three months if he refuses a bona fide offer to continue as executive officer of a surviving or successor entity after a change in control.

 

In the case of Mr. Smith, he will continue to receive his base salary for six months if he is terminated without cause within three months following a change of control or there is a failure or refusal if a surviving or successor entity to assume all of the obligations of Mr. Smith’s employment agreement or to offer a bona fide offer of continued employment with a surviving or successor entity, with compensation, benefits, and terms at least equal to those set forth in Mr. Smith’s employment agreement.

 

Payments Made Upon Death or Permanent Disability: In the event of the death or permanent disability of an NEO, the executive or personal representative or estate, as applicable, would receive, in addition to the items listed under the heading “Payments Made Upon Any Termination” above the vesting of all outstanding stock options.

 

In the case of Mr. Smith and Mr. Simaytis, each will continue to receive their base salary through the end of the current term or six months, whichever is longer.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

There were no related party transactions during 2018 or 2017, or during 2019 through June 17, 2019. As described herein, the Company entered into the Merger Agreement with Hire Quest. Based on the Voting Agreements entered into in connection with the Merger Agreement, Hire Quest may be deemed the beneficial owner of more than 5% of the Company's outstanding Common Stock.

 

None of our executive officers serve as a member of the Board of Directors or Compensation Committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee. None of the current members of our Compensation Committee, nor any of their family members, has ever been our employees.

 

Related Person Transactions Policy and Procedures

 

As set forth in the written charter of the Audit Committee, any related person transaction involving a Company director or executive officer must be reviewed and approved by the Audit Committee. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. Related persons include any director or executive officer, certain stockholders and any of their “immediate family members” (as defined by SEC regulations). In addition, the Board of Directors determines on an annual basis which directors meet the definition of independent director under the NASDAQ Listing Rules and reviews any director relationship that would potentially interfere with his or her exercise of independent judgment in carrying out the responsibilities of a director.

 

Director Independence

 

Our Board of Directors affirmatively determines the independence of each director and nominee for election as a director in accordance with certain criteria, which include all elements of independence set forth in the related SEC rules and regulations and the NASDAQ Listing Rules. As part of the Board Committee meetings, and as they feel necessary or appropriate at full Board meetings, the independent directors routinely meet in executive session without management or any non-independent directors present.

 

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Based on these standards and information provided by our Board of Directors and officers, our Board of Directors determined that Steven Bathgate, R. Rimmy Malhotra, JD Smith, Steven P. Oman, Galen Vetter, and Lawrence F. Hagenbuch, all non-employee directors, are independent and have no material relationship with the Company, except as directors and as stockholders of the Company.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following tables set forth information regarding (a) the ownership of any non-management person known to us to own more than five percent of any class of our voting Common Stock, and (b) the number and percentage of our shares of Common Stock held by each director, each of the named executive officers and directors and officers as a group. Percentages of ownership have been calculated based upon 4,629,331 shares of Common Stock issued and outstanding as of June 17, 2019, the record date.

 

Security Ownership of Non-Management Owners

 

Name and address of Beneficial Owner  Title of class  Amount and nature of beneficial ownership (1)  Percent of class
Jerry Smith (2)  Common Stock   479,725    10.4%
Barbara Rydesky (3)  Common Stock   555,253    12.0%
Ephraim Fields (4)  Common Stock   340,782    7.4%
Hire Quest Holdings, LLC (5)  Common Stock   1,095,901    23.7%

 

1) Beneficial ownership is calculated in accordance with Rule 13d-3(d)(1) of the Exchange Act, and includes shares held outright, shares held by entity(s) controlled by NEOs and/or Directors, and shares issuable upon exercise of options or warrants which are exercisable on or within 60 days of June 17, 2019.

2) The number of shares comprising Mr. Smith’s beneficial ownership is based upon the written representations of his legal counsel. Mr. Smith’s address is: care of Command Center, Inc., 3609 S Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.

3) The number of shares comprising Mrs. Rydesky’s beneficial ownership is based upon the written representations of Barbara Rydesky. Mrs. Rydesky’s address is: 3238 Pine Lake Road, Orchard Lake, Michigan 48234.

4) The number of shares comprising Mr. Fields' beneficial ownership, over which Mr. Fields has sole voting and sole dipositive power, is based upon the Schedule 13G/A filed by Ephraim Fields on February 11, 2019. Mr. Fields' address is: care of Echo Lake Capital, 501 Madison Avenue, Floor 12A, New York, New York 10022.

5) Based on a Schedule 13/D filed by Hire Quest Holdings, LLC, Richard Hermanns and John McAnnar on April 18, 2019, Hire Quest, Mr. Hermanns and Mr. McAnnar may be deemed to share voting power over 1,095,901 shares pursuant to the Voting Agreements and irrevocable proxies executed by the directors, officers and certain beneficial owners of more than 5% of the Company’s voting stock on April 8, 2019.

 

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Security Ownership of Management and Board of Directors

 

Name and address of Beneficial Owner (1)  Title of class  Amount and nature of beneficial ownership (2)  Percent of class
Richard K. Coleman, Jr. (3)  Common Stock   59,286    1.3%
Brendan Simaytis (4)  Common Stock   17,958      *  
Cory Smith (5)  Common Stock   3,333      *  
JD Smith (6)  Common Stock   42,274      *  
Steven P. Oman (7)  Common Stock   8,442      *  
R. Rimmy Malhotra (8)  Common Stock   140,510    3.0%
Steven Bathgate (9)  Common Stock   114,445    2.5%
Galen Vetter (10)  Common Stock   10,581      *  
Lawrence F. Hagenbuch (11)  Common Stock   10,303      *  
All Officers and Directors as a group (nine persons)  Common Stock   407,132    8.8%
Frederick Sandford (12)  Common Stock   16,250      *  

 

* Indicates ownership of less than 1.0%

 

1) The address of the NEOs and Directors is: care of Command Center, Inc., 3609 S Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.

2) Beneficial ownership is calculated in accordance with Rule 13d-3(d)(1) of the Exchange Act, and includes shares held outright, shares held by entities controlled by NEOs and/or Directors, and shares issuable upon exercise of options or warrants which are exercisable on or within 60 days of June 17, 2019.

3) Options to purchase shares.

4) Includes 6,500 shares held outright and options to purchase 11,458 shares.

5) Includes 1,250 shares held outright and options to purchase 2,083 shares.

6) Includes 30,191 shares held outright and options to purchase 12,083 shares.

7) Shares held outright.

8) Includes 12,191 shares held outright, 123,944 shares held indirectly through the Nicoya Fund and a managed account, and options to purchase 4,375 shares. The shares held by the Nicoya Fund are directly owned by the Nicoya Fund LLC, a Delaware limited liability company. This reporting person is the managing member and a co-owner of Nicoya Capital LLC, which is the managing member and owner of the Nicoya Fund.

9) Includes 27,155 shares held outright, 82,915 shares held indirectly, including 66,666 by Mr. Bathgate’s spouse, 7,916 by the Bathgate Family Partnership and 8,333 by Viva Co., LLC, and options to purchase 4,375 shares.

 

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10) Includes 8,303 shares held outright and 2,278 shares held indirectly by Vetter Community Resources, LLC.

11) Shares held outright.

12) Shares held outright.

 

Equity Compensation Plans

 

At the annual meeting of stockholders held on November 17, 2016, the shareholders approved the adoption of the Command Center, Inc. 2016 Stock Incentive Plan (the "2016 Plan"). The 2008 Stock Incentive Plan expired in January 2016, except as to awards that remain outstanding under such plan.

 

Securities Authorized for Issuance Under Equity Compensation Plans.

 

As of December 28, 2018, we had one equity compensation plan, namely the 2016 Plan, approved by the shareholders on November 17, 2016. Pursuant to the 2016 Plan, the Compensation Committee is authorized to issue awards for up to 500,000 common shares over the 10-year life of the 2016 Plan. Currently, there have been options to purchase approximately 192,000 shares of Common Stock and approximately 11,000 common shares granted under the 2016 Plan.

 

PROPOSAL 2 – APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM THE STATE OF WASHINGTON TO THE STATE OF DELAWARE

 

The Board of Directors has unanimously approved and recommends to the Company’s shareholders this proposal to change the Company’s state of incorporation from the State of Washington to the State of Delaware (the “Reincorporation”). If the Company’s shareholders approve this proposal, the Company will accomplish the Reincorporation as described below.

 

Summary

 

Assuming that shareholder approval of this Proposal is obtained and the Reincorporation becomes effective:

 

·the affairs of the Company will cease to be governed by the Washington Business Corporation Act (the “WBCA”), the Company’s existing Articles of Incorporation, and the Company’s existing Bylaws, and the affairs of the Company will become subject to the Delaware General Corporation Law (the “DGCL”), a new Certificate of Incorporation and new Bylaws, as more fully described below;

 

·the resulting Delaware corporation (the “Delaware Company”) will (i) be deemed to be the same entity as the Company for all purposes under the laws of Delaware, (ii) continue to have all of the rights, privileges and powers of the Company, (iii) continue to possess all of the properties of the Company, and (iv) continue to have all of the debts, liabilities and obligations of the Company;

 

·each outstanding share of the Company’s Common Stock will continue to be an outstanding share of the Delaware Company’s common stock, and each outstanding option, warrant or other right to acquire shares of the Company’s Common Stock will continue to be an outstanding option, warrant or other right to acquire shares of the Delaware Company’s common stock;

 

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·each employee benefit plan, incentive compensation plan or other similar plan of the Company will continue to be an employee benefit plan, incentive compensation plan or other similar plan of the Delaware Company; and

 

·each director and officer of the Company will continue to hold their respective offices with the Delaware Company.

 

General Information

 

The Company intends to effect the Reincorporation by converting into a Delaware corporation (the “Conversion”). The Company will convert into a Delaware corporation, with all of the rights, privileges, powers, properties and debts of the Company to be unaffected. The Company will effect the Reincorporation by filing a Certificate of Conversion, attached hereto as Annex D, and the proposed Delaware Certificate of Incorporation, in substantially the form attached to this proxy statement as Annex E (the “Delaware Charter”) with the Delaware Secretary of State and by filing Articles of Entity Conversion with the Washington Secretary of State. In order to file Articles of Entity Conversion with the Washington Secretary of State, shareholders must approve the Plan of Conversion attached hereto as Annex F. The Delaware Company would also adopt the proposed bylaws, in substantially the form attached to this proxy statement as Annex G (the “Delaware Bylaws”). The approval by the Company’s shareholders of this Reincorporation Proposal will constitute approval of the Certificate of Conversion, Plan of Conversion and the Delaware Charter. If this Reincorporation Proposal is approved by the shareholders, the Company expects to file the Certificate of Conversion and Delaware Charter with the Delaware Secretary of State and Articles of Entity Conversion with the Washington Secretary of State, as soon as possible following the completion of the Merger.

 

The Reincorporation will not affect the trading of the shares of the Company’s Common Stock on the NASDAQ Capital Market under the same symbol “CCNI.” The Delaware Company will continue to file periodic reports and other documents as and to the extent required by the rules and regulations of the SEC. Shareholders who own shares of the Company’s Common Stock that are freely tradable prior to the Reincorporation will continue to have freely tradable shares in the Delaware Company after the Reincorporation, and shareholders holding restricted shares of the Company’s Common Stock prior to the Reincorporation will continue to hold their shares in the Delaware Company after the Reincorporation subject to the same restrictions on transfer to which their shares are presently subject. In summary, the Reincorporation will not change the respective positions under federal securities laws of the Company or its shareholders.

 

Reasons for the Reincorporation

 

Delaware is a nationally recognized leader in adopting and implementing comprehensive and flexible corporate laws. The DGCL is frequently revised and updated to accommodate changing legal and business needs and is more comprehensive, widely used and interpreted than other state corporate laws, including the WBCA.

 

In addition, Delaware courts, including the Court of Chancery and the Delaware Supreme Court, are highly regarded for their considerable expertise in dealing with corporate legal issues and for producing a substantial body of case law construing the DGCL. Because the judicial system is based largely on legal precedents, the abundance of Delaware case law should serve to enhance the relative clarity and predictability of many areas of corporate law, which should offer added advantages to the Company by allowing our Board and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences of those decisions and actions.

 

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The Reincorporation may also make it easier to attract future candidates willing to serve on our Board because many such candidates are already familiar with Delaware corporate law, including provisions relating to director indemnification, from their past business experience.

 

Changes as a Result of Reincorporation

 

If this Proposal is approved, the Reincorporation will effect a change in the legal domicile of the Company and other changes of a legal nature, the most significant of which are described below in the section entitled “Comparison of the Company’s and Hire Quest’s Security Holders’ Rights Before and After the Reincorporation and/or Merger.” The Reincorporation is not expected to affect any of the Company’s material contracts with any third parties, and the Company’s rights and obligations under such material contractual arrangements will continue as rights and obligations of the Delaware Company. The Reincorporation itself will not result in any change in headquarters, business, jobs, management, location of any of the Company’s offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation) of the Company. Further, each director and officer of the Company will continue to hold their respective offices with the Delaware Company and the subsidiaries of the Company immediately prior to the Reincorporation will be the subsidiaries of the Delaware Company immediately after the Reincorporation.

 

The Plan of Conversion

 

The Reincorporation will be effected pursuant to the Plan of Conversion to be adopted by the Company. The Plan of Conversion provides that the Company will convert into a Delaware corporation and will be subject to all of the provisions of the DGCL. By virtue of the Conversion, all of the rights, privileges and powers of the Company, all property owned by the Company, all debts due to the Company and all other causes of action belonging to the Company immediately prior to the Conversion will remain vested in the Delaware Company following the Conversion. In addition, by virtue of the Conversion, all debts, liabilities and duties of the Company immediately prior to the Conversion will remain attached to the Delaware Company following the Conversion.

 

If this Reincorporation Proposal is approved, it is anticipated that our Board will cause the Reincorporation to be effected as soon as practicable thereafter and promptly following the closing of the Merger. However, the Reincorporation may be delayed by our Board or the Plan of Conversion may be terminated and abandoned by action of our Board at any time prior to the effective time of the Reincorporation, whether before or after the approval by the Company’s shareholders, if our Board determines for any reason that such delay or termination would be in the best interests of the Company and its shareholders. If this Reincorporation Proposal is approved by our shareholders, the Reincorporation would become effective upon the filing (and acceptance thereof by the Delaware Secretary of State) of the Certificate of Conversion.

 

The Company’s shareholders will not be required to exchange their Company stock certificates for new Delaware Company stock certificates. Following the effective time of the Reincorporation, any Company stock certificates submitted to the Company for transfer, whether pursuant to a sale or otherwise, will automatically be exchanged for the Delaware Company stock certificates. The Company’s shareholders should not destroy any stock certificate(s) and should not submit any certificate(s) to the Company unless and until requested to do so.

 

Effect of Not Obtaining the Required Vote for Approval

 

If we fail to obtain the requisite vote of shareholders for approval of this Reincorporation Proposal, the Reincorporation will not be consummated and the Company will continue to be incorporated in Washington and governed by the WBCA, the Company’s Articles of Incorporation and Bylaws.

 

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Anti-Takeover Implications

 

Delaware, like many other states, permits a corporation to include in its certificate of incorporation or bylaws or to otherwise adopt measures designed to reduce a corporation’s vulnerability to unsolicited takeover attempts. The Company’s Board, however, is not proposing the Reincorporation to prevent a change in control and, excluding the Merger, is not aware of any present attempt by any person to acquire control of the Company or to obtain representation on the Company’s Board. Our Board has no independent plans to implement any defensive strategies to enhance the ability of the Board to negotiate with an unsolicited bidder.

 

With respect to implementing defensive measures, except as indicated below, Delaware law is preferable to Washington law because of the substantial judicial precedent on the legal principles applicable to defensive measures. As either a Washington corporation or a Delaware corporation, the Company could implement some of the same defensive measures. As a Delaware corporation, however, the Company would benefit from the predictability of Delaware law on these matters.

 

Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation and/or Merger

 

Because of differences between the WBCA and the DGCL, as well as differences between the Company’s governing documents before and after the Reincorporation, the Reincorporation will effect certain changes in the rights of the Company’s shareholders. Summarized below are the most significant provisions of the WBCA and DGCL, along with the differences between the rights of the shareholders of the Company immediately before and immediately after the Reincorporation that will be the result of the differences between the WBCA and the DGCL and the differences between the Company’s existing Articles of Incorporation and Bylaws, on the one hand, and the Delaware Charter and the Delaware Bylaws, on the other hand. In the second column, there is a summary of the Company’s Articles of Incorporation as amended in the event that the Charter Amendment Proposal is approved by shareholders but this Reincorporation Proposal is not approved by shareholders at the Annual Meeting. The summary is not an exhaustive list of all differences or a complete description of the differences described, and is qualified in its entirety by reference to the WBCA, the DGCL, the Company’s existing Articles of Incorporation and Bylaws, the Delaware Charter and the Delaware Bylaws and the Charter Amendment. Copies of the Company’s existing Articles of Incorporation and Bylaws have been filed or incorporated by reference as exhibits to certain of our filings with the SEC. The Delaware Charter, the Delaware Bylaws and the Charter Amendment are attached as annexes to this proxy statement.

 

Assuming that the Company does not receive shareholder approval to reincorporate in Delaware, the Company will remain a Washington corporation. The following is a summary of material parts of the WBCA and the DGCL and the Company’s governing documents before and after the Reincorporation.

 

Provision Washington Washington Upon Charter Amendment Delaware Upon Reincorporation
Authorized Capital Stock

As of the date hereof, the Company’s authorized capital stock consists of 8,333,333 authorized shares of Common Stock, par value $0.001 per share, and 416,666 authorized shares of Preferred Stock, par value $0.001 per share. The holders of Common Stock are entitled to one vote for each share on all matters voted on by all of the shareholders, and do not have any cumulative voting, conversion, redemption or preemptive rights.

Upon the filing of the Charter Amendment with the Washington Secretary of State, the Company’s authorized capital stock will consist of 30,000,000 authorized shares of Common Stock, par value $0.001 per share, and 1,000,000 authorized shares of Preferred Stock, par value $0.001 per share.

 

 

Upon consummation of the Reincorporation, the Company’s authorized capital stock will consist of 30,000,000 authorized shares of common stock, par value $0.001 per share, and 1,000,000 authorized shares of preferred stock, par value $0.001 per share.

 

 

 

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  The holders of the Common Stock are entitled to such distributions as may be authorized from time to time by the Board, provided that the Company is able to pay its debts in the usual course of business and the Company’s assets are not less than the sum of its total liabilities plus the amount which would be needed to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The holders of Company Common Stock and Preferred Stock will be entitled to the same rights as under the current Articles of Incorporation (See Washington column). Under the Delaware Charter and Delaware Bylaws, the holders of common stock will be entitled to the same rights under the current Articles of Incorporation and Bylaws, except: (a) the threshold for calling special meetings of shareholders will be increased to twenty-five percent of the Company’s outstanding capital stock; and (b) the ability to amend the Delaware Charter in relation to Preferred Shares, indemnification, preemptive rights, special shareholder meetings, and amendments is subject to limitations.

 

Number of Directors; Election; Removal; Filling Vacancies

The Articles of Incorporation provides that the number of directors shall be no fewer than one (1) and no more than seven (7) directors. The directors are elected by the Company’s shareholders annually for terms of one year and hold their positions until their successors are elected and qualified, or until their earlier death, resignation or removal. The WBCA permits a corporation to classify its board of directors so that less than all of the directors are elected each year to overlapping terms. The Articles of Incorporation and Bylaws do not provide for a classified board of directors. Each newly elected director currently serves for a term of one year.

See Washington column.

The Delaware Charter and Delaware Bylaws will provide that the minimum number of directors will be one and that the maximum number may be determined by the Board. Delaware law permits corporations to classify their board of directors so that less than all of the directors are elected each year to overlapping terms. The Delaware Charter will not provide for a classified board.

 

Each director will hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.

 

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Under the WBCA, shareholders may remove one or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause. The Bylaws provide that any director may be removed, with or without cause, from office at any time, at a special shareholder meeting called for that purpose, and only by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon. The Bylaws provide that a vacancy on the Board, whether created as a result of death, resignation or otherwise, may be filled by the affirmative vote of a majority of the remaining directors of the Board in office, though less than a quorum of the Board. Any directorship to be filled by reason of an increase in the number of directors may be filled by the Board for a term continuing only until the next election of directors by the shareholders and until his or her successor is elected and qualified.

  Under the DGCL, shareholders may remove one or more directors with or without cause. The Delaware Charter provides that a director may be removed with or without cause by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon. The Delaware Bylaws will provide that a vacancy on the board of directors, whether created as a result of death, resignation or otherwise, may be filled by the affirmative vote of a majority of the remaining directors of the board of directors in office, though less than a quorum of the board of directors.

 

Cumulative Voting for Directors

 

Under Washington law, unless the articles of incorporation provide otherwise, shareholders are entitled to use cumulative voting in the election of directors. The Articles of Incorporation prohibit cumulative voting. See Washington column. Delaware law permits cumulative voting if provided in the certificate of incorporation. The Delaware Charter prohibits cumulative voting.

 

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Business Combinations; Interested Transactions Washington law imposes restrictions on certain transactions between a Washington publicly-traded corporation and certain significant shareholders. Chapter 23B.19 of the WBCA prohibits a “target corporation,” with certain exceptions, from engaging in certain “significant business transactions” with an “acquiring person” who acquires 10% or more of the total number of votes entitled to be cast by the outstanding voting shares of a target corporation for a period of five years after such acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation’s board of directors prior to the date of the acquisition or, at or subsequent to the date of the acquisition, the transaction is approved by a majority of the members of the target corporation’s board of directors and approved at a shareholders’ meeting by the vote of at least two-thirds of the votes entitled to be cast by the outstanding voting shares of the target corporation, excluding shares owned or controlled by the acquiring person. The prohibited transactions include, among others, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the acquiring person, termination of 5% or more of the employees of the target corporation as a result of the acquiring person’s acquisition of 10% or more of the shares, or allowing the acquiring person to receive any disproportionate benefit as a shareholder. After the five-year period during which significant business transactions are prohibited, certain significant business transactions may occur if certain “fair price” criteria or shareholder approval requirements are met. Target corporations include all publicly- traded corporations incorporated under Washington law, as well as publicly traded foreign corporations that meet certain requirements. In contrast to the comparable provision under Delaware law, a Washington publicly traded corporation is not permitted to exclude itself from these restrictions through a statement to that effect in its charter documents. See Washington column.

Section 203 of the DGCL provides that, subject to certain exceptions specified therein, a corporation shall not engage in any business combination with any “interested shareholder” for a three-year period following the date that such shareholder becomes an interested shareholder unless (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder, (ii) upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares held by directors who are also officers and employee stock purchase plans in which employee participants do not have the right to determine confidentially whether plan shares will be tendered in a tender or exchange offer) or (iii) on or subsequent to such date, the business combination is approved by the board of directors of the corporation and by the affirmative vote at an annual or special meeting, and not by written consent, of at least 66 2/3% of the outstanding voting stock which is not owned by the interested shareholder. Except as specified in Section 203 of the DGCL, an interested shareholder is defined to include (a) any person that is the owner of 15% or more of the outstanding voting stock of the corporation or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date, and (b) the affiliates and associates of any such person.

 

Under certain circumstances, Section 203 of the DGCL may make it more difficult for a person who would be an “interested shareholder” to effect various business combinations with a corporation for a three-year period, although the corporation’s certificate of incorporation or shareholders may elect to exclude a corporation from the restrictions imposed thereunder. The Delaware Charter does not exclude the Company from the restrictions imposed under Section 203 of the DGCL.

 

 

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Limitation of Liability of Directors

The WBCA permits a corporation to include in its articles of incorporation provisions that eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for conduct as a director, provided that such provisions may not eliminate or limit the liability of a director for acts or omissions that involve (i) intentional misconduct by the director or a knowing violation of law by a director, (ii) liability for unlawful distributions or (iii) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. The exclusions from a director’s limitation of liability are narrower and more specific under Washington law than under the comparable provisions of Delaware law, with the result that the scope of the release of liability may be broader under, Washington law.

See Washington column.

The DGCL permits a corporation to include a provision in its certificate of incorporation eliminating or limiting the personal liability of a director to the corporation or its shareholders for damages for certain breaches of the director’s fiduciary duty. However, no such provision may eliminate or limit the liability of a director: (i) for any breach of the director’s duty of loyalty to the corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for declaration of unlawful dividends or illegal redemptions or stock repurchases; or (iv) for any transaction from which the director derived an improper personal benefit.

 

The Delaware Charter will provide that, to the fullest extent permitted by the DGCL, a director of the Company shall have no personal liability to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director.

 

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  The Articles of Incorporation provides that a director of the Company shall have no personal liability to the Company or its shareholders for monetary damages for breach of conduct as a director; provided that a director will remain liable for acts or omissions that involve intentional misconduct or a knowing violation of law by the director; (ii) conduct which violates the WBCA pertaining to unpermitted distributions to shareholders or loans to directors; or (iii) any transaction from which the director will personally receive a benefit in money, property, or services to which the director is not legally entitled. This provision does not affect the availability of equitable remedies such as an injunction based upon a director’s breach of the duty of care.    

 

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Indemnification of Officers and Directors

The WBCA permits a corporation to indemnify officers, directors, employees and agents for actions taken in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal action, which they had no reasonable cause to believe was unlawful. Washington’s laws provide that a corporation may advance expenses of defense in certain circumstances, and both states permit a corporation to purchase and maintain liability insurance for its directors and officers.

 

The WBCA provides that a corporation may not indemnify a director in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper personal benefit to the director in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.

See Washington column.

The DGCL permits a corporation to indemnify officers, directors, employees and agents for actions taken in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal action, which they had no reasonable cause to believe was unlawful. Delaware’s laws provide that a corporation may advance expenses of defense in certain circumstances, and both states permit a corporation to purchase and maintain liability insurance for its directors and officers.

 

The DGCL provides that indemnification may not be made for any matter as to which a person has been adjudged by a court of competent jurisdiction to be liable to the corporation, unless and only to the extent a court determines that the person is entitled to indemnity for such expenses as the court deems proper.

 

 

 

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The WBCA also provides that, unless a corporation’s articles of incorporation provide otherwise, (i) indemnification is mandatory if the director is wholly successful on the merits or otherwise in such a proceeding, and permits a director to apply for court-ordered indemnification and (ii) an officer of the corporation who is not a director is entitled to mandatory indemnification and is entitled to apply for court-ordered indemnification to the same extent as a director. The Articles of Incorporation does not limit these statutory rights to mandatory indemnification. The Bylaws generally provide that the Company shall indemnify any person who was or is a party to any proceeding, whether or not brought by or in the right of the Company, by reason of the fact that he or she is or was a director or officer of the Company, against all reasonable expenses incurred by the director in connection with the proceeding, and that reasonable expenses incurred by such director in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding upon receipt of a written affirmation of the director’s good faith belief that the director met the requisite standard of conduct and a written undertaking to repay the advance if it is ultimately determined that the director did not meet the standard of conduct. The indemnification and advancement of expenses provided in the Bylaws is not exclusive of any other rights to which such person may be entitled as a matter of law or by contract or by vote of the Board or the shareholders or otherwise. The Bylaws also provide that the Company may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another entity, against liability asserted against or incurred by the individual in that capacity or arising from the individuals status as a director, officer, employee or agent.

  The Delaware Bylaws and Charter will generally provide that the Company shall indemnify any person who was or is a party to any proceeding, whether or not brought by or in the right of the Company, by reason of the fact that he or she is or was a director or officer of the Company or held a position at another entity at the request of the Company, against all reasonable expenses incurred by the director in connection with the proceeding, and that reasonable expenses incurred by such indemnitee in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding upon receipt of a written affirmation of the indemnitee’s good faith belief that the indemnitee met the requisite standard of conduct and a written undertaking to repay the advance if it is ultimately determined that the director did not meet the standard of conduct. The indemnification and advancement of expenses that will be provided in the Delaware Bylaws is not exclusive of any other rights to which such person may be entitled as a matter of law or by contract or by vote of the board of directors or the shareholders or otherwise. The Delaware Bylaws will also provide that the Company may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another entity, against liability asserted against or incurred by the individual in that capacity or arising from the individual’s status as a director, officer, employee or agent.

 

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Special Meetings of Shareholders Under the WBCA, a corporation must hold a special meeting of shareholders upon request by the board of directors or by such persons authorized to do so by the articles of incorporation or bylaws. A corporation must also hold a special meeting of shareholders if the holders of at least ten percent of all votes entitled to be cast at a special meeting deliver to the corporation a demand for a special meeting. However, a corporation that is a public company may in its articles of incorporation limit or deny the right of shareholders to call a special meeting. The Articles of Incorporation does not limit or deny the right of shareholders to call a special meeting. The Bylaws provide that special meetings of shareholders may be called by the President, the Board, the Chairman or by holders of at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at such special meeting. See Washington column. Under the DGCL, a special meeting of shareholders may be called by the corporations board of directors or by such persons as may be authorized by the corporations certificate of incorporation or bylaws. The Delaware Bylaws will provide that a special meeting may be called at any time by the Company Chief Executive Officer, the Company board of directors or by holders of at least twenty-five percent of all the votes entitled to be cast on any issue proposed to be considered at such special meeting.

 

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Amendment or Repeal of the Certificate of Incorporation

Under the WBCA, a board of directors may amend the corporation’s articles of incorporation without shareholder approval (i) to change any provisions with respect to the par value of any class of shares, if the corporation has only one class of shares outstanding, (ii) to delete the names and addresses of the initial directors, (iii) to delete the name and address of the initial registered agent or registered office, (iv) if the corporation has only one class of shares outstanding, solely to effect a forward or reverse stock split, or change the number of authorized shares of that class in proportion to such forward or reverse split or (v) to change the corporate name.

 

Other amendments to the articles of incorporation must be approved, in the case of a public company, by a majority of the votes entitled to be cast on the proposed amendment, provided that the articles of incorporation may require a greater vote.

 

The Articles of Incorporation provides that the Company reserves the right to amend, alter or repeal any provision contained in the Articles of Incorporation in any manner currently or hereafter prescribed by law, and that all rights and powers conferred upon shareholders and directors in the charter are subject to this reserved power.

 

See Washington column.

Under the DGCL, unless the certificate of incorporation otherwise provides, amendments to the certificate of incorporation generally require the approval of the holders of a majority of the outstanding stock entitled to vote thereon, and if the amendment would increase or decrease the number of authorized shares of any class or series or the par value of such shares, or would adversely affect the rights, powers or preferences of such class or series, a majority of the outstanding stock of such class or series also would have to approve the amendment.

 

The Delaware Charter will provide that the Company reserves the right to amend, alter or repeal any provision contained in the Delaware Charter in any manner currently or hereafter prescribed by law, and that all rights and powers conferred upon shareholders and directors in the charter are subject to this reserved power. The Delaware Charter will provide that the affirmative vote of the majority of the Company board of directors and holders of at least fifty percent of the outstanding shares of the Company is required to amend or repeal certain provisions of the Delaware Charter.

 

 

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Amendment to Bylaws

The WBCA provides that the board of directors may amend or repeal the corporation’s bylaws, or adopt new bylaws, unless (i) the articles of incorporation reserve this power exclusively to the shareholders or (ii) the shareholders, in amending, repealing or adopting a particular bylaw, provide expressly that the board of directors may not amend or repeal that bylaw. The shareholders may also amend or repeal the corporation’s bylaws, or adopt new bylaws, even though the bylaws may also be amended or repealed by the board of directors.

 

The Bylaws provide that the Board has the power to adopt, amend or repeal the bylaws of the Company, provided that any such adopted bylaws, or amendment or repeal of bylaws, may be subsequently changed or repealed by the holders of a majority of the stock entitled to vote at a shareholder meeting. The Bylaws further provide that such bylaws may be amended or repealed by the shareholders of the Company.

 

See Washington column.

Under the DGCL, the power to adopt, amend or repeal bylaws rests generally with the shareholders, although directors may amend the bylaws of a corporation if such right is expressly conferred upon the directors in its certificate of incorporation. The Delaware Bylaws and Delaware Charter will provide that such bylaws may be amended or repealed by the shareholders of the Company, provided that the affirmative vote of holders of at least fifty percent of the outstanding shares of the Company will be required to adopt, amend or repeal certain provisions of the Delaware Bylaws. The Delaware Bylaws will further provide that the Board has the power to adopt, amend or repeal the bylaws of the Company, provided, however, that a bylaw amendment adopted by shareholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.

 

 

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Merger with Subsidiary The WBCA provides that, if the parent corporation owns at least 90% of the outstanding shares of each class of capital stock of a subsidiary, the parent corporation may merge such subsidiary into itself without approval of the shareholders of the parent or subsidiary, or merge itself into the subsidiary without approval of the shareholders of the subsidiary. A merger of a parent corporation into a subsidiary will be governed by WBCA 23B.11 applicable to mergers generally. The shareholders of the parent corporation are required to approve the plan to merge the parent into the subsidiary. See Washington column. The DGCL provides that a parent corporation may merge into a subsidiary and a subsidiary may merge into its parent, without shareholder approval, where such parent corporation owns at least 90% of the outstanding shares of each class of capital stock of its subsidiary.
Committees of the Board    The WBCA also provides that the board of directors may delegate certain of its duties to one or more committees elected by a majority of the board of directors. Under the WBCA, each committee may exercise such powers of the board of directors as are specified by the board of directors; however, a committee may not (i) authorize or approve a distribution except in accordance with a general formula or method prescribed by the board of directors, (ii) approve or propose to shareholders any action that the WBCA requires be approved by shareholders, (iii) fill vacancies on the board of directors or on any of its committees, (iv) amend the articles of incorporation, (v) adopt, amend or repeal bylaws, (vi) approve a plan of merger not requiring shareholder approval or (vii) approve the issuance or sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares except within limits specifically prescribed by the board. See Washington column.

The DGCL provides that the board of directors may delegate certain of its duties to one or more committees elected by a majority of the board of directors. A Delaware corporation can delegate to a committee of the board of directors, among other things, the responsibility of nominating candidates for election to the office of director, to fill vacancies on the board of directors, to reduce earned or capital surplus, and to authorize the acquisition of the corporation’s own stock. Moreover, if the corporation’s certificate of incorporation or bylaws, or the resolution of the board of directors creating the committee so permits, a committee of the board of directors may declare dividends and authorize the issuance of stock. The Delaware Bylaws will provide that no committee will have the power or authority to adopt, amend or repeal any bylaw of the Company.

 

 

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Mergers, Acquisitions and Transactions with Controlling Shareholder

Under the WBCA, a merger, share exchange, consolidation, sale of substantially all of a corporation’s assets other than in the regular course of business, or dissolution of a public corporation must be approved by the affirmative vote of a majority of directors when a quorum is present, and by two-thirds of all votes entitled to be cast by each voting group entitled to vote as a separate group, unless a higher or lower proportion is specified in the articles of incorporation. The Articles of Incorporation reduce this requirement to a simple majority of votes entitled to be cast by a voting group.

 

 

See Washington column. Under the DGCL, a merger, consolidation, sale of all or substantially all of a corporation’s assets other than in the regular course of business or dissolution of a corporation must be approved by a majority of the outstanding shares entitled to vote. No vote of shareholders of a constituent corporation surviving a merger, however, is required (unless the corporation provides otherwise in its certificate of incorporation) if (i) the merger agreement does not amend the certificate of incorporation of the surviving corporation; (ii) each share of stock of the surviving corporation outstanding before the merger is an identical outstanding or treasury share after the merger; and (iii) the number of shares to be issued by the surviving corporation in the merger does not exceed twenty (20%) of the shares outstanding immediately prior to the merger. The certificate of incorporation of the Company does not make any provision with respect to such mergers.

 

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  The WBCA also provides that certain mergers need not be approved by the shareholders of the surviving corporation if (i) the articles of incorporation will not change in the merger, except for specified permitted amendments; (ii) no change occurs in the number, designations, preferences, limitations and relative rights of shares held by those shareholders who were shareholders prior to the merger; (iii) the number of voting shares outstanding immediately after the merger, plus the voting shares issuable as a result of the merger, will not exceed the authorized voting shares specified in the surviving corporation’s articles of incorporation immediately prior to the merger; and (iv) the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, will not exceed the authorized participating shares specified in the corporation’s articles of incorporation immediately prior to the merger.    

 

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Class Voting

Under the WBCA, a corporation’s articles of incorporation may authorize one or more classes or series of shares that have special, conditional or limited voting rights, including the right to vote on certain matters as a group. Additionally, under the WBCA, classes or series of shares have, by default application, special voting rights with respect to certain corporate matters, such as certain amendments to the articles of incorporation and mergers and share exchanges.

 

Under the WBCA, a corporation’s articles of incorporation may expressly limit the rights of holders of a class or series to vote as a group with respect to certain amendments to the articles of incorporation and as to mergers and share exchanges, even though they may adversely affect the rights of holders of that class or series.

 

See Washington column. The DGCL requires voting by separate classes only with respect to amendments to the certificate of incorporation that adversely affect the holders of, those classes or that increase or decrease the aggregate number of authorized shares or the par, value of the shares of any of those classes. The Delaware Charter will provide that, except as otherwise provided by law or by resolution providing for the issuance of any series of preferred stock, the holders of the outstanding shares of the Company common stock shall have voting rights, except that holders of the outstanding shares of the Company common stock shall not be entitled to vote on any amendment of the Delaware Charter that relates solely to the terms of a class of Preferred Stock.
Preemptive Rights Under Washington law, a shareholder has preemptive rights unless such rights are specifically denied in the articles of incorporation. The Articles of Incorporation states that shareholders do not have any preemptive rights to acquire additional shares issued by the Company. See Washington column. Under Delaware law, a shareholder does not have preemptive rights unless such rights are specifically granted in the certificate of incorporation. The Delaware Charter will state that shareholders do not have any preemptive rights to acquire additional shares issued by the Company.

 

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Transactions with Officers and Directors The WBCA sets forth a safe harbor for transactions between a corporation and one or more of its directors. A conflicting interest transaction may not be enjoined, set aside or give rise to damages if, after disclosure of the material facts of such conflicting interest transaction (i) it is approved by a majority of the qualified directors on the board of directors or an authorized committee, but in either case by no fewer than two qualified directors; or (ii) it is approved by a majority of all qualified shares; otherwise, there must be a showing that at the time of commitment, the transaction was fair to the corporation. For purposes of this provision, qualified directoris one who does not have (a) a conflicting interest respecting the transaction; or (b) a familial, financial, professional or employment relationship with a nonqualified director which relationship would reasonably be expected to exert an influence on the qualified directors judgment when voting on the transaction. Qualified sharesare defined generally as shares other than those beneficially owned, or the voting of which is controlled, by a director who has a conflicting interest respecting the transaction. See Washington column. The DGCL provides that contracts or transactions between a corporation and one or more of its officers or directors or an entity in which they have an interest is not void or voidable solely because of such interest or the participation of the director or officer in a meeting of the board of directors or a committee which authorizes the contract or transaction if (i) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of disinterested directors, even though the disinterested directors are less than a quorum; (ii) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof or the shareholders.

 

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Stock Redemptions and Repurchases

 

Under the WBCA, a corporation may repurchase or redeem its own shares provided that no repurchase or redemption may be made if, after giving effect to the repurchase or redemption (i) the corporation would not be able to pay its liabilities as they become due or (ii) the corporations total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the repurchase or redemption, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those whose shares are being repurchased or redeemed. See Washington column. Under the DGCL, a Delaware corporation may purchase or redeem its own shares of capital stock, except when the capital of the corporation is impaired or when such purchase or redemption would cause any impairment of the capital of the corporation.
Proxies Under the WBCA, a proxy executed by a shareholder will remain valid for 11 months unless a longer period is expressly provided in the appointment, or unless it is revoked by such shareholder. A proxy will be irrevocable by the shareholder granting it if it includes a statement as to its irrevocable nature, and is coupled with an interest. See Washington column. Under the DGCL, a proxy executed by a shareholder will remain valid for a period of three years unless the proxy provides for a longer period.
Consideration for Stock Under the WBCA, a corporation may issue its capital stock in return for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation. See Washington column. Under the DGCL, a corporation may accept as consideration for its stock a combination of cash, property or benefit to the corporation. Shares of stock without par value may be issued for such consideration as is determined from time to time by the board of directors, or by the shareholders if the certificate of incorporation so provides.

 

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Shareholders Rights to Examine Books and Records The WBCA provides that upon five business daysnotice to the corporation a shareholder is entitled to inspect and copy, during regular business hours at the corporations principal office, the corporations articles of incorporation, bylaws, minutes of all shareholdersmeetings for the past three years, certain financial statements for the past three years, communications to shareholders within the past three years, list of the names and business addresses of the current directors and officers and the corporations most recent annual report delivered to the secretary of state. Upon five business daysnotice, so long as the shareholders demand is made in good faith and for a proper purpose, the shareholder describes with reasonable particularity the shareholders purpose and the records the shareholder desires to inspect, and the records are directly connected with the shareholders purpose, a shareholder may inspect and copy excerpts from minutes of any meeting of the board of directors or other records of actions of the board of directors, accounting records of the corporation and the record of shareholders. See Washington column. The DGCL provides that any shareholder of record may demand to examine the corporations books and records for any proper purpose. If management of the corporation refuses, the shareholder can compel release of the books by court order.

 

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Notice of Shareholder Proposal The Bylaws provide that, in order to be deemed timely, notice of a shareholder proposal to be considered at a meeting of the shareholders must generally be submitted to the Company no later than 60 days nor earlier than 90 days before the anniversary of the preceding year’s annual shareholder meeting. See Washington column. The Delaware Bylaws will provide that, in order to be deemed timely, notice of a shareholder proposal to be considered at a meeting of the shareholders must generally be submitted to the Company no later than 45 days nor earlier than 75 days before the anniversary of the mailing of proxy materials for the preceding year’s annual shareholder meeting.
Appraisal and Dissenters’ Rights Under the WBCA, shareholders have appraisal or dissenters rights, respectively, in the event of certain corporate actions such as a merger. These rights include the right to dissent from voting to approve such corporate action, and demand fair value for the shares of the dissenting shareholder. If a proposed corporate action creating dissentersrights is submitted to a vote at a shareholders meeting, a shareholder who wishes to assert dissentersrights must (i) deliver to the corporation, before the vote is taken, written notice of his intent to demand payment for his shares if the proposed action is effected and (ii) not vote his shares in favor of the proposed action. If fair value is unsettled, the WBCA provides various procedures for the dissenter and the corporation to arrive at a fair value, which may ultimately be resolved by petition to a superior court of the county in Washington where a corporations principal office or registered office is located. See Washington column.

Under the DGCL shareholders have appraisal or dissenter’s rights, in the event of certain corporate actions such as a merger. These rights include the right to dissent from voting to approve such corporate action, and demand fair value for the shares of the dissenting shareholder. If a proposed corporate action creating dissenters’ rights is submitted to a vote at a shareholders meeting, a shareholder who wishes to assert dissenters’ rights must (i) deliver to the corporation, before the vote is taken, written notice of his intent to demand payment for his shares if the proposed action is effected and (ii) not vote his shares in favor of the proposed action. If fair value is unsettled, the DGCL provides various procedures for the dissenter and the corporation to arrive at a fair value, which may ultimately be resolved by petition to the Court of Chancery where a corporation’s principal office or registered office is located.

 

Delaware law provides an exception to a shareholder’s appraisal rights commonly known as the “market-out” exception. In accordance with this exception, appraisal rights will not be available if shareholders hold stock of a corporation that is either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders. There is no similar exception under Washington law. After the Conversion, the Company’s stock will continue to be traded on the NASDAQ, and therefore the market-out exception will apply to Company’s common stock immediately after the Conversion. Holders of common stock will not have appraisal rights under Delaware law while the market-out exception is applicable, except in circumstances where such holders would receive consideration in a transaction other than (a) stock of the surviving corporation, (b) stock of any other corporation that is or will be listed on a national securities exchange or held by more than 2,000 shareholders, (c) cash in lieu of fractional shares or (d) any combination of the foregoing.

 

 

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Also, Delaware appraisal rights procedures impose a heavier cost and burden on the dissenting shareholder while Washington puts the burden on the corporation. The WBCA requires a corporation to pay dissenting shareholders the amount the corporation estimates to be the fair value of their shares, plus interest, generally within 30 days following the effective date of the corporate action, whereas under the DGCL, absent a settlement, shareholders exercising their appraisal rights will not receive any money for their shares until the entire proceeding concludes. Under certain circumstances, this difference with respect to timing of payment to shareholders exercising dissenter’s rights may make it more difficult for a person to exercise such rights.

 

This discussion of appraisal or dissenter’s rights is qualified in its entirety by reference to the DGCL, which provides more specific provisions and requirements for dissenting shareholders.

 

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Dividends The WBCA provides that shares may be issued pro rata and without consideration to the corporations shareholders as a share dividend. The board of directors may authorize other distributions to its shareholders provided that no distribution may be made if, after giving it effect (i) the corporation would not be able to pay its liabilities as they become due in the usual course of business or (ii) the corporations total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. See Washington column. The DGCL provides that the corporation may pay dividends out of surplus, out of the corporations net profits for the preceding fiscal year, or both, provided that there remains in the stated capital account an amount equal to the par value represented by all shares of the corporations stock having a distribution preference.

 

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Corporate Action Without a Shareholder Meeting If the corporation is a public company, the WBCA only permits action to be taken by shareholders without holding an actual meeting if the action is taken unanimously by all shareholders entitled to vote on the action. The Bylaws provide that any action required or which may be taken at a meeting of shareholders of the Company may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. See Washington column.

The DGCL permits corporate action without a meeting of shareholders upon the written consent of the holders of that number of shares necessary to authorize the proposed corporate action being taken, unless the certificate of incorporation or articles of incorporation expressly provide otherwise. In the event such proposed corporate action is taken without a meeting by less than the unanimous written consent of shareholders, the DGCL requires that prompt notice of the taking of such action be sent to those shareholders who have not consented in writing.

 

The Delaware Bylaws will provide that any action required or permitted to be taken by the stockholders of the Delaware Company may be effected by a consent in writing as provided by Section 228 of the DGCL.

 

Forum Selection The WBCA authorizes a corporation to include in its articles of incorporation or bylaws a requirement to use an exclusive forum for the adjudication of internal corporate claims. Neither the Companys Articles of Incorporation nor the Bylaws include an exclusive forum provision. See Washington column.

The Delaware Bylaws will provide that the Delaware Court of Chancery will be the exclusive forum for certain types of claims, including any derivative actions and actions asserting claims for breach of fiduciary duties.

 

 

Certain Federal Income Tax Consequences of Reincorporation

 

The Company intends the Reincorporation to be a tax-free reorganization under the Code. Assuming the Reincorporation qualifies as a tax-free reorganization, the holders of the Company’s Common Stock will not recognize any gain or loss under the Federal tax laws as a result of the occurrence of the Reincorporation, and neither will the Company. Each holder will have the same basis in the Company’s Common Stock received as a result of the Reincorporation as that holder has in the corresponding Common Stock held at the time the Reincorporation occurs.

 

This proxy statement only discusses U.S. federal income tax consequences and has done so only for general information. This proxy statement does not address all of the federal income tax consequences that may be relevant to particular shareholders based upon individual circumstances or to shareholders who are subject to special rules, such as, financial institutions, tax-exempt organizations, insurance companies, dealers in securities, foreign holders or holders who acquired their shares as compensation, whether through employee stock options or otherwise. This proxy statement does not address the tax consequences under state, local or foreign laws.

 

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This discussion was based on the Code, regulations, rulings and decisions in effect as of the date of this proxy statement, all of which are subject to differing interpretations and change, possibly with retroactive effect. The Company has neither requested nor received a tax opinion from legal counsel or rulings from the Internal Revenue Service regarding the consequences of the Reincorporation. There can be no assurance that future legislation, regulations, administrative rulings or court decisions would not alter the consequences discussed above.

 

You should consult your own tax advisor to determine the particular tax consequences to you of the Reincorporation, including the applicability and effect of federal, state, local, foreign and other tax laws.

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO REINCORPORATE IN DELAWARE

 

PROPOSAL 3 – APPROVAL OF AN AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED CAPITAL AND CHANGE THE NAME

 

On April 7, 2019, our Board approved, subject to shareholder approval, the Charter Amendment to our Articles of Incorporation to (a) increase the total number of authorized shares from 8,749,999 to 31,000,000 shares; (b) increase the total number of authorized shares of Common Stock from 8,333,333 to 30,000,000 shares; (c) increase the total number of authorized shares of our Preferred Stock from 416,666 to 1,000,000 shares; and (d) change the name of the Company to “HireQuest, Inc.”. Pursuant to this Charter Amendment Proposal, our shareholders are being asked to approve the Charter Amendment.

 

The closing of the Merger is contingent upon the approval of this Charter Amendment Proposal. If, however, this Charter Amendment Proposal is approved but the Merger is not consummated, the Board reserves the right not to proceed with the filing of the Charter Amendment. The form of the Charter Amendment to be filed with the Secretary of State of Washington is attached as Annex H to this proxy statement.

 

Description of the Amendment

 

Our Board adopted a resolution to amend our Articles of Incorporation to increase the number of shares of Common Stock that we are authorized to issue from 8,333,333 to 30,000,000 shares, increase the number of shares of Preferred Stock that we are authorized to issue from 416,666 to 1,000,000 shares, and change the name of the Company to “HireQuest, Inc.” and has directed that the proposed Charter Amendment be submitted to our shareholders for their approval and adoption. The total authorized shares will be increased from 8,749,999 to 31,000,000 shares. The amendment will replace ARTICLE I and ARTICLE IV of our Articles of Incorporation with the following language:

 

ARTICLE I
Name

 

The name of this Corporation is HIREQUEST, INC.

 

ARTICLE IV
Authorized Capital Stock

  

The authorized capital stock of the Corporation shall consist of two classes of stock, designated as Common Stock and Preferred Stock.

 

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The total number of shares of Common Stock that the Corporation will have authority to issue is Thirty Million (30,000,000). The shares of Common Stock shall have a par value of $0.001 per share. All of the Common Stock authorized herein shall have equal voting rights and powers without restrictions in the preference.

 

The total number of shares of Preferred Stock that the Corporation will have the authority to issue is One Million (1,000,000). The shares of Preferred Stock shall have a par value of $0.001 per share. The authorized but unissued shares of Preferred Stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Directors in their sole discretion shall have the power to determine the relative powers, preferences and rights of each series of Preferred Stock.

 

Purpose and Effect

 

We may issue shares of capital stock to the extent such shares have been authorized under our Articles of Incorporation. Our Articles of Incorporation currently authorize us to issue up to 8,333,333 shares of Common Stock and 1,000,000 shares of Preferred Stock. If the Reincorporation Proposal is approved, the Company will have authorized Common Stock of 30,000,000 shares and authorized Preferred Stock of 1,000,000 shares even if this Charter Amendment Proposal is not approved.

 

As of June 17, 2019, the record date, 4,629,331 shares of Common Stock were issued and outstanding and no shares of Preferred Stock were issued and outstanding. If this Charter Amendment Proposal is not approved, we will not have a sufficient number of shares of Common Stock authorized to permit us to issue the 9,837,328 shares to Hire Quest security holders in connection with the closing of the Merger.

 

In addition to the need for a sufficient amount of Common Stock for the issuance of the Merger Consideration, we expect that we will need additional shares of Common Stock to grant options to existing and future employees as well as for future acquisitions and other corporate purposes. Although we have no agreements relating to future acquisitions, we may seek to acquire other businesses or assets and may use shares of our Common Stock to pay part or all of the consideration in those transactions. Our Board believes that it is in the best interest of our shareholders to have a sufficient number of authorized but unissued shares of Common Stock and Preferred Stock available for issuance in the future for such purposes in addition to the Merger.

 

The additional shares of Common Stock to be authorized after the amendment to the Articles of Incorporation would have rights identical to the currently outstanding shares, except for effects incidental to increasing the number of outstanding shares, such as the dilution of current shareholders’ ownership and voting interests when shares are issued. Under our Articles of Incorporation, our shareholders do not have preemptive rights with respect to our Common Stock. Thus, should our Board elect to issue additional shares, existing shareholders would not have any preferential rights to purchase any shares.

 

In addition, the Charter Amendment would result in an increase in the authorized but unissued shares of the Company’s Preferred Stock from 416,666 shares to 1,000,000 shares.

 

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Possible Anti-Takeover Effects of the Amendment

 

Except for the Merger, the proposed Charter Amendment is not being recommended in response to any specific effort of which our Board is aware to obtain control of the Company, and our Board does not intend or view the proposed increase in authorized Common Stock and Preferred Stock as an anti-takeover measure. However, the ability of our Board to authorize the issuance of the additional shares of Common Stock and Preferred Stock that would be available if the proposed amendment is approved and adopted could have the effect of discouraging or preventing a hostile takeover.

 

Consequences of Failure to Obtain Shareholder Approval

 

Without an increase in the number of authorized shares of Common Stock, the Company will not be able to consummate the Merger. Further, without an increase in the number of authorized shares of Common Stock, the Company may be constrained in its ability to raise capital when needed, and may lose important business opportunities, including to competitors, which could adversely affect our financial performance, growth and ability to continue our operations. As opportunities or circumstances arise that require prompt action frequently arise, it is the belief of the Board that the delay necessitated for shareholder approval of a specific issuance could be to the detriment of the Company and its shareholders.

 

Effectiveness of the Amendment

 

If the Charter Amendment is approved by our shareholders, the Charter Amendment will become effective upon its filing with the Secretary of State of the State of Washington, which filing is expected to occur promptly after the Annual Meeting and immediately prior to the closing of the Merger. If the Charter Amendment is not approved by our shareholders, the Charter Amendment will not be filed and the number of authorized shares of capital stock under our Articles of Incorporation will remain unchanged. Moreover, if the Charter Amendment Proposal is not approved, the Company will not be able to consummate the Merger. Our Board reserves the right, notwithstanding shareholder approval of the Charter Amendment and without further action by our shareholders, not to proceed with the filing of the Charter Amendment.

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE CHARTER AMENDMENT PROPOSAL TO INCREASE OUR AUTHORIZED CAPITAL STOCK TO 31,000,000 SHARES AND CHANGE OUR NAME

 

PROPOSAL 4 – ISSUANCE OF MORE THAN 20% OF OUR COMMON STOCK IN CONNECTION WITH THE MERGER AND A CHANGE OF CONTROL FOR THE PURPOSES OF NASDAQ LISTING RULE 5635

 

If the Merger is completed, the Company will issue 9,837,328 shares of the Company’s Common Stock to Hire Quest’s security holders. We are not asking for shareholder approval of the Merger or the Merger Agreement because neither Washington law nor our Articles of Incorporation require shareholder approval of the Merger or the Merger Agreement under these circumstances. However, under applicable rules of the NASDAQ Capital Market, shareholder approval is required for the issuance of the shares to Hire Quest security holders. Those rules require shareholder approval whenever more than 20% of a listed company’s outstanding shares are going to be issued in transactions such as the Merger.

 

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NASDAQ Listing Rule 5635(a) (the “20% Acquisition Rule”) requires that an issuer obtain shareholder approval prior to the issuance of common stock in connection with the acquisition of the stock or assets of another company if, due to the present or potential issuance of common stock, including shares issued pursuant to an earn-out provision or similar type of provision, or securities convertible into or exercisable for common stock: (i) the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock; or (ii) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. The issuance of the Merger Consideration will result in the issuance of our Common Stock representing in excess of 20% of the voting power, and 20% of the number of shares of our Common Stock, in each case, outstanding before the Merger, thus requiring shareholder approval. Accordingly, the Company is seeking shareholder approval of this Nasdaq Proposal in order to satisfy the requirements of the 20% Acquisition Rule with respect to the issuance of the Common Stock in connection with the Merger.

 

In addition, NASDAQ Listing Rule 5635(b) requires prior shareholder approval for issuances of securities that could result in a “change of control” of the issuer (the “Change of Control Rule”). In determining whether a change of control has occurred, NASDAQ considers all relevant factors including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of a company. NASDAQ staff has determined that the Merger would constitute a “change of control” because upon closing (a) Richard Hermanns will be CEO of the Company, (b) four of seven directors of the Company will be Hire Quest designees and (c) Hire Quest’s security holders will own approximately 68% of the outstanding shares of the Company’s Common Stock (disregarding the effect of the Offer) and the Company will be renamed “HireQuest, Inc.” Accordingly, the Company is seeking shareholder approval of this Nasdaq Proposal in order to satisfy the requirements of the Change of Control Rule, as that rule would be triggered by the Merger.

 

This Nasdaq Proposal is not seeking authorization or approval of our shareholders to enter into the Merger Agreement, or to complete the Merger with Hire Quest. Upon approval of this Nasdaq Proposal at the Annual Meeting and following the occurrence of the Merger at the effective time of the Merger, the Company will issue shares of Common Stock to the security holders of Hire Quest in accordance with the Merger Agreement.

 

For additional information about the Merger, including a summary of the terms of the Merger Agreement entered into in connection with the Merger, see the section entitled “The Merger” below.

 

Our Board has adopted a resolution declaring it advisable and in the best interests of the Company and its shareholders to approve the issuances of shares in the Merger. The resolution also recommends that this Nasdaq Proposal be approved and adopted by the Company’s shareholders and directs that such proposal be submitted to the Company’s shareholders at the Annual Meeting.

 

If the Nasdaq Proposal is not approved, the Merger cannot be completed because the Company will not be able to issue shares to Hire Quest security holders as the Merger Consideration or meet the shareholder approval requirements of the Change of Control Rule.

 

OUR BOARD RECOMMENDS THAT THE COMPANY’S SHAREHOLDERS VOTE “FOR” THE ISSUANCE OF MORE THAN 20% OF OUR COMMON STOCK IN CONNECTION WITH THE MERGER AND A CHANGE OF CONTROL FOR THE PURPOSES OF NASDAQ LISTING RULE 5635

 

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THE MERGER

 

The Companies

 

Command Center, Inc.

 

The Company is a staffing company, operating primarily in the manual on-demand labor segment of the staffing industry. In 2018, we employed approximately 32,000 employees and provided services to approximately 3,600 customers, primarily in the industrial/manufacturing/warehousing, construction, hospitality, transportation, and retail industries. Our customers range in size from small businesses to large corporate enterprises. All of our temporary staff, whom we refer to as “field team members,” are employed by us. Most of our work assignments are short-term, and many are filled on little advanced notice from our customers. In addition to short and longer-term temporary work assignments, we sometimes recruit and place workers in temp-to-hire positions.

 

As of June 17, 2019, we owned and operated 67 on-demand labor locations, or branches, across 22 states. We currently operate as Command Center, Inc., and we are also known in some locations as Command Labor. All financial information is consolidated and reported in our consolidated financial statements.

 

In prior years we were organized as Command Staffing, LLC. We were organized as a limited liability company in December 2002 and commenced operations in 2003 as a franchisor of on-demand labor businesses. In November 2005, Temporary Financial Services, Inc., a public company, acquired the assets of Command Staffing, LLC and Harborview Software, Inc., an affiliated company that owned the software used in the operation of our on-demand labor branches. The transaction was accounted for as if Command Staffing, LLC was the accounting acquirer, and our name changed to Command Center, Inc.

 

As a basis for the Merger, the Company believes Hire Quest’s franchise operating model is superior to the Company’s and offers many benefits. It is contemplated that shortly after the closing of the Merger, the Company will be selling its branches and converting them to franchises. While this operating strategy has perceived benefits, it also comes with risks. The Company will need to identify franchisees that have the financial capability and operating acumen to effectively operate these franchises. We will have less control over the day-to-day functioning of the branches and the franchisees may operate in a manner that is counter to our interests or introduce risks to our business by departing from our operating norms.

 

Further, operating as a franchise model will introduce regulatory risk as franchises are generally regulated at both the Federal and state level. Franchises require a different operating model than what the Company currently employs, including new IT systems and business processes that must be adopted. We plan on leveraging the Hire Quest platform for these functions, but there is no assurance that we can do so successfully, and the business rationale for the Merger is heavily dependent on our ability to do so.

 

Our Common Stock is traded on the NASDAQ Capital Market under the symbol “CCNI.” On April 8, 2019, immediately preceding the public announcement of the proposed Merger after market close, the Company’s Common Stock closed at $3.92. On June 17, 2019, the Company’s Common Stock closed at $5.39. As of the record date of June 17, 2019, the Company had approximately 180 shareholders of record.

 

The principal executive offices of the Company are located at 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235, and its telephone number is (866) 464-5844.

 

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For more information on the Company, see the reports and other information the Company files with the SEC, including its Annual Report on Form 10-K for the year ended December 28, 2018. These filings may be viewed on the Internet at www.sec.gov.

 

CCNI One, Inc.

 

Merger Sub 1 is a wholly-owned subsidiary of the Company and was formed in Florida on March 25, 2019, solely for the purpose of facilitating the Merger. Merger Sub 1 has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

 

Command Florida, LLC

 

Merger Sub 2 is a wholly-owned subsidiary of the Company and was formed in Florida on February 27, 2019, solely for the purpose of facilitating the Merger. Merger Sub 2 has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

 

Hire Quest Holdings, LLC

 

Hire Quest is a holding company that owns 93.5% of Hire Quest, LLC. Immediately prior to the closing of the Merger, Hire Quest will own 100% of Hire Quest, LLC. Unless the context otherwise requires, references in this section to “Hire Quest” refer to Hire Quest Holdings, LLC and Hire Quest, LLC on a combined basis.

 

Hire Quest is a temporary staffing company, providing back-office support for Trojan Labor and Acrux Staffing franchised locations across the United States. Trojan Labor provides temporary staffing services that include general labor, industrial, and construction personnel. Acrux Staffing provides temporary staffing services that include skilled, semi-skilled, and general labor industrial personnel, as well as clerical and secretarial personnel.

 

Hire Quest’s franchisees operate primarily in the on-demand labor segment of the staffing industry, and in particular in the short-term, unskilled and semi-skilled segments. Hire Quest endeavors to customize its services according to the unique opportunities and assets presented by each of its branches, while leveraging its overall size when possible. This approach reduces overhead costs, improves economies of scale, establishes procedural uniformity and controls, and creates a predictable internal environment for temporary employees.

 

Hire Quest, LLC serves as the employer of record of all temporary employees of its franchisees. In 2018, it employed approximately 52,000 employees, and Hire Quest’s franchisees helped thousands of customers, primarily in the construction, industrial/manufacturing, warehousing, disaster recovery, hospitality, and recycling/waste management industries, to be more productive by providing easy access to dependable personnel. Hire Quest’s customers range in size from small businesses to large corporate enterprises. Most of its work assignments are short-term, and many are filled on little advance notice from its customers.

 

As of April 30, 2019, Hire Quest’s franchisees owned and operated 98 branch locations in 21 states and the District of Columbia. 83 branches operated under the Trojan Labor brand, and 15 branches operated under the Acrux Staffing brand. Hire Quest’s corporate headquarters are located in Goose Creek, South Carolina.

 

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Hire Quest was organized as Hire Quest, LLC in June 2002. In September 2017, Hire Quest, LLC changed its ownership structure such that it became a subsidiary of a newly-formed entity, Hire Quest Holdings, LLC.

 

Industry Overview

 

The on-demand labor industry has developed based on the business need for flexible staffing solutions. The industry provides contingent workforce solutions to minimize the cost and effort that is required for hiring and managing permanent employees. Many businesses operate in a cyclical production environment and find it difficult to staff according to their changing business requirements. Companies also desire a way to temporarily replace full-time employees when absent due to illness, vacation, or unplanned termination. On-demand labor offers customers the opportunity to immediately respond to changes in staffing needs, reduce the costs associated with recruiting and interviewing, eliminate unemployment and workers’ compensation exposure, and draw from a larger pool of potential employees.

 

The on-demand labor industry continues to develop specialized market segments that reflect the diverse needs of the businesses it serves. Technical skills, prior work history, duration of assignment, and drug and background check requirements vary among industries and customers.

 

No single staffing company dominates the industry. Competition among companies revolves around recruitment and retention of both customers and temporary employees. The industry tends to track the overall strength of the economy and trends in workforce flexibility. As the economy grows, the number of competitors has increased due to low barriers to entry. During recessions, the number of competitors generally decreases.

 

Hire Quest’s Business

 

Strategic Growth Opportunities: The total number of branches open and operating increased from 79 at the end of Hire Quest’s fiscal year ended December 31, 2017 to 92 at the end of its 2018 fiscal year. As of April 30, 2019, it had 98 branch locations. All locations are owned and operated by franchisees. Hire Quest expects to continue to open new physical locations to expand its reach, and may also consider growing through strategic acquisitions, such as through the merger with the Company.

 

Hire Quest’s franchise model allows it to incentivize local ownership to actively participate in locating and retaining new customers and temporary employees. It will continue to look for opportunities to make new customer relationships and expand services to existing customers.

 

Hire Quest expects to continue to invest in the development of its proprietary software to enable a seamless interaction with its customers and increased abilities to recruit and retain both customers and temporary employees. Hire Quest will leverage this software, and technology in general, to improve the experiences for both its employees and its customers.

 

Franchise Model and Support System: Hire Quest provides back-office support for its franchisees. It also uses the scale of its temporary employee base to leverage more favorable terms on its workers’ compensation policy. Hire Quest believes that this is a strategic advantage vis-à-vis new entrants into the market, which have to rely on workers’ compensation packages with inferior terms.

 

Franchised Branch Operations: Hire Quest’s franchised branch locations are a key component of its success. Ownership at the local level – where the vast majority of customer communication occurs – allows its organization to be agile and responsive to customer needs. Having local ownership at the franchise level allows the customer to deal directly with an owner who is incentivized to resolve any issues and ensure the customer continues to utilize Hire Quest’s services.

 

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Hire Quest’s franchised branch locations are often located in proximity to concentrated commercial and industrial areas typically with access to public transportation and other services important to its temporary employees. A typical franchised branch location is managed by an owner and by in-branch personnel. Many branches hire business development staff to help drive business to the branches. Hire Quest provides support in the form of regional managers along with advice and guidance from its corporate headquarters.

 

Temporary Staff: Hire Quest continuously recruits temporary staff so that it can respond to customer needs quickly. Hire Quest attracts its employees through various means, including in-person recruitment, online resources, cell phone texting services, its large and ever-growing internal database, job fairs, word-of-mouth, advertisements, and a number of other methods. Its success is dependent, in part, on its ability to attract and retain temporary employees. To that end, it has implemented a robust health insurance program giving qualifying temporary employees a list of plans to choose from.

 

Hire Quest also serves as a transition to permanent employment for many individuals. Assignments may vary; they can be short term in nature or last for a year or more.

 

Hire Quest remains committed to worker safety. It regularly provides safety and skills training. It also aggressively manages its workers compensation program to identify trends in injuries and limit its losses and exposure.

 

Customers: Hire Quest’s franchisee customers range from small and medium-sized businesses to Fortune 500 companies. In 2018 and 2017, it serviced customers across a variety of industries. In 2018, their largest customer accounted for only approximately 2.5% of the total revenue generated by all franchisees (to which it also refers as “total system-wide revenue”) in 2018. The 10 largest customers accounted for approximately 10.5% and 11.2% of the total revenue generated by the franchisees in 2018 and 2017, respectively. No single franchisee customer represented more than 10.0% of total system-wide revenue for fiscal year 2018 or 2017.

 

Workers’ Compensation Coverage: In accordance with state laws, Hire Quest provides its workforce with workers’ compensation insurance. Currently, it is covered under a large deductible policy, under which it is responsible for covered losses and expenses up to $500,000 per incident. Covered claims up to $500,000 are financed using premiums paid by the franchisees. The insurer is responsible for amounts in excess of $500,000. Hire Quest’s affiliate, Hirequest Insurance Company (“HQI”), has written a deductible reimbursement policy which insures the first $500,000 of each incident.

 

Cyclical Nature and Seasonality: The temporary staffing industry has historically been cyclical. Success tends to track the economy. When Hire Quest’s franchisee’s customers expect to have long-term permanent needs, they tend to increase their use of temporary employees. Hire Quest’s revenues tend to increase as the economy expands. During economic downturns, its revenue tends to diminish.

 

Some of the industries in which Hire Quest franchisee’s operate are subject to seasonal fluctuation. Many of the jobs filled by temporary employees are outdoors and generally performed during the warmer months of the year. As a result, activity increases in the spring and continues at higher levels through the summer, then begins to taper off during fall and through winter. In addition, demand by their industrial customers tends to slow after the holiday season and pick up again in the third and fourth quarters – peaking in the third quarter. Seasonal fluctuations are typically less pronounced in the more temperate parts of the United States, where many of Hire Quest’s franchised branches are located. Fluctuations in seasonal business affect financial performance from period to period. Severe weather in a location for prolonged periods has the potential to impair Hire Quest’s business within those geographies, given the outdoor nature of many of its assignments. However, natural disasters also sometimes lead to additional assignments in the disaster recovery industry.

 

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Hire Quest’s working capital requirements are driven largely by temporary employee payroll and accounts receivable from customers. Since receipts lag behind employee pay – which is typically daily or weekly – its working capital requirements increase during growth periods.

 

Competition: The manual labor sector of the on-demand labor industry in which Hire Quest operates is largely fragmented and highly competitive, with low barriers to entry. Its competitors range in size from small, local or regional operators with five or fewer locations to large, multi-national operations with hundreds of locations.

 

Its strongest competition in any market comes from companies that have established long-lasting relationships with their clients.

 

The primary competitive factors in Hire Quest’s market segments include price, the ability to timely provide the requested workers, and success in meeting customer expectations. Secondary factors include name recognition, established reputation, and customer relationships. While barriers to entry are low, businesses operating in these segments of the on-demand labor industry do require access to significant working capital to fund workers compensation premiums or claims and to pay temporary employees, particularly in the spring and summer when seasonal staffing requirements are highest. Lack of working capital can be a significant impediment to growth for small, local, and regional on-demand labor providers. A second barrier to entry is an affordable workers’ compensation policy. Small entrants usually do not have the scale necessary to secure a policy on terms similar to ours. In addition, increasing government regulation is also a barrier to entry as many smaller firms cannot profitably comply with the administrative burden of the new regulations.

 

Hire Quest’s growing footprint gives it access to national accounts that it previously could not have effectively serviced – or serviced on as broad a scale as we hope in the future. We are adequately capitalized and have a consistent track record of beating our workers’ compensation carrier’s expectations. We believe these factors provide us a competitive advantage in the industry and differentiate us from much of the competition.

 

Trademarks and Trade Names: Hire Quest has registered “Hire Quest,” “Trojan Labor,” “Acrux,” “Star Quality Staffing,” “The Right People at the Right Time,” as well as a number of other phrases and designs as service marks with the U.S. Patent and Trademark Office. In addition, we have applied to have “Hire Quest Direct” registered as a service mark with the U.S. Patent and Trademark Office.

 

Intellectual Property: Hire Quest has proprietary software in place to handle most aspects of its operations, including temporary employee dispatch activities, payroll, invoicing, and accounts receivable. Its software systems also provides control over its operations, and allows it to produce internal reports necessary to track and manage financial performance of franchisees, trends in customers, and other vital metrics. Hire Quest believes that its software facilitates customer interaction, allowing for online bill payment, invoice review, and other vital functions. Because Hire Quest developed a proprietary system and has a dedicated IT staff, it constantly refines its system based on feedback from franchisees. Its proprietary system is licensed to franchisees via each franchisee’s franchise agreement. However, the system is not patented. Hire Quest has invested in off-site back-up and storage systems that it believes provide reasonable protections for its electronic information systems against breakdowns as well as other disruptions and unauthorized intrusions.

 

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Real Property: Hire Quest owns the real property for its corporate office as well as two adjacent parcels of undeveloped land. Its headquarters is approximately 15,500 square feet. It leases approximately 3,220 square feet of office space to an unaffiliated company and approximately 1,640 square feet of office space to another unaffiliated company. Both leases are at market rates. Hire Quest intends to develop the adjacent parcels into an addition to its corporate headquarters of approximately 10,000 square feet and a supporting parking lot. Construction is expected to begin in the third or fourth quarter of 2019.

 

Some of Hire Quest’s franchisees own the buildings out of which they operate, and some lease the buildings.

 

Employees: Hire Quest currently employs, through an affiliate, Hire Quest, LTS, LLC, approximately 39 employees at its corporate headquarters. Approximately 36 are full-time employees. The number of employees at its corporate headquarters is expected to increase significantly if the Merger is completed. In addition, if the Merger closes, all of Hire Quest’s corporate employees would no longer be employed by Hire Quest, LTS, and would become employees of a newly-created wholly owned subsidiary of Command Center, Inc.

 

During 2018, Hire Quest, LLC also employed approximately 52,000 temporary employees. It is the employer of record for its temporary employees, and as such, is responsible for collecting withholding taxes and for paying employer contributions for social security, unemployment tax, workers’ compensation, other insurance programs, and all other governmental requirements imposed on employers, including any imposed by state and local governments or regulatory agencies. In addition to completing Form I-9 required by the Department of Homeland Security, Hire Quest, LLC also verifies the identity and work eligibility of each new employee through the federal E-Verify system.

 

Environmental Matters: Because Hire Quest is a service business, federal, state, or local laws that regulate the discharge of materials into the environment do not impact its business.

 

Regulation of the Industry: Hire Quest is subject to a variety of complex state and federal laws, rules, and regulations. It monitors regulatory updates to ensure that it remains compliant. Its proprietary software is malleable, and Hire Quest updates it to ensure it tracks compliance with various rules, thus minimizing inefficiencies on human capital. Hire Quest passes through the cost of regulatory compliance to its customers to the extent possible.

 

Other Information Concerning Hire Quest

 

Hire Quest is a private company and therefore has no established trading market for its common stock. As of the date of this proxy statement, Hire Quest had approximately 5 members of record.

 

The principal executive offices of Hire Quest are located at 111 Springhall Drive, Goose Creek, South Carolina 29445, and its telephone number is (843) 723-7400.

 

This proxy statement contains financial statements of Hire Quest as of and for the years ended December 31, 2018 and 2017 and as of and for the three months ended March 31, 2019 and 2018.

 

Effects of the Merger

 

At the effective time of the Merger: (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being the First Surviving Company, and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the Surviving Company. The Surviving Company may change its name in conjunction with or after the Merger.

 

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Reasons for the Merger

 

In evaluating our proposed acquisition of Hire Quest, including issuing shares of our Common Stock in connection with the Merger, our Board consulted with our management, and, in reaching its decision to recommend the issuance of shares of our Common Stock in connection with the Merger and approving the Merger, our Board considered a number of factors.  These factors included the following:

 

·The Board considered the following factors related to Hire Quest and its business:

 

oHire Quest’s superior financial performance over time on a combined company basis;

 

oHire Quest’s higher levels of return on capital;

 

oHire Quest’s more predictable earnings stream;

 

oHire Quest’s management team with deeper sector expertise;

 

oHire Quest’s strategic relationship with Dock Square;

 

oHire Quest’s significantly larger operating revenues, lower management cost structure, and low to no leverage on balance sheet;

 

oHire Quest’s complementary geographic footprint and customer lists;

 

oHire Quest’s experience in franchising and general regulatory experience in the labor sector;

 

oHire Quest’s developed software.

 

·The current and historical market prices of our Common Stock;

 

·Our historical results of operations, financial condition, assets, liabilities, business strategy and prospects and the changing nature of the industry in which we compete;

 

·The possible alternatives to the Merger, including maintaining the status quo, conducting a stock repurchase or undertaking a recapitalization, which alternatives our Board determined were less favorable to our shareholders than the Merger given the potential risks, rewards and uncertainties associated with those alternatives;

 

·The strategic and financial benefits that could potentially arise from the combination of Hire Quest and the Company;

 

·The expectation that the Merger will strengthen the Company’s financial liquidity and cash flow;

 

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·A combined Hire Quest and Command Center will allow the Company’s shareholders to own shares in a combined company that will have a significantly larger market capitalization, with the following associated benefits, each of which could offer the opportunity of increased liquidity for the Company’s shares of Common Stock following the completion of the Merger:

 

oThe combined company will have a stronger balance sheet compared to the Company on a stand-alone basis, with more working capital and lower borrowing costs than the Company on a stand-alone basis;

 

oThe potential of the combined company to receive greater interest from institutional investors; and

 

oAttract talent by being a larger public reporting entity.

 

·The significant value to the Company’s shareholders represented by the net income and cash flows of Hire Quest following the completion of the Merger;

 

·The view of the Company’s management as to the expected realization of synergies by Hire Quest following completion of the Merger;

 

·The ability of shareholders who disagree with the Board’s rationale and the strategic plan going forward to potentially cash-out their stock ownership in the Company through the Offer; and

 

·The positive results of the due diligence investigations of Hire Quest by the Company’s management in consultation with the Company’s financial and legal advisors.

 

Our Board also considered the potential risks of the share issuance and the Merger, including the significant dilution to the Company’s current shareholders and the risks set forth in the section of this proxy statement entitled “Risk Factors.”  Finally, our Board obtained and relied upon an opinion from D.A. Davidson as to the fairness of the Merger Consideration from a financial point of view.

 

The foregoing discussion of the information and factors considered by our Board is not intended to be exhaustive, but is believed to include the material factors considered by our Board. In view of the wide variety of factors considered by our Board in connection with its evaluation of the share issuance and the Merger, our Board did not consider it practical to, and did not, quantify, rank or otherwise assign specific weights to the factors that it considered in reaching its determination and recommendation. In considering the factors described above and other factors, individual members of our Board may have given different weight to different factors. Our Board considered this information as a whole, and overall considered the information and factors to be favorable to, and in support of, its determinations and recommendation.

 

This explanation of our Board’s reasoning and all other information presented in this section are forward-looking in nature and, therefore, you should read them in light of the factors discussed in the section of this proxy statement entitled “Special Note Regarding Forward-Looking Statements.”

 

The combination of the two companies is expected to provide the Company greater growth prospects and higher shareholder value than if the Company continued to operate alone.

 

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Background of the Merger

 

The Board and management have continually evaluated the Company’s business, strategy and financial plans. As part of this evaluation, the Board has at various times considered a variety of strategic alternatives in an effort to enhance value for the Company’s shareholders.

 

On February 15, 2017, the Company received an unsolicited summary of proposed terms from a public company in a similar business as the Company. The proposed terms included a proposal to exchange the competitor company’s stock for Company Common Stock as compensation to the Company’s shareholders. The Board reviewed this proposal and determined that the proposal provided for a relatively low valuation of the Company.

 

The Company received a notice of intent to nominate directors dated March 2, 2017, from activist shareholder Ephraim Fields of Echo Lake Capital.

 

On March 24, 2017, Mr. Fields issued a press release critical of the Board.

 

During the first part of 2017, given the unsolicited interest to purchase the Company and the stated shareholder concerns, the Board and management reviewed the Company’s performance in the industrial staffing and day labor segment (operationally, financially, and as a public company) and determined it would be in the best interests of shareholders to explore a transformative transaction or alternative path to maximize value and increase returns. In 2017, the Company had minimal revenue growth and increasing costs. Small acquisition opportunities were evaluated; however, the Company did not believe they were competitively priced and felt this course of action would cause disproportional integration risks.

 

Due to the subscale nature of the Company and consistent lack of return to shareholders, the Board formed a Strategic Alternatives Committee (the “Committee”) to evaluate all options that might increase the Company’s scale and improve value for shareholders. To this end, the Committee and the full Board worked to engage the services of an investment banking firm to explore strategic alternatives for the Company.

 

The Committee contacted ten investment banking firms to solicit proposals. The Committee evaluated proposals from the firms based on reputation, capability, and other relevant factors. The Committee invited two finalists to make in-person presentations to the Board and the Company’s management team.

 

After the presentations and reference checks, the Board engaged the services of Wunderlich Securities, LLC (“Wunderlich”), due to the experience that Wunderlich’s principals had working with small cap companies. An initial engagement letter was executed on July 25, 2017. Thereafter, Wunderlich was purchased by a larger firm, and the principals working on the Company’s project later moved to investment banking firm D.A. Davidson. Subsequently, the Company executed a new engagement letter with D.A. Davidson dated November 30, 2017, that contained terms substantially similar to those contained in the Wunderlich agreement.

 

On September 15, 2017, the Company received another notice of intent to nominate directors from activist shareholder Ephraim Fields of Echo Lake Capital.

 

Due to the ongoing activist shareholder activities and related Board discussions, the Board suspended activities related to the strategic alternatives process from approximately late September of 2017 through April of 2018.

 

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On March 28, 2018, the Company entered into a severance agreement with then Chief Executive Officer, Frederick (Bubba) Sandford. Mr. Sandford also agreed to resign as a member of the Board of Directors and from all other positions with the Company effective April 1, 2018.

 

On April 2, 2018, the Company announced the appointment of Richard Coleman as the new Chief Executive Officer and as a director.

 

On April 16, 2018, the Company announced the settlement agreement with activist investor, Ephraim Fields. As part of the settlement agreement, the Company appointed Lawrence Hagenbuch to its Board of Directors effective April 16, 2018.

 

Following the settlement with Echo Lake Capital, the Company and D.A. Davidson re-evaluated whether the Company should consider strategic alternatives, including, a possible sale of the Company, acquisitions, and other strategic transactions. As part of its evaluation of strategic alternatives, the Board authorized and directed D.A. Davidson to conduct a broad contact of potential partners including strategic operating companies as well as prospective financial buyers to explore potential strategic opportunities.

 

From late June and continuing into October 2018, D.A. Davidson had preliminary no-name discussions with a variety of operating companies and prospective financial buyers to gauge interest in a potential transaction with the Company. D.A. Davidson contacted over 220 parties by providing a “teaser” document to each party. These contacts included parties in both the strategic and financial categories of possible partnerships. As a result of these discussions, approximately 60 potentially interested parties entered into a non-disclosure agreement with the Company and received confidential information related to the Company. Over this period D.A. Davidson conducted telephonic meetings with and provided additional information to potentially interested parties to facilitate their due diligence efforts.

 

On September 7, 2018, the Company entered into a non-disclosure agreement with Hire Quest, who was subsequently provided confidential information related to the Company. On September 7, 2018, D.A. Davidson had a telephonic meeting with Richard Hermanns, CEO of Hire Quest, to discuss the confidential information provided as well as discuss potential business collaboration opportunities between Hire Quest and the Company.

 

Following the call on September 7, 2018, and prior to September 17, 2018, D.A. Davidson conducted a number of telephonic meetings with Hire Quest to discuss due diligence questions as well as potential transaction options.

 

On September 17, 2018, Hire Quest submitted a non-binding written expression of interest outlining a potential merger between Hire Quest and the Company. Between September 17, 2018 and September 20, 2018, D.A. Davidson had multiple conversations and communications with Mr. Hermanns about the proposal, and subsequently, on September 21, 2018, Hire Quest submitted a non-binding revised written expression of interest, which was then discussed with the Committee on September 27, 2018.

 

On September 28, 2018, D.A. Davidson sent Mr. Hermanns a request for the diligence information on Hire Quest, including corporate, operational and financial information to assist in the evaluation of a potential merger. Also, on September 28, 2018, Party A entered into a non-disclosure agreement with the Company and was provided with confidential information related to the Company. D.A. Davidson engaged in multiple conversations with Party A regarding the information and Party A’s potential interest in a transaction.

 

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On October 3, 2018, Mr. Hermanns met in person with Mr. Coleman, the Company’s CEO, to discuss the benefits of a potential merger between the Company and Hire Quest.

 

On October 12, 2018, Party A submitted a written indication of interest outlining a potential acquisition of the Company. Also on this day, D.A. Davidson had a phone call with Hire Quest’s financial advisor, Raymond James, to discuss Hire Quest’s written expression of interest, and additional diligence information requested by the Company.

 

On October 15, 2018, D.A. Davidson had a phone call with Party A to discuss their written indication of interest submitted on October 12, 2018 and potential revisions thereto.

 

On October 17, 2018, Party A submitted a revised written indication of interest outlining a potential cash acquisition of the Company.

 

On October 25, 2018, the Committee, together with the other members of the Company’s Board and management discussed the updated proposals received from both Hire Quest and Party A. As a result, the Company decided to pursue in-person meetings with both parties.

 

On November 13, 2018, Hire Quest’s financial advisor, Raymond James, submitted a revised written indication of interest outlining the proposed terms of a merger of Hire Quest and the Company.

 

On November 19, 2018, Party A attended an in-person meeting with representatives from the Company’s management team and D.A. Davidson in Denver, Colorado.

 

Party A’s offer was contingent on obtaining adequate financing to complete the transaction. After the in-person management meeting, given the concentrated customer base, widespread geographic branch locations, and relatively high turnover of the Company, in addition to the then current turmoil in the financial markets, Party A believed they would be unable to obtain financing on terms that would make the transaction advisable to its shareholders.

 

On December 5, 2018, representatives from Hire Quest and their financial advisor attended an in-person meeting with representatives from the Company’s management team and D.A. Davidson in Denver, Colorado.

 

On December 6, 2018, the Committee met and discussed Hire Quest’s then current proposal and the results of the management meeting. The Committee authorized the Company’s management to pursue a non-binding letter of intent with Hire Quest to include revised terms.

 

On December 11, 2018, Hire Quest submitted a formal letter of intent outlining their proposed terms for a merger with the Company, including a proposed self-tender by the combined company to be completed subsequent to the closing of a transaction, but contingent on closing of the transaction.

 

On December 17, 2018, the Company’s Board met to review Hire Quest’s letter of intent. The Board discussed pursuing a potential transaction with Hire Quest relative to other alternatives. D.A. Davidson and the Company’s legal counsel were present and advised the Board members of their fiduciary duties. The Board agreed that the Company should make a counter proposal to Hire Quest, including that Hire Quest be debt-free at closing.

 

On December 21, 2018, the Company executed a non-binding letter of intent to pursue a stock for stock merger with Hire Quest. The letter of intent included, among other things, a 45-day exclusivity provision from December 21, 2018.

 

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On January 10, 2019, Hire Quest provided the Company and its advisors with access to a virtual data room in order for the Company to continue to perform more detailed business, legal and financial due diligence in connection with a potential transaction.

 

On January 16, 2019, Company’s executive management, co-chairman of the Board, Rimmy Malhotra, Raymond James and D.A. Davidson attended an in-person due diligence meeting with Hire Quest at Hire Quest’s corporate headquarters in Goose Creek, South Carolina. During this meeting, the parties discussed the benefits and possible risks associated with a potential transaction. The parties also began to outline plans to complete mutual due diligence and contemplate integration obstacles.

 

On January 22, 2019, Hire Quest’s legal counsel, Hill Ward Henderson (“Hill Ward”), delivered an initial draft of the Merger Agreement to the Company’s legal counsel, Olshan Frome Wolosky LLP (“Olshan”).

 

On January 29, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to February 25, 2019.

 

On January 29, 2019, Company shareholder Jerry Smith signed a nondisclosure agreement to further the goal of obtaining a signed Voting Agreement from Mr. Smith.

 

On February 5, 2019, the Company retained BDO USA, LLP (“BDO”) to perform financial diligence of Hire Quest. BDO subsequently received access to Hire Quest’s virtual data room and over the course of several weeks conducted multiple telephonic and in-person meetings with Hire Quest. On February 28, 2019, BDO sent the Company a presentation discussing their due diligence of Hire Quest, which confirmed representations Hire Quest had made to the Company.

 

From February through early April 2019, the Company and Hire Quest along with their respective advisors continued to perform due diligence in relation to the potential transaction including multiple telephonic and in-person meetings. The Company’s management, D.A. Davidson and the Company’s legal counsel provided multiple periodic updates to the Board during this period to discuss the transaction including due diligence and documentation updates.

 

During such time, the Committee also met formally and informally to address issues that arose from the discussions between Messrs. Malhotra, Coleman and Hermanns.

 

During such time, co-chairman of the Board, Rimmy Malhotra, Company’s CEO, Richard Coleman, and Hire Quest’s CEO, Richard Hermanns, had multiple phone calls to discuss items related to the Merger and finalizing the terms of the definitive Merger Agreement.

 

On February 13, 2019, Olshan sent Hill Ward comments to the tax sections of the Merger Agreement and on February 15, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement.

 

Hill Ward sent Olshan an initial draft of Hire Quest’s disclosure letter on February 20, 2019.

 

February 19-21, 2019, Board members Steve Bathgate and Rimmy Malhotra met with Hire Quest CEO, Richard Hermanns, in Tampa, Florida, to discuss the proposed merger further, and visited Hire Quest branches. At these meetings, Hermanns indicated his desire to change some terms of the letter of intent, based on due diligence and a continued deterioration in the Company’s financial performance. Mr. Bathgate and Mr. Malhotra advised that they would have to take such items back to the Board for consideration. Mr. Bathgate and Mr. Malhotra communicated the need for safeguards considering the related party transactions within the Hire Quest family of franchisees. Such safeguards were ultimately incorporated into the Merger Agreement.

 

On February 21, 2019, Olshan and Hill Ward spoke via telephone regarding certain open issues in the Merger Agreement and exchanged emails regarding such open issues.

 

On February 27, 2019, Olshan sent Hill Ward a revised draft of the Merger Agreement.

 

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On February 28, 2019, Hill Ward and Olshan exchanged emails regarding due diligence open items.

 

On March 1, 2019, Olshan and Hill Ward spoke on the phone regarding certain open issues in the Merger Agreement and the need to extend the exclusivity period in the letter of intent. As a result, on March 1, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to March 23, 2019.

 

On March 1, 2019, Olshan sent Hill Ward an initial draft of the Company’s disclosure letter.

 

On March 4, 2019, Hill Ward sent Olshan a revised draft of Hire Quest’s disclosure letter, and on March 6, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement.

 

On March 5, 2019, the Board held a regularly scheduled meeting during which D.A. Davidson and Olshan updated the Board on the status of the transaction and due diligence process.

 

On March 8, 2019, Olshan sent comments on the Hire Quest disclosure letter to Hill Ward.

 

On March 11, 2019, Hill Ward sent Olshan a draft of the proposed employment term sheet for Richard Hermanns, Hire Quest’s Chief Executive Officer, and Hill Ward and Olshan exchanged emails regarding open diligence questions. Also on March 11, 2019, Olshan sent Hill Ward a revised draft of the Merger Agreement.

 

On March 12, 2019, Olshan sent Hill Ward comments to the Hire Quest disclosure letter as well as a revised draft of the Company’s disclosure letter.

 

On March 12, 2019, the Board had a meeting during which Olshan provided updates regarding open items relating to the Merger Agreement and the proposed timeline for the closing of the Merger.

 

From March 12, 2019 through March 15, 2019, Hill Ward and Olshan exchanged emails discussing open items in the Merger Agreement, including the structure of the Merger for tax purposes and the composition of the Company’s Board of Directors following the closing of the Merger.

 

On March 13, 2019, Company shareholder Ephraim Fields signed a nondisclosure agreement to further the goal of obtaining a signed Voting Agreement from Mr. Fields.

 

On March 15, 2019, Olshan sent Hill Ward a draft term sheet regarding the non-competition and non-solicitation provisions applicable to Hire Quest security holders. Also on March 15, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement and a draft term sheet for the Pre-Closing Reorganization (as defined below) and the Dock Square consulting arrangement.

 

On March 18, 2019, Hill Ward sent Olshan a revised draft of the Hire Quest disclosure letter.

 

From March 19, 2019 through March 21, 2019, Olshan and Hill Ward exchanged emails and discussed various open items related to the Merger Agreement and the ancillary documents.

 

On March 21, 2019, Hill Ward sent Olshan a revised draft of the Hire Quest disclosure letter, and on March 22, 2019, Hill Ward sent Olshan comments to the non-competition term sheet.

 

On March 21, 2019, Olshan sent Hill Ward a revised draft of the Merger Agreement and an updated draft of the Company’s disclosure letter.

 

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On March 22, 2019, Olshan and Hill Ward exchanged emails regarding certain open issues in the Merger Agreement and the need to timely extend the exclusivity period in the letter of intent. As a result, on March 22, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to March 30, 2019.

 

On March 24, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement.

 

On March 26, 2019, Hill Ward sent Olshan a revised draft of the Hire Quest disclosure letter and on March 26, 2019, Olshan sent Hill Ward comments to such Hire Quest disclosure letter and an updated draft of the Company’s disclosure letter.

 

On March 27, 2019, Olshan sent Hill Ward a revised draft of the Merger Agreement and another updated draft of the Company’s disclosure letter.

 

On March 28, 2019, Hill Ward sent Olshan comments to the non-competition term sheet.

 

On March 29, 2019, Olshan and Hill Ward exchanged emails regarding certain open issues in the Merger Agreement, as well as open due diligence items, and the need to extend the exclusivity period in the letter of intent. On March 29, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to April 6, 2019.

 

On April 3, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement.

 

On April 4, 2019, Olshan sent Hill Ward a revised draft of the Merger Agreement. On April 4, 2019, Hill Ward sent to Olshan a revised draft of the employment term sheet for Mr. Hermanns and a revised draft of the Merger Agreement. Olshan provided comments to the employment term sheet for Mr. Hermanns as well as revised drafts of the Hire Quest disclosure letter and the Company’s disclosure letter. Hill Ward then sent a further revised draft on April 4, 2019, as well as a revised draft of the Hire Quest disclosure letter.

 

On April 5, 2019, the Committee held a meeting during which, they agreed to unanimously recommended that the Board approve the Merger, the Merger Agreement and the related transactions.

 

On April 5, 2019, Hill Ward sent Olshan a revised draft of the Hire Quest disclosure letter.

 

On April 5, 2019, Hire Quest and the Company extended the letter of intent’s exclusivity period to April 13, 2019.

 

On April 5, 2019, Olshan and Hill Ward exchanged emails regarding the exhibits to the Merger Agreement and other ancillary documents and confirmed that these documents were in final form.

 

On April 5, 2019, Hill Ward sent Olshan a further revised draft of the Merger Agreement. Olshan then sent Hill Ward a revised draft of the Merger Agreement, as well as revised drafts of the Hire Quest disclosure letter and the Company’s disclosure letter.

 

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On April 6, 2019, Hill Ward sent Olshan a revised draft of the Merger Agreement and an updated draft of the Hire Quest disclosure letter.

 

Olshan and Hill Ward exchanged emails discussing certain changes to the Merger Agreement and on April 7, 2019, Hill Ward sent Olshan a final draft of the Merger Agreement.

 

On April 7, 2019, D.A. Davidson delivered to the Board an oral opinion, which was confirmed by delivery of a written opinion dated April 5, 2019, to the effect that, as of the date of such written opinion and based upon and subject to various assumptions made, procedures followed, matters considered and qualifications and limitations upon the review undertaken in preparing its opinion as set forth in such written opinion, the consideration to be paid by the Company in the transaction is fair, from a financial point of view, to the Company.

 

On April 7, 2019, the Board met to consider and approve the Merger Agreement, the Merger and certain related matters. Olshan advised the board of its fiduciary duties. Following the Board meeting, Olshan sent an email to Hill Ward stating that the Board had unanimously approved the Merger Agreement and the related transactions.

 

On April 8, 2019, Hire Quest and the Company executed the Merger Agreement. Later that day, following the close of the market on April 8, 2019, the Company issued a press release announcing the transaction. Shortly thereafter, on April 9, 2019, the Company filed a Current Report on Form 8-K with the SEC (i) summarizing the material terms of the Merger Agreement and filing the Merger Agreement as an exhibit, and (ii) attaching as an exhibit to such Current Report on Form 8-K the press release announcing the Company’s entrance into the transaction.

 

On April 9, 2019 the Company filed its Annual Report on Form 10-K, which among other things disclosed a decrease in the Company’s net income.

 

Financing of the Merger

 

On April 17, 2019, the Company, certain of its subsidiaries, and Hire Quest (the “Borrower”) entered into a commitment letter with BB&T Bank, pursuant to which BB&T Bank committed to extend a revolving line of credit in the maximum initial amount of $30,000,000 with a $15,000,000 letter of credit sublimit and $20,000,000 uncommitted accordion feature to the Borrower for the financing of the Offer and to provide ongoing working capital needs. The entry into this credit facility is a closing condition to the Merger.

 

Interests of the Company’s Directors and Executive Officers in the Merger

 

Neither the Company nor any of our executive officers or directors beneficially owns any of Hire Quest’s outstanding securities.

 

Interests of Hire Quest Directors and Executive Officers in the Merger

 

Because officers and directors receive part of the Merger Consideration, their interests are aligned with all other Hire Quest security holders. However, certain key employees of Hire Quest will enter into employment agreements with the Company upon the consummation of the Merger providing them with base salaries and potential bonus compensation, the right to receive stock options and severance. Finally, the Company has agreed to indemnify Hire Quest’s members, officers, directors and managers in accordance with Hire Quest’s articles of organization, operating agreement and indemnification agreements. Additionally, these officers and directors will be entitled to directors and officers liability insurance protection for a period of time in the event that a claim is made against them by any Hire Quest member.

 

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Three current directors of the Company, referred to as the Company Directors, and four nominees designated by Hire Quest (or replacement designees selected by Hire Quest) are expected to serve as directors of the Company after the Merger. In addition, the Merger Agreement provides that, of the Company Directors, one will remain on the Board until the 2022 annual meeting of shareholders, the second will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual meeting of shareholders. Mr. Coleman will be named Chief Operating Officer of the Company and Mr. Hermanns will be named Chief Executive Officer of the Company. At the closing of the Merger, the Company and Mr. Hermanns will enter into an employment agreement which will be effective upon the closing of the Merger. Under the proposed employment agreement terms, Mr. Hermanns will receive, among other things, an annual base salary of $360,000, a $240,000 cash bonus for the fiscal year ending December 27, 2019, certain other cash bonus opportunities as well as equity-based compensation to be negotiated among the parties.

 

Board of Directors Post-Merger

 

Upon closing of the Merger, the Company’s Board will be comprised of seven members, of whom four members will be designees of Hire Quest and three members will be the Company Directors. See the Section entitled “New Directors of the Company Post Merger” below. In addition, the Merger Agreement provides that, of the Company Directors, one will remain on the Board until the 2022 annual meeting of shareholders, the second will remain on the Board until the 2021 annual meeting of shareholders, and the third will remain on the Board until the 2020 annual meeting of shareholders.

 

Because the Company currently has seven directors and the Board has not at the present time made a determination regarding who will resign from the Board and which three directors will remain as the Company Directors, each current director of the Company has delivered a conditional letter of resignation from the Board, to be effective as of the Effective Time, which resignation may otherwise be rejected by the Board as determined in its discretion.

 

New Directors of the Company Post-Merger

 

Richard Hermanns (55) is a director designee and President and Chief Executive Officer, as well as a member, of Hire Quest Holdings, LLC. Mr. Hermanns has nearly thirty years of experience in the temporary staffing industry. He has served as Chief Executive Officer and Secretary of Hire Quest, LLC since the Company’s founding in 2002. He served in the same capacities for predecessor entities since July 1991. He is also Chairman of the Board of Directors and President of Hirequest Insurance Company and has been since its founding in 2010. He has been Chief Executive Officer of Hire Quest Financial, LLC since its founding in 2006. Together with Edward Jackson, Mr. Hermanns owns a majority stake in Bass Underwriters, Inc., a large managing general insurance agent. Prior to founding Hire Quest and its related entities, Mr. Hermanns served as Chief Financial Officer of Outsource International, and as an Assistant Vice President for NCNB National Bank (now Bank of America). Mr. Hermanns obtained his Bachelor of Science degree in Economics and Finance from Barry University, and his Masters of Business Administration in Finance from the University of Southern California. Mr. Hermanns is also active in the charitable realm. Among his charitable pursuits, he founded the Higher Quest Foundation, a non-profit organization dedicated to fighting global hunger in a more sustainable way.

 

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Edward Jackson (54) is a director designee and a member of Hire Quest Holdings, LLC. Mr. Jackson has more than 35 years of experience in the insurance industry. He is currently the President of Bass Underwriters, Inc., a large managing general insurance agent (“Bass”), in which he and Mr. Hermanns own a majority stake. In his capacity as President of Bass he oversees all management operations, marketing strategies, underwriting reviews, and claims procedures. He also has diverse business holdings in industries other than insurance. He is a member of and consultant to Hire Quest Holdings, LLC and its related family of companies, he owns and is President of one of the largest Haagen Dazs franchise stores in North America, and he founded a company that provides inspection services for insurance carriers nationwide. He holds a Bachelor of Science degree in Risk Management and Insurance from Florida State University. He holds insurance licenses in General Lines (Property & Casualty), and Surplus Lines, Health, and Life.

 

Payne Browne (56) is a director designee of Hire Quest. Mr. Brown currently serves as the President of THINK450, a for-profit innovation engine of the National Basketball Players Association. In this role, he is charged with creating disruptive and substantive business relationships for the most marketable athletes on the planet. THINK450 represents every current NBA player and works with leading companies and brands across all industries to help its members capitalize on growth opportunities in the areas of content, marketing, technology, and licensing. Prior to becoming President of THINK450, Mr. Brown was the Managing Partner of Econet Media Partners, a licensor of sports content and production investor in video content in Sub-Saharan Africa. He has also served as Managing Director of Highbridge Principal Strategies, an alternative investment management organization founded in 1992, with a diversified investment platform including hedge funds, traditional investment management products, and credit and equity investments with longer-term holding periods. Mr. Brown serves on the Board of Directors of REVOLT TV, a multimedia platform founded by Sean “Diddy” Combs. He has been the Chief of Staff to Dick Parsons during his time as interim CEO of the Los Angeles Clippers. Mr. Brown has also been a Vice President of Strategic Initiatives and a corporate officer at Comcast Corporation. He has served on numerous boards including the Philadelphia Urban League, Project Home, and the Board of Advisors for the Philadelphia chapter of the National Association for Multi-Ethnicity in Communications. He has been named among CAbleFax Magazine’s “Most Influential Minorities in Cable,” Ebony Magazine’s “Power 100,” and Uptown Professional Magazine’s “100 Top Executives in America.” Mr. Brown received a Juris Doctor degree from George Washington University and his Bachelor of Science degree in Management from Purdue University.

 

Kathleen Shanahan (60) is Co-Chief Executive Officer of Turtle & Hughes, Inc. Established in 1923, Turtle & Hughes ranks among the nation’s top twenty electrical distribution companies serving the industrial, construction, commercial, electrical contracting, export, and utility industries. Turtle & Hughes operates in the United States, Canada, Mexico, and Puerto Rico and is a certified women-owned business. Ms. Shanahan is currently Chair, and was previously Chair and Chief Executive Officer, of Ground Works Solutions, formerly URETEK Holdings, Inc., a corporation focused on soil stabilization and densification through a patented polymer-based application process. She has also been the CEO and Chairman of WRSCompass, an environmental engineering and contracting company with a national footprint. She served as Chief of Staff for Florida Governor Jeb Bush, Chief of Staff for Vice President-elect Dick Cheney, Deputy Secretary of the California Trade and Commerce Agency for Governor Wilson, Special Assistant to then Vice President George H. W. Bush, and Staff Assistant to President Ronald Reagan’s National Security Council. Ms. Shanahan currently serves and has served in the past on several other boards of public and private corporations as well as government and civic organizations. She currently serves on the board of Great Lakes Dredge & Dock Corporation. She received her undergraduate degree in Nutrition and Biochemistry from the University of California, San Diego, Revelle College, and her Masters in Business Administration from New York University.

 

The Company expects its Board to determine that Payne Browne and Kathleen Shanahan, once appointed, will be independent directors in accordance with the NASDAQ listing rules.

 

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Ownership of the Company Pre- and Post-Merger

 

The following table sets forth the number of shares of the Company’s voting stock beneficially owned as of the record date, pre- and post-Merger as well as following the closing of the Offer by (i) those persons known by the Company to be beneficial owners of more than 5% of the Company’s voting stock, (ii) each director (including the Hire Quest designees who will become the Company’s directors upon the closing of the Merger), (iii) each of our Named Executive Officers, and (iv) all executive officers and directors as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o Command Center, Inc., 3609 S. Wadsworth Blvd., Suite 250, Lakewood, Colorado 80235.

 

Name and Address of Beneficial Owner  Amount of beneficial ownership prior to Merger  (1)  Percent beneficially owned prior to Merger (1)  Amount of beneficial ownership Post-Merger (1)  Percent beneficially owned Post-Merger (1)  Percent beneficially owned Post-Offer (1) (2)
Jerry Smith (3)   479,725    10.4%   479,725    3.3%   3.7%
Barbara Rydesky  (4)   555,253    12.0%   555,253    3.8%   4.3%
Ephraim Fields (5)   340,782    7.4%   340,782    2.4%   2.6%
Richard K. Coleman, Jr. (6)   59,286    1.3%   100,000    *    * 
Brendan Simaytis (7)   17,958    *    17,958    *    * 
Cory Smith (8)   3,333    *    3,333    *    * 
JD Smith (9)   42,274    *    42,274    *    * 
Steven P. Oman (10)   8,442    *    8,442    *    * 
R. Rimmy Malhotra (11)   140,510    3.0%   140,510    1.0%   1.1%
Steven Bathgate (12)   114,445    2.5%   114,445    *    * 
Galen Vetter (13)   10,581    *    10,581    *    * 
Lawrence F. Hagenbuch (14)   10,303    *    10,303    *    * 
All Officers and Directors as a group  (nine persons)   407,132    8.8%   447,846    3.1%   3.5%
Frederick Sandford (15)   16,250    *    16,250    *    * 
Richard Hermanns (16)       0.0%   5,647,020     39.0%   43.6%
Edward Jackson (17)       0.0%   2,456,774     17.0%   18.9%
Payne Browne (18)       0.0%       0.0%   0.0%
Kathleen Shanahan (19)       0.0%       0.0%   0.0%

 

*       Less than 1%

 

(1)Applicable percentages, as well as amounts for Messrs. Hermanns and Jackson, are based on 4,629,331 shares of Common Stock outstanding pre-Merger and 14,466,659 shares of Common Stock outstanding post-Merger, adjusted as required by rules of the SEC. Beneficial ownership is calculated in accordance with Rule 13d-3(d)(1) of the Exchange Act, and includes shares held outright, shares held by entity(s) controlled by NEOs and/or directors, and shares issuable upon exercise of options or warrants which are exercisable on or within 60 days of June 17, 2019. See also footnote (16).

(2)Assumes that the Company repurchased all 1,500,000 shares of Common Stock in the Offer and that none of the Company’s directors, 5% holders and executive officers tendered shares in the Offer.

(3)The number of shares comprising Mr. Smith’s beneficial ownership is based upon the written representations of his legal counsel.

(4)The number of shares comprising Mrs. Rydesky’s beneficial ownership is based upon the written representations of Barbara Rydesky. Mrs. Rydesky’s address is: 3238 Pine Lake Road, Orchard Lake, Michigan 48234.

 

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(5)The number of shares comprising Mr. Fields' beneficial ownership, over which Mr. Fields has sole voting and sole dipositive power, is based upon the Schedule 13G/A filed by Ephraim Fields on February 11, 2019. Mr. Fields' address is: care of Echo Lake Capital, 501 Madison Avenue, Floor 12A, New York, New York 10022.

(6)Mr. Coleman is an executive officer. Consists of options to purchase shares.

(7)Mr. Simaytis is an executive officer. Includes 6,500 shares held outright and options to purchase 11,458 shares.

(8)Mr. Smith is an executive officer. Includes 1,250 shares held outright and options to purchase 2,083 shares.

(9)Mr. Smith is a director and the Co-Chairman of the Board. Includes 30,191 shares held outright and options to purchase 12,083 shares.

(10)Mr. Oman is a director. Shares held outright.

(11)Mr. Malhotra is a director and the Co-Chairman of the Board. Includes 12,191 shares held outright, 123,944 shares held indirectly through the Nicoya Fund and a managed account, and options to purchase 4,375 shares. The shares held by the Nicoya Fund are directly owned by the Nicoya Fund LLC, a Delaware limited liability company. This reporting person is the managing member and a co-owner of Nicoya Capital LLC, which is the managing member and owner of the Nicoya Fund.

(12)Mr. Bathgate is a director. Includes 27,155 shares held outright, 82,915 shares held indirectly, including 66,666 by Mr. Bathgate’s spouse, 7,916 by the Bathgate Family Partnership and 8,333 by Viva Co., LLC, and options to purchase 4,375 shares.

(13)Mr. Vetter is a director. Includes 8,303 shares held outright and 2,278 shares held indirectly by Vetter Community Resources, LLC.

(14)Mr. Hagenbuch is a director. Shares held outright.

(15)Shares held outright.

(16)Mr. Hermanns is a Hire Quest director designee. Not reflected in the table as being beneficially owned by Mr. Hermanns are 1,095,901 shares with respect to which Mr. Hermanns, John McAnnar and Hire Quest may be deemed to share voting power pursuant to the Voting Agreements and irrevocable proxies executed by the directors, officers and certain beneficial owners of more than 5% of the Company’s voting stock on April 8, 2019.

(17)Mr. Jackson is a Hire Quest director designee.

(18)Mr. Browne is a Hire Quest director designee.

(19)Ms. Shanahan is a Hire Quest director designee.

 

Effect of Merger on Shares Held by Certain Hire Quest Affiliates

 

The following table shows the effect of the Merger on the amount and percentage of Hire Quest securities owned by each current Hire Quest director (of which there are none), each Hire Quest director designee and each person who will be the beneficial owner of more than 5% of Hire Quest’s securities immediately prior to the closing of the Merger.

 

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Name and Address of Beneficial Owner 

Percent of Membership Interest in Hire Quest Holdings, LLC Beneficially

Owned Prior

To Merger

 

Percent of Membership Interest in Hire Quest Holdings, LLC Beneficially

Owned Post- Merger

Richard Hermanns*   57.40%    
Edward Jackson*   24.97%    
Paul Kroncke   5.32%    
Payne Browne*        
Kathleen Shanahan*        

*Hire Quest Director Designee

 

Employment Agreement with the Company

 

In connection with entering into the Merger Agreement, the Company agreed to have Mr. Hermanns named Chief Executive Officer of the Company. At the closing of the Merger, the Company and Mr. Hermanns will enter into an employment agreement which will be effective upon the closing of the Merger. Under the proposed employment agreement terms, Mr. Hermanns will receive, among other things, an annual base salary of $360,000, a $240,000 cash bonus for the fiscal year ending December 27, 2019, certain other cash bonus opportunities as well as equity-based compensation to be negotiated among the parties.

 

Hire Quest Transactions with Related Party Franchisees

 

In 2018 and 2017, Hire Quest received royalty payments from franchisees in which Hire Quest director designees and persons who will be the beneficial owner of more than 5% of Hire Quest’s securities immediately prior to the closing of the Merger had an interest.

 

During the years ended December 31, 2018 and 2017, Hire Quest received approximately $5.9 million and $5.3 million, respectively, in franchise royalties from such franchisees. Richard Hermanns and members of his immediate family have a combined 61.4% ownership interest in such franchisees. Edward Jackson has a 26.7% ownership interest in such franchisees and Paul Kroncke has a 5.7% ownership interest in such franchisees.

 

THE MERGER AGREEMENT

 

The following section summarizes material provisions of the Merger Agreement, which is included in this proxy statement as Annex A and is incorporated herein by reference in its entirety. The summary does not purport to describe all of the terms of the Merger Agreement and is qualified in its entirety by reference to the complete text of the Merger Agreement. The rights and obligations of the Company and Hire Quest are governed by the express terms and conditions of the Merger Agreement and not by this summary or any other information contained in this proxy statement. This summary may not contain all of the information about the Merger Agreement that is important to you. You should read the Merger Agreement carefully and in its entirety as well as this proxy statement for details of the transaction and the terms and conditions of the Merger Agreement.

 

The Merger Agreement is included in this proxy statement to provide you with information regarding its terms and is not intended to provide any factual information about the Company or Hire Quest. The Merger Agreement contains representations and warranties by each of the parties to the Merger Agreement. These representations and warranties were made only for purposes of the Merger Agreement and solely for the benefit of the other parties to the Merger Agreement and may be subject to limitations agreed upon by the parties, including:

 

·that such representations and warranties may not be intended to establish matters as facts, but rather for the purpose of allocating the risk between the parties in the event the statements therein prove to be inaccurate;

 

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·that such representations and warranties may be qualified by certain disclosures that were made between the parties in connection with the negotiation of the Merger Agreement, which disclosures are not reflected in the Merger Agreement itself;

 

·that information concerning the subject matter of such representations and warranties may have changed after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company; and

 

·that such representations and warranties may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

 

Accordingly, you should not rely on the representations, warranties, and covenants or any description thereof as characterizations of the actual state of facts or condition of the Company or Hire Quest or their respective businesses. The representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement and in the documents incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 138.

 

General

 

Pursuant to the Merger Agreement, and subject to its terms and conditions, (i) Merger Sub 1 will be merged with and into Hire Quest in the First Merger, with Hire Quest being the First Surviving Company, and (ii) immediately following the First Merger, the First Surviving Company will be merged with and into Merger Sub 2 in the Second Merger, with Merger Sub 2 being the Surviving Company. The Surviving Company will change its name in conjunction with or after the Merger and will succeed to and assume all the rights and obligations of Hire Quest. Hire Quest security holders will receive the consideration described below. The closing of the Merger will follow the satisfaction or waiver (if permitted) of all of the conditions to closing specified in the Merger Agreement. The First Merger will become effective as of the date and time specified in the certificate of merger filed by the parties with the Secretary of State of the State of Florida (the “First Merger Certificate”) or such other date and time the parties agree in writing. The Second Merger will become effective as of the date and time specified in the certificate of merger filed by the parties with the Secretary of State of the State of Florida (the “Second Merger Certificate”) or such other date and time the parties agree in writing. The filing of the First Merger Certificate and the Second Merger Certificate will occur on the closing date of the Merger or as soon as practicable thereafter.

 

Merger Consideration

 

The Merger Consideration will be paid pro rata to the holders of Hire Quest’s membership interests.

 

Payment and Exchange Procedures

 

At or prior to the effective time of the Merger, the Company will enter into an agreement with a bank or trust company to act as the exchange agent in connection with the payment of the Merger Consideration by the Company to Hire Quest security holders. In addition, at or prior to the effective time of the Merger, the Company will deposit with the exchange agent the number of shares of the Company’s Common Stock to be distributed to Hire Quest security holders as of the closing.

 

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Promptly after the effective time of the First Merger, the Company shall send to each record holder of Hire Quest’s securities a letter of transmittal and instructions (which letter of transmittal will be in customary form and have such provisions as the Company may reasonably specify) for use in effecting the surrender of Hire Quest securities in exchange for the applicable number of shares of the Company’s Common Stock. Promptly following its receipt of an executed letter of transmittal from a Hire Quest security holder and any other documents reasonably requested by the Company and set forth in the letter of transmittal, the Company shall deliver to such Hire Quest security holder Company certificates (or confirmation of direct registration) evidencing that number of shares of the Company’s Common Stock issuable to such Hire Quest security holder. The exchange agent is entitled to deduct and withhold from the Merger Consideration otherwise payable to each Hire Quest security holder all amounts as may be required to be deducted or withheld therefrom under applicable tax laws or pursuant to any other applicable legal requirement.

 

Representations and Warranties

 

The Merger Agreement contains customary representations and warranties made by Hire Quest to the Company and representations and warranties made by the Company, Merger Sub 1 and Merger Sub 2 to Hire Quest. In many cases, the representations and warranties are generally reciprocal, and many of them are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules exchanged between the parties. Specifically, the representations and warranties of each of the Company and Hire Quest relate to the following subject matters, among other things:

 

·Organization, standing and power and authority;

 

·Capital structure and ownership of subsidiaries;

 

·Required regulatory filings and consents and approvals of governmental entities;

 

·Board approval and recommendation of the Merger Agreement and execution of the Voting Agreements;

 

·Compliance with applicable laws and permits;

 

·Financial statements and internal controls and disclosure controls and procedures;

 

·Absence of undisclosed liabilities;

 

·Absence of certain changes and events since December 31, 2018;

 

·Absence of discussions or negotiations;

 

·Pending litigation;

 

·Insurance;

 

·Outstanding contracts and commitments;

 

·Labor matters and employee benefit plans;

 

·Intellectual property rights;

 

·Related person transactions;

 

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·Taxes; and

 

·Real property and environmental matters.

 

In addition, the Company has made representations and warranties regarding, among other things:

 

·SEC filings; and

 

·Receipt of a fairness opinion.

 

All representations and warranties of the parties expire and will be of no further force or effect after the effective time of the Merger.

 

Material Adverse Effect

 

Several of the representations, warranties, covenants, closing conditions and termination provisions contained in the Merger Agreement refer to the concept of a “Material Adverse Effect.” In some cases, that concept applies to the Company (which is referred to in the Merger Agreement as a “Parent Material Adverse Effect”), and in other cases, that concept applies to Hire Quest (which is referred to in the Merger Agreement as a “Company Material Adverse Effect”).

 

For purposes of the Merger Agreement, a “Parent Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, financial condition, or assets of the Company and its subsidiaries, taken as a whole; or (b) the ability of the Company to consummate the transactions contemplated by the Merger Agreement or the Voting Agreements on a timely basis; provided, however, that, for the purposes of clause (a), a Parent Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions contemplated by the Merger Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions in the industry in which the Company and its subsidiaries operate; provided further, however, that any event, change, and effect referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether a Parent Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate effect on the Company and its subsidiaries, taken as a whole, compared to other participants in the industries in which the Company and its subsidiaries conduct their businesses. 

 

For the purposes of the Merger Agreement, a “Company Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to: (a) the business, results of operations, financial condition, or assets of Hire Quest and its subsidiaries, taken as a whole; or (b) the ability of Hire Quest to consummate the transactions contemplated by the Merger Agreement on a timely basis; provided, however, that, for the purposes of clause (a), a Company Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (i) changes generally affecting the economy, financial, or securities markets; (ii) the announcement of the transactions contemplated by the Merger Agreement; (iii) any outbreak or escalation of war or any act of terrorism; or (iv) general conditions in the industry in which Hire Quest and its subsidiaries operate; provided further, however, that any event, change, and effect referred to in clauses (i), (iii), or (iv) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, or effect has a disproportionate effect on Hire Quest and its subsidiaries, taken as a whole, compared to other participants in the industries in which Hire Quest and its subsidiaries conduct their businesses.

 

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Conduct of Business Prior to the Effective Time of the Merger

 

Each of the Company and Hire Quest has agreed to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the effective time of the Merger. In general, each of the Company and Hire Quest has agreed to: (i) conduct its business in the ordinary course of business consistent with past practice, (ii) use its reasonable best efforts to preserve substantially intact its and its subsidiaries’ business organization, (iii) keep available the services of its and its subsidiaries’ current officers and employees, and (iv) preserve its and its subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees, and other persons having business relationships with it.

 

In addition, the Company and Hire Quest have agreed to specific restrictions relating to the conduct of their businesses between the date of the Merger Agreement and the effective time of the Merger, including, but not limited to, refraining from the following actions (subject, in each case, to exceptions specified below and in the Merger Agreement):

 

·amend or propose to amend its organizational documents, except as disclosed in this proxy statement;

 

·split, combine, or reclassify any of its or its subsidiaries’ securities;

 

·repurchase, redeem, or otherwise acquire, or offer to repurchase, redeem, or otherwise acquire, any of its or its subsidiaries’ securities;

 

·declare, set aside, or pay any dividend or distribution (whether in cash, stock, property, or otherwise) in respect of, or enter into any contract with respect to the voting of, any shares of its capital stock (other than dividends from its direct or indirect wholly-owned subsidiaries);

 

·issue, sell, pledge, dispose of, or encumber any of its or its subsidiaries’ securities;

 

·except as required by applicable law or by any employee plan or contract in effect as of the date of the Merger Agreement (i) increase the compensation payable or that could become payable by it or any of its subsidiaries to directors, officers, or employees, other than increases in compensation made to non-officer employees in the ordinary course of business consistent with past practice, (ii) promote any officers or employees, except in connection with its annual or quarterly compensation review cycle or as the result of the termination or resignation of any officer or employee, or (iii) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any employee plans or any plan, agreement, program, policy, trust, fund, or other arrangement that would be an employee plan if it were in existence as of the date of the Merger Agreement, or make any contribution to any employee plan, other than contributions required by law, the terms of such employee plans as in effect on the date of the Merger Agreement, or that are made in the ordinary course of business consistent with past practice;

 

·acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or person or division thereof or make any loans, advances, or capital contributions to or investments in any person;

 

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·transfer, license, sell, lease, or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets, or otherwise) or pledge, encumber, or otherwise subject to any lien (other than a Permitted Lien, as defined in the Merger Agreement), any assets, including the capital stock or other equity interests in any subsidiary or any of its real estate;

 

·adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization;

 

·repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls, or other rights to acquire any of its or its subsidiaries’ debt securities, guarantee any debt securities of another person, enter into any “keep well” or other contract to maintain any financial statement condition of any other person (other than any wholly-owned subsidiary of it) or enter into any arrangement having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course trade payables consistent with past practice;

 

·enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry date), any material contract or any real estate lease or any other contract or lease that, if in effect as of the date hereof would constitute a material contract or real estate lease;

 

·institute, settle, or compromise any legal action involving the payment of monetary damages, other than (i) any legal action brought against it arising out of its breach or alleged breach of the Merger Agreement, and (ii) the settlement of claims, liabilities, or obligations reserved against on its balance sheet;

 

·make any material change in any method of financial accounting principles or practices, in each case except for any such change required by a change in generally accepted accounting principles or applicable law;

 

·(i) settle or compromise any material tax claim, audit, or assessment for an amount materially in excess of the amount reserved or accrued on its balance sheet, (ii) make or change any material tax election, change any annual tax accounting period, or adopt or change any method of tax accounting, (iii) amend any material tax returns or file claims for material tax refunds, or (iv) enter into any material closing agreement, surrender in writing any right to claim a material tax refund, offset or other reduction in tax liability or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment;

 

·enter into any material agreement, agreement in principle, letter of intent, memorandum of understanding, or similar contract with respect to any joint venture, strategic partnership, or alliance;

 

·take any action to exempt any person from, or make any acquisition of its securities by any person not subject to, any state takeover statute or similar statute or regulation that applies to it with respect to a Takeover Proposal (as defined in the Merger Agreement) or otherwise, except for the other party or any of its subsidiaries or affiliates, or the transactions contemplated by the Merger Agreement;

 

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·abandon, allow to lapse, sell, assign, transfer, grant any security interest in otherwise encumber or dispose of any intellectual property, or grant any right or license to any intellectual property other than pursuant to non-exclusive licenses entered into in the ordinary course of business consistent with past practice;

 

·terminate or modify in any material respect, or fail to exercise renewal rights with respect to, any material insurance policy; or

 

·agree or commit to do any of the foregoing.

 

No Solicitation

 

Subject to certain exceptions specified in the Merger Agreement and summarized below, the Company has agreed that, from and after the date of the Merger Agreement, the Company and its subsidiaries will not, nor will they authorize or permit any of their respective directors, officers, employees, advisors, agents, and investment bankers to, directly or indirectly, solicit, initiate, or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or, subject to exceptions: (A) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to the Company or any of its subsidiaries to, afford access to the business, properties, assets, books, or records of the Company or any of its subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that is seeking to make, or has made, any Takeover Proposal; (B) except where the Company’s Board makes a good faith determination, after consultation with outside legal counsel, that the failure to do so would be inconsistent with its fiduciary duties, amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any of its subsidiaries; or (C) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any Takeover Proposal (each, a “Parent Acquisition Agreement”). Except as expressly permitted by the Merger Agreement, the Company’s Board shall not effect a Parent Adverse Recommendation Change. The Company was also required to cease and cause to be terminated any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the date hereof with respect to any Takeover Proposal and shall use its reasonable best efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of the Company or any of its subsidiaries that was furnished by or on behalf of the Company and its subsidiaries to return or destroy (and confirm destruction of) all such information.

 

However, prior to the receipt of the approval of the Company’s shareholders of the proposals contained in this proxy statement, the Company’s Board, directly or indirectly through any of its representatives, may, subject to certain notice requirements: (A) participate in negotiations or discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the Board believes in good faith, after consultation with outside legal counsel and D.A. Davidson, constitutes a Superior Proposal; (B) thereafter furnish to such third party non-public information relating to the Company or any of its subsidiaries pursuant to an executed confidentiality agreement; (C) following receipt of and on account of a Superior Proposal, make a Parent Adverse Recommendation Change; and/or (D) take any action that any court of competent jurisdiction orders the Company to take (which order remains unstayed), but in each case referred to in the foregoing clauses (A) through (D), only if the Board determines in good faith, after consultation with outside legal counsel, that the failure to take such action would cause the Board to be in breach of its fiduciary duties under applicable law.

 

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Subject to certain exceptions specified in the Merger Agreement and summarized below, Hire Quest has agreed that, from and after the date of the Merger Agreement, Hire Quest and its subsidiaries will not, nor will they authorize or permit any of their respective directors, officers, employees, advisors, agents, and investment bankers to, directly or indirectly solicit, initiate, or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or: (i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to Hire Quest or any of its subsidiaries to, afford access to the business, properties, assets, books, or records of Hire Quest or any of its subsidiaries to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that is seeking to make, or has made, any Takeover Proposal; (ii) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Hire Quest or any of its subsidiaries; or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any Takeover Proposal. Hire Quest was also required to cease and cause to be terminated any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the execution of the Merger Agreement with respect to any Takeover Proposal and to use its reasonable best efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of Hire Quest or any of its subsidiaries that was furnished by or on behalf of Hire Quest and its subsidiaries to return or destroy (and confirm destruction of) all such information.

 

In addition to the requirements above, the Company is required to notify Hire Quest if any proposal is received that the Company believes could lead to a Takeover Proposal and provide the material terms and conditions of such proposal. The Company is required to keep Hire Quest informed of the status and details of any such proposal and of its intent to make a Parent Adverse Recommendation Change or enter into a Parent Acquisition Agreement.

 

The key definitions used in the summary above are as follows:

 

Parent Adverse Recommendation Change” means the Company’s Board: (a) failing to make, withdraw, amend, modify, or materially qualify, in a manner adverse to Hire Quest, the Parent Board Recommendation; (b) failing to include the Parent Board Recommendation in the proxy statement; (c) recommending a Takeover Proposal; (d) failing to recommend against acceptance of any third party tender offer or exchange offer for the shares of the Company’s Common Stock within ten business days after the commencement of such offer; (e) failing to reaffirm (publicly, if so requested by Hire Quest) the Parent Board Recommendation within ten business days after the date any Takeover Proposal (or material modification thereto) is first publicly disclosed by the Company or the person making such Takeover Proposal; (f) making any public statement inconsistent with the Parent Board Recommendation; or (g) resolving or agreeing to take any of the foregoing actions.

 

Parent Board Recommendation” means the Company’s Board recommendation, by resolutions duly adopted by a vote at a meeting of all directors of the Company duly called and held and not subsequently rescinded or modified in any way, that it has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the reincorporation of the Company in Delaware and the Merger, upon the terms and subject to the conditions set forth herein, are fair to, and in the best interests of, the Company and the Company’s shareholders; (ii) approved and declared advisable the Merger Agreement, including the execution, delivery, and performance thereof, and the consummation of the transactions contemplated by the Merger Agreement, including the reincorporation of the Company in Delaware and the Merger, upon the terms and subject to the conditions set forth therein; (iii) directed that the Reincorporation Proposal, the Charter Amendment Proposal, and the Nasdaq Proposal be submitted to a vote of the Company’s shareholders for approval at the Annual Meeting; and (iv) resolved to recommend that the Company’s shareholders vote in favor of such approval.

 

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Superior Proposal” means a bona fide written Takeover Proposal involving the direct or indirect acquisition pursuant to a tender offer (other than the Offer), exchange offer, merger, consolidation, or other business combination, of all or substantially all of a party’s consolidated assets or at least a majority of the outstanding equity interests of such party, that such party’s board of managers or board of directors determines in good faith (after consultation with outside legal counsel and such party’s financial advisor) is more favorable from a financial point of view to the holders of such party’s equity interests than the transactions contemplated by the Merger Agreement, taking into account: (a) all financial considerations; (b) the identity of the third party making such Takeover Proposal; (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such Takeover Proposal; (d) the other terms and conditions of such Takeover Proposal and the implications thereof on such party, including relevant legal, regulatory, and other aspects of such Takeover Proposal deemed relevant by such board (including any termination or break-up fees and conditions to consummation); and (e) any revisions to the terms of the Merger Agreement and the Merger proposed by the other party during the Superior Proposal Notice Period (as defined in the Merger Agreement).

 

Takeover Proposal” means an inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any person or group (other than the other party to the Merger Agreement and its subsidiaries), relating to any transaction or series of related transactions, involving any: (a) direct or indirect acquisition of assets of a party or its subsidiaries (including any voting equity interests of subsidiaries, but excluding sales of assets in the ordinary course of business) equal to 15% or more of the fair market value of such party’s consolidated assets or to which 15% or more of such party’s net revenues or net income on a consolidated basis are attributable; (b) direct or indirect acquisition of 15% or more of the voting equity interests of a party; (c) tender offer (other than the Offer) or exchange offer that if consummated would result in any person or group (as defined in Section 13(d) of the Exchange Act) beneficially owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power of a party; (d) merger, consolidation, other business combination, or similar transaction involving a party or any of its subsidiaries, pursuant to which such person or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the consolidated assets, net revenues, or net income of such party and its subsidiaries, taken as a whole; (e) reorganization, liquidation, dissolution (or the adoption of a plan of liquidation or dissolution), or recapitalization or other significant corporate reorganization of a party or one or more of its subsidiaries which, individually or in the aggregate, generate or constitute 15% or more of the consolidated assets, net revenues, or net income of a party and its subsidiaries, taken as a whole; or (f) any combination of the foregoing; in each case including any financing thereof.

 

Annual Meeting of Shareholders

 

Under the Merger Agreement, the Company has agreed to call and hold a meeting of its shareholders for the purpose of voting on the approval of the increase in the number of authorized shares of the Company’s Common Stock, change in the name of the Company to “HireQuest, Inc.”, issuance of Common Stock pursuant to the Merger Agreement and related change of control transaction, the reincorporation of the Company in Delaware, the election of the Company’s directors and the ratification of the selection of the Company’s independent auditors, and to use its reasonable best efforts to solicit from its shareholders proxies in favor of such proposals. The Company may adjourn or postpone the meeting to the extent necessary to obtain a quorum of its shareholders, to allow reasonable additional time after the filing and mailing of any supplemental or amended disclosures to the proxy statement for compliance with applicable legal requirements, or to allow reasonable additional time for the additional solicitation of votes in order to obtain the requisite shareholder approval.

 

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Change in Board Recommendation

 

If prior to the Annual Meeting, the Board determines in good faith, after consultation with its financial and legal advisors, that any Takeover Proposal constitutes a Superior Proposal and the Board determines in its good faith judgment, after receiving advice of its outside legal counsel, that failing to take such action with respect to the Superior Proposal would constitute a breach of its fiduciary duties under applicable law, the Board is not prohibited from withholding, withdrawing, amending or modifying its recommendation in favor of the issuance of shares in connection with the Merger, provided, that (i) the Company promptly notifies Hire Quest, in writing, of its intention to make a Parent Adverse Recommendation Change or enter into (or cause a subsidiary to enter into) a Parent Acquisition Agreement with respect to a Superior Proposal, which notice shall state expressly that the Company received a Takeover Proposal that the Board intends to declare a Superior Proposal and that the Board intends to effect a Parent Adverse Recommendation Change and/or the Company intends to enter into a Parent Acquisition Agreement; (ii) the Company attaches to such notice the most current version of the proposed agreement (which version shall be updated on a prompt basis) and the identity of the third party making such Superior Proposal; and (iii) the Company shall negotiate with Hire Quest in good faith to make such adjustments in the terms and conditions of the Merger Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Hire Quest, in its discretion, proposes to make such adjustments. In the event the Board determines in good faith to withhold, withdraw, amend or modify its recommendation in favor of the issuance of shares in connection with the Merger, the Company may terminate the Merger Agreement and, pay any applicable termination fees. The Company must provide Hire Quest with at least 48 hours prior notice of any meeting of the Company’s Board at which the Board is reasonably expected to consider any Takeover Proposal.

 

Stock Exchange Listing

 

The Company has agreed that prior to the effective time of the Merger it will cause the shares of the Company’s Common Stock issuable, and shares required to be reserved for issuance, in connection with the Merger to be eligible for trading on NASDAQ, subject to any transfer restrictions imposed under applicable law, including Rule 144 under the Securities Act.

 

Public Announcements

 

The Company and Hire Quest have each agreed to consult with the other as to the form and substance of any press release or any public statement with respect to the Merger or any of the other transactions in connection with the Merger prior to issuing any such press release or public statement, and to refrain from issuing any such press release or public statement without the prior consent of the other party, except as may be required by applicable law or the rules or regulations of any applicable United States securities exchange or other governmental entity to which the relevant party is subject or submits, in which case the party required to make the release or announcement shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance.

 

Notification of Certain Events

 

The Company and Hire Quest have each agreed to give the other prompt notice of (i) any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by the Merger Agreement; (ii) any notice or other communication from any governmental entity in connection with the transactions contemplated by the Merger Agreement; (iii) any legal actions commenced, or to such party’s knowledge, threatened, against the Company or any of its subsidiaries or Hire Quest or any of its subsidiaries, as applicable, that are related to the Merger or the other transactions contemplated by the Merger Agreement; and (iv) any event, change, or effect between the date of the Merger Agreement and the effective time of the Merger which causes or is reasonably likely to cause the failure of certain closing conditions of each party to be satisfied.

 

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Indemnification

 

Pursuant to the Merger Agreement, the Company has agreed its certificate of incorporation and bylaws after the effective time of the Merger shall contain provisions with respect to exculpation and indemnification that are, to the extent permitted by the laws of the State of Delaware in the event the Reincorporation Proposal is approved or by the laws of the State of Washington in the event the Reincorporation Proposal is not approved, at least as favorable as those contained in the certificate of incorporation and bylaws of the Company immediately prior to the effective time of the Merger, which provisions will not be amended, repealed or otherwise modified for a period of six years after the effective time of the Merger in any manner that would adversely affect the rights thereunder of indemnified parties unless such modification is required by law.

 

Additionally, for six years after the effective time of the Merger and to the fullest extent permitted under applicable law, the Company has agreed to indemnify, defend, and hold harmless each indemnified party against all losses, claims, damages, liabilities, fees, expenses, judgments, and fines arising in whole or in part out of actions or omissions in their capacity as such occurring at or prior to the effective time of the Merger (including in connection with the transactions contemplated by the Merger Agreement), and shall reimburse each indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such losses, claims, damages, liabilities, fees, expenses, judgments, and fines as such expenses are incurred, subject to the Company’s receipt of an undertaking by such indemnified party to repay such legal and other fees and expenses paid in advance if it is ultimately determined in a final and non-appealable judgment of a court of competent jurisdiction that such indemnified party is not entitled to be indemnified under applicable law; provided, however, that the Company will not be liable for any settlement effected without the Company’s prior written consent (which consent shall not be unreasonably withheld, conditioned, or delayed).

 

The Company has also agreed to maintain in effect for a period of six years after the effective time of the Merger the current policies of directors’ and officers’ liability insurance maintained by Hire Quest immediately prior to the effective time of the Merger (provided, that the Company may substitute the foregoing policies with policies of at least the same coverage and amounts and containing terms and conditions that are not less advantageous to the directors and officers of Hire Quest and its subsidiaries when compared to the insurance maintained by Hire Quest as of the execution of the Merger Agreement); or obtain as of the effective time of the Merger “tail” insurance policies with a claims period of six years from the effective time of the Merger with at least the same coverage and amounts and containing terms and conditions that are not less advantageous to the directors, managers and officers of Hire Quest and its subsidiaries, in each case with respect to claims arising out of or relating to events which occurred before or at the effective time of the Merger (including in connection with the transactions contemplated by the Merger Agreement). In the event the Company or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns shall assume all of the indemnification obligations.

 

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Tax Treatment

 

Each of the Company, Merger Sub 1, Merger Sub 2 and Hire Quest agreed to use its reasonable best efforts to cause the Merger to qualify as a reorganization within the meaning of the Code.

 

Employee Matters

 

All non-temporary employees of the Company and of Hire Quest immediately prior to the effective time of the Merger shall be, immediately after the effective time of the Merger, employees of a subsidiary of the Company to be formed prior to the effective time of the Merger (the “Employer of Record”). All temporary employees of the Company and of Hire Quest immediately prior to the effective time of the Merger shall be, immediately after the effective time of the Merger, employees of Hire Quest, LLC or of such other entity as Hire Quest may request. In addition, as of the closing of the Merger or immediately thereafter, the Company shall (i) cause the Employer of Record to enter into an employment agreement with Richard Hermanns, (ii) use commercially reasonable efforts to amend the employment agreements of non-temporary employees of the Company to change the employer from the Company to the Employer of Record, (iii) amend the employment agreements, if any, of temporary employees of the Company to change the employer from the Company to Hire Quest, LLC or such other employer of record as may be requested by Hire Quest, (iv) have ready to implement such new compensation structures and responsibilities for “national accounts” sales persons as Hire Quest may request, (v) have ready to implement such workers compensation and liability policies, unemployment rate successions and ACA compliant insurance as Hire Quest may request, and (vi) use commercially reasonable efforts to enter, or cause the relevant entity to enter, into employment agreements with certain other Hire Quest employees.

 

In collaboration and consultation with the Company, Hire Quest will establish benefit plans, reasonably acceptable to the Company, for all employees of the Employer of Record and of Hire Quest, LLC, with such benefit plans to be effective commencing immediately following the closing date of the Merger. To the extent requested by Hire Quest, the Company has agreed to cause all Hire Quest employees to be eligible to participate in the Company’s employee benefit plans, including without limitation the Company’s 2016 Plan, consistent with the eligibility criteria applied by the Company to other employees of the Company, and Hire Quest’s employees shall receive full credit for prior years of service with Hire Quest and shall not be subject to any preexisting conditions exclusions or limitations and shall receive parity with the Company’s employees with respect to eligibility to participate in all Company employee benefit plans to the extent permitted under the Company’s employee benefit plans.

 

Reincorporation in Delaware

 

The Company has agreed to use its commercially reasonable efforts to obtain approval of its shareholders for, and upon receipt of such approval to promptly take all necessary steps to cause, the Company to be reincorporated in the State of Delaware. One of the proposals included for shareholder action in this proxy statement seeks shareholder approval of the reincorporation.

 

Pre-Closing Reorganization & Dock Square Agreement

 

Dock Square HQ, LLC (“Dock Square”), an affiliate of Dock Square Capital, LLC, is currently a strategic partner of, and 6.5% investor in, Hire Quest, LLC.  Pursuant to the terms of the Merger Agreement, Hire Quest and its subsidiary, Hire Quest, LLC, will cause the Pre-Closing Reorganization to be completed no later than two days prior to the closing date of the Merger.   For purposes of this proxy statement, “Pre-Closing Reorganization” means (a) Dock Square’s distribution to its direct or indirect members of all of its rights, title and interest in and to its membership interest in Hire Quest, LLC, followed by (b) each such members’ contribution to Hire Quest of all of its respective rights, title and interest in and to its membership interest in Hire Quest, LLC as a capital contribution in exchange for, in the aggregate, a 6.5% membership interest in Hire Quest.  Immediately after the Pre-Closing Reorganization and prior to the closing of the Merger, Hire Quest will own 100% of the membership interest in Hire Quest, LLC.

 

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The Merger Agreement also contemplates that the Company will enter, upon closing of the Merger, into a consulting arrangement with Dock Square. Pursuant to this consulting arrangement, Dock Square would introduce prospective customers and expand relationships with existing customers of the Company in return for which it would be eligible to receive unregistered shares of the Company’s Common Stock, subject to certain performance metrics and vesting terms. The grant of any such shares by the Company would be based on the Company’s gross revenue generated from the services of Dock Square as measured over a 12 month period. Upon the grant of any such shares, 50% of such granted shares would vest immediately, and the remaining 50% of such granted shares would be subject to a vesting requirement linked to the Company’s gross revenue generated from the services of Dock Square measured over a 3 year period. We refer to any such shares as the “Performance Shares.”   We anticipate the maximum number of Performance Shares issuable under the consulting arrangement would not exceed 1,612,981, which assumes (i) the total outstanding shares of the Company’s Common Stock immediately after closing the Merger is 14,466,659, and (ii) 1,500,000 shares of the Company’s Common Stock will subsequently be tendered in the Offer. Any Performance Shares would be in addition to the pro rata portion of the shares of Company Common Stock that Dock Square would receive as merger consideration at closing of the Merger along with the other investors in Hire Quest.    Dock Square would receive any declared and paid dividends on issued Performance Shares (including the unvested portion of such shares during the 3-year vesting measurement period), and the issued but unvested Performance Shares would vest on a change of control of the Company.  In addition, Dock Square would receive piggy-back registration rights with respect to its Performance Shares issued and vested at the time of such registration.

 

The Offer

 

The Company has agreed that, provided that the Merger Agreement shall not have been terminated, concurrently with the filing of the proxy statement or thereafter, the Company shall commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer. It is contemplated that the completion of the Offer will occur following the effective time of the Merger, or as otherwise required by SEC comments or applicable law.  Pursuant to the terms of the Merger Agreement, the Company expressly reserves the right, in its sole discretion, to modify any of the terms or conditions of the Offer, including, without limitation, extending the expiration date of the Offer; provided, however, that (a) the Company shall not modify the Offer price or the number of shares of Common Stock included in the Offer without the prior written consent of Hire Quest and (b) the Company shall not make any other modification of the terms or conditions of the Offer without first providing a reasonable opportunity for Hire Quest to review and comment on any such proposed modification, but the Company shall be permitted to make any changes reasonably necessary to comply with SEC comments or applicable law. In addition, the parties hereto agree that Hire Quest shall cause its members (other than the members of Dock Square who will become members of Hire Quest as a result of the Pre-Closing Reorganization), and shall take reasonable best efforts to cause the members of Dock Square who will become members of Hire Quest as a result of the Pre-Closing Reorganization, not to tender in the Offer any shares of the Company’s Common Stock received as Merger Consideration.  The Offer shall be completed pursuant to its terms, and any decisions regarding the Offer following the effective time of the Merger shall require the consent of a majority of the Company Directors, in addition to any other consents required. If the Offer is not commenced prior to the effective time of the Merger, then all decisions regarding timing of the Offer shall be made by the Company Directors and the Offer shall proceed on the terms described herein subject to any changes that may be approved by the Company Directors.

 

119

 

Pre-Closing Balance Sheet Adjustment

 

As of the effective time of the Merger, Hire Quest’s Net Tangible Assets shall equal at least the Target Net Tangible Assets. The parties have agreed that, prior to the effective time of the Merger, Hire Quest may make such adjustments to its balance sheet line items, and such related transfers of assets and liabilities (including without limitation transfers to related parties), as it may deem necessary to ensure that Net Tangible Assets at the effective time of the Merger equal Target Net Tangible Assets (collectively, the “Pre-Closing Balance Sheet Adjustment”). Such adjustments and transfers may include without limitation the monetization of Hire Quest’s accounts receivable, the repayment of debt to related parties, the transfer to Hire Quest security holders of any work opportunity tax credits certified and earned prior to the closing of the Merger and the reimbursement of related parties for the pro rata portion of pre-paid workers’ compensation insurance covering Hire Quest from and after the effective time of the Merger.

 

The key terms used in the summary above are defined as follows:

 

Estimated Section 481 Adjustment Liability” means the estimated amount of corporate income tax required to be paid by the Company or the Surviving Company by reason of the required inclusion in income under Section 481 of the Code (if any) arising from Hire Quest’s change in method of accounting from the cash method to the accrual method after the closing of the Merger by reason of the Merger, which shall be computed by Hire Quest as of the end of the month preceding the month that includes the closing date by multiplying (a) the total estimated amount to be included in taxable income by reason of such adjustment under Section 481 of the Code (determined as of such date on a pro-forma basis assuming that the Merger closed on such date and, prior to such closing, Hire Quest engaged in the Pre-Closing Balance Sheet Adjustment to cause Net Tangible Assets to equal Target Net Tangible Assets), by (b) the effective income tax rate applicable to such income as if Hire Quest was a “C corporation” (taking into account federal and applicable state and local income taxes determined using Hire Quest’s most recent state apportionment, and the deductibility of state and local income taxes for federal income tax purposes).

 

Net Tangible Assets” means, as of any relevant date, the amount calculated by subtracting all liabilities and all intangible assets of Hire Quest as of such date from Hire Quest’s total assets as of such date, in each case determined in accordance with U.S. GAAP; provided, that (a) no purchase accounting adjustments arising out of the transactions contemplated by the Merger Agreement shall be made, (b) the Estimated Section 481 Adjustment Liability shall be treated as a liability of Hire Quest and (c) the value of Hire Quest’s owned real estate shall be its fair market value, as determined on the basis of an appraisal, and not its book value.

 

Target Net Tangible Assets” means Fourteen Million Dollars ($14,000,000).

 

Covered Claim Indemnification

 

The Company has agreed to use reasonable best efforts to secure insurance coverage for a Covered Claim (as defined in the Company’s disclosure letter to the Merger Agreement). From and after the closing of the Merger, the Company shall pay to Richard Hermanns as the Member Representative for the benefit of Hire Quest’s security holders, the following amounts: (i) the excess of any uninsured losses from a Covered Claim (excluding any deductible amount paid by the Company) (ii) multiplied by sixty-eight percent (68%) (the “Indemnification Amount”). The Indemnification Amount shall be paid to the Member Representative, for the benefit of Hire Quest’s security holders, in cash, except that the Indemnification Amount (or a portion thereof) shall be paid in additional shares of the Company’s Common Stock if and to the extent necessary to ensure that the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code.

 

120

 

Franchise Purchase Agreement

 

Pursuant to the terms of the Merger Agreement, the Company will use reasonable best efforts to enter into one or more agreements with existing franchisees of Hire Quest (collectively, the “Franchisees”) pursuant to which the Company would sell to the Franchisees, and the Franchisees would purchase from the Company, immediately following the closing of the Merger, location-specific assets at the Company’s offices located in certain specified locations, in the case of each such specified location for a purchase price to be mutually agreed upon among the parties in good faith, with the parties agreeing that such purchase price may be paid in such form as determined in the reasonable discretion of the Franchisees.

 

Pre-Closing Transition

 

The parties agreed that, commencing immediately following the execution of the Merger Agreement, Hire Quest will, in close collaboration and consultation with the Company;

 

(a) prepare for the conversion of as many of the Company’s offices as practicable to franchises, including without limitation the preparation, negotiation and execution of purchase and sale agreements in connection therewith, with such conversion to be completed immediately following the closing of the Merger;

 

(b) prepare for the transition by the Company from its current “Labor Commander” software, which shall remain in use by the Company prior to the closing of the Merger, to the software in use by Hire Quest on the date hereof, with such transition to be effected immediately following the closing of the Merger, or as soon as possible thereafter; and

 

(c) prepare for the transfer of the Company’s California operations to a new, separate legal entity, to be effective immediately following the closing of the Merger, or as soon as possible thereafter.

 

Pursuant to the Merger Agreement, the Company will cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with Hire Quest in doing, all things necessary, proper, or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable, the taking of the actions set forth in (a) – (c) above. Without limiting the generality of the foregoing, the Company has agreed to cooperate with Hire Quest and provide representatives of Hire Quest reasonable access to the Company’s employees, facilities, IT infrastructure, files and documents, and supply Hire Quest with any information, including employee data, that Hire Quest may reasonably request, in order to permit installation of Hire Quest’s software and the related training of the Company’s employees, with the Company’s employees and customers to be entered into the new software prior to the closing to ensure a smooth transition on the closing date of the Merger. In the event Hire Quest shall identify an issue regarding the Company’s cooperation and assistance that is not being addressed in an appropriate and timely manner, Hire Quest shall notify its counterparty at the Company of its concern, with a copy to the Chair of the Company’s Board of Directors.  The Company will have three (3) business days from the effective time of notice to cure the cited deficiencies by providing the requested cooperation and assistance.

 

121

 

Other Covenants

 

The Company, Merger Sub 1, Merger Sub 2 and Hire Quest have agreed to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or appropriate, applicable laws and regulations to consummate and make effective the transactions contemplated, including, without limitation, (i) to obtain all necessary governmental and private party consents, approvals or waivers, and (ii) to lift any legal bar to the Merger.

 

Conditions to Completion of the Merger

 

The obligations of the Company and Hire Quest to complete the Merger are subject to the satisfaction (or waiver, where permitted) of the following conditions:

 

·approval by the Company’s shareholders of the Nasdaq Proposal and the Charter Amendment Proposal;

 

·the entry into a credit facility for $30 million between the Company, Hire Quest and BB&T Bank;

 

·no material adverse effect (or any event, change or effect that would, individually or in the aggregate, reasonably be expected to have a material adverse effect) shall have occurred with respect to the Company or Hire Quest;

 

·the representations and warranties of the other party in the Merger Agreement shall be true and correct in all material respects (subject to certain limitations and exclusions);

 

·all agreements, covenants and obligations of the other party shall have been complied with in all material respects;

 

·no governmental entity having jurisdiction over any party shall have enacted, issued, promulgated, enforced, or entered any laws or orders, whether temporary, preliminary, or permanent, that make illegal, enjoin, or otherwise prohibit consummation of the Merger or the other transactions contemplated by the Merger Agreement;

 

·Hire Quest shall have delivered to the Company audited consolidated financial statements of Hire Quest for the year ended December 31, 2018 that are substantially similar to the unaudited financial statements delivered or made available to the Company prior to the execution of the Merger Agreement;

 

·Each of the Hire Quest security holders will have signed an investor representation letter with respect to the receipt of the Merger Consideration, including an agreement not to tender such shares of the Company’s Common Stock received as Merger Consideration into the Offer;

 

·Hire Quest and Hire Quest, LLC will have caused the Pre-Closing Reorganization to be completed no later than two days prior to the closing date of the Merger; and

 

·The Company shall have delivered to Hire Quest copies of executed resignations of certain directors of the Company, effective at the effective time of the Merger.

 

122

 

Termination of the Merger Agreement

 

The Company and Hire Quest may mutually agree to terminate the Merger Agreement at any time prior to effectiveness of the Merger. Either party may also terminate the Merger Agreement if: